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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
PER G. MANJUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 03.06.2022 and pertains to assessment year 2017-18.
:-2-: ITA. No:557/Chny/2022
2. The assessee has raised the following grounds of appeal: 1. “The Ld. CIT(A) has erred in the facts and circumstances of the case.
2. The Ld. CIT(A) erred in confirming the addition made by the Assessing Officer without considering the submissions and documentary evidences placed on record.
3. The Assessing Officer erred in treating the cash deposits made in the bank during demonetization period of Rs.1,58,17,000/- and treating the same as unexplained cash credit u/s 69A of IT Act. On appeal, CIT(A) confirmed the addition to the extent of Rs. 1,25,11,000/under income from other sources. Aggrieved by the same, the present appeal is filed.
4. The Assessing Officer was not justified in invoking the provision of section 69A of the Act particularly when the entries were recorded in the books of accounts maintained by the appellant and the explanation relating to cash deposit was given.
5. The SOP for AOs with regard to handling of cases related to demonetization vide CBDT circular dated 09/08/2019 in F.No 225/145/2019/ITA- has not been followed by Ld. AO in the appellant case. As per instruction AO is required to fill the checklist separately for business cases and non-business cases.
6. The Ld. CIT(A) erred in not considering that, the Assessing Officer conveniently ignored the fact that the deposit during demonetization period is out of cash on hand as of 08.11.2016 and realisation from debtors and went ahead in making addition u/s 69A, when cash on hand on demonetization period could have been arrived and verified by the records submitted by the appellant, sales and purchase register and bank statements.
7. The Appellant craves leave to amend, alter or delete any of the above grounds of appeal.
8. For the above reasons and other reasons that may be adduced at the time of hearing, the addition made by the Assessing Officer may kindly be deleted and justice be rendered.”
:-3-: ITA. No:557/Chny/2022 3. The brief facts of the case are that, the assessee is an individual and engaged in the business of wholesale purchase and sale of fruits in Koyambedu Fruit Market. The assessee has filed his return of income for the assessment year 2017-18 on 30.11.2017, declaring total income of Rs. 40,82,370/-. The case was selected for scrutiny through CASS, and during the course of assessment proceedings, the Assessing Officer noticed that the assessee has made cash deposits of Rs. 2,64,03,800/- from 08.11.2016 to 30.12.2016, out of which a sum of Rs. 1,58,71,000/- has been deposited in old currency notes which was demonetized w.e.f. 08.11.2016. The assessee was called upon to explain source for cash deposits and also reasons for cash deposits in specified bank notes. In response, the assessee submitted that he is in the business of wholesale purchase and sale of fruits and his business predominantly deals with cash. The assessee has filed a chart giving details of cash deposits from April, 2014 to December, 2016 and argued that if you consider pattern of cash deposits in previous years, there is no abnormal excess in cash deposits in the month of November, 2016.
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The AO, however was not convinced with the explanation furnished by the assessee. According to the Assessing Officer, the assessee has deposited cash in excess of closing balance held as on 08.11.2016 and thus, opined that the assessee could not explain source for cash deposits in specified bank notes to the extent of Rs. 1,58,71,000/- and thus, cash deposits amounting to Rs. 1,58,71,000/- has been treated as unexplained money u/s. 69A of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) and levied tax u/s. 115BBE of the Act. The relevant findings of the AO are as under: 3. The assessee has made the following cash deposits in various banks as shown below: Sl.No Name of the Bank Account no. Amount of ending cash deposit 1 SBI, KOYEMBEDU 9766 41,00,000 2 AXIS BANK 5983 9,00,000 3 ICICI BANK 0129 1,51,22,800 4 AXIS BANK 9218 26,09,000 5 ICICI 257 38,80,000 TOTAL 2,66,82,800 4. When the assesee was asked to explain the source for such cash deposits, it was stated by assesee's representative that the non-invalid notes were included in the above deposits to the extent of Rs.75,11,000 in ICICI bank in account No. ending 0129 and ICICI bank to the extent of Rs. 19,30,000/- in account number ending 257 totaling to Rs.94,41,000/Hence, out of the total cash deposit to the extent of Rs.2,66,82,800/- during the demonetization period the invalid notes deposited are to the extent of Rs.1,72,41,800/- as per the explanation given by the assessee. However, it should not be in the :-5-: ITA. No:557/Chny/2022 fraction of 800 hence it is taken that the old invalid notes is to be taken only at Rs, 1,72,41,000/-.
