VISAHAVEL SPINNING MILLS,COIMBATORE vs. ITO, COIMBATORE

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ITA 2213/CHNY/2026Status: DisposedITAT Chennai08 September 2026AY 2017-184 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that merely depositing Specified Bank Notes (SBN) during demonetization, without any adverse findings on the source or genuineness, cannot by itself justify treating accounted business receipts as unexplained investment. The revenue did not establish that unaccounted cash was introduced.

What were the facts?

The assessee, a spinning mill, did not file its return of income due to SARFAESI proceedings. The AO reopened the assessment and treated cash deposits made during demonetization as unexplained, and also made additions to business income and interest income. The CIT(A) sustained these additions.

What were the issues?

Whether cash deposits made in Specified Bank Notes during demonetization can be treated as unexplained income solely on the basis of the deposit period, when they represent accounted business receipts.

Which sections of the Income-tax Act were involved?

Section 148,Section 147,Section 144,Section 69,Section 115BBE,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: MS. PADMAVATHY.S & SHRI MANU KUMAR GIRI

For Respondent: Ms. P. Sunnanda, Sr. DR

आदेश / O R D E R

PER PADMAVATHY.S, A.M:

This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") dated 23.02.2026 for Assessment Year (AY) 2017-18.

ITA No.2213/Chny/2026 Visahavel spinning Mills :- 2 -:

2.

The assessee is a company running a spinning mill. The assessee did not file the return of income for AY 2017-18 since it was under SARFAESI. The A.O noticed that the assessee has deposited cash totalling to Rs.19,70,500/- into the bank account during the demonetization period. Since the assessee did not file the return of income, the A.O reopened the assessment by issue of notice u/s. 148 of the Act. The assessee neither filed the return of income nor responded to the notices issued. Therefore, the AO completed the assessment u/s. 147 r.w.s 144 of the Act, where the A.O has treated the entire cash deposit made during the demonetization period as unexplained money. The A.O also made an addition towards business income by applying 1.3% on other credits in the bank account other than what is deposited during the demonetization period to make an addition of Rs. 6,34,460/-. The A.O made an addition towards interest under the head income from other sources amounting to Rs.43,844/- based on the Form- 26AS. Before the CIT(A), the assessee contended the addition made towards deposits made during the demonetization period being treated as unexplained money. The assessee submitted before the CIT(A) that due to proceedings under SARFAESI the assessee could not file any details before the AO. The assessee further submitted that there is no bar for depositing specified bank notes (SBN) and the same held the value until 31.12.2016. Accordingly, the assessee submitted that the amount cannot be treated as unexplained only for the reason that it is deposited in SBN. However, the CIT(A) did not accept the submissions of the assessee and sustained the addition made by the AO. The assessee is in appeal before the Tribunal against the order of the CIT(A).

3.

We have heard the parties and perused the material available on record. The Ld. Authorized Representative (AR) of the assessee submitted that the

ITA No.2213/Chny/2026 Visahavel spinning Mills :- 3 -:

A.O has accepted entire credits including the deposits made in cash during the non-demonetization period as the business income of the assessee and that the cash deposit during the demonetization period is treated as unexplained only for the reason that it is made in SBN. In this regard the Ld. AR submitted the breakup of the total credits in bank statement from the perusal of which we notice that the AO has treated the entire credits except deposits in SBN as the business receipts of the assessee and has estimated the profit element on the said receipts at 1.3%. We further notice that the credits accepted as business receipts by the AO includes cash credits also. However, it is noticed that the cash receipts during demonetisation period alone is treated as unexplained as the same is accepted in SBN. From the perusal of the lower authorities, we notice that other then the reason of deposits being in SBN, no adverse findings with regard to the source or genuineness of the deposits have been recorded by the lower authorities and it is also not disputed that the said deposits form part of the assessee's ordinary business receipts. We notice that the Coordinate Bench of this Tribunal in TamilNadu State Marketing Corporation Ltd. vs. ACIT [2025] 170 taxmann.com 641 (Chennai-Trib.) has considered an identical issue and held that mere violation of notifications restricting acceptance of SBN cannot, by itself, justify treating accounted business receipts as unexplained investment u/s. 69 of the Act, unless the AO makes out a specific case that unaccounted cash has been introduced in the guise of such notes. We are of the view that the source of the impugned deposits in the present case stands similarly explained as forming part of the assessee's regular business receipts and the Revenue has not made out any case that unaccounted money has been routed through the same. Respectfully following the ratio of the above decision, we hold that the addition of Rs.

ITA No.2213/Chny/2026 Visahavel spinning Mills :- 4 -:

19,70,500/- made u/s. 69 of the Act and taxed u/s. 115BBE of the Act cannot be sustained and we accordingly direct the AO to delete the said addition.

4.

In result the appeal of the assessee is allowed.

Order pronounced on 08th day of September, 2026 at Chennai. Sd/- Sd/- (मनु कुमार िग!र) (पदमावती यस) (Manu Kumar Giri) (Padmavathy.S) लेखा सद�य /Accountant Member �याियक �याियक सद�य �याियक �याियक सद�य सद�य / Judicial Member सद�य चे�नई/Chennai, �दनांक/Dated: 08th September, 2026. EDN, Sr. P.S आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु!/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF

PRASANNA Digitally signed by PRASANNA VANI JETTY VANI JETTY Date: 2026.09.11 14:37:59 +05'30'

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