EBRAHIM MOHAMED ALI,CHENNAI vs. ITO, NCW-8(2), CHENNAI

आदेश / O R D E R

PER MANU KUMAR GIRI, JM:

The present appeal has been filed by the assessee against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“CIT(A)/NFAC”] dated 09.09.2025 for the Assessment Year 2017-18 arising out of the assessment completed u/s. 143(3) of the Income Tax Act, 1961 (“the Act”).

ITA No.3141/Chny/2025 (AY: 2017-18) Ebrahim Mohamed Ali Vs ITO NCW 8(2) :: 2 :: 2. Facts of the case: The assessee is an individual carrying on business as sole proprietor under the name and style of M/s. Hajara’s Snacks, engaged in the manufacture and sale of Murukku and other snack items. The assessee also derived rental income from properties during the relevant previous year. The return of income for AY 2017-18 was filed on 16.11.2017 declaring a total income of Rs.7,14,120/-. The case was selected for limited scrutiny under CASS for verification of cash deposits made during the demonetization period. 2.1 During the course of assessment proceedings, it was noticed that the assessee had deposited substantial cash in specified bank notes (“SBNs”) during the demonetization period in various bank accounts maintained with Allahabad Bank, Indian Overseas Bank and Bank of Maharashtra. The details of cash deposits as reported by the assessee were as follows: Sl.No Bank Name Account Number Amount Deposited (Rs.)

1 Allahabad Bank 20060868160 16,90,000 2 Allahabad Bank 50296531702 11,60,000 3 Allahabad Bank 50362224937 5,00,000 4 Indian Overseas Bank 131001000010493 5,12,604 5 Bank of Maharashtra 20022114356 9,00,000 47,62,604 Total Subsequently, based on information obtained directly from the banks u/s. 133(6) of the Act, the Assessing Officer (“AO”) determined that actual cash deposits made during the demonetization period aggregated to Rs.42,59,520/-. In response to notices issued u/s. 142(1), the assessee explained that the source of cash deposits was out of cash balance available as on 08.11.2016 and regular business sales realized during the

ITA No.3141/Chny/2025 (AY: 2017-18) Ebrahim Mohamed Ali Vs ITO NCW 8(2) :: 3 :: course of business. The assessee also furnished copies of cash book and other books of account in support of the explanation. 2.2 During verification of the bank statements and books of account, the AO noticed that the total credits appearing in the bank accounts amounted to Rs.1,11,04,812/- whereas the gross receipts disclosed in the profit and loss account were only Rs.44,67,092/-, resulting in a difference of Rs.66,37,720/-. On being questioned, the assessee explained that a sum of Rs.1,64,000/- represented LIC maturity proceeds and further agreed for estimation of net profit at 8% on the remaining differential amount of Rs.64,73,720/-. Accordingly, the AO made an addition of Rs.5,17,898/- being 8% of the differential turnover as business income. 2.3 Apart from the above, the AO accepted cash deposits in SBNs to the extent of Rs.10,20,000/- representing deposits made between 10.11.2016 and 13.11.2016, but treated the balance cash deposits of Rs.32,39,520/- made during the subsequent period as unexplained money u/s. 69A read with section 115BBE of the Act. The assessment u/s. 143(3) was completed on 17.12.2019 by making additions of Rs.5,17,898/- towards estimated profit and Rs.32,39,520/- u/s. 69A of the Act. 2.4 During the assessment proceedings, the AO examined the issue of cash deposits made during the demonetization period. The assessee contended that the deposits represented business receipts and cash balance available as on 08.11.2016. However, the AO was not satisfied with the explanation furnished by the assessee. The AO observed that pursuant to Notification No. S.O. 3407(E) dated 08.11.2016 issued by the Central Government u/s. 26(2) of the RBI Act, the specified bank notes of Rs.500/- and Rs.1,000/- ceased to

ITA No.3141/Chny/2025 (AY: 2017-18) Ebrahim Mohamed Ali Vs ITO NCW 8(2) :: 4 :: be legal tender from 09.11.2016 except for limited specified purposes. The AO held that after 08.11.2016, the assessee was not legally entitled to accept SBNs in the course of normal business transactions since the assessee did not fall within any of the exempted categories notified by the Government. According to the AO, any receipt of SBNs after 09.11.2016 could not constitute valid business receipts capable of being recorded in the books of account. The AO further referred to Sections 17, 22 and 26 of the RBI Act, 1934 and concluded that once SBNs ceased to be legal tender, they lost monetary character and therefore could not be treated as valid consideration in commercial transactions. The AO also applied the “test of human probabilities” relying upon the decisions of the Hon’ble Supreme Court in CIT v. Durga Prasad More, and Sumati Dayal v. CIT. According to the AO, any prudent person possessing large quantities of SBNs would immediately deposit the same into bank accounts upon announcement of demonetization and would not continue to hold and deposit such notes in piecemeal over several dates extending up to December 2016. The AO observed that the assessee had made deposits of Rs.32,39,520/- on various dates from 14.11.2016 to 30.12.2016 and therefore the explanation that such deposits arose from regular business sales was against human conduct and probabilities. The AO also observed that the assessee failed to establish with satisfactory evidence that the impugned cash deposits represented genuine business receipts. Accordingly, the AO concluded that the deposits constituted unexplained money within the meaning of section 69A of the Act and added Rs.32,39,520/- u/s. 69A read with section 115BBE. Further, on examination of bank credits vis-à-vis turnover disclosed