It is seen that the closing cash balance as per the cash book as on 08.11.2016 was to the extent of Rs.13,71,884/- which includes denominated notes to the extent of Rs.13,70,000/-. Hence, the excess amount of cash deposited in old notes over and above the closing cash balance as on 08.11.2016 is Rs.1,58,71,000/- . These amount is to be consider as unexplained cash deposit assessable u/s 69A r.w.s 115BBE of the IT Act. In this connection kind attention of the assessee is invited to the following case laws "natural justice are not codified nor are they unvarying in all situations, rather they are flexible. It has to be adhered from both ends i.e. from the assessee as well as from the authority. They may, however, be summarized in one word : 'fairness'. In other words, what they require is fairness by the authority concerned. Of course, what is fair would depend on the situation and the context. Lord Esher M.R. in Voinet vs. Barrett (1885) 55 L.J. QB 39, observed: "Natural justice is the natural sense of what is right and wrong." In this context, we may refer to observations of the Hon'ble justice Krishna Iyer J,... opportunity should be real and not ritualistic, effective and not illusory and must be followed by a fair consideration of the explanation offered and the materials available, culminating in an order which discloses reasons for the decision sufficient to show that the mind of the authority has been applied relevantly and rationally and without reliance on facts not furnished to the affected party. Natural justice, must warn, cannot be perverted into anything unnatural or unjust and cannot therefore be treated as a set of dogmatic prescriptions applicable without reference to the circumstances of the case. The question merely is, in all conscience have you been fair in dealing with that man? If you have been not arbitrary, not absent-minded, not unreasonable or not unspeaking, you cannot deny that there has been no 'natural justice' breached, rather fullest natural justice has been followed but it :-6-: ITA. No:557/Chny/2022 is the person who has not availed any chances for the reasons best known to him.' 6. The Hon'ble Supreme Court in the cases of Roshan Di HattiVs.CIT(1977) 107 ITR 938 (SC) and Kale Khan Mohammad HanifNs.CIT (1963) 50 ITR 1 (SC) held that the law is well-settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. Where the nature and source of the receipt, whether it be of money or other property, cannot be satisfactorily explain by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source.
The Hon'ble Madras High Court in the case of V. Datchinamurthy Vs. Asst. Director of Inspection (1984) 149 ITR 341 (Mad) held that it has been a long accepted principle of income-tax law that an assessee is obliged to explain the nature and source of cash credits in his accounts and in the absence of satisfactory explanation on his part, the assessing authorities can very well proceed to treat the amount of cash credits in question as representing the taxpayer's income.
In these circumstances, the excess amount deposited to the extent of Rs.1,58,71,000/- is assessed u/s 69A.”
5. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee has filed a detailed written submission on the issue. The sum and substance of the arguments of the assessee before the ld. CIT(A) are that the alleged cash deposits in specified bank notes is not Rs. 1,58,71,000/- as assessed by the AO, but it is only a sum of Rs. 1,25,11,000/-. The assessee further submitted that, he is into wholesale business of fruits and his business is mainly in cash. The assessee has :-7-: ITA. No:557/Chny/2022 deposited cash into bank account and source for said cash deposit is out of sale proceeds. The Ld. CIT(A) has forwarded additional evidences filed by the assessee to the Assessing Officer for his comment. The AO vide remand report dated 06.04.2022 has analyzed additional evidences filed by the assessee and reiterated his findings recorded in assessment order towards cash deposits found in bank account.
