ASSISTANT COMMISSIONER OF INCOME TAX, MADURAI vs. S R TRUST, MADURAI

4. The Ld.CIT(A) erred in directing to consider the legal expenses of Rs.1,12,50,000/- as application of income, without appreciating that the assessee had not provided details of affidavits filed when called by the assessing officer, thus failed to prove that the said legal expenses are incurred in connection with handling of legal cases related to the trust.

5. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.

3.1 On perusal of the documents submitted by the assessee, the AO found that the assessee had deposited Rs.2,54,47,000/- to the bank account in SBNs during the demonetization period. Out of which the cash balance available as on 08.11.2016 in the books of the assessee was Rs.79,32,392/- and hence, the remaining amount of Rs.1,75,14,608/- which is claimed by the assessee as ‘collection from patients’ has been treated as unexplained. The AO stated that the assessee was not covered under the exempted entities which were authorized to accept the old high denomination notes for any transaction during the demonetization period and hence, made an addition of Rs.1,75,14,608/- as unexplained cash credit by passing an order u/s.143(3) of the Act dated 31.12.2019. 3.2 Further, the AO found that the assessee has incurred foreign as well as domestic travel expenses of Shri. S.Gurushankar, Smt.Kamini, Shri. K. Subramanian and Shri. Sachithanantha to the extent of Rs.54,48,077/- during the assessment year. The assessee explained that these expenditures were spent towards foreign trips to visit hospitals at Malaysia, Singapore and other countries in order to canvass market to the hospital. These visits of the doctors enabled the hospital to get foreign IP and OP and furnished the list of foreign patients treated for reference before the AO during the assessment proceedings. However, the AO was not convinced, as the assessee had furnished the bills issued by the travel agency without the support of air :-4-: ITA. No.: 1549/Chny/2024 tickets, Affidavits and passport of the above said doctors and hence, disallowed the expenditure as not eligible for application of income of the trust.

3.3 The trust had incurred expenditure of fee payments made to Shri K.Subramanian to the tune of Rs.1,12,50,000/- towards lawyer bill paid after deducting applicable TDS for attending court cases, was also disallowed by the AO as not acceptable towards application of income of the trust, since the assessee had not filed an Affidavit sought by the AO. Aggrieved by the order passed by the AO, the assessee preferred an appeal before the ld.CIT(A).

“Your Appellant Trust has filed its e-return of income on 11.10.2017 admitting NIL total income after claiming exemption under section 11 of the I.T. Act. The case has been selected for scrutiny through CASS. (1) Assessment has been completed by the A.O. by making addition of Rs.1,75,14,608/- u/s.68 of the 1.T. Act under the presumption and without proper verification that the source for the deposit of SBN notes to the extent of Rs.1,75,14,608/- is not covered by Notification issued for deposit of SBN notes because of lapses of the A.O. to consider the Notifications dated 08.11.2016 published by the Central Government by which it is stated as "Starting from November 10,2016 members of Public/ Corporate, business firms, societies, trusts, etc., holding these notes can tender them at any office of the Reserve Bank or any bank branch and obtain value thereof by credit into their respective bank accounts" and "The State Government on Wednesday directed private clinics, hospitals and chemist shops to accept Rs.500 and Rs.1,000 notes till November 11, as patients were inconvenienced a day after demonetization of the notes. Patients struggled to buy medicines, undergo surgeries and even seek admission as managements insisted on Rs.100 denominations, card or online payments". This directive was given after state finance minister SUDHIR MUNGANTIWAR spoke to union minister ARUN JAITLEY and RESERVE BANK OF INDIA (RBI) ON WEDNESDAY". After discussions about the hardship patients faced, it was decided to allow private health clinics to also take notes of Rs.500 and Rs.1,000 till November 11" said Mingantiwar. So far, only the Government Hospitals and Pharmacies were allowed to do so.

