PUSHPAVATI JANARDHAN RAO ,MUMBAI vs. ITO WARD 26(2)(7), MUMBAI

4. In the facts and circumstances of the case and in law, the Ld. Assessing Officer as well as Ld. CIT (Appeals) erred in treating cash deposits made in Specified Bank Notes [ in short SBN Rs. 500/- and Rs. 1000/-] during the demonetization period as unexplained, despite the fact that such receipts were from routine business operations and fully supported by substantiating documentary evidences.

5. In the facts and circumstances of the case and in law, the CIT(Appeals) has erred in sustaining the impugned addition of Rs. 30,58,500/-under section 69A of the Act in respect of the SBN deposited in bank account during the demonetization period disregarding the factual and legal matrix of the case.

6. All the above grounds are without prejudice to each other. The Appellant craves leave to add, alter, delete or modify all or any of the above grounds of appeal

.”

2. Briefly the facts of the case are that the assessee has e-filed the return of income declaring total income of Rs. 18,97,790/-. Subsequently, the case of the assessee was selected for scrutiny and after issuance of notices and calling for the necessary information and documentation, the AO made an addition of Rs.2,22,72,977/- for the reasons that the assessee failed to explain the nature and source of cash deposits in her bank account invoking the provisions of section 69A of the Income Tax Act, 1961 („the Act‟).

3. Being aggrieved, the assessee carried the matter in appeal before the Ld.CIT(A), who has since sustained the addition to the extent of Rs. 30,58,500/- and against the addition so sustained, the assessee is in appeal before us.

“5.2 I have gone through the materialistic facts of the case and contention of the appellant. During the course of appellate proceedings, the appellant has furnished the statement of facts and form no. 35 along with his submission which has been taken on record. The appellant has contended that she has deposited Cash amounting to Rs.2,22,72,977/- during demonetization period of 08.11.2016 to 31.12.2016. During the course of assessment proceedings the Appellant submitted relevant explanations/details to substantiate the source of cash deposits. The appellant is in the business of Wholesale and Retail sale of Milk and purchases milk from the manufacturer and supplies it to retailers and over the counter customers and door to door deliveries and in most cases the payment is received in cash. The nature of the milk business is itself a cash making business. The appellant makes cash sales of milk but the appellant has to make purchases by payment in cheques only. Hence, all the cash generated from the milk business was deposited in the bank accounts so as to enable the appellant to pay for its purchases of milk made from M/s. Kolhapur Dudh Utpadak Sangh Ltd.

5.3 The appellant further stated that the cash deposits made during the demonetization period were nothing but cash receipts earned out of the business proceeds and those cash deposits are routine in nature and not unusual. In support of her contention, attached the bank statements of the previous three years and the ledger confirmation of the parties from whom cash receipts on account of cash sales were made during the demonetization period. The appellant has also provided break up of cash deposited in previous and current year. Further, the appellant has provided deposit receipts of different dates, copy of sales register, bank statements showing cash deposit and payments through cheques, copy of balance sheet and profit and loss account, Details of Cash deposits during the period from 8-11-2016 to 31-12-2016, etc. 5.4 During the year there is marginal increase in the turnover and there is no abnormal increase in sales. Further, it is impractical and impossible task for the appellant to obtain details like PAN or Address from its customers. The end- consumers/retailers buys milk from the appellant in the morning and by evening the amount is paid in cash. Practically also it is unviable for the appellant to collect PAN and address of its customers for selling milk. Due to these stated reasons, the list provided by the appellant before the AO did not contain the address or PAN of these persons/entities. Most importantly, the sales are generally made in very small denomination to huge count of customers and it is practically difficult to maintain ledger of each of the customer or to get ledger confirmations from each of the parties. Naturally, a milkman will not maintain ledger of each of the house/retailer, especially when the amount is settled during within same or few days itself. It is not the kind of business where credit period is allowed for longer duration. It is established that the appellant is in the business of distribution and sale of milk in which daily cash collection and remittance was inevitable. Accordingly, the nature and source of the cash deposit into the bank account can be attributable to the business. 5.5 Further, during the appellate proceedings, the remand report dated 13.05.2025 was received from the AO. The concise facts of the remand report is paraphrased as under: The AO has made its findings based on the additional evidences submitted by the appellate during the appellate proceedings. The assessment in this case was made vide order u/s 143(3) dated 27.12.2019 determining total income at Rs.2,41,70,770/- as against returned income of Rs. 18,97,790/- after making addition u/s 69A being Unexplained money to the tune of Rs.2,22,72,977/-. The AO has found that due to the time constraints, the assessee could not furnish the required details resulting in addition of Rs.2,22,72,977/- u/s 69A of the IT Act. After proper verification of the evidences, the AO has found that- 1. Most of this cash was deposited in the bank as payment for purchases made by cheques only. In support thereof, the assessee has provided copy of agreement dated 02.05.2015 with M/s. Kolhapur Dudh Utpadak Sangh Ltd., Manufacturer of Gokul milk algong with ledger confirmation of the appellant in the books of M/s. Kolhapur Dudh Utpadak Sangh Ltd. The appellant has made purchases from M/s. Kolhapur Dudh Utpadak Sangh Ltd to the tune of Rs.26,64,96,908/- and achieved sales to the tune of Rs.27,86,28,728/-. The assessee has submitted copy of cash book, daily sales register and party-wise details of the sales party during the year. As the daily sales made are small in figures and runs to several persons running in around 674 pages, it was practically not possible to verify such petty cash sales.

