GIRISH KARAMSHI DEDHIA ,MUMBAI vs. DCIT, CIRCLE 15(1), MUMBAI

On further appeal, the CIT(A) gave partial relief to the assessee. Though the assessee has raised various grounds with regard to the additions sustained by the CIT(A) during the course of hearing the ld. AR submitted that the grounds other than Ground No.4 are not pressed. Accordingly, Ground No. 1 to 3, 5 & 6 are dismissed as not pressed. Ground No.4 reads as under:

4. In the facts and circumstances of the case, Ld. AO has erred in invoking the provisions of section 69A of IT Act, 1961 as none of the conditions for invoking section 69A are satisfied as to: ➤ Non recording the money (herein) in books of accounts Cash has been duly recorded in the books of accounts & tax has also charged on the said income recorded. AND ➤ No explanation about the nature & source of acquisition of money (herein) The appellant furnished a detailed explanation, duly supported by documentary evidence including sales registers, stock records, VAT returns, and cash books during the course of assessment proceedings. None of the conditions for invocation of Section 69A of IT Act, 1961 are satisfied. Thereby Ld. CIT has erred in invoking provisions of Section 69A IT Act, 1961. Without prejudice to the above, in the facts and circumstances of the case, the Learned Assessing Officer erred in making an addition of Rs. Girish Karamshi Dedhia 1,24,41,000/- under Section 69A of the Income-tax Act, 1961, in respect of cash sales made during the demonetization period, by placing undue reliance on Notification No. S.O. 3408(E) dated 08.11.2016 issued by the Government of India, without appreciating the specific facts and record of the appellant's case. The Learned Commissioner of Income-tax (Appeals) further erred in upholding the said addition, despite the fact that the cash deposits were duly recorded in the appellant's regular books of account maintained in respect of his proprietorship concern, 'Auto Pushp', and were attributable to genuine cash sales of petroleum products carried out in the normal course of business during the demonetization period. Thereby Ld CIT has erred in confirming addition of Rs.1,24,41,000 u/s 69A I.T. Act, 1961.

In this regard, assessee was issued show cause notice to explain the source of cash in consideration of above mentioned notification. However till date no reply is received from the assessee. Therefore the explanation offered by the assessee earlier is not acceptable and such cash deposited during the demonetization period is held to unexplained. Accordingly, the cash deposited in bank at Rs. 1,24,41,000/-during the demonetization period is held to be the Unexplained Money u/s. 69A of the Act and is added to the total income of the Girish Karamshi Dedhia assessee. Penalty proceedings u/s. 271AAC of the Act are initiated for misreporting of income.”

7.1 Further the assessee filed complete details of Purchase register, Sales register, Cash Book, Bank statement, Month-wise details of purchase and sales, Copies of VAT returns etc. However the Ld. A.O. is not able to find any defect in the books of accounts, except general statements made in the assessment order. Though the A.O. has doubted the sales made during the year, he is not doubted the purchases made or stock maintained by the assessee during the year. Further the assessee also demonstrated the fluctuations in the sales during the entire period and there is no drastic increase in sales during the period of demonetization. It is further noticed that it is the month of May 2016 sales reported at 84.81 lacs. Similarly, in the month of November 2016 (demonetization period), the sales is reported at 1.04 crores which is not found to be drastic higher figure. Thus the deletion made by the Ld. CIT(A) does not require any interference.

“….9.6. We also note that the provisions of section 68 cannot be applied in relation to the sales receipt shown by the assessee in its books of accounts. It is because the sales receipt has already been shown in the books of accounts as income at the time of sale only.

9.7. We are also aware of the fact that there is no iota of evidence having any adverse remark on the purchase shown by the assessee in the books of accounts. Once the purchases have been accepted, then the corresponding sales cannot be disturbed without giving any conclusive evidence/finding. In view of the above we are not convinced with the finding of the learned CIT(A) and accordingly we set aside the same with the direction to the AO to delete the addition made by him.”