:-5-: ITA. No.: 1549/Chny/2024 On the basis of the above Notification and Publications your appellant Trust which is running Hospital having more than 900 beds like Government Hospital has accepted the SBN notes till 11 November and remitted the same into its Bank Account with a view to avoid the hardship faced by patients. i.e. the CASH of Rs.1,45,51,000/-, which includes Pharmacy sale proceeds of Rs.25,75,812/-, has been deposited into Bank on 10.11.2016 since 09.11.2016 is not a banking day and the CASH collected during 10.11.2016 evening to 11.11.2016 after noon of Rs.56,60,500/-, which includes Pharmacy sale proceeds of Rs.7,80,815/-, has been deposited into Bank on 11.11.2016. After that no SBN notes are accepted by the Hospital except Rs.500/- by the Medical shop outlet of the Hospital for sale of medicines as per the Circular / Notification issued by Central Government. The related copy of Notifications, circulars and Paper Publications are enclosed for your esteemed reference and records. Your appellant Trust has deposited SBN notes of Rs.500/- to the tune of Rs.19,25,500/- on 18.11.2016, Rs.29,55,500/- on 23.11.2016 and Rs.3,54,500/- on 16.12.2016. As such the aggregate deposit of SBN notes works out to Rs.2,54,47,000/- as stated by AO in her order dated 31.12.2019. The A.O. has made addition of Rs.1,75,14,608/-, being the difference between the total SBN deposit of Rs.2,54,47,000/- and cash balance available as on 08.11.2016 of Rs.79,32,392/-, as per order without considering the above Notification, Circular and Publication. Hence it is humbly requested for deletion of the entire addition made u/s.68 of Rs.1,75,14,608/- on appreciation of the above facts and Notification, circular and Publication. (2) The A.O. has not considered the Foreign Travel Expenses of Dr. S.GURUSHANKAR and Dr. KAMINI for the purpose of application of Income of the Trust even though it is well represented that the Expenses are met for the purpose of canvassing market for the Hospital. By letter of the Chartered Accountant 048/19-20 dated 18.11.2019 it is brought to the knowledge of the A.O. under Point No.2 as "The Chairman Sri. S.GURUSHANKAR has visited hospitals at MALAYSIA, SINGAPORE and other countries in order to canvass market for the Hospital. Because of his repeated foreign Trips and efforts, the Hospital got Foreign IP and OP patients and the list of foreign patients treated is enclosed for your esteemed reference and records. In due course the Hospital is planning to have Package deal for abroad people which will increase the efficiency of the Hospital. As such it is justified the expenses met on account of Foreign Travel by chairman and other personnel of the Hospital." For your reference and records copy of Passport of Dr. S.GURUSHANKAR is enclosed. The A.O. has also not considered the Travel Expenses met by PA.SACHITHANANTHA and Senior Advocate Sri.K.SUBRAMANIAN for the purpose of application of Income of the Trust even after it is well proved that they relate to only for the purpose of the Trust. (3) The A.O. has refused to accept and consider the Legal Charges paid to Senior Lawyer Shri. K.SUBRAMANIAN as application of Income of the Trust even after it is clearly represented by Letter in 075/19-20 dated 27.12.2019 under Point No.2 as under:

:-6-: ITA. No.: 1549/Chny/2024 "(2) The assessee Trust has paid Professional Charges to Lawyer Sri. K.Subramanian Rs.1,24,50,000/- after deduction of T.D.S. during the year under review by way of Cheque bearing No: 030634 for Rs.58,05,000/- (Rs. 64,50,000 - T.D.S. of Rs.6,45,000) and by way of Cheque bearing No:028941 for Rs.54,00,000/- (Rs.60,00,000 - T.D.S. of Rs.6,00,000). Ledger Folio is enclosed for your ready reference and records. These Legal Charges are paid only for safe guarding the interest of Trust. i.e. The petitioners I Respondents could be either the Trust and / or any of Trustees and / or any of the employees. This clarification is given since the case number for which the bill raised by the Senior Counsel may not have the Name of Trust, but the Trustee / employee. Under the circumstances it is crystal clear that the Legal Fees Charges paid to Senior counsel is only for the benefit of the Trust." i.e. Legal charges are paid not for filing AFFIDAVIT and representation before COURT alone and it is paid for consultation, Legal Advice, representation before Court, etc.,”