4. Further, there was availability of cash balance available with the assessee as on 07.11.2016 as per cash book submitted was to tune of Rs.25,70,945/-. From the above set of circumstances and analysis of the details filed vis-à-vis the comparison of the deposits and turnover of the assessee in the current as well as preceding two years, it was be concluded by the AO that looking in to the line of business of the assessee which is mainly in cash, leakage of revenue on account of major portion of sales being in cash. However, as per details submitted, the cash deposits made during the year are in line with the deposits made in the preceding years also. The AO has requested that the appeal of the assessee may please be decided on the merits of the case. 5.7 The appellant has submitted corroborative documentary evidence during the appellate proceedings regarding the source of cash deposited during the demonetization period. The AO should have considered the business model of the appellant and cash deposits in the earlier months before making addition. Demonetization is not the only period during which the appellant has made cash deposits. Moreover, the submission clearly shows that the cash deposit was comparatively lesser in the current years same period compared to the earlier two preceding year. Further, as per the certificate from bank stating details of old specified bank notes and new currency during the demonetization period i.e. 8.11.2016 to 31.12.2016, there was total cash deposit of Rs.2,22,83,947/- in the bank account of the appellant and out of which the old specified banned notes deposited were to the tune of Rs.30,58,500/- only. It means that the total old notes i.e. specified bank notes deposited in the bank account during the demonetization period was to the tune of Rs.30,58,500/- only. 5.8 In the assessment order, the AO has mentioned that the appellant has deposited total cash in their bank accounts during demonetization period to the extent of Rs.2,22,83,947/-. However, as per the remand report, the total old notes i.e. specified bank notes deposited in the bank account during the demonetization period was to the tune of Rs.30,58,500/- only. The appellant has submitted that as per cash book, there was availability of cash balance available with the assessee as on 07.11.2016 to tune of Rs.25,70,945/- and by submitting this fact the AO has justified the deposition of SBNs in his bank account during the demonetization period. However, after going through the details, it is found that the appellant has deposited this amount on different dates. When the appellant has in his possession cash of Rs.25,70,945/- before demonetization, then why it has deposited it in different dates instead of depositing the same in one go. It raises the doubt on the genuineness of the submission of the appellant regarding the amount of Rs.30,58,500/-deposited in the bank account during the demonetization period in specified bank notes was the cash that was already available with him before initiation of demonetization. It clearly shows that it has received the said amounts from his customers in SBNs from 09.11.2016 to 30.12.2016 and deposited the same in his bank accounts. 5.9 As per the gazette notification in No. 2652 dated 08.11.2016 that. 500 and 1000 denominations of bank notes of existing series issued by the RBI shall cease to be legal tender w.e.f. 09.11.2016 to the extent specified in the notification. Consequently, on the night of 08-11-2016, the Hon'ble Prime Minister of India while addressing the Nation has announced the decision of the Central Government to withdraw the legal tender status to the existing series of bank notes of the value of Rs.500 and Rs.1000 w.e.f. 09-11-2016, which was said to be a measure to tackle black money in the economy, to lower the cash circulation which is directly related to corruption in our Country, and to eliminate fake currency. Accordingly, a Notification in S.O. No. 3407(E) dated 08-11-2016 was also issued withdrawing the legal tender status to the bank notes of the value of Rs.500 and Rs. 1000 (referred to as specified bank notes or SBNs). However, in the said Notification, a facility was granted to the holders of SBNs for the deposit of such SBNs in their account maintained with any bank on or before 30-12-2016 so that the equivalent value of SBNs will be credited to such accounts. The Government has further announced that the SBNs will continue to be legal tender during demonetization period for the limited purpose of making payments at places like petrol bunks, gas agencies, etc. Thus, except where the SBNs were deposited in a bank, or exchanged for goods / services at designated places like petrol bunks etc., in all other cases such SBNs were no longer legal tender w.e.f. 09-11-2016. If the SBNs are claimed to have been dealt by the persons who held the SBNs as on 09-11-2016, in a manner other than what was prescribed in the statutory Notification, like exchanging the same with unauthorized persons other than banks, and if such a claim is accepted, it would bring the said statutory Notification, which was issued as a measure to tackle black money, to ridicule and renders it nugatory. Also, since the 'public policy' behind the withdrawal of legal tender status to the SBNs from 09-11-2016 onwards was explained by the Central Government to be a measure to tackle the black money in the economy, to lower cash circulation which is directly linked to corruption, fake currency etc., any claim of acceptance of SBNs as a part of contract of sale is opposed to the said 'public policy' as announced by the Central Government and vitiates the whole exercise of demonetization. 5.10 The AO has found the appellant at fault due to collection from other persons of SBNs and deposition of those SBNs in its own bank accounts against the Notification in S.O. No. 3407(E) dt. 08-11-2016 issued by the Central Government, due to which entire amount collected and deposited in SBNs should be treated as unexplained money and needs to be brought to tax accordingly. Further, considering the principle of natural justice, request of the appellant for personal hearing (Video Conference) was accepted and subsequently, personal hearing was conducted on 28.05.2025. After successfully conducting the personal hearing, the appellant has made another submission which is reproduced as under: With reference to the video conferencing held on 28.05.2025 the appellant hereby states that:

