KRISHNA PETROLEUM,NADIAD vs. THE ITO, WARD-1, NADIAD

The solitary issue in the present case relates to addition made to the income of the assessee on account of cash fund deposited in his bank account during demonetization period amounting to Rs.63,96,500/- on account of the source of the same remaining unexplained. The assessee has raised several argumentative grounds before us numbering 13, but, the solitary issue before us is as stated above.

The facts relating to the case are that the assessee is a firm dealing in retail petrol pump product from M/s. Essar Oil Ltd. The return of income for the impugned year i.e. A.Y. 2017-18 was filed declaring total income of Rs.3,00,740/-. The case of the assessee was reopened for assessment on the basis of information that the assessee had made substantial cash deposits in Specified Bank Notes (SBN) during the period of demonetization. A notice u/s.148 of the Act was issued and, thereafter, the assessment framed making addition of cash deposited in the bank amounting to Rs.63,96,500/- treating the same as unexplained money u/s.69A of the Act.

Ld. CIT(A) confirmed the same.

We have heard both the parties and have gone through the orders of the authorities below and we have noted that the only adverse finding recorded against the assessee in relation to cash deposited in the bank account of the assessee during demonetization period was that the same was deposited in SBN which the assessee was not authorized to collect. At para 5.6 of the order of the Ld. CIT(A), it is noted that the AO had brought attention towards Press release dated 08.11.2016 of the Press Information Bureau communicating the decision of the Government of India to cease the legal tender character of the High Denomination bank notes of Rs.500 and Rs.1000 from the expiry of the 08th November, 2016. That in the same document, it was mentioned that to avoid inconvenience to the public for the first 72 hours, Old High Denomination Bank Notes would continue to be accepted at Government Hospitals and pharmacies and others including petrol, diesel, gas stations of Public Sector Oil Marketing Companies. At para 5.8, Ld. CIT(A) notes that the assessee being a private petrol dealer, it was not authorized to collect the SBNs. Despite so the assessee collected them and deposited the same in its bank accounts. He further goes on to hold that the contention of the assessee that the said cash represented sales of the assessee had not been disputed by the AO, is not tenable since the question of genuineness of the sale does not arise when the sale has been made in an unauthorized way.

What is evident from the above is that the only case of the Department for treating the cash deposits in the bank accounts of the assessee as unexplained is that the same were deposited in SBNs and the assessee was not authorized to collect the same. The Revenue does not dispute the fact nor is there any finding to the effect that they did not represent the sales of the assessee. Therefore, the only case of the Revenue is that since they were in SBNs, which were illegally collected by the assessee, sales so made in consideration of such SBNs could not be treated as genuine. Without disputing/dislodging the fact of the cash deposited in the bank account representing sales of the assessee, the cash deposited, we hold, could not have been treated as unexplained merely for the reason that the assessee acted in an illegal manner by making sales in exchange of SBNs which it was not authorized to do. Any illegal act conducted by the assessee of having transacted in SBNs without authorization will attract its own consequences as per law applicable with respect to the same, but the same would have no consequence under the Income Tax Act. In view of the same, we hold that in the facts of the present case, the source of the cash deposited in the bank account of the assessee during demonetization period amounting to Rs.63,96,500/- is admittedly out of sales transaction in its business activity and, therefore, cannot be treated as unexplained sources. The addition made to the income of the assessee,

In the result, appeal filed by the assessee is allowed.