ITAT Restores Demonetisation Cash Deposit Case for Fresh Rule 46A Examination

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) restored to the Commissioner of Income Tax (Appeals) [CIT(A)] an appeal involving an addition of Rs.16.50 lakh under Section 69A arising from cash deposits made during the demonetisation period. The Tribunal held that although the assessee had failed to comply with the procedural requirements of Rule 46A while filing additional evidence, the matter deserved reconsideration in the interest of substantial justice.

The assessee, Kalpana Piyush Sanghvi, had filed her return for AY 2017-18 declaring income under the presumptive taxation scheme of Section 44AD. During scrutiny assessment, the Assessing Officer noticed cash deposits of Rs.16.50 lakh made between 9 November 2016 and 30 December 2016. As the assessee failed to furnish satisfactory evidence explaining the source of the deposits during assessment proceedings, the amount was treated as unexplained money and added under Section 69A while completing the assessment under Section 144.

Before the CIT(A), the assessee explained that the cash deposits did not belong to her. She contended that her husband had received cash from certain entities, deposited it into various bank accounts including hers, and subsequently transferred the funds to those entities while earning commission for facilitating the transactions. An affidavit of her husband was produced in support of this explanation.

However, the CIT(A) refused to admit the affidavit, holding that it constituted additional evidence under Rule 46A of the Income-tax Rules, 1962. Since no formal application seeking admission of additional evidence had been filed and none of the conditions prescribed under Rule 46A had been demonstrated, the appellate authority declined to consider the affidavit. It further observed that the affidavit was unsupported by corroborative material such as bank statements or other documentary evidence tracing the movement of funds. Accordingly, the addition under Section 69A was sustained.

Before the Tribunal, the assessee submitted that she was unaware of the procedural requirement of filing a Rule 46A application and requested one more opportunity to comply with the prescribed procedure and substantiate her explanation. The Revenue did not seriously oppose restoration of the matter, provided the statutory requirements governing additional evidence were followed.

The Tribunal observed that Rule 46A is an important procedural safeguard and additional evidence cannot be admitted as a matter of right without satisfying the conditions laid down in the Rule. Therefore, it found no fault with the CIT(A)’s refusal to admit the affidavit in the absence of a proper application.

At the same time, the Bench emphasised that procedural rules are intended to advance justice rather than defeat substantive rights. It noted that the assessee’s explanation regarding the source of the cash deposits had never been examined on merits, as the affidavit had been rejected solely on technical grounds. Since the Revenue had not demonstrated any prejudice from granting another opportunity, the Tribunal considered it appropriate to restore the matter.

Thus, the ITAT set aside the order of the CIT(A) on this issue and remanded the matter to his file. It directed that the assessee may file a proper application under Rule 46A along with all supporting evidence. If the additional evidence is admitted, the CIT(A) must obtain a remand report from the Assessing Officer, allow necessary verification, and thereafter decide the issue afresh by passing a reasoned order after granting adequate opportunity to both sides.

The Tribunal clarified that it had expressed no opinion on the merits of the assessee’s explanation and left all issues open for fresh adjudication.

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