ANANTPUR KALPANA,GANGAVATHI vs. INCOME TAX OFFICER, WARD-1, BANGALORE

The assessee is an individual. She is proprietrix of a business in the name and style of Mahalaxmi Enterprises. The business consists of dealing in beedi, tea powder and pan masala. For Assessment Year 2017-18, the assessee filed return of income declaring total income of Rs.4,49,520/-. In the course of assessment proceedings, the AO noticed that there were several cash deposits in the two bank accounts of the assessee. Out of the aforesaid cash deposits, the AO culled out, the deposits that was made of bank notes that were declared as not legal tender owing to demonetization of currency. The details of the total cash deposits made by the Assessee in her bank account and the cash deposits of cash/currency notes that were declared as not

The AO found that as on 08.11.2016, the closing balance in the cash book was Rs.4,90,673/-. The total of cash deposit of Specified Bank Notes (SBN) by the Assessee was Rs.9,40,500. After reducing the closing cash balance of Rs.4,90,673 from the total cash deposited in the Bank accounts of Rs.14,50,000/-, the AO made an addition of Rs.4,49,500/- to the total income of the assessee with the following observations: “As per the cash book the closing balance as on 08/11/2016 was Rs 4,90,673/-. After reducing Rs 4,90,673/- from total deposit of Rs 14,50,000/-, the balance is Rs 9,59,327/-. Out of Rs 9,59,327/, the old SBNs are totaling to Rs 4,50 ,500/- which stands unexplained. Hence, the same is treated as unexplained cash credits u/s 68 of the Act in the books of account of the assessee and the same is required to be brought to tax. The assessee has accepted for the addition of the same to the return income. Accordingly, a sum of Rs.4,49,500/- is brought to tax u/s 68 of the Act and to tax as u/s 115BBE of the Act.”

Aggrieved by the aforesaid addition, assessee preferred appeal before the CIT(A) and submitted that the cash deposits of Rs. 4,50,500/- in question was the cash collection from the small and medium class traders collected on various dates out of the business of the Assessee which were deposited in the bank account of the Assessee between 10/11/2016 and 19/12/2016 in CBS Bank and Axis Bank. Since the deposit of Rs. 4,50,500/- in her bank account are from the sale proceeds from distribution of FMCG goods relating to her business concern 'M/s. Mahalakshmi Enterprise' from small and medium class traders collected on various dates in discharge of their liability in 1000 rupee and 500 rupee notes. It was submitted that old demonetized notes could be accepted till 30-12-2016 and a payee can continue to accept old demonetized notes of

The CIT(A) however did not accept the contention of the assessee. He held that once the Rs.500 and Rs.1000 notes are declared as not valid legal tender on 09.11.2016, the assessee cannot accept cash payments after 09.11.2016 that are demonetized and doing so was patently illegal. The CIT(A) therefore held that the plea of the asessee cannot be accepted and

I have heard the rival submissions. Learned Counsel for the assessee submitted that both the AO and CIT(A) accepted the fact that the cash receipts are nothing but sale proceeds in the business of the assessee. The addition has been made only on the basis that after demonetization, the demonetized notes could not have been accepted as valid tender. He submitted that the sale proceeds for which cash was received from the customers was already admitted as income and if the cash deposits are added under section 68 of the Act that will amount to double taxation once as sales and again as unexplained cash credit which is against the principles of taxation. It was also submitted that the assessee was having only one source of income from beedi, tea power and pan masala and therefore provisions of section 115BBE of the Act will have no application so as to treat the income of the assessee as income from other sources. It was also submitted that the government permitted all to deposit old demonetized notes upto 31.12.2016. Since the amounts deposited were sale proceeds of business and the income from the business have already been taxed, the impugned addition should be deleted. Our attention was also drawn to section 26(2) of the RBI Act, 1934 which provides that government can specify certain notes as not legal tender. It was argued that if there is any violation of the statutory provisions, the consequences will be only under the relevant provisions of RBI Act, 1934 and those violations cannot lead to any addition under section 68 of the Act. The learned Counsel also placed reliance on the following judicial pronouncements rendered on identical facts of the case as that of the assessee. Hon'ble Kolkata Tribunal in the case of CIT Vs. Associated Transport Pvt. Ltd. reported in 84 Taxman 146 wherein the Hon'ble Tribunal found that the assessee had sufficient cash in hand in the

Learned DR reiterated the stand of the Revenue as reflected in the order of the CIT(A).

I have carefully considered the rival submissions. Both the AO and CIT(A) accepted the fact that the cash receipts are nothing but sale proceeds in the business of the assessee. The addition has been made only on the basis that after demonetization, the demonetized notes could not have been accepted as valid tender. Since the sale proceeds for which cash was received from the customers was already admitted as income and if the cash deposits are added under section 68 of the Act that will amount to double taxation once as sales and again as unexplained cash credit which is against the principles of taxation. It is also on record that the assessee was having only one source of income from trading in beedi, tea power and pan masala and therefore provisions of section 115BBE of the Act will have no application so as to treat the income of the assessee as income from other sources. Hon'ble Kolkata Tribunal in the case of CIT Vs. Associated Transport Pvt. Ltd. reported in 84 Taxman 146 on identical facts took the view that when cash sales are admitted and income from sales are declared as income, wherein the Hon'ble Tribunal found that the assessee had sufficient cash in hand in the books of account of the assessee, that there was no reason to treat the cash deposits as income from undisclosed sources. The Hon'ble Vishakapatnam Tribunal in the case of ACIT Vs. Hirapanna Jewelers in ITA No. 253/Viz/2020 on identical facts held that when cash receipts represent the sales which the assessee has offered for taxation and when trading account shows sufficient stock to effect the sales and when no defects are pointed out in the books of account, it was held that when Assessee

In the result, appeal of the assessee is allowed.