5. On perusal of the above submissions made by the assessee, the ld.CIT(A) allowed the appeal of the assessee on all the three grounds by holding as under:

(1) Foreign Travel Expenses: 6.4.8 As already brought out, the Appellant Trust is running a 900 bedded hospital in the name of M/s. Madurai Meenakshi Mission Hospital & Research Centre (MMHRC) located at Madurai, this hospital is also known to be one of largest Multi-specialty hospital in South Tamil Nadu. This being the position the claim of the Appellant towards foreign travel expenses to participate in conferences, attending seminars and also canvassing market for the hospital cannot be ruled out. Further the AO has not brought on record any findings that the expenditure incurred towards foreign travel are in the nature of personal and not related to the objectives of the Trust. In the absence of any such findings, the undersigned is of the considered view that the rejection of the claim of the Appellant by the AO of the expenditure incurred towards foreign travel lacks merits. Further the AO also has rejected the travel expenditure of the employee towards computing to Chennai for various official duties. It may be appreciated that the functioning of Hospital is at Madurai and the State Head Quarters is located at Chennai. It is a general practice that people from other districts of the state have to travel to the Chennai for various official needs. Accordingly, such expenses claimed cannot be rejected summarily. 6.4.9 In view of this, the expenses claimed on account of travel as "Travel expenditure" cannot be rejected out rightly without making any finding that such expenditures incurred are not related to the objectives of the Trust.

:-7-: ITA. No.: 1549/Chny/2024 During the course of the Appellate proceedings, the AR has very clearly brought out the nexus between the expenditure claimed and the Objectives of the Trust. In this backdrop, the undersigned is of the considered view that the action of the AO in not considering the travel expenditure as application of income is not appropriate to the facts and circumstances of the case and lacks merits. Accordingly, the grounds raised by the Appellant upon this issue are hereby treated as allowed and the Assessing Officer is hereby directed to consider the same as application of income. (2) Payment of legal fees: 6.5.2 The Appellant has paid the Lawyer bills through banking channels after deducting due TDS. The claim of the Appellant Trust is that this expenditure was incurred in connection with the handling of legal cases relating to Trust pending before the Court. The AO is of the view that in the absence of any affidavit supporting the filing of cases before Courts, the expenditure cannot be treated as application of income. 6.5.3 It may be appreciated that the Appellant Trust is running a large multi- specialty Hospital and may encounter legal obstacles in the smooth functioning of the Hospital in any tier two city. Obviously, the incurring of legal expenditure are only incidental to the running of the Hospital by the Appellant Trust and is therefore inevitable. The undersigned while going through the assessment order observed that the AO has not chosen not to allow the sum incurred towards lawyer bill as application of income, primarily on account of the fact that the above expenditure is huge. During the course of Appellate proceedings the AR has strongly contended that a businessman was the best judge of his affairs and knew the best way to run his business, that the AO could not step into his shoes and guide him about the expenditure and that the reasonableness, commercial expediency and justifiability of expenditure but to be judged from the point of view of a businessman. The Appellant has incurred the expenditure through banking channel and has cleared the lawyer bills after deduction of TDS. Obviously, the AO has not suspected the expenditure incurred but was held back for the want of clarity for the huge sum paid. 6.5.4. Since the Appellant Trust has incurred the expenditure and has duly accounted the same in the books of accounts the same cannot be suspected purely on account of the fact that the amount incurred is huge. The AO has not made any findings that the expenditure claimed is other than the purpose for which it has been claimed. In this backdrop, the undersigned is of the considered view that the action of the AO in not considering the lawyer bill paid as application of income is not appropriate to the facts and circumstances of the case and lacks merits. Accordingly, the ground raised by the Appellant upon this issue is hereby treated as allowed and the AO is hereby directed to consider the amount of Rs1,12,50,000/- (58,50,000 + 54,00,000) as application of income.