8.1. The Co-ordinate Bench of the Bangalore Tribunal in the case of M/s. Manasa Medicals (cited supra) held as follows:

“….11. On the other hand, the ld. AR submitted that the assessee is covered by the Category of exempted entities who were permitted to accept SBN during the demonetization period. The ld. AR also submitted that the AO has not rejected the turnover of the assessee, but has treated the same as unexplained only for the reason that the assessee has not produced the prescriptions and the identity of the persons who bought the medicines with regard to the sales made. The ld. AR further submitted that the accounts of the assessee are audited and there is no discrepancy found during the audit. It is also contended by the ld. AR that the assessee has produced all the details with regard to the sales including the ledger accounts, cash book, VAT returns etc. during the course of assessment and the AO did not reject the books of accounts of the assessee. The ld. AR drew our attention to the relevant Notification wherein it is stated that for making payments in all Pharmacies on production of Doctor's prescription and proof of identity, however, there is no mandate given that the Doctor's prescription and identity of persons purchasing the medicines need to be kept for record. The ld. AR also placed reliance on the decision of Vishakapatnam Bench of the Tribunal in the case of Hirapanna Jewellers v. ACIT in dated 12.05.2021, where it is held that once the assessee admits the sales as revenue receipts, there is no case for making addition u/s.

3.8 As per RBI notification vide no. SO 3416(E) dated 09/11/2016 and subsequent SOS it is clearly mentioned that "For making payments in all Pharmacies on production of doctor's prescription and proof of identity",.. However, the assessee in the reply has stated that they are not required by law to keep the copy of the prescription for record; hence, they have not maintained it. From this it is very clear that the assessee firm has violated the RBI guidelines and accepted SBN (old notes) during demonetization by doing cash sales. Further, the assessee firm has not been authorized to accept SBN's for cash sales during demonetization period. Furthermore, the assessee has failed to furnish the details of sales made in SBN's (old notes) & Non- SBN."

3.9 In view of the above, it is concluded that the assessee has violated RBI guidelines and accepted the cash sales during demonetization period. Accordingly, the cash sales made and deposited in bank account during demonetization period is treated as unexplained cash.

3.10 Accordingly, cash sales during demonetization period from 09/11/2016 to the tune of Rs. 2,12,05,429/- (Rs. 2,18,38,160/- (-) Rs. Cash balance as on 08/11/2016 of Rs. 6,32,731/-) is brought to tax under the head Income from other sources as unexplained cash u/s. 68 and tax rates applicable as per provisions of section 115BBE of the Act.

3.11 From the above it is clear that the assessee has made cash deposits in bank accounts out of unexplained cash u/s. 68 and tax rates applicable as per provisions of section 115BBE of the Act. Hence, I am satisfied that this is a fit case for initiation of penal proceedings u/s. 271AAC of the Act."

8.2. The Co-ordinate Bench of the Bangalore Tribunal in the case of Sri Bhageeratha Pattina Sahakara Sangha Niyamitha (cites supra) held as follows:

…15. The case of the A.O is that the assessee has collected the demonetized notes after 8.11.2016 in violation of the notifications issued by RBI. Accordingly, he has taken the view that the above said amounts represents unexplained money of the assessee. I am unable to understand the rationale in the view taken by A.O. I noticed that the AO has invoked the provisions of sec.68 of the Act for making this addition. I also noticed that the assessee has also complied with the requirements of sec.68 of the Act. The AO has also not stated that the assessee has not discharged the responsibility placed on it u/s 68 of the Act. Peculiarly, the AO is taking the view that the assessee was not entitled to collect the demonized notes and accordingly invoked sec.68 of the Act. I am unable to understand as to how the contraventions, if any, of the notification issued by RBI would attract the provisions of sec. 68 of the Income tax Act. In any case, I notice that the assessee has also explained as to why it has collected demonetized notes after the prescribed date of 8.11.2016. The assessee has explained that it has stopped collection after the receipt of notification dated 14.11.2016 issued by RBI, which has clearly clarified that the assessee society should not collect the demonetized notes. Accordingly, I am of the view that the deposit of demonetized notes collected by the assessee from its members would not be hit by the provisions of section 68 of the Act in the facts and circumstances of the case. Accordingly, I set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete this disallowance.

9. Respectfully following the above judicial precedents, we have no hesitation in confirming the deletion of Rs. 1,24,59,500/- made u/s. 68 of the Act. Thus the grounds raised by the Revenue are devoid of merits, hence, the same are hereby dismissed.”

8. Considering the facts and circumstances of the case and respectfully following the above judicial precedence, we hold that treating the cash deposit Girish Karamshi Dedhia which the assessee has sourced through cash sales as unexplained under section 68 is not sustainable. Accordingly we direct the AO to delete the addition made in this regard.