DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE SALEM vs. MAHALINGAMUDALIAR SHYAMALANATHAN TAMILSELVAN, SALEM

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the Revenue against the order of the Learned Commissioner of Income Tax (Appeal), (hereinafter referred to as ‘Ld.CIT(A)’), Chennai-20, dated 28.11.2025 for the Assessment Year (hereinafter referred to as ‘AY’) 2017-18.

ITA No. 569/Chny/2026 (AY 2017-18) Mahalingamudallar Shyamalanathan Tamilselvan. :: 2 :: 2. The main grievance of the Revenue is against the action of the Ld.CIT(A) deleting the addition of Rs.1,10,77,900/- made by AO on account of unexplained cash u/s.69A of the Income-Tax Act, 1961 (hereinafter referred to as ‘the Act’) on account of deposit of cash in Specified Bank Notes (SBN). According to the Revenue the Ld.CIT(A) erred in holding that the deposits made of Rs.1,10,77,900/- (SBNs) were legal when the notification issued by the Government of India dated 8- 9.11.2016 declared that SBNs were not legal tender.

ITA No. 569/Chny/2026 (AY 2017-18) Mahalingamudallar Shyamalanathan Tamilselvan. :: 3 :: announced on 08.11.2016. According to the AO, assessee could have deposited the entire amount in one transaction, whereas he has deposited it 16 times on different dates. Accordingly, he was of the view that the assessee has failed to explain the nature and source of the said sum which according to him is not from business receipts and therefore, treated it as unexplained income of the assessee u/s.69A of the Act and added Rs.1,06,76,900/-. Thus, the AO is noted to have made an addition of Rs.1,10,77,900/- by passing the assessment order on 25.12.2019.

ITA No. 569/Chny/2026 (AY 2017-18) Mahalingamudallar Shyamalanathan Tamilselvan. :: 4 :: unexplained money. Further, the AO was of the view that out of SBNs deposited of Rs.1,54,67,000/- only Rs.43,89,000/- was deposited within a reasonable time i.e. within 15.11.2016, which he accepted as genuine. The AO noted that the balance amount of Rs.1,10,77,900/- was deposited between 16.11.2016 and 08.12.2016 even though demonetization was announced on 08.11.2016. The delay in depositing the SBNs was found fault with by AO because the assessee had no reason to hold a crore rupees in cash and wondered as to why assessee deposited the same on 16 different days after 15.11.2016, when the assessee could have deposited the same at one go. Therefore, the AO was of the view that Rs.1,10,77,900/- was not from his business receipts. And since assessee failed to explain the nature and source of the same, he added separately Rs.1,06,76,900/- thus he added the same u/s.69A of the Act. On appeal the Ld.CIT(A) has deleted the addition by holding as under : - 7.2. During the appeal proceedings, the appellant contended that the income earned in the normal course of business is recorded in the books of account of the appellant. It was also stated that the appellant receives major component of income in cash and the same was also deposited in the bank accounts for the earlier years. It was also submitted that the cash deposits made and cash sales recorded during the earlier years in comparison with AY 2017-18 was also submitted to the AO through e- response filed. It was also submitted that the books of account were subjected to tax audit and the audit report was filed on 31.10.2017, but the AO had made the said addition on account of suspicion and surmise. It was also contended by the appellant that the AO, while making the partial addition mechanically, had brushed aside the detailed submission made before him in the course of assessment proceedings. Further, it was also submitted that the cash book maintained in the normal course of the appellant's business was not rejected by the AO and the income earned in the normal course of business, which was considered in its books of account and thereafter making a separate addition amounts to taxing the same income twice and pleaded that the said addition needs to be deleted. Furthermore, the appellant had also submitted that there was no prohibition for the assessees to accept or transact in SBNs during the demonetization period i.e. 08.11.2016 to 30.12.2016 as evident from the Specified Bank Notes (Cessation of Liability) Act, 2016. The appellant had also relied on various tribunal decisions which are in favour of the appellant's contention. In support of the claim, the appellant had also furnished the details of cash remitted during the demonetization period, the total cash sales and cash collected from the debtors and cash deposited in the bank during the FY 2016-17 and the comparative analysis of cash sales

ITA No. 569/Chny/2026 (AY 2017-18) Mahalingamudallar Shyamalanathan Tamilselvan. :: 5 :: and cash deposits for the period for the FY 2015-16 and 2016-17. It is also noted that these details were also submitted before the AO through e- proceedings in the course of assessment proceedings. The same are reproduced as under:

ITA No. 569/Chny/2026 (AY 2017-18) Mahalingamudallar Shyamalanathan Tamilselvan. :: 6 ::

ITA No. 569/Chny/2026 (AY 2017-18) Mahalingamudallar Shyamalanathan Tamilselvan. :: 7 ::

7.3. I have perused the assessment order and the details furnished by the appellant. On perusal of the same it is noted that the appellant had a closing balance of cash of Rs. 1,50,66,197/- as on 08.11.2016, whereas the appellant had deposited amount of Rs. 1,54,67,000/- in SBNs in his bank accounts from 10.11.2016 to 08.12.2016. Since there is difference of Rs.4,01,000/-, the appellant had explained in the appeal proceedings that the said difference is part of the cash collected from the cash sales during its normal course of business. In support of the claim, the appellant had also submitted the details of cash deposited in his bank account for the period 09.11.2016 to 30.12.2016 in both SBNs & non-SBNs for the month of November 2016, month wise cash sales for the period 01.04.2016 to 31.03.2017, daily cash sales for the period from 09.11.2016 to 30.12.2016 and the comparative analysis of month wise

ITA No. 569/Chny/2026 (AY 2017-18) Mahalingamudallar Shyamalanathan Tamilselvan. :: 8 :: cash collection and cash deposits up to 08th November for the FY 2015-16 and 2016-17. It is also noted that the same details were furnished before the AO, which the AO had not considered in the assessment order. On perusal of the same, it is noted that the closing cash balance as on 08.11.2016 was Rs. 1,50,66,197/- which was also accepted by the AO. The only dispute is on account of the balance Rs.4,01,000/- of the SBNs deposited for the remaining period of the demonetization in the appellant's bank accounts. The appellant had explained the source for the said amount is out of the cash collection during the period 09.11.2016 to 30.12.2016 from the various customers from the sales of rice manufactured in the rice mill. The appellant had furnished the date wise cash collection for the period 09.11.2016 to 30.12.2016 in the above submissions. On perusal of the same, it is noted that the appellant had received total cash of Rs.2,72,03,160/- for the period 09.11.2016 to 30.12.2016. Whereas the amount of SBNs deposited during this period was Rs. 1,54,67,000/-, out of which Rs.1,50,66,197/- was available as closing cash balance as on 08.11.2016 and only Rs.4,01,000/- was considered to be deposited in SBNs out of the total cash sales of Rs.2,72,03,160/- during the demonetization period. Further, the AO was also of the opinion that since demonetization was announced on 08.11.2016, there was no valid reason for not depositing the closing balance as on 08.11.2016 of Rs.1,54,67,000/- before 15.11.2016. Since the appellant had deposited only Rs.43,89,000/- before 15.11.2016, the balance sum of Rs.1,10,77,900/- was not accepted as the business receipts of the appellant and the sum of Rs.1,06,76,900/-was also added as unexplained money u/s 69A of the Act. In this regard, it is observed that the appellant had deposited total amount of Rs.1,54,67,000/- in SBNS from 10.11.2016 to 08.12.2016. However, the AO had allowed the SBNs deposited till 15.11.2016 as arising out of closing balance as on 08.11.2016 and the remaining balance of Rs.1,06,76,900/- was not accepted as arising out of the same closing balance as per the books of account of the appellant. The reason adduced by the AO was that there is no explanation offered by the appellant that why the entire cash arising from closing balance of Rs.1,50,66,196/- was not deposited within 15.11.2016. With respect to the above, the appellant has submitted that the AO had made the partial addition mechanically and he had overlooked the detailed explanation furnished by the appellant in context of nature of business carried on by the appellant. In this regard, it is noted from the above details that the appellant had deposited Rs.1,46,36,000/- by 28.11.2016, whereas, only Rs.8,31,000/- was deposited from 30.11.2016 to 08.12.2016. Further, the AO did not appreciate the fact that the window available for the appellant to deposit the SBNs was till 30.12.2016 as per the notifications issued by the Government of India. Hence, I am of the opinion that the AO's restriction till 15.11.2016 is arbitrary and the addition on account of delayed deposit cannot be the reason for treating the said amount as unexplained money u/s 69A of the Act when the time allowed as per the notifications issued by the Government of India was till 30.12.2016.

ITA No. 569/Chny/2026 (AY 2017-18) Mahalingamudallar Shyamalanathan Tamilselvan. :: 9 :: 7.4. Further, it is also noted from the above details that the total cash deposited for the period 09.11.2016 to 30.12.2016 was Rs.2,77,53,880/- (which includes Rs.1,54,67,000/- in SBNs and Rs.1,22,86,880/- in non-SBNs), whereas cash deposits for the corresponding period for the FY 2015-16 was Rs.3,09,50,000/-. This also shows that the cash deposited during the demonetization period is less than the cash deposited during the same period for the FY 2015-16. It is also observed that the total cash sales for FY 2016-17 was Rs.20,11,18,497/-, whereas, for the FY 2015-16, it was Rs.20,19,15,514/-. It is also observed that for both FYs, the average monthly sale is between Rs.1.5 crores to Rs.1.9 crores. This also shows that there is no abnormal cash sales noted during the demonetization period and the cash sales are in the nature of normal course of business of the appellant. On the basis of above, I am of the opinion that there cannot be any addition made u/s 69A of the Act in respect of cash deposits of Rs.1,06,76,900/- out of the closing balance as on 08.11.2016. 7.5. The next issue is with regard to the cash deposits of Rs.4,01,000/- arising out of cash sales made during the demonetization period. The appellant has claimed that the balance cash deposits of Rs.4,01,000/- have been made out of cash collection out of sales made during the demonetization period. In the assessment order, the AO has stated that transactions carried out by the appellant in SBNs which are not legal tender after 08.11.2016 is not allowed was the only reason to make the addition of Rs.4,01,000/- as unexplained money. In this regard, it is observed that the issue that arises to be considered is whether the SBNs received by an assessee during demonetization period in its normal course of business has to be considered as income of the assessee or not. A similar issue was considered by the Hon'ble ITAT, Chennai in the case of Mrs. Umamaheswari Vs. ITO in ITA No.527/Chny/2022 dated 14.10.2022, wherein it was held that there is no prohibition under the Specified Bank Notes (Cessation of Liabilities) Act, 2017, to deal with Specified Bank Notes up to 31.12.2016. The relevant part of the order of Hon'ble ITAT is reproduced as under 6. I have heard both the parties, perused the materials available on record and gone through orders of the authorities below. As regards, the first objection of the AO on legal tender of Specified Bank Notes on or after 08.11.2016, I find that as per the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016, which came into effect from 31.12.2016 appointed date for this purpose means 31.12.2016. Further, as per Sec.5 of said Ordinance, from the appointed date, no person shall, knowingly or voluntarily, hold or transfer or receive any Specified Bank Notes. From the above what is clear is that up to the appointed date 1.0.31.12.2016, there is no prohibition for dealing with Specified Bank Notes. Therefore, in my considered view, the objection of the AO on this regard in light of said Act is devoid of merits. Further, a similar issue had been considered by the Tribunal, Visakhapatnam Bench, in the case of Sri Tatiparti Satyanarayana in ITA No.76/Viz/2021, where the Tribunal after considering relevant provision of Specified Bank Notes (Cessation of Liabilities) Act, 2017,