(3) Cash deposits during the demonetization period: 6.6.4 Further, the AR has contended that when the announcement of demonetization was aired at 8 PM on 08.11.2016, the hospital administration was in a catch 22 situation about the collection of SBN(s) from the patients who were to be discharged subsequent to the announcement of :-8-: ITA. No.: 1549/Chny/2024 demonetization at the night of 08.11.2016. The same commotion continued up to 10.11.2016 until the local banks started to address this issue with the issuance of directions from the RBI, till such time, the hospital administration was forced to accept cash in SBN(s). Further, the hospital administration was not in a position to force the patients to pay in card mode or electronic mode since the patients were from rural areas who are not familiar with the digital modes of payments. In addition, the hospital administration could not hold back these patients for clearing bills as it affects the bed occupancy for the new patients who have been scheduled to be admitted on these dates (08-11- 2016 to 10- 11-2016) thus the acceptance of SBN(s) during this short period was inevitable. 6.6.5 The undersigned upon examination of the above contention has found that the Appellant Trust in order to reduce the genuine hardships faced by its patients in expending SBN(s) continued to accept the SBN(s) in accordance with the notification issued by the Union Government and claimed that it was these SBN(s) that were deposited in the bank accounts. The arguments advanced by the Appellant upon thus issue is acceptable. 6.6.6 Further, the AO in the assessment order has treated the cash in the form of SBN(s) deposited in banks as its unexplained cash credits u/s 68 of the Act. The AO before proceeding to treat the sum of SBN(s) deposited as unexplained cash credit failed to appreciate the following condition prescribed under section 68 of the Act viz …. (i) the sum is found to be credited in the books of assessee. (ii) the assessee offers no explanation about the nature and sources thereof (iii) the explanation offered if any is not in the opinion of the AO satisfactory 6.6.7 In the case of the Appellant, the sum received from patients have been credited in the books of accounts and the Appellant has offered explanation about the source of such sum credited in the books of accounts. The AO in the assessment order has not made any findings about the explanation offered is not satisfactory. Without making any such findings invoking the provisions of section 68 of the Act is inappropriate to the facts and circumstances of the case. Thus, when a plausible explanation is furnished, it cannot be rejected by the AO out rightly. 6.6.8 In view of the above discussion, the undersigned is not inclined to sustain the addition made by the AO in treating the cash deposited by the Appellant Trust as unexplained Credit u/s 68 of the Act. Accordingly the ground raised by the Appellant upon this issue is hereby treated as allowed and the AO is directed to delete the addition of Rs.1,75,14,608/- made u/s 68 of the Act as unexplained credit for the A Y 2017-18. Aggrieved by the order passed by the ld.CIT(A), the revenue preferred an appeal before us.

:-9-: ITA. No.: 1549/Chny/2024

6. The ld. DR for the revenue submitted that the ld. CIT(A) has erred in accepting the assessee’s explanation that cash deposits of Rs.1.75 crores in SBNs is on account of the fact that the asseessee trust in order to reduce the genuine hardships faced by its patients continued to accept SBN(s) in accordance with the notification issued by the union Government. Further, the ld.DR submitted that the Government Notification No.2653/2018 has not exempted the private hospitals from collection of fee in SBNs from patients. The ld.CIT(A) failed to appreciate that the assessee claimed that the deposit was made out of collection from patients which is not from pharmacy collections.

6.1. Further, the ld. DR argued that the ld.CIT(A) has erred in giving a relief on the basis of assessee’s submission that the travelling expenses of Rs.54,48,077/- as application of income, even though the assessee had not proved that these expenditures are incurred for the objectives of the trust. The ld.DR argued that the ld.CIT(A) erred in directing the AO to consider the legal expenses of Rs.1,12,50,000/- as application of income without appreciating that the assessee had not provided details of Affidavits before the AO.

6.2. In the light of the above arguments, the ld.DR prayed for setting aside the order of ld.CIT(A) by confirming the order of AO.

