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Facts
The assessee, engaged in trading Samsung mobile phones and SIM cards, filed a return declaring income of Rs. 18,46,580/-. The Assessing Officer (AO) made an addition of Rs. 6,63,000/- on account of cash deposits during the demonetization period, treating it as unexplained income. The assessee argued that these deposits were from regular business sales and collections from sundry debtors.
Held
The Tribunal held that the cash deposits made during the demonetization period were explained as collections from sundry debtors, which were part of the regular business sales. The AO's action of treating these as unexplained credit under Section 68 of the Act and levying penalty was incorrect. Furthermore, the Tribunal noted that taxing the same amount twice was not permissible.
Key Issues
Whether cash deposits made during the demonetization period can be treated as unexplained income under Section 68 of the Act when the source is explained as regular business collections from sundry debtors. Whether the addition leads to double taxation.
Sections Cited
68, 155BBE, 271AAC
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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. PRAKASH CHAND YADAV
Per Laxmi Prasad Sahu, Accountant Member :
This appeal filed by the assessee against the Order passed by theCIT(A) vide DIN and Order No.ITBA/APL/S/250/2024-25/1072671588(1) dated 29.01.2025, on the following grounds of appeal :
1. The W. Commissioner of Income Tax (A) erred in confirming the addition of Rs.6,63,000/- as addition u/s.68 stating that cash deposit into the Bank is unaccounted sales and unexplained income.
2. The Ld. Assessing Officer was wrong to conclude that out of total cash deposited into the Bank after 8th November 2016 is unexplained; hence the Ld. Assessing Officer was wrong in adding the above amount as unexplained, though the proof relating to cash received from Sundry Debtors was deposited into the Bank.
Page 2 of 6 3. The Ld. Assessing Officer ought to have considered that the nature of business of the Appellant is such, daily cash collection would be deposited into the Bank on the next working day and therefore the deposit made by the Appellant to the Bank is not relating to demonetized amount but is only collection from the normal business customers and deposited into the Bank.
The Appellant submits that what the Assessing Officer has brought on record the amount of cash availability with the Appellant relates to Petty Cash drawn for the purpose of business and not relating to normal cash collected from the customers and deposited into the Bank.
5. For the above and any other grounds that may be advanced at the time of hearing, the Appellant prays that the amount added by the Ld. Assessing Officer and confirmed by the Ld. Commissioner of Income Tax be deleted.
Briefly stated the facts of the case are that the assessee is engaged in the business of trading of Samsung Mobile Phones and purchase and sale of SIM Cards. Assessee had filed return of income on 28.10.2017 declaring income of Rs.18,46,580/-. The case was selected for scrutiny to examine (i) Cash deposit during the year, (ii) Deduction and Deposit of TDS. The other statutory notices were issued to the assessee. In response to the notice issued by the AO, assessee made submissions which is incorporated by the assessment Order and from the submissions it is noted that during the demonetization period, assessee has deposited cash of Rs.8,89,878/- and it was also noted that there is opening balance of Rs.2,26,255/-, is accepted by the AO and the rest of the amount of Rs.6,63,000/- deposited in SBNs( Specified Bank Notes) have not been accepted by the AO by observing that it attracts provision of section 68 of the Act and applied section 155BBE..
Aggrieved from the above Order, assessee filed appeal before the First Appellate Authority (FAA). Assessee submitted details before the FAA and the ld. FAA partly allowed the appeal of the assessee.