ITA No. 569/Chny/2026 (AY 2017-18) Mahalingamudallar Shyamalanathan Tamilselvan. :: 10 :: held that there is no prohibition under the Act to deal with Specified Bank Notes up to 31.12.2016. Therefore, in my considered view, the observation of the AO on this regard totally incorrect and liable to be rejected. 7. Having said so, let us come back to explanation of the assessee with regard to source for cash deposits. The assessee explained before the AO that she had received a sum of Rs.13 lakhs from Smt. Vedhavathy for sale of property on 09.11.2016. In fact, the AO accepted, the assessee has received consideration for sale of property from Smt. Vedhavathy and the purchaser has also filed a confirmation letter stating that she had paid consideration in cash. Therefore, once the AO is accepted the fact that the assessee has received consideration in cash, then the source for cash deposits during demonetization period should have been accepted out of sale consideration received for property. In my considered view, the AO grossly erred in not accepting the source for balance cash deposits of Rs.7,67,500/-, even though, the assessee has filed necessary evidences to prove the availability of source for cash deposits. The Ld.CIT(A) without appreciating the fact simply confirmed the additions made by the AO. Hence, I set aside the order of the Ld.CIT(A) and direct the AO to delete the addition made towards cash deposits of Rs. 7,67,500/- u/s.69A of the Act." Further, relying on the above order, the Hon'ble ITAT, Chennai allowed the assessee's appeal in the case of M/s. Micky Fireworks Industries vs ACIT in ITA No. 264/Chny/2023 dated 26.07.2023. Similar decision has been given by the Hon'ble ITAT, Chennai in various cases such as Shri Raju Dinesh Kumar vs DCIT in ITA No. 1321/Chny/2023 dated 19.01.2024 & Amar Sparklers Factory v. ITO in ITA No.808/Chny/2023 dated 11.10.2023. Similar findings have been given by various benches of the Hon'ble ITAT. Thus, the SBNs received by an assessee during normal course of business cannot be treated as income of the assessee if source for the same is established.

ITA No. 569/Chny/2026 (AY 2017-18) Mahalingamudallar Shyamalanathan Tamilselvan. :: 11 :: his sale of rice to various customers during the demonetization period. Hence, we fully agree with the findings of the Ld.CIT(A) in this regard. Further, we note that the Rs.1,10,77,900/- was part of the closing balance as on 08.11.2016 as accepted by the AO in Para 3 of the assessment order which has been deposited by the assessee on various dates because it is common knowledge that there was heavy rush in the bank for depositing the SBNs in the Bank and note that the banks were not accepting huge amounts at one go. Moreover, assessee’s books has been accepted, and not rejected; and the assessee in his books, has shown cash deposited as part of his sales/turnover, on which the assessee has offered tax of Rs.49,83,460/-; hence action of the AO to make addition u/s.69A of the Act tantamount to double addition which is not permissible. Hence Ld CIT(A) rightly deleted the same.

ITA No. 569/Chny/2026 (AY 2017-18) Mahalingamudallar Shyamalanathan Tamilselvan. :: 12 :: liability) Act, 2017, also stated that from the appointed date no person can receive or accept and transact specified bank notes, and appointed date has been stated as 31st December, 2016. Therefore, there is no clarity on how to deal with demonetized currency from the date of demonetization to 31st December, 2016. Therefore, under those circumstances, some persons continued to accept and transact the specified banknotes and deposited into bank accounts. Therefore, merely for the reason that there is a violation of certain notifications/GO issued by the Government in transacting with specified bank notes, the genuine explanation offered by the assessee towards source for cash deposit cannot be rejected, unless the Assessing Officer makes out a case that the assessee has deposited unaccounted cash into bank account in specified bank notes. 9. Hence, we do not find any infirmity in the findings recorded by the Ld.CIT(A) that the SBNs deposited during the demonetization period as legal, since the assessee was able to discharge the burden to prove the nature & source of the SBNS/cash deposits. Since, we fully agree with the reasons recorded by the Ld.CIT(A) we don’t want to again repeat the same. Hence, we uphold the action of the Ld.CIT(A) and dismiss the appeal of the Revenue.

Order pronounced on the 22nd day of July, 2026, in Chennai.

Sd/- Sd/- (गगन गोयल) (एबी टी. वक�) (ABY T. VARKEY) (GAGAN GOYAL) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�नई/Chennai, �दनांक/Dated: 22nd July, 2026. YS आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

YASHVIR Digitally signed by YASHVIR SINGH SINGH Date: 2026.08.03 16:02:33 +05'30'