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Facts
The assessee, an individual engaged in providing loans against gold ornaments and taking loans from Federal Bank, deposited Rs. 12,24,500/- in cash during the demonetization period. The Assessing Officer treated this as unexplained income under Section 69A of the Income Tax Act.
Held
The Tribunal held that the cash deposits were explained as repayments from customers for loans previously granted against gold ornaments, which were funded by gold loans taken by the assessee from Federal Bank. The violation of RBI notifications for accepting Specified Bank Notes did not automatically render the explanation unsatisfactory.
Key Issues
Whether cash deposits made during the demonetization period, even if in Specified Bank Notes, can be treated as unexplained income under Section 69A if the assessee provides a reasonable explanation for the source of funds, despite potential violation of RBI notifications.
Sections Cited
144, 250, 142(1), 133(6), 69A, 115BBE, 234A, 234B, 234C, 234D, 271(1)(c)
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Date of Hearing – 14/05/2025 Date of Order –19/05/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The assessee has filed the present appeal against the impugned order dated 29/11/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2017-18.
In this appeal, the assessee has raised the followinggrounds: – “1. In the facts and the circumstances of the case and in law, the learned A.O. erred in passing the order u/s 144 without granting personal hearing through video conferencing and also passing order u/s 144 just because Appellant could not comply with the show cause notice even though even details were furnished during the course of assessment.
2. In the facts of the case and in Law, the learned AO erred in making addition of Rs. 12,24,500/-by arbitrarily adding cash deposit made in bank account maintained with Federal Bank during demonetization period amounting to Rs. 12,24,500/- asunexplained money u/s 69A r.w.s 115BBE thereby a. Disregarding the fact that the cash deposit were out of the sums received from his customers to whom loan were given by the Appellant against their gold ornaments b. Disregarding the fact that the Appellant is not liable to maintain books of accounts and therefore section 69A is not applicable c. Arbitrarily rejecting details of cash deposits even though each and every details was submitted about the source and nature of receipt and the interest amount earned is duly shown in the return of income.
3. In the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (A) erred in confirming the same there by not considering the written submissions and several judgments cited before him.
4. In the facts and circumstances of the case and in law, the learned A.O. erred in levying interest w/s 234A, B, C and D & initiating penalty u/s 271(1)[c).”
The only grievance raised by the assessee, in the present appeal,is against the addition of Rs.12,24,500/- under section 69A of the Acton account of cash deposits in the bank account during the demonetization period.
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is an individual and is, inter alia, engaged in providing loans to its customers against the gold ornaments and taking loans from the Federal Bank against the same. In this manner, the assessee also earns interest income from its customers. During the year under consideration, pursuant to a notice issued under section 142(1) of the Act on the basis of the information that the assessee has deposited cash of Rs.12,24,500/- in his bank account maintained with Federal Bank, Sakinaka Mumbai Branch, during the demonetization period, i.e., from 09.11.2016 to 31.12.2016, the assessee filed his return of income on 13.11.2019, declaring a total income of Rs.95,470/- earned from salary and interest. During the assessment proceedings, the assessee, inter alia, was asked to furnish the details of cash deposited in all bank accounts and sources thereof with documentary evidence. In response, the assessee submitted that he gives loans to customers against gold ornaments and takes loan from the Federal Bank against these gold ornaments. The assessee submitted that he has taken a gold loan from the bank against gold ornaments and paid interest @ 9% to 11% per annum. Further, on the loan provided to the customers against gold ornaments, the assessee submitted that he received interest @18% per annum. Accordingly, the assessee submitted that he earned the differential interest income. The assessee submitted that the cash deposit of Rs.12,24,500/- during the demonetization period is the cash received from his customers as a repayment of the loan provided earlier against the gold ornaments. In response to the notice issued under section 133(6) of the Act, the Federal Bank provided the following details of cash deposited by the assessee during the demonetization period: - Date Total Amount No. of Notes 100 500 1000 12.11.2016 53,500 0 1 53 12.11.2016 2,00,000 0 0 200 13.11.2016 8,00,000 0 8 796
18.11.2016 65,000 0 97 16 21.11.2016 90,000 0 0 90 23.11.2016 5,000 0 0 5 09.12.2016 1,10,000 0 0 11 Total 12,24,500 5 106 1171
The Assessing Officer (“AO”), vide order dated 27.12.2019 passed under section 144 of the Act, disagreed with the submissions of the assessee and held that in view of RBI Circulars, the assessee was not authorized to accept the money in the form of Specified Bank Notes after 08.11.2016, and therefore, the entire cash deposits of Rs.12,24,500/- made during the demonetization period is the income of the assessee which was never disclosed and offered to tax by the assessee. Accordingly, the AO considered the entire cash deposits of Rs.12,24,500/- made during the demonetization period as unexplained money under section 69A of the Act and added the same to the total income of the assessee.