ITA No.3141/Chny/2025 (AY: 2017-18) Ebrahim Mohamed Ali Vs ITO NCW 8(2) :: 5 :: in the profit and loss account, the AO found unexplained differential credits of Rs.66,37,720/-. Since the assessee agreed for estimation of profit at 8% on the differential amount after excluding LIC maturity proceeds, the AO made an addition of Rs.5,17,898/- as business income. 3. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A)/NFAC. The CIT(A), after considering the submissions of the assessee, confirmed the additions made by the AO and dismissed the appeal. The CIT(A) considered the written submissions filed by the assessee during appellate proceedings but was not convinced with the explanations offered. The CIT(A) observed that the assessee had made substantial cash deposits during the demonetization period and had failed to satisfactorily establish the nature and source of such deposits through credible documentary evidence. The CIT(A) held that mere recording of transactions in the books of account does not automatically establish their genuineness. According to the CIT(A), section 69A of the Act is attracted where the assessee fails to satisfactorily explain the nature and source of money even if such transactions are reflected in the books. The CIT(A) relied upon the decision of the Hyderabad Bench of the Tribunal in the case of Vaishnavi Bullion Pvt. Ltd. v. ACIT wherein it was held that acceptance of SBNs after demonetization notification contrary to RBI directions justified additions under the Act. The CIT(A) observed that the assessee failed to produce supporting documents such as sale invoices, buyer details, stock movement records, delivery challans, and corroborative evidence substantiating the alleged business sales. The CIT(A) further noted that there was an abnormal spike in cash

ITA No.3141/Chny/2025 (AY: 2017-18) Ebrahim Mohamed Ali Vs ITO NCW 8(2) :: 6 :: deposits during the demonetization period compared to earlier business trends and the assessee failed to satisfactorily explain such abnormality. According to the CIT(A), even if purchases and stock records were broadly accepted, the burden still lay upon the assessee to prove that the impugned cash deposits represented genuine and verifiable sales. In the absence of satisfactory evidence, the AO was justified in invoking section 69A. The CIT(A), therefore, upheld the addition of Rs.32,39,520/- made u/s. 69A and dismissed the appeal filed by the assessee. Hence, the assessee is in further appeal before this Tribunal. 4. The ld. AR for the assessee submitted that the authorities below erred in treating the impugned cash deposits as unexplained money u/s. 69A of the Act despite the fact that the deposits were duly recorded in the regular books of account maintained in the ordinary course of business. It was submitted that the assessee is engaged in a cash-intensive business of manufacture and sale of snacks and had sufficient cash balance as on 08.11.2016. The source of deposits was clearly explained as being out of cash balance available as on 08.11.2016, and regular business sales during the demonetization period. The assessee contended that the AO himself accepted part of the deposits amounting to Rs.10,20,000/- and therefore there was no justification for treating the remaining deposits as unexplained merely because they were deposited on later dates. It was argued that the Government had permitted deposit of SBNs up to 30.12.2016 and therefore there was nothing illegal or abnormal in depositing old notes over a span of time during the permitted period. The assessee further submitted that the AO wrongly applied the theory of human probabilities without

ITA No.3141/Chny/2025 (AY: 2017-18) Ebrahim Mohamed Ali Vs ITO NCW 8(2) :: 7 :: appreciating practical difficulties faced during the demonetization period. It was pointed out that banks witnessed huge crowds and long queues, withdrawals of new currency were restricted, banks themselves advised staggered deposits, and compliance with statutory deadlines is commonly undertaken gradually and often near the closing date. The assessee also challenged the AO’s interpretation of the RBI Act and demonetization notifications. It was submitted that under the provisions of the Specified Bank Notes (Cessation of Liabilities) Act, 2017, SBNs continued to retain value and exchangeability up to 31.12.2016 and therefore could validly form part of business transactions and accounting records during the intervening period. The assessee contended that section 69A applies only where money is not recorded in the books of account and the source thereof remains unexplained. In the present case, the deposits were duly reflected in books and arose from disclosed business receipts. Therefore, invocation of section 69A was legally untenable. It was further argued that the AO had already estimated business income at 8% on enhanced turnover of Rs.1,09,40,812/- and therefore separate addition of cash deposits u/s. 69A amounted to double taxation of the same receipts. The assessee accordingly prayed for deletion of the addition of Rs.32,39,520/-. 5. The ld.DR strongly supported the orders of the AO and CIT(A). It was submitted that after demonetization, acceptance of SBNs in ordinary business transactions was prohibited except in specified exempted categories and admittedly the assessee did not fall within any exempted category. The Revenue contended that the assessee failed to produce reliable and verifiable evidence such as sale bills, customer particulars, delivery records, quantitative stock details,

