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

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 alleging it to be unexplained money merely because as per the view of the Ld. Assessing Officer (based on notifications issued by Central Government) it was impermissible to transact in the SBN.

In the facts and circumstances of the case and in law, the Ld. CIT (Appeals) failed to appreciate that business receipts being cash sales made by the Appellant which were subsequently deposited into the bank account cannot be regarded as unexplained money under section 69A of the Act especially when such cash sales were duly recorded in the books of account.

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.

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.

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.”

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

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.

None appeared on behalf of the assessee, however an adjournment application was moved by the assessee stating that the assessee seeks time to file necessary paper book. Given the fact that all relevant material is available on record, it was decided that no useful purpose would be served in adjourning the matter any further and the matter can be decided as per the basis material available on record.

We refer to the findings of the Ld.CIT(A) in the impugned order and the relevant findings read as under:

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 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:

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

It was seen that the cash deposits made during the current financial year and two preceding years was similar to each other. The figures are Rs. 19,15,69,576/- in FY 2014-15; Rs.19,55,51,358/- in FY 2015-16 and Rs. 19,51,96,901/- in the current year i.e. FY 2016-17 relevant to AY 2017- 18. 3. The cash deposit was comparatively lesser in the current years same period compared to the earlier two preceding year. Further, the assessee submitted 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. It was seen that though there was total cash deposit of Rs.2,22,83,947/- in the bank account as per certificate issued by the bank, the old specified banned notes deposited are to the tune of Rs.30,58,500/- only which have been deposited during the period 08.11.2016 to 11.11.2016. From the above, it is found that the total old notes i.e. specified bank notes deposited in the bank account during the demonetization period is to the tune of Rs.30,58,500/-.

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.

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

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.

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 7 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.

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:

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.

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.

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.

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.

In the Remand Report, the Learned Assessing Officer, upon examination of the records, has acknowledged the following

Further, the Learned Assessing Officer also acknowledged the fact that cash deposit made in the demonetization period ie. between October to December of the financial year is comparatively lesser than the earlier two preceding year by providing the reference of the below mentioned table:

The Learned Assessing Officer also acknowledged the certificate from hank stating details of old specified bank notes and new currency during the demonetization period ie. 8.11.2016 to 31.12.2016. As per the said certificate the total deposit during the demonetization period i.e. 8.11.2016 to 31.12.2016 is to the tune of Rs.30,58,500/-Further, there is availability of cash balance available with the appellant as on 07.11.2016 as per cash book submitted is to tune of Rs.25.70,945/-

Overall conclusion of the Ld. Assessing Officer based on the above finding:

Case laws relied upon by Appellant

News Report of Economic Times

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.”

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 10 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.

The Ld. DR has been heard, who has relied on the order passed by the Ld.CIT(A) and it was submitted that since the deposits were made in specified bank notes during the demonetization period, the Ld.CIT(A) has rightly held the same to be un-explained money in absence of necessary explanation from the assessee and has sustained the addition to that extent and the remaining addition has already been deleted and, therefore, the assessee has been granted necessary relief and no further relief be provided to the assessee.

We have heard the Ld.DR and perused the material available on record. As evident from the findings of the Ld.CIT(A) as well as that of the AO in the remand report, the assessee is in the business of wholesale and retail sale of milk and it purchases milk from the manufacturer and supplies it to the retailers, over the counter customers and door to door deliveries and most of the cases, the payment is received in cash. The assessee makes cash sales of milk, however, the purchases are made through payment in cheques only and all the cash generated from the milk business was deposited in the bank account so as to enable the assessee to pay for the purchases made from M/s. Kholapur Dudh Utpadak Sangh Ltd. The nature and source of the cash deposits in the bank account have 11 thus not been disputed either by the AO or by the Ld.CIT(A) as attributable to the business of wholesale and retail sale of milk by the assessee. Further it is noted that the assessee has deposited a sum of Rs. 30,58,500/- during the period 08-11-2016 to 31-12-2016 in the specified bank notes and the explanation furnished by the assessee was that there was availability of cash balance as on 07-11-2016 as per the Cash Book amounting to Rs. 25,70,945/-. The said fact has been verified by the AO as evident from the remand report. However, the Ld.CIT(A) has raised a doubt on the genuineness of the said submission, stating that the assessee has deposited this amount on different dates instead of depositing on the same day and, therefore, the Ld.CIT(A) has arrived at a finding that the assessee has in fact received the said amount from 09-11-2016 to 30-12- 2016 and, therefore, not being a legal tender and the assessee not being authorized, the same was held as un-explained money and the amount has been sustained to that extent in the hands of the assessee.

We find that where the AO has given the clear finding that there is an opening cash in hand to the extent of Rs. 25,70,945/- as per the Cash Book maintained by the assessee, which was duly produced for verification during the remand proceedings, there is no basis to arrive at a finding without disputing any of the entries so made in the Cash Book and in absence of any adverse material brought on record and by merely raising a doubt on the genuineness of the submissions of the assessee regarding the amount deposited in the bank account during the demonetization period in specified bank notes was out of the cash that was already available with the assessee before date of demonetization. Therefore, we are of the considered opinion that as the assessee has provided the reasonable explanation as duly substantiated to the extent of Rs 25,70,945/-, the impugned addition to the extent of Rs. 25,70,945/- made u/s. 69A of the 12 Act in respect of the specified bank notes deposited in bank account of the assessee during the demonetization period, alleging the same to be un-explained money merely because of doubt by disregarding the factual and legal matrix of the case, is not correct and the same is hereby deleted. In the result, the AO is directed to delete the addition to the extent of Rs.25,70,945/- and the remaining addition is sustained.

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