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Facts
The assessee, a proprietor of a wine business, deposited cash during the demonetization period into his bank account. The Assessing Officer (AO) treated a significant portion of these deposits, particularly those in SBNs, as unexplained cash credit under Section 68, levying tax at 60% under Section 115BE. The assessee contended that the deposits were out of genuine cash sales of liquor.
Held
The Tribunal held that the authorities below accepted the cash sales as the source of deposits. It questioned how SBNs, deemed worthless, could form the basis for additions of significant value. The Tribunal found that the AO and CIT(A) had not disputed the cash sales declared in the audited profit and loss account.
Key Issues
Whether cash deposits made during the demonetization period, including those in SBNs, can be treated as unexplained cash credit if the assessee claims they are from genuine sales, and whether such treatment amounts to double taxation.
Sections Cited
68, 115BE, 143(3), 143(2), 142(1), 250, 234B, 234D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B’’BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
This appeal at the instance of the assessee is directed against the order of ld.CIT(A)/NFAC dated 18.03.2025 vide DIN & Order No.ITBA/NFAC/S/250/2024-25/1074630407(1) passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”) for the assessment year 2017-18.
The assessee has raised the following grounds of appeal:
Brief fact of the case is that the assessee being an individual is the proprietor of M/s Tejaswini Wines, Bengaluru. The assessee filed his return of income for the assessment year 2017-18 on 25.10.2017 by declaring total income of Rs.15,75,690/-. Subsequently the case of the assessee was selected for scrutiny under CASS with the main issue identified for verification as “cash deposits made during demonetization period”. Accordingly notices u/s. 143(2) as well as 142(1) of the Act were issued calling for information relating to the sources of the cash deposits during demonetization period along with the proof. The assessee in his response submitted that the cash deposits were made purely out of the total cash sales of liquor recorded in the books of accounts of the assessee. The AO was of the opinion that the assessee had accepted SBN of Rs.36,31,000/- and diverted the unaccounted money of third party by routing in their bank accounts and utilization of the said money by third party for transferring etc.
Venkataramaiah Kumar Kiran, Bengaluru Page 3 of 7 Further, the AO held that the assessee has accepted SBNs amounting Rs.36,31,000/- which are banned and cannot be considered as legal tender in existence under law and accordingly, the entire amount was treated as unexplained cash credit within the meaning of section 68 of the Act and tax is charged at the rate of 60% in view of section 115BE of the Act. Thus, the AO completed the assessment proceeding u/s. 143(3) of the Act on a total assessed income of Rs. 52,06,690/-.
Aggrieved by the order of the AO dated 17.12.2019, the assessee preferred an appeal before the ld.CIT(A)/NFAC.
The ld.CIT(A)/NFAC partly allowed the appeal of the assessee by holding that the assessee has proved through the daily cash summary that he had cash in hand of Rs.8,00,286/-. Similarly ld.CIT(A)/NFAC also observed that the assessee has deposited RS.3,72,100/- on 08.11.2016 which was prior to the announcement of demonetization, & that cannot be counted as SBNs. Lastly, the ld.CIT(A)/NFAC held that if the assessee has accepted SBNs after demonetization was announced as sale proceeds, the same is illegal which cannot be treated as part of the sale proceeds and accordingly Rs.11,72,386/-(8,00,286 +3,72,100) was held to be cash in hand/ explained sources and balance of Rs.24,58,614/- (36,31,000 - 11,72,386) was sustained.
Again, aggrieved by the order of the ld.CIT(A)/NFAC dated18.03.2025, the assessee has filed the present appeal before this Tribunal. The assessee has also filed paper book comprising 25 pages containing therein the various documents/record along with the compendium of case laws relied upon by the assessee.
Venkataramaiah Kumar Kiran, Bengaluru Page 4 of 7 7. Before us, the ld.A.R. of the assessee vehemently submitted that the ld.CIT(A)/NFAC erred in not considering that the sources of cash deposit were purely out of the cash sales of liquor made during the demonetization period. Further, as the total sales had already been credited to Trading & profit and loss account and thus the addition made by the AO u/s 68 of the Act had resulted in double addition. Lastly, the A.R. submitted that merely because demonetization was announced, the ld.CIT(A)/NFAC erred in not treating the sale proceeds as source of cash deposits merely by stating the same as illegal.
The ld.D.R. on the other hand relied upon the orders of the Authorities below.