7. Per contra, the ld.AR submitted that the assessee is a charitable trust running 900 beds hospital under the name of M/s.Meenakshi Mission Hospital and Research Centre at Madurai providing health care to all regardless of profit motive. The hospital is providing medical facilities to the patients suffering from life threatening :-10-: ITA. No.: 1549/Chny/2024 ailments, such as cancer, renal failure, AIDS, Alzheimer, etc. and also helps patients whose life span would be less than six months to lead their last phase of life with comfort, dignity and also without being a burden to others. In spite of foreign travel expenses of Rs.54,48,077/-, the ld.AR submitted that the assessee had spent these expenditure in order to be hassle free to the entire arrangement for the conference abroad including air ticket booking, hotel / conference, lodging and boarding and other travel arrangement / visa and passport who are outsourced to travel agents and therefore, the assessee could produce only copy of the pass port held with them along with the copy of the bill issued by the travel agent. Further, these expenditures have been spent by the trust for medical conferences to update the knowledge of participants in respect of latest developments in the medical field specifically in various disciplines of medical sciences. This surely enhanced the knowledge and upgrading the skills of the practising doctors and this helps in upgrading the business of the assessee’s trust. Further, the ld.AR submitted that these expenses incurred towards foreign travel are met for the purpose of canvassing market for the hospital apart from attending the conferences abroad. The ld.AR drew our attention to copies of page Nos.17 to 34 of the paper book to prove that the doctors of the hospital had travelled to abroad as per the expenditure claimed by the assessee.

7.1 In respect of expenditure claimed towards legal fees to the tune of Rs.1,12,50,000/-, the ld.AR submitted that the assessee is running a large multispecialty hospital and to encounter the legal obstacles incurring of legal expenditures are incidental. Further, the ld.AR stated that these expenditures made through banking channel to the Advocate after deducting the applicable TDS and paid to Shri K.Subramanian. The ld.AR also submitted that in the absence of affidavit :-11-: ITA. No.: 1549/Chny/2024 in support of filing of case before court, the expenditure cannot be treated as ineligible as an application of income of the trust.

7.2 The ld. AR for the assessee reiterated the submitted made before the ld. CIT(A) in respect of cash deposit in SBNs during the demonstration period beyond the cash balance held as on 08.11.2016. The ld. AR filed paper book consisting of notification issued by the Central Government (Page No 6 to 13 of Paper Book) in respect of acceptance of SBNs during the demonstration period along with copy of cash flow statement (Page No 14 & 15 of Paper Book) and stated that the Pharmacies were inserted as exempted category of persons to collect SBN from 09.11.2016 to 11.11.2016. Further, the date has been extended to 15.12.2016 by notification dated 07.12.2016. Accordingly, the assessee had collected SBNs from patients in order to reduce the hardship in the Pharmacy and deposited into the bank account. In support of the above the ld. AR drew our attention to the cash flow statement filed from 09.11.2016 to 16.12.2016 wherein the assessee had deposited SBNs to the tune of Rs.2,54,47,000/-. The ld. AR shown that the assessee had cash balance of Rs.57,45,715/- at the end of the day 08.11.2016 and balance collected upto 11.11.2016 to the tune of Rs.2,02,11,500/- and Rs.52,35,500/- collected from patients from 12.11.2016 to 15.12.2016. Therefore, the ld. AR submitted that the above amounts have been collected in SBNs in accordance with the notifications issued by the Central Government and hence prayed for confirming the order of ld. CIT(A).

