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Facts
The assessee, operating a mobile recharge business, challenged additions made by the AO under Section 69A for cash deposits during the demonetization period (AY 2017-18). The AO concluded that the increased cash sales were solely to deposit demonetized cash, treating it as undisclosed income. The assessee argued that the deposits were from legitimate business receipts, not undisclosed income.
Held
The Tribunal found that the assessee consistently deposited cash from business receipts, and the deposits made during the demonetization period were not disproportionately high compared to preceding months. Considering the nature of the business, which was permitted to collect old demonetized notes, the Tribunal concluded that the cash deposits were from disclosed business receipts. Therefore, the additions made under Section 69A were unwarranted and were deleted.
Key Issues
Whether cash deposits made by a mobile recharge business during the demonetization period constituted undisclosed income under Section 69A, considering the business nature and pattern of cash deposits.
Sections Cited
250, 69A
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Income Tax Appellate Tribunal, “SMC” BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN
Date of Hearing 08.05.2025 Date of Pronouncement 27.05.2025 आदेश / ORDER
PER SANDEEP GOSAIN, JM:
The present appeal has been filed by the assessee challenging the impugned order 20.12.2023 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the assessment year 2017-18.
All the grounds raised
by the assessee are interconnected and interrelated and relates to challenging the order of Ld. CIT(A) in confirming the additions made by 2. Harshal Dinesh Shah AO u/s 69A of the Act, therefore, I have decided to adjudicate all these grounds through the present consolidated order.
Ld.AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before the revenue authorities and the same is reproduced here in below:
Detailed working of the same has been attached herewith. The Breakup of ICICI Currency wise deposit has been obtained from the Bank Themselves. Email from the Bank Along with Excel file of the Deposit breakup has been attached herewith for your perusal. Cash Deposit Slips of the Deposits for BOI have been attached herewith for your perusal. b. As is evident from the statement above, the total amount deposited during the demonetization period includes only 3 Harshal Dinesh Shah Rs.16,32,000/- of demonetized Currency and not Rs.43,12,290/-.
C. Being a retailer in the business of Mobile Recharge, the Appellants business was one of the businesses that was allowed to collect Old Demonetized Notes up to the period of 15 th December for Recharges. As a matter of fact, cellular operators body COAI had given strict guidelines to accept these notes from customers. This fact that the appellant is a distributor and a retailer in the business of Mobile Recharge business is already noted in the Notes to Accounts of the Balance Sheet. The learned A.O. has in his order has not found the above acceptable stating that the appellant is only a distributor. However, the learned A.O. has in Point No. 6 of his order himself stated that the 'The assessee is the distributor and retailer of prepaid recharge vouchers'. The Appellant has provided contradictory views on the matter. d. As is evident from the Cash Workings attached, only an amount of Rs 22,000/- was deposited in demonetized currency post the 15th December. Except the above all the deposits in the Demonetized currency were prior to the 15th December. In fact, out of the total amount of Demonetized Currency deposited into ICICI Bank Account of Rs.4,25,000/-, a total of Rs.4,00,000/- was deposited on the 10th of November which was out of the proceeds of the sales prior to 8th November. Similarly, an amount of Rs.3,00,000/- was deposited on the 11th of November which was out of the sales prior to the 8th November.
4 Harshal Dinesh Shah As is evident from the above, the Appellant has deposited substantial amounts of cash during the whole year and it is not a case of cash being deposited only during the demonetization period. The learned A.O. had in his Show Cause Notice stated that "In the P & L Account submit by you it is apparent that your Revenue from Operations for F.Y. 2016- 17 in compare to F.Y.2015-16 is increased more than 1100% and in same year you have deposited huge amount of cash during the demonetization. This accounting variations clearly indicates that you have manipulated the sales figure to adjust the cash and made the unaccounted cash as accounted."