The Ld. CIT(A), after considering relevant submissions of the assessee and also taken note of the various facts observed that, although the AO computed cash deposits in specified bank notes of Rs. 1,58,71,000/-, but in reality cash deposits in specified bank notes is only Rs. 1,25,11,000/-. Further, the CIT(A) noticed that from 08.11.2016 onwards, old demonetized currency of Rs. 500 and Rs. 1000 is banned for legal tender and thus, there is no reason for the assessee to deposit cash into bank account in specified bank notes in excess of cash balance held as on 08.11.2016. The Ld. CIT(A) had also taken note of guidelines issued by the RBI for dealing with old notes, observed that although old notes has been allowed to transact up to certain period for emergency :-8-: ITA. No:557/Chny/2022 category. The fruit sellers were not allowed to accept demonetized notes. Therefore, the plea that the assessee was dealing with perishable goods and was forced to accept the demonetized cash in not acceptable. Hence, ld. CIT(A) rejected argument of the assessee. As regards, the source for cash deposits, the CIT(A) observed that the assessee could able to explain source for cash deposits out of business receipts and therefore, same cannot be taxed as unexplained credit u/s. 115BBE of the Act. The relevant findings of the ld. CIT(A) are as under: “9.1 The only dispute in this assessment is with regard to Rs.1,58,71,000/- deposited during the demonetization period i.e. from 08.11.2016 to 31.12.2016 in the form of demonetized currency of Rs.500/- and Rs.1000/-, which the banks generally writes as OHD (Old High Denomination Notes). In some of the entries the banks has mentioned this narration, however; in most. of the narrations it is not mentioned. Since banks were supposed to transmit this data on daily basis to Reserve Bank of India, this information should be available with each Branch of the bank, which the AO has failed to obtain. Atleast a sincere effort could have been made. The assessee was also under obligation to furnish the details when he was asked to substantiate his claim. The assessee, in his submissions before the AO as well as in the grounds of appeal, has admitted that he has deposited Rs. 1,25,11,000/- whereas the Assessing Officer has computed the amount as Rs.1,58,71,000/-. Therefore, the real dispute in this case is only to the extent of difference between the two amounts, which comes to Rs.33,60,000/-. 9.2 During the demonetization period the old notes were not prohibited for every purpose, instead the payments were allowed for specific purposes, which are as under :-
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Payments towards prepaid mobile top-up to a limit of Rs.500 per top-up.
Purchase from Consumer Cooperative Stores will be limited to Rs.5000 at a time. 3. Payment of fees in Central or State Government Colleges. 4. Foreign citizens will be permitted to exchange foreign currency upto Rs.5000 per week. Necessary entry to this effect will be made in their passports. 5. Payment of current and arrear dues to utilities will be limited to only water and electricity. This facility will continue to be available only for individuals and households. 6. It has been decided that toll payment at toll plazas to be made through ols Rs.500 notes from 3.12.2016 to 15.12.2016. 7. Payment of school fees upto Rs.2000 per student in Central Government, State Government, Municipality and local body schools. 8. Government hospitals. 9. Railways Tickets 10. Public Transport 11. Airline Tickets at Airports 12. Milk Booths 13. Crematoria/burial grounds 14. Petrol pumps 15. Metro rail tickets 16. Medicine prescribed by a doctor 17. LPG Gas cylinders 18. Railway catering :-10-: ITA. No:557/Chny/2022
Power and water bills 20 Entry tickets of ASI monument 21. Consumer Cooperative Stores 22. Taxes and penalties to government bodies Court fees 23. Seeds at state-owned outlets. 9.3 Nowhere the fruit sellers were allowed to accept the demonetized cash. Therefore, the plea that the assessee was dealing in perishable goods and was forced to accept the demonetized cash is not acceptable. Further, entering the demonetized cash received into Cash Book makes the Cash Book also defective as these currency notes were not the valid currency notes for the purpose of the business of assessee. Therefore, the plea taken by the assessee that once it has entered into Cash Book it could have been deposited into Bank and merely non rejection of books of accounts by Assessing Officer made it legal.
9.4 The Opening Cash Balance before demonetization has already been allowed by the Assessing Officer and assessee has admitted that atleast to the extent of Rs.1,25,11,000/he has deposited into the bank account on various dates, is liable to be taxed as Income from Other Sources. Assessee gets part relief. Further, on this amount assessee is eligible to get the reduction of profit declared in the return of income to the extent of turnover of Rs.1,25,11,000/-. The total cash Turnover of the assessee is Rs.11 ,28, 14, 800/-. The Gross Tumover claimed is Rs.26,52,95,215/-. The Net Profit declared is Rs.42,26,367-. The AO is directed to allow the proportionate relief.”
