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Facts
The assessee, a cooperative society, deposited cash received from members during the demonetization period. The AO treated this deposit as unexplained cash credit under Section 68 of the Act because the banknotes were demonetized.
Held
The Tribunal held that the demonetized banknotes deposited during the demonetization period cannot be treated as unexplained money solely because they were accepted after the announcement. However, the source of the money needs verification.
Key Issues
Whether cash deposits of demonetized banknotes during the demonetization period can be added as unexplained cash credit under Section 68 of the Act without proper verification of the source, especially when the deposits represent sale proceeds.
Sections Cited
68, 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 31/03/2024 in 250/2023-24/1063769989(1) for the assessment year 2017-18.
At the outset, I note that there was delay in filing the appeal by the assessee before me for 188 days. The assessee filed the condonation petition by way of furnishing the affidavit. It was submitted by the assessee in the affidavit that the assessee at the time of issue of the order by the CIT(A), the board of directors of the co-operative society were not functioning, as the management of the society was taken over by the officer appointed by the Co-operative Department. The existing management were not allowed to take any managerial decisions. Further, the management of the society was completely jeopardized and there was no signing authority during the relevant period. Due to this, they could neither respond to the order, nor they could see email, whether the order was served. However, in this process the delay of 188 days was occurred, therefore, it was submitted that the delay has occurred in filing the appeal before the ITAT due to unavoidable circumstances. In view of the above, the ld. AR requested to condone the delay in filing the appeal and adjudicate the matter.
On the other hand, the ld. DR did not oppose if the delay is condoned.
I have heard the rival contentions of both the parties and perused the materials available on record. In view of the aforesaid discussion and considering the length of the delay in filing the appeal, I, in the interest of justice and fair play, am inclined to condone the delay. Accordingly, I condone the delay and proceed to adjudicate the matter.
The only issue raised by the assessee is that the learned CIT-A erred in confirming the addition made by the AO under section 68 of the Act amounting to Rs. 21,88,000.00 representing the cash deposited in the bank during the demonetization period.
The assessee in the present case is a cooperative society and engaged in the business of providing credit facility to the members. There was cash deposit by the assessee of specified banknotes in its bank during the demonetization period. The source of such cash deposit was explained by the assessee, stating that it has received money in cash from its members which was deposited in the bank. However, the AO found that the specified banknotes is no more a legal tender effective from 9th November 2016 by virtue of the gazette notification bearing No. 2652 dated 8 November 2016. Accordingly, the old currency received by the assessee after 8th November 2016 and shown in its books is valueless. But the assessee deposited in the bank account against the zero value of cash in the books. Therefore, the AO treated the deposit of specified banking note in the bank as unexplained money of the assessee and added under section 68 of the Act to the total income of the assessee.
Aggrieved assessee preferred an appeal to the ld. CIT-A who confirmed the order of the AO.
Being aggrieved by the order of the ld. CIT-A, the assessee is in appeal before the Tribunal.
The ld. AR before me submitted that the cash deposited in the bank represents the money received from the members. The Ld. AR further assured that the assessee shall furnish all the necessary supporting documents and accordingly prayed to set aside the issue to the file of the AO for fresh adjudication as per the provisions of law.
On the other hand, the ld. DR before me vehemently supported the order of the authorities below.
I have heard the rival contention of both the parties and perused the materials available on record. In the present case, the assessee claimed to have received money in SBN after 8 November 2016 which was deposited in the bank account during the demonetization period. As per the revenue, the SBN were not the legal tender during the relevant time and therefore such currency was nothing but a piece of paper having no value. But the assessee by accepting such SBN during demonetization and then depositing such SBN in its bank account during the demonetization period has got the benefit of equivalent value in the new currency which was representing the unexplained money of the assessee and therefore the same was added under the provisions of section 68 of the Act.
11.1 It is the admitted position that the specified bank notes (cessation of liabilities) Act 2017 provides that no person shall knowingly or voluntarily hold, transfer, or receive any specified bank note on and from the appointed date i.e. 31st day of December 2016. Before 31st December 2016 i.e. between 9th November 2016 to 30th December the banks, and other institution such as petrol pumps, hospitals, Government Department were allowed to accept SBN with certain restrictions. In other words, up to the appointed date, the Government of India and RBI were bound to exchange the SBN once they are tendered for exchange until 31st December 2016. Accordingly, such SBN cannot be treated as just a piece of paper having no value on or after 9 November 2016 as alleged by the revenue.
Page 5 of 6 11.2 I also find that this Tribunal in the case of Anantpur Kalpana v. ITO reported in 138 taxmann.com 141 in identical facts and facts and circumstances has held as under: 9." 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 v. Associated Transport Pvt. Ltd. reported in 84 Taxman 146 on identical facts took the viewthat 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 v. Hirapanna Jewelers in on identical facts held that when cash receipts represent the sales which the assessee has offered for taxation and when trading 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 already admitted sale proceeds as revenue receipts . Therefore there is no case of addition u/s 68"
11.3 In view of the above and after considering the facts in totality, I hold that the SBN deposited by the assessee during the demonetization period cannot be treated as unexplained money under section 68 of the Act merely for the reason that the assessee accepted the same after announcement of demonetization scheme.
11.4 However, it is pertinent to note that the assessee is under the obligation to explain the source of money received during the demonetization period which has not been verified by the authorities below. Therefore, I am inclined to set aside the issue to the file of the AO for fresh adjudication as per the provisions of section 68 of the Act or . any other provisions of the Act as applicable to the impugned transaction for the cash received from the parties. Hence, the ground of appeal of the assessee is hereby partly allowed for the statistical purposes.
In the result, the appeal of the assessee is hereby partly allowed for the statistical purposes.
Order pronounced in court on 21st day of April, 2025