8. We have heard the rival contentions perused the material available on record and gone through the orders of authorities along with the paper book filed by the :-12-: ITA. No.: 1549/Chny/2024 assessee. Admittedly, the assessee is a public charitable trust registered u/s.12AA of the Act and running a hospital in the name of M/s. Meenakshi Mission Hospital and Research Centre at Madurai. The assessee has claimed exemption u/s.11 of the Act by filing a return of income dated 11.10.2017 for the impugned A.Y.2017-18. The case was selected for scrutiny for verification of cash deposits made of Rs.12,31,99,700/- during the demonstration period in the bank account of the assessee. The AO after perusal of the submissions made by the assessee passed an order u/s.143(3) of the Act by making the following additions: - Cash deposit of SBNs as unexplained money Rs.1,75,14,608/- - Travel expenses disallowed Rs.54,48,077/- - Legal expenses disallowed Rs.1,12,50,000/- An appeal filed by the assessee, the ld. CIT(A) has deleted the above by passing an order 26.03.2024. The AO has disallowed the travelling expenses of Shri. Gurushankar, Smt. Kamini, Shri. K.Subramanian and Shri. Sachithanantha towards both foreign as well as domestic travel expenses to the tune of Rs.54,48,077/- from 09.04.2016 to 06.03.2017 to the countries like USA, Singapore, Malaysia, Australia. On perusal of the assessment order, we note that the expenditure has not disallowed stating that the entire bill was issued by the travel agency without giving the details of air ticket, copy of passport etc. Further, the AO also stated that no evidence was produced to support that the doctors were canvassed to market the hospital in the overseas and correspondent incremental patients from abroad got treated at the hospital.

8.1 We note that the travel expenses was spent for the team of doctors at visit various places to attend medical conferences is to update with the latest development in the medical field. The updates in various disciplines of medical :-13-: ITA. No.: 1549/Chny/2024 sciences such conferences are conducted by renowned medical super specialists through interactive sessions in order to provide correct diagnosis and treatment with the help of new technological developments and with latest equipment’s in the field of medicine and surgery. This definitely enhances the knowledge, efficiency and upgrading of skills of the doctors and the medical team and in turn increases the number of patients to the hospital both from locally as well as internationally. We find that the assessee is already running a 900 beds hospital at Madurai and hence participating in the conferences and seminars by the professionals both domestic and international is incidental to the objectives / activities. Accordingly, the travel expenditure incurred by the assessee cannot be classified as ineligible for the application of the trust's income. It is observed that the assessee has submitted documentary evidence, including copies of passports and detailed travel itineraries, in substantiation of the said expenditure. Additionally, the assessee has demonstrated a corresponding increase in the number of patients attending the hospital, thereby establishing a direct nexus between the travel expenses and the charitable objectives of the trust. In view of the foregoing, we are of the considered opinion that the assessee has adequately justified the expenditure as being incurred in furtherance of the trust’s objects. Consequently, the action of the ld.CIT(A) in allowing the assessee’s claim in respect of the travel expenses is found to be in accordance with law and does not warrant any interference. Therefore, the grounds of appeal raised by the Revenue on this issue stand dismissed.

10. The next ground raised by the Revenue is with regard to deletion of unexplained money of SBNs to the tune of Rs.1,75,14,608/- by the ld. CIT(A). During the assessment proceedings the AO noticed that the assessee had deposited SBNs to the tune of Rs.2,54,47,000/- during the demonetisation period into the bank account of the assessee. As per the books of accounts furnished by the assessee the AO found that the assessee had a cash balance of Rs.79,32,392/- as on 08.11.2016 and balance of Rs.1,75,14,608/- out of total SBNs deposited was treated as unexplained money since the assessee was not authorized to collect SBNs after :-15-: ITA. No.: 1549/Chny/2024 the announcement of demonetisation. However, the ld. CIT(A) on perusal of submissions made by the assessee accepted that the assessee was authorised to collect SBNs during the demonetisation period i.e. upto 25.12.2016 by way of notification in their pharmacy running at the hospital premises. Further, the ld. CIT(A) also observed that the assessee had explained the entire source of cash deposit made and recorded all the transactions in the books of accounts furnished before the AO and hence the additions made u/s.69 of the Act cannot be sustained. Therefore, the ld. CIT(A) deleted additions made by the AO.