7. The Ld. Counsel for the assessee, submitted that the Ld. CIT(A) erred in confirming the addition made by the Assessing Officer towards cash deposits in specified bank notes without appreciating fact that the assessee has explained source for :-11-: ITA. No:557/Chny/2022 cash deposits and further, said cash was recorded in the books of accounts maintained by the appellant for the relevant period. The Ld. Counsel for the assessee, referring to the financial statement for assessment year 2015-16 to 2017-18 submitted that, if you see the turnover of the assessee from his business and cash deposits made into bank account for this period, there is no sudden increase in cash deposits during demonetization period. The assessee is dealing with fruits which is highly perishable. Further, the assessee deals mainly in cash. Therefore, when the assessee has explained source for cash deposits out of his business receipts, merely for the reason that the assessee has accepted specified bank notes from 08.11.2016 is not a ground for making addition u/s. 69 of the Act. The ld. Counsel for the assessee referring to the Specified Bank Notes (Cessation of Liability) bill, 2017 submitted that as per section 5 of said bill, on or from the appointed date, no person shall knowingly or voluntarily, hold, transfer or receive any specified bank note, and for this purpose appointed day means 31st December, 2016. Since, the assessee has accepted cash towards sale proceeds before appointed date and also explained source for cash deposits in :-12-: ITA. No:557/Chny/2022 the bank account, there is no reason for the AO and CIT(A) to make addition towards cash deposits u/s. 69 of the Act. In this regard, he relied upon the decision of the ITAT Visakhapatnam Bench in the case of ITO vs Sri Tatiparti Satyanarayana in dated 16.03.2022.
8. The Ld. DR, on the other hand supporting the order of the AO submitted that first of all, the ld. CIT(A) should not have treated addition made by the AO towards cash deposits under the head income from other sources. Further, the assessee has deposited specified bank notes on or after 08.11.2016, when demonetized Rs. 500 & Rs. 1000 notes were legally banned from transfer. Further, the RBI and Government issued SOPs from time to time and guided people how to deal with demonetized currency. In spite of various guidelines, the assessee has violated circular issued by the RBI and dealt with specified bank notes. Therefore, on this ground itself addition made by the AO should be upheld. The Ld. DR, further submitted that be that as it may, the assessee could not satisfactorily explain source for cash deposits because as on 08.11.2016 cash balance available as per books of accounts :-13-: ITA. No:557/Chny/2022 of the assessee is much less than the amount of cash deposits. In fact, the AO has allowed relief to the extent of cash balance available as per books. As regards, the arguments of the Ld. Counsel for the assessee, that up to 31.12.2016 people are allowed to accept specified bank notes, he referred to section 3 of the Specified Bank Notes (Cessation of Liability) Bill of 2017, and argued that it is only from appointed date holding and transacting with specified bank notes made illegal. Otherwise, from 08.11.2016 onwards, RBI has put restrictions in dealing with demonetized currency notes. Therefore, the argument of the assessee that up to 31.12.2016 is allowed to transact with old notes is incorrect.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The fact born out from record indicates that the assessee is a trader of fruits in Koyambedu market. The assessee purchases and sells fruits in Koyambedu market. The assessee predominantly deals with cash which is evident from the fact that more than 70% of his turnover for earlier financial years is in cash. If you see pattern of cash deposits :-14-: ITA. No:557/Chny/2022 from financial year 2014-15 to financial year 2016-17, the assessee has made huge cash deposits month on month to various bank accounts which is almost equal to cash deposits made in the month of November, 2016 during demonetization period. Although, there is slight increase in cash deposits in the month of November, 2016 when compared to November, 2015, but the explanation of the assessee was that during demonetization period, he has dealt with specified bank notes because he was dealing with perishable goods like fruits. Further, unless he sells his goods by accepting specified bank notes, he could not recover whatever amount invested for purchase of fruits. We find that, the main business activity of the assessee is trading in fruits, which is highly perishable. We further, noted that the assessee is declaring huge turnover from last three to four financial years which runs into several crores. The assessee had made huge cash deposits from financial year 2014-15 to 2016-17, which runs into several crores. For example, cash deposit in the financial year 2014- 15 is about Rs. 16.90 crores. Similarly, cash deposit in the financial year 2015-16 is about Rs. 17.63 crores. If you see the pattern of cash deposits for last two financial years, we :-15-: ITA. No:557/Chny/2022 find that there is no sudden spike in cash deposits made during the demonetization period i.e., November, 2016. Although, there is slight increase in cash deposits in the said period, explanation furnished by the assessee is plausible because of nature of business he is trading with, which is highly perishable. If the assessee does not sell his goods quickly, he may incur huge losses. Therefore, the reason given by the assessee for accepting specified bank notes even after 08.11.2016 is reasonable and bonafied. Therefore, we are of the considered view that the AO and CIT(A) has erred in not accepting explanation furnished by the assessee for accepting specified bank notes after 08.11.2016.