1. 1. The Ld. Assessing Officer finalized the assessment under section 143(3) of the Act vide order dated 27.12.2019 after making an addition of Rs. 2,22,72,977/- under section 69A of the Act treating the cash deposited during demonetization period as unexplained money.

2. Being aggrieved with the aforesaid addition, the Appellant preferred to file an appeal before the Hon'ble Commissioner of Income Tax (Appeals) -38, Mumbai on 22.01.2020. During the course of appeal proceedings, the Appellant had submitted its details submission along with additional evidences as per the provision of Rule 46A. The case was remanded back to the Assessing Officer for perusal of the additional evidences filed and sought his comment on the same.

3. During the course of appeal proceedings, the Appellant had submitted its details submission along with additional evidences as per the provision of Rule 46A. The case was remanded back to the Assessing Officer for perusal of the additional evidences filed and sought his comment on the same.

4. The Appellant is in receipt of Remand Reports dated 07.05.2025 and 13.05.2025 in respect of additional evidences filed by the Appellant during the Appellate proceedings.

5. In the Remand Report, the Learned Assessing Officer, upon examination of the records, has acknowledged the following “The assessee delivers milk in the morning and goes round collecting payment in the evening and in most cases the payment is received in cash. Most of this cash is deposited in the bank as payment for purchases have to be made by cheques only In support thereof, the assessee has provided copy of agreement dated 02.05.2015 with M/s. Kolhapur Dudh Utpadak Sangh Ltd, Manufacturer of Gokul milk algongwith ledger canfirmation of the assessee in the books of M/s. Kolhapur Dudh Utpadak Sangh Ltd. Perusal of the financial statements it is observed that the assessee has made purchases from M/s. Kolhapur Dudh Utpadak Sangh Ltd to the tune of Rs26,64,96,908/- und achieved sales to the tune of Rs 27,86,28,728/- The assessee has submitted copy of cash book, daily sales register and partywise details of the soles party during the year."

9. Case laws relied upon by Appellant (a) In the case of B.K. Rajanna v. Income-tax Officer 170 taxmann.com 335 (Bangalore Trib.) where in it was held that Where assessee, bar and restaurant owner, deposited cash in bank account during demonetization period out of sale, since Assessing Officer had accepted book results of bar and restaurant business, if assessee established that amount of cash deposit was generated out of its business, no addition deserved to he made (Kindly Refer Annexure A for the Case law) 10. News Report of Economic Times The government has permitted various exemptions for certain transactions and activities wherein payment could be made through old Rs 500 noites. The buisness of the appellant is covered under this category. (Kindly Refer Annexure B for the News Report) We hope your Honours finds the above submission in order. The Appellant hereby request your Honours to kindly consideration the above submission and delete the impugned addition made by the Ld. Assessing officer. However, if your honours require further details/documents/clarification in this regard, the Appellant request your honours to provide us an opportunity of being personally heard so that the matter can be explained effectively. 5.11 All the submissions of the appellant and other material like remand report, assessment order, statement of facts, etc were considered by the undersigned in detail. At the time of assessment proceedings, the AO did not consider this point and made the addition of total cash deposited during the demonetization period, as unexplained. If the appellant is regularly depositing cash into her bank account due to its business model and all these cash was accepted by the AO as explained, because neither any question was raised nor any addition in this regard was made by the AO, then cash deposited during the demonetization period (not in SBNs) should also be considered as explained by the AO. Considering all the material available before me in the light of remand report and the submissions of the appellant, the ground nos. 1 to 6 of the appeal is partly allowed and accordingly, the addition is restricted to Rs.30,58,500/- u/s 69A of the act and the remaining addition of Rs.1,92,25,447/- made by the AO is hereby deleted.”

6. The assessee has challenged the aforesaid findings of the Ld.CIT(A) to the extent and relating to sustenance of addition of Rs 30,58,500/- stating that the Ld.CIT(A) has failed to appreciate the comments of the AO in the remand report wherein it has been stated by the AO that the cash deposits made during the relevant year were in line with the cash deposits made during the immediately preceding two assessment years, that there was opening cash balance of Rs.25,70,945/- available with the assessee as on 07-11-2016, that the line of business of the assessee is such which is mainly conducted in cash and that despite the fact that such receipts were from routine business operations and fully supported by substantiating documentary evidences, the additions have been sustained.