ITA No.3141/Chny/2025 (AY: 2017-18) Ebrahim Mohamed Ali Vs ITO NCW 8(2) :: 8 :: and corroborative business evidence to substantiate the claim that the impugned deposits represented genuine business receipts. It was argued that there was an unusual and disproportionate increase in cash deposits during the demonetization period which was inconsistent with normal business patterns and therefore justified invocation of the test of human probabilities. The Revenue further submitted that mere entries in books of account do not establish genuineness of transactions and the assessee failed to discharge the burden cast upon him u/s. 69A of the Act. Reliance was placed on the decision of Vaishnavi Bullion Pvt. Ltd. v. ACIT to contend that acceptance of SBNs after demonetization notification and subsequent deposit into bank accounts justified additions under the Act where supporting evidence was lacking. The Revenue therefore submitted that the AO had rightly treated the impugned deposits as unexplained money and the CIT(A) was justified in confirming the addition. 6. We have heard the rival submissions, perused the orders of the lower authorities and carefully considered the material available on record. The solitary issue arising for consideration in the present appeal relates to the addition of Rs.32,39,520/- made by the Assessing Officer u/s. 69A of the Income Tax Act, 1961, towards cash deposits made during the demonetization period and confirmed by the ld. CIT(A). 7. The undisputed facts borne out from the record are that the assessee is carrying on business as proprietor of M/s. Hajara’s Snacks engaged in manufacture and sale of Murukku and snacks. The assessee admittedly maintained regular books of account and the impugned cash deposits were recorded in the cash book

ITA No.3141/Chny/2025 (AY: 2017-18) Ebrahim Mohamed Ali Vs ITO NCW 8(2) :: 9 :: maintained in the ordinary course of business. The assessee had explained that the deposits represented:

ITA No.3141/Chny/2025 (AY: 2017-18) Ebrahim Mohamed Ali Vs ITO NCW 8(2) :: 10 :: account maintained by the assessee were rejected u/s. 145 of the Act. No defects in quantitative tally, purchases, stock records or sales have been conclusively established. Further, no material has been brought on record to demonstrate that the impugned cash deposits represented income from sources outside the regular business activity of the assessee. We further find force in the contention of the assessee that once the Assessing Officer himself estimated business income on the enhanced turnover by applying net profit rate, separate addition of the very same receipts u/s. 69A would amount to taxing the same income twice, which is impermissible under law. The ld.CIT(A) confirmed the addition by relying upon the decision in Vaishnavi Bullion Pvt. Ltd. v. ACIT. However, the facts of the present case are clearly distinguishable. In the said case, there was categorical material indicating fabrication and backdated receipts coupled with adverse forensic findings. In the present case, no such incriminating material has been brought on record by the Revenue. On the contrary, the issue involved in the present appeal is squarely covered in favour of the assessee by the decision of the Chennai Benches of the Tribunal in the cases relating to Tamilnadu State Marketing Corporation Ltd., (TASMAC) vs ACIT ITA No. 431/Chny/2023 dated 07.10.2024, wherein the Tribunal held that cash deposits made during demonetization period out of business receipts duly recorded in books of account cannot be treated as unexplained money u/s. 69A merely because such receipts were in SBNs. 11. The Chennai Tribunal in the TASMAC line of decisions held that: • once sales are accepted and recorded in books, • corresponding cash deposits in bank cannot be separately assessed u/s. 69A,

ITA No.3141/Chny/2025 (AY: 2017-18) Ebrahim Mohamed Ali Vs ITO NCW 8(2) :: 11 :: demonetization by itself does not render business receipts • non-genuine, • and section 69A has no application where the money is duly recorded in the regular books of account.

ITA No.3141/Chny/2025 (AY: 2017-18) Ebrahim Mohamed Ali Vs ITO NCW 8(2) :: 12 :: 13. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 22nd day of May, 2026 at Chennai.

Sd/- Sd/- (प�ावती एस) (मनु कुमार िग#र) (PADMAVATHY S) (MANU KUMAR GIRI) लेखा सद#या/ACCOUNTANT MEMBER $या�यक सद#य/JUDICIAL MEMBER चे$नई/Chennai, &दनांक/Dated: 22nd May, 2026. SNDP, Sr. PS आदेश क� ��त'ल(प अ)े(षत/Copy to: 1. अपीलाथ�/Appellant/Assessee 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF