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Facts
The assessee, engaged in the rice wholesale and retail business, deposited cash during the demonetization period. The Assessing Officer (AO) treated a portion of these deposits as unexplained cash credit and made an addition. The CIT(A) upheld the addition with a minor correction.
Held
The Tribunal held that the assessee had sufficiently explained the source of the cash deposits as business collections and cash in hand from before demonetization. The AO had failed to rebut the evidence and the books of accounts were not disputed. Thus, the addition made under Section 68 was not justified.
Key Issues
Whether cash deposits made during the demonetization period, explained as business collections and cash in hand, can be treated as unexplained cash credit under Section 68 of the Income Tax Act.
Sections Cited
68, 115BBE, 143(1), 143(2), 142(1), 69A, 44AB, 69
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY & SHRI S. R. RAGHUNATHA
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal by the assessee is filed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2017-18, dated 29.07.2024.
The assessee has raised the following grounds of appeal:
1. For that the order of the ld.CIT(A) NFAC, and the ld.AO are contrary to the facts, law and circumstances of the case of the Appellant and is opposed to the principles of natural justice, equity and fair play.
2. For that the ld.CIT (Appeals) upheld that the difference between the cash balance held on the date of demonetization and the :-2-: ITA. No: 2963/Chny/2024 quantum of deposits during the period as unexplained credits as assumed by the ld.AO without verification of the data of cash deposits submitted before it, renders that there was no application of facts as well law on the CIT Appeals order.
3. For that the Ld.AO as well CIT(A) erred in making additions whereas the certificate issued by the bank clearly denotes that most of the cash deposits were not specified denominations as per the demonetization SBNs, were from the regular series of the cash those were held to be legal tender.
4. For that the ld.AO and the CIT(A) had failed to appreciate that the Cessation of Liabilities Act 2017 passed by the Parliament only after December 2016 and appointed the date as 31st December 2016 as appointed date for withdrawing the liability on the demonetized series; this law implies that any sum received by a person provided having substantial evidence to prove shall not be liable to an addition as unexplained credit u/s 68 as this apprehension renders the Notification Otiose.
5. For that the ld.AO/ CIT(A) further erred in not calling for the denomination details from the bank for the purposes of ascertaining the quantum of demonetized currently deposited and the source of it; instead it went with the details provided as per books of account and have assumed erroneously that these represent unexplained credits u/s. 68 of the IT Act, 1961.
6. For that the ld.AO as well CIT(A) have failed to appreciate that the entire sales are being forming part of the sales were forming part of the sales in Trading and Profit & Loss Account for the year ended 31.03.2017 and treating the cash realization out of the cash sales as unexplained credits renders the law suffer from lack of clarity by the ld.AO and CIT(A).
3. In brief the sole ground before us raised by the assessee is the ld.CIT(A) has erred in confirming the addition of Rs.34,12,350/- u/s.68 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).
At the outset, we find that there is a delay of 27 days in appeal filed by the assessee, for which petition for condonation of delay along with reasons for delay has been filed. After considering the petition filed by the assessee and also hearing both the parties, we find that the assessee was aware of the impugned order only on receipt of Order giving effect by the JAO and hence there is a reasonable cause for the assessee in not filing appeal on or before :-3-: ITA. No: 2963/Chny/2024 the due date prescribed under the law and thus, in the interests of justice, we condone delay in filing of appeal and admit appeal filed by the assessee for adjudication.
The brief facts are that the assessee is an individual, engaged in the business of dealing in rice as a wholesaler and semi retailer. The assessee e- filed his return of income for the assessment year 2017-18 on 29.10.2017, admitting an income of Rs.42,64,010/- including the income from house property. The return of income was processed u/s.143(1) of the Act and subsequently the return was selected for scrutiny assessment under CASS to verify cash deposit during the year. Accordingly, notices u/s.143(2) and 142(1) of the Act were issued to the assessee calling for source for cash deposits for each bank account separately during the FY 2016-17 and copy of the challan for deposit of cash specifically mentioning the denomination of the notes during demonetization period. The AO stated in his order that in response to notices, the assessee had stated that the source for the cash deposits of Rs.68,15,000/- was from cash balance held as on 08.11.2016 of Rs.36,02,650/- and the balance amount of Rs.34,12,350/- was from the collection from the debtors. Further, the assessee has stated that he has received SBN from the customers / clients during the demonetization period and the same had been deposited into the bank account. However, the AO was not satisfied with the explanation / documents furnished by the assessee for the reason that the assessee was not in the exempted category as notified by the RBI to collect the SBN after the announcement of demonetization. Hence the AO concluded the assessment u/s.143(3) of the Act dated 28.12.2019 by assessing Rs.34,12,350/- as unexplained cash credit u/s.68 r.w.s. 115BBE of the Act. Further, the AO :-4-: ITA. No: 2963/Chny/2024 reduced the corresponding net profit @ 1.18% on Rs.35,32,320/- from the returned income i.e., Rs.38,205/-.
Aggrieved by the assessment order of the AO, the assessee preferred an appeal before the ld.CIT(A).