10.1 On perusal of the paper book filed by the assessee as per the notification of the Central Government dated 08.11.2016, 09.11.2016 and 07.12.2016, the SBNs were allowed to be transacted for making the payments in all pharmacies on production of doctor’s prescription and proof of identity. In the present case on the hand the assessee is running a 900 beds hospital along with pharmacies. The cash flow statement submitted by the assessee shows that the assessee had made a cash deposit of Rs.2,54,47,000/- in SBNs during the demonetization period. We find that the ld. CIT(A) has rightly observed that in order to reduce the genuine hardship faced by its patients in expending SBN continue to accept the same in accordance with the notification issued by the Union Government and deposited the same to the bank account. Further, we concur with the ld. CIT(A) that the additions u/s.68 of the Act cannot be made once the amount is credited in the books of accounts and the assessee offers explanation about the nature and source thereof, the AO has to express his opinion that the explanation offered is not satisfactory. In the case on hand, the assessee has recorded credits in the books of accounts and explain the source as receipts from the patients for providing treatment and selling medicines :-16-: ITA. No.: 1549/Chny/2024 and the AO has not made any findings about the explanation offered as not satisfactory. Therefore, we do not find any infirmity in the order of the ld. CIT(A) in deleting the additions made by the AO on account of cash deposit of SBNs.

10.2 Furthermore, as contended by the ld. AR, the cash deposited in Specified Bank Notes (SBNs) during the demonetisation period was lawfully collected and such deposit was not prohibited under the provisions of the Specified Bank Notes (Cessation of Liabilities) Act, 2017. In accordance with the said Act, the 'appointed date' beyond which transactions in SBNs were no longer permitted was 31.12.2016. Therefore, we find merit in the argument advanced by the ld. AR. This issue stands squarely covered in favour of the assessee by the decision of this Tribunal in the case of Shri Raju Dinesh Kumar vs. DCIT (supra), wherein, under an identical set of facts, the Tribunal deleted the additions made by the Assessing Officer after duly considering the following precedents rendered by this Tribunal: M/s. Micky Fireworks Industries vs. ACIT – dated 26.07.2023; Mrs. Umamaheshwari vs. ITO – ITA No. 527/Chny/2022 dated 14.10.2022; and Amar Sparklers Factory vs. ITO – ITA No. 808/Chny/2023 dated 11.10.2023, and held as under: “9. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts borne out from the record clearly indicate that the assessee is running a dhall mill and manufacturing various kinds of dhalls. The facts brought on record by the AO further indicated that the assessee procures various kinds of pulses from local market and manufacturing into various kinds of dhalls and sells to unregistered dealers in cash. The assessee has filed comparative cash sales and cash deposits into bank account for FY 2015-16 & FY 2016-17 and also cash sales and cash deposits for the month of October & November, 2015 and October & November, 2016. On perusal of details filed by the assessee, which has been reproduced by the AO in the assessment order, we find that there is no abnormal variation in cash sales and cash deposits into bank account for FY 2015-16 & FY 2016-17. Further, the cash sales achieved by the assessee for FY 2015-16 is higher than the cash sales reported for FY 2016-17. From the details filed by the assessee, it is abundantly clear that there is no sudden increase in cash sales during demonetization period when compared to earlier Financial Years. Further, the assessee has filed cash book and other details to prove availability of cash in hand as on 08.11.2016 at Rs.71,76,208/-. In fact, :-17-: ITA. No.: 1549/Chny/2024 the AO is not disputed the fact that the assessee has filed cash book and as per said cash book, cash in hand as on 08.11.2016 was at Rs.71,76,208/-. If you go by the nature of business of the assessee and sales trend, it is undoubtedly clear that the assessee’s sales predominantly in cash, and thus, the cash in hand shown by the assessee as on 08.11.2016 appears to be genuine and bona fide. To this extent, in our considered view, the reasons given by the AO to reject explanation of the assessee for source for cash deposits into bank account is devoid of merits. 10.Having said so, let us come back to the explanation of the assessee with regard to source for remaining cash deposits. The assessee claims that he is into manufacturing of various kinds of dhalls and sells to unregistered dealers in cash. The assessee claims that he has collected cash in demonetized currency from customers even after 09.11.2016 and said cash receipts is not violation of Specified Bank Notes (Cessation of Liabilities) Act, 2017. We find that although, the Government of India & RBI issued various notifications and circulars barring people transacting in SBNs, but, as per Specified Bank Notes (Cessation of Liabilities) Act, 2017, no person shall accept or transact any SBNs from the appointed date. As per said Act, appointed date is 31.12.2016. From the above, it is very clear that up to appointed date, persons can transact in SBNs. However, the only requirement is, they should be able to establish source for said cash deposits. This principle is further fortified by the decision of the ITAT Chennai Bench in the case of Amar Sparklers Factory v. ITO in order dated 11.10.2023, where the Tribunal after considering relevant facts has held as under: 7. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. In so far as addition of Rs. 6,62,783/-, we find that the assessee itself has admitted shortage of source in their cash flow statement filed before the AO. Therefore, from the above, it is undoubtedly clear that the assessee could not explain source for cash deposits to the extent of Rs. 6,62,783/- and thus, we are of the considered view that, there is no error in the reasons given by the CIT(A) to sustain additions made towards cash deposits to the tune of Rs. 6,62,783/-. In so far as addition of Rs. 20,40,000/- towards advance received from group concerns, it was an argument of the appellant that group concerns have paid advance in cash during demonetization period and deposited into IDBI bank account. In this regard, the appellant has filed necessary details including PAN nos. and confirmation letters from the group concerns to prove receipt of trade advance. The Assessing Officer has not disputed these facts, however made additions only on the ground that the assessee should not have accepted cash in specified bank notes after 08.11.2016. We find that this issue is covered in favour of the assessee by the decision of ITAT, Chennai Benches in the case of M/s. Micky Fireworks Industries vs ACIT in ITA No. 264/Chny/2023, dated 26.07.2023, where the Tribunal under identical set of facts deleted additions made by the Assessing Officer, and the findings of the Tribunal is reproduced as under: “4. From the facts, the undisputed position that emerges is that the assessee has made sale of fireworks during festival season. The sales are duly accounted for by the assessee in the books of accounts. The accounts have duly been audited. The assessee has realized debtors out of such sale in SBN which have been deposited in the bank account of the assessee. The cash deposited by the assessee has duly been accounted for in the books of accounts. The Ld. AO has not alleged any bogus sales :-18-: ITA. No.: 1549/Chny/2024 or back dated sales made by the assessee. No defect has been pointed in the books of accounts as maintained by the assessee.