We have heard the rival submissions and perused the material available on record. The assessee is the proprietor of M/s. Tejaswini Wines and the books of accounts of the business of the assessee are audited by the chartered accountant. On going through the Audited profit & loss a/c, we noted that the assessee has declared total wine sales of Rs.3,68,26,673/- during the FY 2016-17 relevant for AY 2017-18 which is not in dispute. During the period between 08.11.2016 to 31.12.2016, the assessee had made total cash deposits to the extent of Rs.55,08,100/- out of which Rs.36,31,000/- pertains to SBN notes. The assessee claimed that the source of entire cash deposits were out of the closing cash balances as on 08/11/2016 as well as cash sales of liquors made during the demonetization period. The assessee also claims that the entire sales had already been accounted by the assessee in his books of accounts and the income arising out of the same has also been offered for taxation. We also take note of the fact that all the deposits of cash were made in the assessee’s current account no. 130500301000198 maintained at Vijaya Bank, Gunjur branch, Venkataramaiah Kumar Kiran, Bengaluru Page 5 of 7 Bangalore which is in the name of the proprietary firm M/s. Tejaswini Wines. The ld.CIT(A)/NFAC on going through the daily cash summary submitted by the assessee had observed that the assessee had cash in hand of Rs.8,00,286/-. Further ld.CIT(A)/NFAC also noted that the assessee had deposited Rs.3,72,100/- on 08.11.2016 which was prior to the announcement of demonetization and accordingly held that Rs.11,72,386/- (Rs.8,00,286/- + Rs. 3,72,100/-) to be his cash in hand/explained source and to that extent the assessee could be given relief.
9.1 We observed that the only contention of the ld.CIT(A)/NFAC in confirming the addition of Rs.24,58,614/-(Rs.36,31,000/- (-) Rs.11,72,386/-) was that the assessee had accepted SBNs after the demonetization was announced as sale proceeds, accordingly the same is illegal which cannot be treated as part of the sale proceeds. Thus in our opinion the ld. CIT(A)/NFAC admitted the fact that the cash deposits were out of the cash sales proceeds. We also noted that the AO had made the addition on the ground that the assessee had accepted the SBNs after demonetization was announced as sale proceeds which is not a legal tender & these will be just worthless pieces of paper having zero value. Therefore, in our opinion both the Authorities below accepted the cash sales as sources of deposit cash into current account of the assessee. We could not understand if the cash deposited in SBNs after demonetization were just worthless pieces of paper having zero value, then for making additions as income how that became worth pieces of paper having value of Rs. 36,31,000/-.
9.2 We observed that the authorities below had not disputed the cash sale proceeds declared by the assessee in his audited profit and loss account. We could not understand merely because the assessee had accepted SBNs after demonetization, why these cash Venkataramaiah Kumar Kiran, Bengaluru Page 6 of 7 sales receipts cannot be treated as part of sales declared by the assessee especially when the said cash were deposited into the bank accounts & accepted by the bank. Further, the bank account statements prior to demonetization period also clearly shows that the assessee had been regularly depositing cash sales from liquor and thereby making payment to Karnataka State Beverages Corporation Limited (KSBCL) towards the purchase of liquor. The assessee has also submitted the VAT returns for the month of November and December 2016 as well as sales register to prove that sales have been accounted by the assessee. We are of the consider opinion that once the assessee has already declared the cash sales as part of total Sales and the AO had also not doubted the same, taxing the same again under unexplained cash credit u/s.68 of the Act will amount to double taxation. We are also of the opinion that the addition made by the AO are purely based on suspicions, conjectures and surmises and without any evidences to prove that deposit made in Vijaya Bank current account were other than cash sales from liquor business. As the Assessing Officer had accepted the sales, purchases as well as stocks declared by the assessee, there is no reason to disbelief the cash deposits which were made out of the cash sales from liquor business. In our opinion neither the AO nor the ld. CIT(A)/NFAC made any enquiry with respect to sales declared by the assessee out of which the cash is deposited into bank. No doubt, the assessee was not authorized to receive SBNs after demonetization, but when the assessee had received and deposited the same and also offered the same as his income, no further addition could have been made in the hands of the assessee. The assessee has shown the nexus of sales with the amount of cash deposited. We accordingly inclined to hold that merely because the assessee has deposited the SBNs during the demonetization period by contravening of the notification issued by the RBI would not by itself attract the provisions of Section 68 of Venkataramaiah Kumar Kiran, Bengaluru Page 7 of 7 the Act especially when the sources of cash deposits are clearly established by the assessee. In our view, the AO had also not brought any adverse material on record to show that the deposits were not made out of the cash sales as claimed by the assessee. Accordingly, we allow the appeal of the assessee and direct the AO to delete the entire addition of Rs.24,58,614/- as confirmed by the ld.CIT(A)/NFAC.
In the result the appeal filed by the assessee is allowed.
Order pronounced in the open court on 15th Sep, 2025.