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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: HON’BLE SHRI MAHAVIR SINGH & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2017- 18 arises out of the order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 30-05-2022 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s.143(3) of the Act on 23-12-2019. The grounds raised by the assessee read as under: Ground 1: The Addition of income of Rs.86,400 made under Sec 40(a)(ia) for non- deduction of tax at source: The assessee was not liable to tax audit during the previous AY 2016-17. Hence, as per the proviso to Sec 194-I, the assessee was not liable to deduct tax at source during the payment of godown rent during the assessment year 2017-18. Hence disallowance U/s 40(a)(ia) itself is not tenable, so I plead to drop the addition made to the extent of Rs 86,400. Ground 2: The learned assessing officer failed to note that the assessee has recovered the amount from Debtors, which they could not get recovery for a long time. The debtor's breakup with the amount collected from them is also produced to the Assessing officer and they have not objected the veracity of debtors. Once the debtor is ready to give the outstanding amount, the assessee could not avoid them, as it will be loss for the assessee. Hence, the assessee received the amount from debtors and deposited in to bank and there is no hiding of facts or unexplained money. The order of the Assessing Officer is erroneous in law and against the principles of natural justice. The addition so made requires deletion, for the said sum, since duly reflected in the books of account of the appellant, is outside the scope of sec. 69A/68 of the Act, for the said section is applicable only when the sum is found NOT recorded in the books of accounts maintained by the appellant. Hence, the disallowance As is evident, the assessee is aggrieved by confirmation of disallowance u/s 40(a)(ia) as well as by confirmation of addition of cash deposits during demonetization period. The assessee is stated to be engaged in proprietary business in the name of M/s. Rajmallika Glass House at 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
by the assessee stand dismissed.
7. The decision of Hon’ble Delhi High Court in Pr. CIT vs. Agson Global Pvt. Ltd. (134 Taxmann.com 256) as well as the decision of 7 - this Tribunal in Sri Madheswara Agencies vs. ITO (ITA No.551/Chny/2022 dated 21.07.2022), as referred to by Ld. AR, do not address the issue before us. Another decision as referred to by Ld. AR is the decision of this Tribunal in Mr. Ganapathy Palaniyappan vs. DCIT (ITA No.557/Chny/2022 dated 04.01.2023). The bench, in para- 10, has observed that even though there is certain violation of any other Acts or Rules, AO cannot make additions towards cash deposits. The same is not acceptable in view of the observations made by Hon’ble Supreme Court in the case of Apex Laboratories (P.) Ltd. vs. DCIT (supra) which has already been elaborated by us in preceding para-6. Consequently, the corresponding grounds stands dismissed.
8. In the result, the appeal stand partly allowed.
Order pronounced on 07th February, 2023.