Ahmedabad: In a ruling which can bring relief to lakhs of cryptocurrency traders facing income tax demands, the Income Tax Appellate Tribunal (ITAT) favoured an assesse and ordered deletion of additions made by an assessing officer to the taxpayer’s income. ITAT Ahmedabad found that the department had applied one standard in one year and a contradictory standard the very next year. The case before the ITAT involved an individual taxpayer and a reassessment proceeding for the 2018-19 assessment year. The taxpayer had originally filed a return declaring income of Rs 4,38,170, which was processed without dispute under Section 143(1). The trouble began when the department’s risk analytics system flagged the taxpayer as “high risk” based on information on an internal portal showing cryptocurrency trading activity during financial years 2016-17 and 2017-18. The data reflected purchases and sales across the two years, including purchases of Rs 17,52,838 and sales of Rs 29,01,111 for financial year 2017-18. A summons was issued seeking transaction details, accounting treatment, and source of funds, but no response was recorded at that stage. The department then initiated proceedings under Section 148A and concluded that income escaped assessment, issuing a reassessment notice under Section 148.During reassessment, the taxpayer disputed the lack of transaction-level particulars such as coin names, broker details, dates, quantities, and gain or loss computation. To avoid prolonged litigation, the taxpayer offered presumptive income at 8% of the reported sales turnover, proposing Rs 2,32,089 on sales of Rs 29,01,111 for the year under consideration. Sulabh Padshah, a chartered accountant, said, “The taxpayer also pointed to the prior year’s reassessment, where the department accepted a similar 8% presumptive approach on crypto sales without making any separate addition for the purchase side. Despite accepting the offered presumptive income on sales, the assessing authority additionally treated the purchase amount of Rs 17,52,838 as unexplained expenditure under Section 69C and applied the special tax rate framework linked to such deemed income. The first appellate authority upheld the reassessment, citing failure to substantiate the source of investment and lack of documentary evidence linking purchases and sales. On further appeal, the tribunal noted that reassessment for both years was triggered by the same category of information and handled by the same assessment unit.” It found that the department accepted presumptive income in the earlier year without questioning the purchase source, but took a contrary position in the subsequent year by invoking Section 69C. The tribunal also observed that the underlying information relied upon lacked granular transaction details. Holding that the inconsistent approach was unjustified, the tribunal deleted the addition made under Section 69C and allowed the appeal. Padshah said, “Finance Bill 2022 brought specific mechanisms for taxation of Virtual Digital Asset (VDA), which is applicable from April 1, 2022 onwards. This decision will be helpful to lots of cases, where the assessee did frequent trades in VDA before 2022 and the department is taxing the same at special tax rate of 60% u/s 69 of Income Tax Act. In this case, the assessing officer accepted trading activity in VDA as business activity and allowed the assessee to pay tax at the normal rate of tax. Also, later on, the tribunal upheld the same, following the principle of consistency in view of natural justice.”
