SENTHIL THANGAM,DHARMAPURI vs. ACIT,CIRCLE-1, HOSUR

The brief facts of the case are that the assessee is an individual and is a Medical Practitioner and runs hospital under the name and style of M/s.Thangam Hospital. The assessee has filed its return of income for AY 2017-18 on 30.10.2017 declaring total income of Rs.53,81,550/-. The case was selected for scrutiny to verify the large cash deposits in the bank account during demonetization period. During the course of assessment proceedings, the AO noticed that the assessee has deposited a sum of Rs.13,62,180/- and out of the same, cash deposited in Specified Bank Notes (in short “SBNs") of Rs.4,62,500/-. The AO further noted that the closing cash balance of the assessee as per books as on 08.11.2016 is at Rs.6,89,638/-. Therefore, considering relevant facts, the AO has allowed credit for cash deposits of Rs.2,55,000/- against opening balance towards cash deposits on 12.11.2016 & 13.11.2016. The balance amount of cash deposits of Rs.2,07,500/- has been added u/s.69A r.w.s.115BBE of the Income Tax Act, 1961 (in short “the Act"), on the ground that the assessee has deposited cash into bank in SBNs, beyond reasonable time. The assessee carried the matter in appeal before the First Appellate Authority, but could not succeed. The Ld.CIT(A) for the reasons stated in their appellate order dated 13.03.2023, dismissed the appeal filed by the assessee and upheld the additions made towards cash deposits u/s.69A of the Act. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us.

The Ld.AR for the assessee submits that the Ld.CIT(A) erred in sustaining addition made towards cash deposits of Rs.2,07,500/- u/s.69A of the Act, without appreciating the fact that as per the observations of the AO itself, the assessee is having opening cash balance as on 08.11.2016 and cash deposits into bank account is explained out of known source of income.

The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), submits that the AO has allowed credit for opening balance wherever the assessee has deposited within a reasonable period of time, but made addition towards cash deposits beyond specified period, because, the assessee could not explain the reasons for cash deposits in SBNs after reasonable time. Therefore, there is no error in the reasons given by the Ld.CIT(A) to sustain the additions made by the AO, and their orders should be upheld.

We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the assessee has deposited a sum of Rs.4,62,500/- in SBNs during demonetization period. It is also not in dispute that the closing cash balance of the assessee as on 08.11.2016 is at Rs.6,89,638/-. In fact, the cash deposits during demonetization period in SBNs is less than the cash balance available with the assessee as on 08.11.2016 as per books of accounts. The AO is not disputing the above facts, but made addition of Rs.2,07,500/- only on the ground that the assessee has deposited cash in SBNs beyond reasonable period. In our considered view, when the RBI has permitted the public to deposit in SBNs in to bank account up to 31.12.2016, then, the AO cannot question the period of deposit of cash when such cash deposits were made within the time allowed by the RBI. In this case, the assessee has deposited cash in SBNs on or before 31.12.2016 which is the last date for depositing cash into bank account, and further, the assessee has also explained source for cash deposits is out of opening cash balance available as on 08.11.2016.

Therefore, we are of the considered view that the AO and the Ld.CIT(A) are completely erred in making addition towards cash deposits u/s.69A of the Act. Hence, we direct the AO to delete addition made towards cash deposits u/s.69A of the Act.

In the result, appeal filed by the assessee is allowed.