Before the ld.CIT(A), the assessee stated that the AO has justified that the collection of SBNs after announcement of demonetization is not permitted to the nature of business carried out by the assessee and hence made on addition of Rs.34,12,350/- u/s.69A of the Act.
The assessee raised 7 grounds of appeal in Form No.35 against the order of the AO and stated the assessee had submitted the return of income, tax audit report in Form No.3CB and 3CD, audited financials, certificate issued by Canara Bank, Summary of cash deposits from 01.04.2016 to 31.12.2016 along with the judicial decisions in support of assessee’s claim. However, after perusal of submissions of the assessee the ld.CIT(A) was not convinced with the explanations and documents submitted and hence confirmed the additions made by the AO by correcting the arithmetical error by reducing the additions to Rs. 32,12,350/- by passing an order dated 29.07.2024 by holding as under:
“7.2.1 It is a fact that the addition made by the Assessing Officer on account of unexplained cash credit has no co-relation with the sales of the appellant. The Assessing Officer while finalizing the assessment proceedings gave the effect of cash in hand of the appellant as on 08.11.2016 claimed to be earned from sales. Further, as per the Gazette Notification of Ministry of finance in No2653 dated 08.11.2016 for the acceptance of demonetized currency, the appellant was not authorized to receive the specified bank notes no matter whether it was from his debtors or sales. The appellant was not under the exempted category to accept the SBN. It is seen that the appellant routed its unaccounted money by giving it the color of debtors. The AO has alreay granted the necessary relief to the appellant by giving credit of cash in hand of Rs.36,02,650/- as on 08.11.2016. Further, the appellant has relied on various case laws which are not squarely applicable to the fact of the case.
:-5-: ITA. No: 2963/Chny/2024 The Assessing Officer was, therefore justified in treating the amount exceeding Rs.36,02,650/- as unexplained cash credit and making addition u/s 68 of the Act. Accordingly the tax was calculated as per section 115BBE of IT Act. 7.2.2 With respect to source of cash deposit and credit entries, various courts have held as under: Supreme Court in case of CIT v.P.Mohanakala [2007] 291 ITR 278 /161 Taxman 169 held that “the expression “ assessee offers no explanation” means where the assessee offers no proper, reasonable and acceptable explanation as regards the sum found credited in the books maintained by the assessee.” Supreme Court in case of A.GovindarajuluMudaliar v.CIT [1958] 34 ITR 807 (SC) held that “The burden to prove the genuineness of cash credit lies on the tax payer. If the assessee fails to prove satisfactorily the source and nature of amounts of cash received and creditworthiness of the creditor, the Assessing Officer is entitled to draw inferences that the receipt are of an assessable of an assessable nature.” 7.3 In view of the above, the cash deposits to the tune of Rs.34,12,350/- has remained unexplained. Therefore, the addition of Rs.34,12,350/- is in order. The appellant, however pointed out that there is an arithmetical mistake while ascertaining the additions. The correct working of unexplained cash credit is as under: S.No. Particular Amount (in Rs.) (i) Total cash deposit in the bank account of the 68,15,000/- appellant in specified bank notes during demonetization period (ii) Cash in hand as on 08.11.2016 accepted by 36,02,650/- Assessing Officer (iii) Unexplained cash credit of the appellant [(i) – 32,12,350/- (ii)] The AO therefore plea that even as per the working of the Assessing Officer the disallowance works out to Rs.32,12,350/- which was taken at Rs.34,12,350/- inadvertently. Verification of the order reveals that the correct amount of addition would be Rs.32,12,350/-. Therefore, the addition of Rs.34,12,350/- is restricted to Rs.32,12,350/-. The appellant gets relief of Rs.2,00,000/-.
Aggrieved by the impugned order of the ld.CIT(A), the assessee preferred an appeal before us.
:-6-: ITA. No: 2963/Chny/2024 10. The Ld.AR for the assessee assailed that the ld.CIT(A) has erred in confirming the addition made u/s.68 r.w.s. 115BBE of the Act, even though the assessee has substantiated by explaining the source of the cash deposits as business collections and out of cash balance held on 08.11.2016 along with receipts from Debtors. Further, the ld.AR submitted that the ld.CIT(A) and AO has not considered any of the evidence / documents in support of the return of income filed along with the cash deposit during the demonetization period and confirmed the addition by the suspicious features of the transactions by stating that the assessee is prohibited to collect the SBN during the demonetisation period. Further, the AO has not rejected the audited books of accounts furnished by the assessee and not found any defects or mistakes in the same.
The ld.AR stated that the ld.CIT(A) has erred in confirming the addition made by the AO, since the assessee has maintained proper books of accounts like Cash book, bank book, sales register, purchase register, stock registers, monthly VAT returns, Audit report in Form 3CA and 3CD, Audited financials have been furnished during the assessment as well as appellate proceedings.