Having said so, let us come back to the source for cash deposits. The assessee has explained source for cash deposits out of sale receipts. In fact, the AO and CIT(A) never disputed fact that source for cash deposits is out of sale proceeds for the month and for earlier months. In fact, the CIT(A) has accepted the arguments of the assessee and also directed the AO to assess cash deposits under the head income from other sources, by considering explanation offered by the assessee.
:-16-: ITA. No:557/Chny/2022 But, the only objection of the AO and CIT(A) was that the assessee has accepted specified bank notes, even though RBI has prohibited dealing with specified bank notes from 08.11.2016 onwards except for certain emergency services. We do not find any merit in the reasons given by the AO and CIT(A) for simple reason that no doubt from 08.11.2016 midnight onwards demonetized currency notes of Rs. 500 and Rs. 100 was legally barred. Further, the RBI has issued various guidelines and SOPs for dealing with specified bank notes from 08.11.2016 onwards till the bill Specified Bank Notes (Cessation of Liabilities) bill, 2017 was notified by the Government. As per said bill, from the appointed date, no person shall knowingly or voluntarily, hold, transfer or receive any specified bank note. Further, as per section 3 of said bill, on or from the appointed date notwithstanding anything contained in the Reserve Bank of India Act, 1934 or any other law for the time being in force, the specified bank notes which have ceased to be legal tender, in view of the notification of the Government of India dated 08.11.2016 shall cease to be liabilities of the RBI u/s. 34 and shall cease to have the guarantee of the Central Government under sub-section (1) of :-17-: ITA. No:557/Chny/2022 section 26 of the said Act. From the above bill, it is very clear that, on or from the appointed date, no person shall hold, transfer or receive any specified bank notes because said note does not have guarantee of the RBI. In other words, up to appointed date i.e., 31.12.2016 there is no restriction in holding or receiving specified bank notes, even though its legal tender was banned from 08.11.2016 onwards. Since, there is no blanket prohibition on receiving demonetized currency notes up to 31.12.2016, we are of the considered view that, when the assessee has explained reasons for accepting specified bank notes even after 08.11.2016, the AO ought to have accepted the explanation furnished by the assessee when he is not disputing the nature of business and source for cash deposits. In our considered view, what is relevant to decide the issue is, whether the assessee is able to explain source for cash deposits or not. In case, the assessee explains the source for cash deposits, even though there is certain violation of any other Acts or Rules, the AO cannot make addition towards cash deposits.
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We further noted that a similar issue has been considered by the co-ordinate bench of ITAT, Visakhapatnam in the case of ITO vs Sri Tatiparti Satyanarayana (Supra), where the Tribunal after considering cash deposits out of specified bank notes after 08.11.2016 and also by considering Specified Bank Notes (Cessation of Liability) bill, 2017 held that the AO is incorrect in treating receipt of specified bank notes from cash sales as illegal and thereby, by invoking provisions of section 69 of the Act. The relevant findings of the Tribunal are as under: “9. We have heard both the parties and perused all the documents on record. We find that there was sufficient cash balance with the assessee as detailed in page No.30 of the paper book. The Specified Bank Notes (Cessation of Liabilities) Act, 2017, defines "appointed day" vide Section 2(1)(a). As per Section 2(1)(a), "appointed day" means the 31 Day of December 2016. Section 5 of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 also deals with prohibition on holding, transferring or receiving specified bank notes. Section 5 states that "On and from the appointed day, no person shall knowingly or voluntarily, hold, transfer or receive any specified bank note". We therefore, find that the specified bank notes can be measured in monetary terms since the guarantee of the Central Government and the liability of Reserve Bank of India does not cease to exist till 31.12.2016. In view of the above, the contention of the Ld. DR, treating the receipt of SBNs from cash sales as illegal and thereby invoking the Provisions of section 69A is not valid in law. Therefore, we dismiss this ground of the Revenue.”
:-19-: ITA. No:557/Chny/2022 12. In this view of the matter and by following the decision of the co-ordinate bench of ITAT, Visakhapatnam in the case of ITO vs Sri Tatiparti Satyanarayana (Supra), we are of the considered view that the AO as well as the CIT(A) has erred in sustaining addition towards cash deposits to bank account u/s. 69 of the Act and also levied tax u/s. 115BBE of the Act. Hence, we direct the AO to delete addition made towards cash deposits u/s. 69 of the Act.
In the result, appeal filed by the assessee is allowed.