Based on the above, the learned A.O. came to the conclusion that the appellant had increased cash Sales in the demonetization period solely to deposit Demonetized Cash. However as is evident from the above, the cash deposited during the demonetization period is the lowest monthly amount in the entire year. In fact, the total Cash Deposited during the months of November and December Rs.62,68,340/- is only 10.73% of the Total Cash Deposited during the whole year. As a matter of fact, the Cash Deposited in the month of November 2016 and December 2016 is respectively 32% and 40% less than the Average Monthly Cash Deposited during the whole year (Rs.48,68,550/-)
5 Harshal Dinesh Shah f. The Learned A.O. has also stated that the revenue of the Appellant has risen by more than 1100%. However, we would like to state that appellant was employed up to the period January 2016 with MOS Utility Private Limited and started the business only in the month of February 2016. Essentially the Appellant has run the aforementioned business only in the 2 months of February 2016 and March 2016. This is the reason for the Huge Increase in Revenue for F.Y. 2016-17 as compared to the revenue for F.Y. 2015-16. Copy of the Balance Sheet and Income Tax Return for F.Y. 2015-16 has been attached herewith for your perusal. g. From the above, it is evident that the Cash Deposited during the demonetized period is not out of undisclosed income but from the business Receipts of the Appellant. Accordingly, we request that the additions made u/s 69A be removed and the Order of the Learned A.O. be quashed.
3. Without Prejudice to the above, we further state that, a. The Appellant has deposited a total of Rs.44,24,140/- in Cash During the demonetized Period which includes both Demonetized and non- Demonetized Currency.
(Detail breakup as submitted in Point 2.a. of this submission). b. All the Cash Deposited during this period has already been included in the Sales of the Current Financial Year since these included Receipts for Sale of Prepaid Balance Recharges for Customers.
C. The Learned A.O. has added back the amount of Rs.43,12,290/- u/s.69A without considering the fact that the entire cash Deposit has already been included in the Sales of the Appellant for the Assessment Year. d. The Total Cash Deposited during the whole year is Rs.5,84,22,565/- against a declared revenue of Rs. 11,15,24,935/-. e. The learned A.O. is his order has nowhere questioned the authenticity of the respective purchase of the Recharge 6 Harshal Dinesh Shah Coupons / Vouchers. Since the Purchases have been accepted, the corresponding sales cannot be disturbed. Considering the same, the Learned A.O. has erred in adding back the Amount of Rs. 44,24,140/- as unexplained Income. Similar findings have been made in the case of Shree Sanand Textiles Industries Ltd. V. DCIT vide ITA No. 1166/AHD/2014. The learned A.O. has made additions on the back of a general notion that all Cash deposited during the Demonetization Period is unaccounted Income. Thus, in view of the above we request that the contention made by the Ld. A.O is bad in law and therefore liable to be out rightly rejected."
On the other hand, Ld. DR appearing on behalf of the revenue relied upon the orders passed by the revenue authorities.
We have heard counsels for both the parties, perused the material placed on record , judgements cited before me and also the orders passed by the revenue authorities.
From the records, I noticed that the assessee is running a proprietorship business in the name of HDS Services and is engaged in the business of providing retail mobile charges distributor of prepaid and postpaid mobile Sims of telecom companies in both ‘wholesale and retail’ segment. The assessee has been receiving cash from retail sales and also been receiving commission from the telecom companies on these sales.
From the month wise analysis of the cash deposited by the assessee, during the financial year, I noticed that assessee had been consistently depositing cash, right from 7 Harshal Dinesh Shah April 2016, the beginning of FY: 2016–17 as the said cash deposited during the demonetisation period is not disproportionately then the cash deposits made in the preceding months of the demonetisation period. Even among the total cash deposited of Rs. 44,24,140/- in the demonetisation period, the cash deposited in demonetised currency was only Rs. 16,32,000/- and the new currency was Rs. 27,92,140/-. More particularly when the appellants business was one of the business that was allowed to collect old demonetised notes up to the period of 15th December as per guidelines of COAI (a cellular operators body)
But all these facts were ignored by the AO and additions were made by holding that revenue from operations have increased more than 1100%, and thus concluded that assessee had increased cash sales in the demonetisation period solely to deposit demonetised cash. Whereas the factual position as established from the record is altogether contrary as the cash deposited during the demonetisation period is the lowest monthly amount in the entire year. Even as per assessee, he was an employee up till January 2016, with a private limited company and had started his business only in the month of February 2016 and in this way he had only two months for that financial year and in this regard copies of balance sheet and income tax returns for FY 2015–16 has been placed on record.
8 Harshal Dinesh Shah Therefore this was apparently the reason for increase in sales during the year under consideration.
After evaluating the factual position along with documentary evidences, placed on record, I am of the view that the cash deposited during the demonetised period is not out of undisclosed income but from the business receipts of the assessee and these evidences are enough to hold that additions u/s 69A are unwarranted and accordingly the additions made u/s 69A of the act stands deleted
In the result, the appeal filed by the assessee stands allowed.