ITAT Deletes Section 69A Addition on Demonetisation Cash Deposits After Estimating Liquor Business Profits

The appellant, Dakappagari Naveen Kumar, an individual deriving income from agriculture and a kirana business, filed his return for A.Y. 2017-18 declaring a total income of Rs. 3,41,560. Following the 2016 demonetization, the taxpayer deposited Rs. 16,50,000 in Specified Bank Notes (SBNs) into his bank account.

The Assessing Officer (AO) viewed these deposits as unexplained and added the entire amount to the taxpayer’s income under Section 69A of the Income-tax Act, taxing it at the higher rate prescribed under Section 115BBE. Additionally, the AO disallowed a deduction of Rs. 1,50,000 under Section 80C due to a lack of documentary evidence. The CIT(Appeals) upheld these additions, leading the assessee to appeal before the Tribunal.

Main Issue: Whether the cash deposits made during the demonetization period could be justified through agricultural land holdings and past savings, and whether the Section 80C deduction was rightly disallowed.

Decision The ITAT partially allowed the appeal. Regarding the cash deposits, the Tribunal noted that the assessee and his family held approximately 22 acres of agricultural land. While the lower authorities completely rejected the agricultural income claim for want of “pattadar passbooks,” the Tribunal accepted that some portion of the cash must have originated from farming activities and past savings. Consequently, the Tribunal sustained an addition of only Rs. 5,00,000 and deleted the remaining Rs. 11,50,000, providing significant relief to the taxpayer. However, the Tribunal upheld the disallowance of the Section 80C deduction, noting that the assessee failed to produce any proof of paymen during the assessment, appellate, or Tribunal stages.