Page 3 of 6 -2- 4. Aggrieved from the above Order, assessee filed appeal before the Tribunal. The learned Counsel reiterated the submissions made before the lower authorities and has filed written synopsis which is as under:
The Appellant is an individual, engaged in the business of retail trading of Samsung Mobile Phone Products. Being a supplier, the Appellant has employed a number of field staff. The field staff procure the orders from small time shopkeepers in the market and supply the products of Samsung Mobile Phones. In the normal retail trade, there will be daily collection from the market in respect of the sales made. The collection would be both in the form of cheques as well as cash. The daily collection was deposited into the Bank by the Appellant on the next working day. The cash collected is not used for office purposes, for which the Appellant draws the amount separately from the Bank as petty cash. During the year under consideration, there was demonetization on 08.11.2016 by the Central Government in respect of both Rs.500/- and Rs.1000/- notes. After denomination on 08.11.2016, permission was granted to the public to deposit such denominated notes to the Bank before 30.12.2016. The Ld. Assessing Officer required the Appellant to give details of the cash deposited into the Bank between 08.11.2016 till 15.11.2016 and the Appellant furnished the details that there were deposits on 10.11.2016 Rs.7,05,178/-, on 15.11.2016 Rs.51,000/- and on 15.11.2016 Rs.1,32,700/, totaling to Rs.8,89,878/-. The Ld. Assessing Officer thought since the Appellant had cash on hand (it is only petty cash) of Rs.2,26,255/-, the difference between Rs.8,89,878 - 2,26,255 = Rs.6,63,000/- difference was considered as unexplained cash credit. The Ld. Assessing Officer should have considered that being a retailer, collection from the market in the form of cash has always been there, which is deposited into the Bank. These cash deposits are all collected from the Sundry Debtors by the field staff and deposited into the Bank next day. We are furnishing herewith ledger extract of Canara Bank between 28.10.2016 till 15.11.2016, wherein the Ld. Commissioner of Income Tax may kindly observe that there are regular cash deposits Page 4 of 6 on various dates explained as collection from the debtors. Therefore, it is very clear that what is deposited on 10.11.2016, 15.11.2016 is only out of collection from the market debtors in the form of cash. This is part and parcel of sales of the Appellant. Similarly, we are enclosing herewith one of the details submitted to the Assessing Officer i.e. total cash sales monthwise from April 2015 till March 2017, wherein you may kindly observe that there is huge amount of cash sales. There is regular huge sales collection in cash monthwise, which is deposited into the Bank. There is a Cash sales from 09.11.2015 upto 30.11.2015 of Rs.1,79,53,143/-, out of which a sum of Rs.1,78,55,323/ - has been deposited into the Bank. This clearly shows that cash transactions are regular in the form of sales. Therefore, the Assessing Officer was wrong in considering the above amount as unexplained credit u/s.68 of Income tax Act, consequently levying a penalty u/s.271AAC of Rs.51,085/-.”
In addition to the above written synopsis, he submitted that the AO is not justified to make addition under section 68 of the Act. The turnover of the assessee is Rs.55,14,47,172/- and assessee is also engaged in the business of purchase and sale of sim cards and Mobile Phones. The cash was accepted in SBNs only out of sale of Sim cards and Mobile phones. The books of accounts have been accepted by the AO. In the above turnover, the addition made under section 68 of the Act is included. The AO has taxed twice on the same amount which is not permitted under the Income Tax provisions.
On the other hand, the learned DR relied on the Order of the lower authorities.
Considering the rival submissions and on perusal of the material available on record and the Order of the lower authorities, we noted that on 10.11.2016, assessee has deposited cash of Rs.7,05,178/- in SBNs received from sundry Page 5 of 6 debtors, on 15.11.2016, Rs.51,000/- in SBNs received from sundry debtors on 15.11.2016 and on 15.11.2016 a sum of Rs.1,33,700/- was deposited in SBNs received from sundry debtors and it was explained before the AO. However, the AO has considered it under section 68 of the Act inspite of the source being explained that it was received from debtors and the AO has not accepted it as business receipts. However, the AO has accepted the opening balance available as on 09.11.2016 of Rs.2,26,255/- which were also received from debtors as per the submissions of the assessee which has not been disputed. Accordingly, the source is explained. Therefore, the provision of section 68 of the Act is not applicable to the present facts of the case. We further noted that on the one side the AO has accepted the total turnover reported and the cash deposits during the demonetization period is also included in the turnover and while assessing the total income of the assessee the same has not been reduced from the turnover and profit declared by the assessee shown in the income as per the P & L Account has been accepted by the AO. Therefore, there is double taxation on the same amount considered by the AO which is not permitted. In the light of our above observation, we delete the addition.
In the result, appeal filed by the assessee is allowed.