8. Considering the facts and circumstances of the case, we find force in assessee’s case and therefore, delete the impugned addition as made u/s 68. We order so. The Ld. AO is directed to re-compute the income of the assessee.”

:-19-: ITA. No.: 1549/Chny/2024

11. In the given facts of the present case, there is no dispute with regard to the fact that the assessee’s sales predominantly in cash. It is also an undisputed fact that there is no abnormal variation in total sales, cash sales and cash deposits for two Financial Years. The assessee is also able to file various evidences, including month-wise purchase and sales and cash book to prove availability of cash in hand as on 08.11.2016. Therefore, we are of the considered view that going by the nature of business of the assessee and also details submitted for two Financial Years, the explanation offered by the assessee towards source for cash deposits into bank account during demonetization period, is bona fide and acceptable. The AO and the Ld.CIT(A) without considering the relevant submissions of the assessee simply made addition towards cash deposits u/s.69A r.w.s.115BBE of the Act. Thus, we set aside the order of the Ld.CIT(A) and direct the AO to delete the addition made towards cash deposits u/s.69A r.w.s.115BBE of the Act.”

10.3 In view of the foregoing facts and circumstances of the case, and respectfully following the judicial precedents laid down by this Hon’ble Tribunal, we find merit in the contentions advanced on behalf of the assessee. Accordingly, we do not find any infirmity in the order passed by the ld.CIT(A). We therefore uphold the order of the ld. CIT(A) and direct the AO to delete the additions made under section 68 of the Income-tax Act, 1961. Consequently, the grounds of appeal raised by the Revenue on this issue stand dismissed.

Order pronounced in the court on 26th May, 2025 at Chennai. (एस एस िव"ने" रिव) (एस. आर. रघुनाथा) (S.S. VISWANETHRA RAVI) (S. R. RAGHUNATHA) "ाियक सद"/Judicial Member लेखा सद"/Accountant Member