The learned CIT(A), vide impugned order, upheld the addition made by the AO under section 69A of the Act.Being aggrieved, the assessee is in appeal before us.
During the hearing, the learned Authorized Representative (“learned AR”) submitted that the cash deposited by the assessee in his bank account in Specified Bank Notes was received from his customers to whom the assessee had earlier granted loans in lieu of gold ornaments. By referring to the cash book and statement of account maintained with the Federal Bank, the learned AR submitted that the assessee apart from being an employee of Laxmi Jewellers was also engaged in the business of providing loan to the customers against the gold ornaments, against which the assessee had taken loan from the Federal Bank. The learned AR submitted that all these details were furnished by the assessee before the lower authorities.
On the other hand, the learned Departmental Representative (“learned DR”), vehemently relying upon the orders passed by the lower authorities, submitted that as per the RBI Circulars the assessee was not authorized to accept Specified Bank Notes after 08.11.2016, and therefore, all the cash deposited made by the assessee during the demonetization period is nothing but the undisclosed income of the assessee, which was not offered for taxation.
We have considered the submission of both sides and perused the material available on record. In the present case, on the basis that the assessee has deposited cash amounting to Rs.12,24,500/-, during the demonetization period in his bank account, the AO made the addition by treating the same as unexplained money under section 69A of the Act. On the other hand, it is the plea of the assessee that the amount deposited in cash in the bank account during the demonetization period was received by him from his customers to whom he had earlier granted loans against the gold ornaments. As per the assessee, against such gold ornaments, he took loans from the Federal Bank and earns interest income from the customers. In order to support the submission that the assessee availed gold loans from Federal Bank, the assessee has placed on record the statement of its bank account maintained with Federal Bank for the period 13.09.2015 to 13.09.2019, forming part of the paper book from pages 10-37. From the perusal of the bank statement, it is evident that the same pertains to “Fast Track Gold Loan/Gold Loan” availed by the assessee from the Federal Bank and the loan disbursements were made to the assessee from time to time. As per the assessee, the amount received from the Federal Bank against the gold ornaments was given as a loan by him to his customers against the gold ornaments. The assessee has also placed on record the list of his customers to whom loanswere given against the gold ornaments, which were repaid in cash. From the perusal of the list, which forms part of the paper book at page 92, we find that apart from providing the name and address of the customers, the assessee has also provided the PAN details of all these 23 customers. From the perusal of these details, we further find that these loans were given to the customers as early as 04.05.2016 and as late as 08.11.2016. We further find that, except in two cases where the loan was repaid on 30.08.2016, the rest of the 21 customers repaid the loan during the demonetization period. We find that though the assessee furnished all these documents before the lower authorities, however, none of these documents were rejected, nor despite the availability of the information regarding the customers, any verification was made by the AO from them.
Further, as regards the findings of the lower authorities that the assessee was not authorized to accept the repayment made by the customers in cash in Specified Bank Notes after 08.11.2016, we find that the Co-ordinate Bench of the Tribunal in TamilNadu State Marketing Corporation Ltd. vs. ACIT, reported in (2025) 170 taxmann.com 641 (Chennai - Trib.), vide order dated 07.10.2024 held that merely for the reason that there is a violation of certain notifications/GO issued by the Government in transacting with Specified Bank Notes, the genuine explanation offered by the assessee towards the source of cash deposit cannot be rejected, unless the AO makes out the case that the assessee has deposited unaccounted cash into bank account in Specified Bank Notes. The relevant findings of the Co-ordinate Bench, in the aforesaid decision, are reproduced as follows: - “8.4 We have gone through the notifications issued by the RBI and Government of India, to deal with specified bank notes. The only premise of the Revenue is mainly on the issue of notification issued by the RBI to deal with the specified bank notes and argument is that the assessee is not one of the eligible person to accept or to deal with specified bank notes and thus, even if assessee furnish necessary evidence, the assessee cannot accept specified bank notes after demonetization and the explanation offered by the assessee cannot be accepted. No doubt specified bank notes of Rs. 500 & Rs. 1000 have been withdrawn from circulation from 09.11.2016 onwards. The Government of India and RBI has issued various notifications and SOP to deal with specified bank notes. Further, the RBI allowed certain category of persons to accept and to deal with specified bank notes up to 31.12.2016. Further, the specified bank notes (cessation of liability) Act, 2017, also stated that from the appointed date no person can receive or accept and transact specified bank notes, and appointed date has been stated as 31.12.2016. Therefore, there is no clarity on how to deal with demonetized currency from the date of demonetization and up to 31.12.2016. Therefore, under those circumstances, some persons continued to accept and transact the specified bank notes and deposited into bank accounts. Therefore, merely for the reason that there is a violation of certain notifications/GO issued by the Government in transacting with specified bank notes, the genuine explanation offered by the assessee towards source for cash deposit cannot be rejected, unless the AO makes out a case that the assessee has deposited unaccounted cash into bank account in specified bank notes. 