VIDHIYASEKARAN PRADEEP MALLIRAJ,MADURAI vs. ITO,NON CORP WARD-1(6), MADURAI

The Registry has noted delay of 18 days in the appeal, the condonation of which has been sought by Ld. AR. Considering the period of delay, the delay is condoned and the appeal is admitted for adjudication on merits.

The Ld. AR advanced arguments supporting the case of the assessee and filed gist of submissions. The same has been controverted by Ld. Sr. DR. Having heard rival submissions and after perusal of case records, the appeal is disposed-off as under. 4.1 The disallowance u/s 40(a)(ia) stem from the fact that the assessee paid godown rent of Rs.2.88 Lacs without deduction of tax at source (TDS) as required u/s 194-I. Accordingly, 30% of the same was disallowed u/s. 40(a)(ia) of the Act.

3 - 4.2 The second addition represents cash deposited by the assessee during demonetization period. It transpired that the assessee deposited cash of Rs.25.45 Lacs during the period from 09-11-2016 to 31-12- 2016 in Corporation Bank, Madurai. Accordingly, the assessee was asked to explain the source of the same. The assessee submitted that cash sales during the demonetization period were Rs.4.70 Lacs and cash collection from sundry debtors was for Rs.25.89 Lacs. The total cash collection during the demonetization period by way of cash sales and collection from sundry debtors was at Rs.30.59 Lacs which was sourced to deposit the impugned cash into Corporation Bank. 4.3 However, Ld. AO found that out of deposit of Rs.22.45 Lacs, a sum of Rs.14.91 Lacs was deposited in Specified Bank Notes (SBN) currency i.e., Rs.500/- and Rs.1000/- notes which ceased to be legal tender after 08-11-2016. The assessee submitted that a sum of Rs.10.91 Lacs stood as closing cash balance as on 08.11.2016 which was evident from cash ledger. Accepting the same, the balance amount of Rs.3.95 Lacs stated to be sourced out of cash sales as well as collection from sundry debtors post 08.11.2016 was held to be not acceptable since the assessee gave accommodation entry in the books of accounts for currency which was totally banned by the Government from the midnight of 08.11.2016. The assessee ought not to have accepted Specified Bank Notes (SBN) from its sundry debtors and customers during the period of demonetization. No common man would accept a currency which has lost its value. Therefore, it was to be concluded that the differential amount of Rs.3.95 Lacs deposited during demonetization period was nothing but assessee’s own money 4 - which was given colour of sales and collection of sundry debtors. Accordingly, the said sum was added as unexplained money u/s 69A. 4.4 Though the assessee preferred further appeal, however, it failed to make any submissions to controvert the findings of Ld. AO which led Ld. CIT(A) to endorse the view of Ld. AO. The Ld. CIT(A) noted that the Government of India issued a notification No.2652 dated 08.11.2016 which provided that the specified bank notes (SBN) shall cease to be legal tender with effect from 09.11.2016. The Government had given various options to persons holding such SBNs i.e., to exchange / deposit and obtain new currency by way of Exchange up-to Rs. 4000 over the Bank Counter; or Deposit into Bank Account (KYC complaint) without any limit; or allowed usage at exempted institutions ex. Petrol Pumps, Hospitals, Govt. Departments with certain restrictions. Evidently, individuals were not allowed to accept SBNs from 09.11.2016 onwards. In other words, specified bank notes could not be used for transacting business and/or store of value for usage from 09.11.2016 onwards. Thus, it was very clear that once it was declared in Gazette by the RBI that Specified Bank Notes cease to be legal tender, no person is allowed to use such SBN notes for transacting normal business activities or allowed to store for future usage. Another finding was that post 09.11.2016, SBNs was just a piece of paper and they bear no value. Therefore, it could not be measured in money terms and hence, it could not be journalized in books of account. The transactions made in SBN on or after 09.11.2016 could not be entered into cash books. Therefore, the credit of the same in the books of accounts was not valid. Accordingly, both 5 - the additions were confirmed against which the assessee is in further appeal before us. Our findings and Adjudication 5. So far as the disallowance u/s 40(a)(ia) is concerned, upon perusal of assessee’s financial statements for AY 2016-17, it could be seen that the turnover of the assessee is below Rs.1 Crores. Accordingly, the assessee being an individual is not required to deduct impugned TDS in AY 2017-18 in terms of second proviso to Sec.194-I. In the result, the impugned disallowance could not be sustained. We order so. The corresponding grounds stands allowed.

So far as the addition of cash deposit is concerned, from the facts it emerges that the assessee has deposited cash of Rs.22.45 Lacs during the period from 09-11-2016 to 31-12-2016 in Corporation Bank, Madurai out of which an amount of Rs.14.91 Lacs was deposited in Specified Bank Notes (SBN) currency i.e., Rs.500/- and Rs.1000/- notes which ceased to be legal tender after 08-11-2016. The closing cash balance with the assessee as per his cash book was Rs.10.91 Lacs, the credit of which was given to the assessee and the balance amount of Rs.3.95 Lacs was added to the income of the assessee. The assessee submitted that the impugned SBNs were sourced out of cash sales as well as receipts from sundry debtors post 08.11.2016 despite the fact that SBNs ceased to be valid legal tender after that date. The plea of Ld. AR is that though the cash was received post 08.11.2016 in violation of the aforesaid notification issued by the Government of India, yet no additions could be made under Income Tax Act since the money was sourced out of cash sales and collection from sundry debtors. However, the facts of the case as well as the plea of Ld. AR 6 - do not convince us, in any manner. The assessee, despite being aware of the fact that the SBNs ceased to be valid legal tender, stated to have accepted the same and squared-off the stock and debtors in the books of accounts. The Hon’ble Supreme Court in the case of Apex Laboratories (P.) Ltd. vs. DCIT (135 Taxmann.com 286) has held that one arm of the law cannot be utilized to defeat the other arm of law and doing so would be opposed to public policy and bring the law into ridicule. It was further held that no court will lend its aid to a party that roots its cause of action in an immoral or illegal act meaning that none should be allowed to profit from any wrongdoing coupled with the fact that statutory regimes should be coherent and not self-defeating. Once the SBNs ceased to be a legal tender, the assessee is not expected to violate the same and later on allowed to come up with an explanation that the cash receipts were evidenced by entries in the books of accounts maintained by the assessee. We are unable to accept the proposition of Ld. AR that such an addition could not be made under Income tax Act. On the given facts of the case, a presumption would go against the assessee that it has routed its own unaccounted money in the garb of cash sales and receipts from sundry debtors. No common man would be accepted to accept the prohibited currency and credit the same in its books of accounts which has otherwise lost its value. Therefore, the conclusion that the impugned amount was nothing but assessee’s own money which was given colour of sales and collection of sundry debtors could not be faulted with. The corresponding grounds raised