8.5 We further noted that the Central Board of Direct Taxes had issued a circular for the guidance of the Revenue Officer to verify cash deposits during demonetization period in various categories of explanation offered by the assessee and as per the circular of the CBDT, examination of business cases, very important points needs to be considered is analysis of bank accounts, analysis of cash 4cs, receipts and analysis of stock registers. From the circular issued by the CBDT, it is very clear that, in a case where cash deposit found in business cases, the A needs to verify the explanation offered by the assessee with regard to realization of debtors where said debtors were outstanding in the previous year or credited during the year etc. Therefore, from the circular issued by the CBDT, it is very clear that, while making additions towards cash deposits in demonetized currency, the AO needs to analyze the business model of the assessee, its books of account and analysis of sales etc.In this case, if we go by analysis furnished by the assessee in respect of total sales, cash sales including the cash received in demonetized currency and cash deposits, there is negligible amount in demonetized currency. Therefore, we are of the considered view that when there is no significant change in cash deposits during demonetization period, then merely for the reason that the assessee has accepted specified bank notes in violation of circular/notification issued by Government of India and RBI, the source explained for cash deposits cannot be rejected. Simpliciter violation of certain notification issued by RBI or demonetization scheme announced by Government of India on 08.11.2016 will not entitle the Revenue to make addition u/s.69 or 69A of the Act. Because, the mandate of the provisions of Section 69 & 69A of the Act, i.e., unexplained investments and unexplained money etc., may be deemed to be the income of the assessee for the financial year relevant to assessment year concerned, in which the assessee is found to be the owner of such money, bullion, jewellery or valuable article or unexplained expenditure, if, the such expenditure or such money etc., are not recorded in the books of accounts, if any, maintained by assessee for any source of income and the assessee offers no explanation about the nature and source of such expenditure or acquisition of such money, etc., or the explanation offered by him, in the opinion of AO is not satisfactory. For violation of any RBI notification, etc., can have any civil or criminal liability and can be dealt with under any other provision of law by the concerned authority but for the purpose of bringing the amount under Income-tax, the provisions are very clear i.e., 69 & 69A of the Act. In our considered view, to bring any amount u/s. 69 or 69A of the Act, the nature and source of investment, needs to be examined. In case the assessee explains the nature and source of investment, then the question of making addition towards unexplained investment u/s. 69 of the Act does not arise. In this case, the source of deposits has not been disputed and has been created out of ordinary business sales which has been credited into books of accounts and profits has also been duly included in the return of income filed in relevant assessment year. Therefore, we are of the considered view that, additions cannot be made u/s. 69 of the Act and taxed u/s. 11SBBE of the Act towards cash deposits made to bank account of demonetized cash in SBNs.”
Therefore, respectfully following the aforesaid decision and having carefully perused the documentary evidence filed by the assessee, which forms part of the paper book, we are of the considered view that the assessee has duly explained the source of cash deposited by him in his bank account during the demonetization period, and same cannot be treated as unexplained money under section 69A of the Act. Accordingly, the impugned addition of Rs.12,24,500/- made by the AO, being the cash deposits in the bank account during the demonetization period under section 69A of the Act, is deleted. Accordingly, the sole issue raised by the assessee in the present appeal is allowed.As a result, the grounds no.2 and 3 raised by the assessee are allowed.
In view of our decision, the issue arising in Ground no.1 is rendered academic and therefore is left open.
In ground no.4, the assessee has challenged the levy of interest under sections 234A, 234B, 234C and 234D of the Act, which are consequential in nature and therefore, needs no separate adjudication. As regards the challenge against the initiation of penalty proceedings under section 271(1)(c) of the Act, the same is premature in nature and therefore is dismissed.
In the result, the appeal by the assessee is partly allowed. Order pronounced in the open Court on 19/05/2025