The ld.AR also stated that the following documents were produced before the AO and that of ld.CIT(A) in support of the genuineness of the transactions carried out during the A.Y. 2017-18 including the demonetisation period in paper book consisting of 59 pages. The ld.AR drew our attention to the documents submitted before the AO as well as the ld.CIT(A), the bank’s certificate for SBN deposits from Lakshmi Vilas Bank (page No.21 to 23 of :-7-: ITA. No: 2963/Chny/2024 PB) and also the tax audit report along with the audited financials of the assessee. The ld.AR stated that the bank has issued a certificate stating that the deposits made during the demonetisation period to the extent of Rs.31,30,457/- without any denomination mentioned in the deposit challans. The ld.AR also submitted that the assessee’s total sales during the impugned assessment year was Rs.66.57 Crores, out of which cash sales of Rs.36.22 Crores has been made and cash deposited to the bank was Rs.36.56 crores. Thus, the predominant portions of sales are made in Cash to the customers and hence the amount of cash deposit made during the demonetisation period cannot be rejected to make an addition u/s.68 of the Act.
Further, the ld.AR also submitted that there is no prohibition to accept SBNs during the demonetization period by the assessee, as per the 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. The ld.AR stated that the assessee has proved that the source of cash deposit was from the business. To buttress his argument the Ld.AR relied on the decision of this Tribunal in the case of Tamilnadu State Marketing Corporation ltd. Vs.ACIT vide dated 07.10.2024 held in favour of the assessee.
Per contra, the ld.DR argued that the ld.CIT(A) has rightly confirmed the order of the AO to the extent of cash deposits of Rs.32,12,350/- made after the announcement of demonetization. Therefore, the ld.DR relied on the :-8-: ITA. No: 2963/Chny/2024 order of the AO and that of ld.CIT(A) and prayed for confirming the addition by dismissing the appeal of the assessee.
We have heard both the parties, perused materials available on record, all the paper books and gone through orders of the authorities below along with the judicial decisions relied on. It is admitted fact that the assessee is an individual carrying on the business of whole sale and retail of rice and has made a turnover of Rs.66.57 Crores. The assessee filed his return of income and submitted the entire books of accounts, audited financials along with the Tax audit report, certificate from bank, bank statements etc. before the lower authorities during the proceedings. In response to notice u/s.142(1) of the Act, the assessee stated that he has maintained the proper books of accounts maintained which are subjected to tax audit u/s. 44AB of the Act. These books of accounts, statements and other documents furnished by the assessee before the lower authorities, which have not been disputed nor rejected. The books of accounts of the assessee have been accepted by the lower authorities while framing the assessment and not rejected by pointing out any defects.
On perusal of the records and facts and circumstances of the case, we are of the considered opinion that when the sale has been reflected in the books of accounts and offered to tax, adding the same again would amount to double taxation, which is impermissible in law. The cash sales made by the assessee have been credited in the books of accounts and the same form part of the assessee’s cash book. On these facts, it could be very well said that the assessee’s claim was backed up by relevant evidences. Thus, the :-9-: ITA. No: 2963/Chny/2024 assessee has discharged the burden of proving the source of the cash/SBN deposited in the bank and the Assessing Officer failed to rebut the same. Further, the AO has stated that these amounts of SBNs have been collected from the customers/sales after the announcement of the demonetisation, and recorded in the books of accounts. Further, the assessee also shown that the demonetized currency was deposited out of cash held as on 08.11.2016, which is to the extent of Rs.36,02,650/- and the balance amount of Rs.32,12,350/- was collected from the debtors arising out of cash sales. As argued by the ld.AR even the cash deposited in SBN had been collected during the demonetisation, which was not prohibited as per the Specified Bank Notes (Cessation of Liabilities) Act, 2017. We find force in the argument of the ld.AR, since this issue is covered in favour of the assessee by the decisions of this Tribunal in the following case Tamilnadu State Marketing Corporation ltd. Vs.ACIT vide dated 07.10.2024, by holding as under:
8.5 We further noted that the Central Board of Direct Taxes had issued a circular for the guidance of the Revenue Officer to verify cash deposits during demonization period in various categories of explanation offered by the assessee and as per the circular of the CBDT, examination of business cases, very important points needs to be considered is analysis of bank accounts, analysis of cash receipts and analysis of stock registers. From the circular issued by the CBDT, it is very clear that, in a case where cash deposit found in business cases, the AO needs to verify the explanation offered by the assessee with regard to realization of debtors where said debtors were outstanding in the previous year of credited during the year etc. Therefore, from the circular issued by the CBDT, it is very clear that, while making additions towards cash deposits in demonetized currency, the AO needs to analyze the business model of the assessee, its books of account and analysis of sales, etc. In this case, if we go by analysis furnished by the assessee in respect of total sales, cash sales including the cash received in demonetized currency and cash deposits, there is negligible amount in demonetized currency. Therefore, we are of the considered view that when there is no significant change in cash deposits, there is negligible amount demonetized currency. Therefore, we are of the considered view that when there is no significant change in cash deposits during demonetization period, then merely for the reason that the assessee has accepted specified bank :-10-: ITA. No: 2963/Chny/2024 notes in violation of circular / notification issued by Government of India and RBI, the source explained for cash deposits cannot be rejected. Simpliciter violation of certain notification issued by RBI or demonetization scheme announced by Government of India on 08.11.2016 will not entitle the Revenue to make addition u/s 69 or 69A f the Act. Because, the mandate of the provisions of Section 69 & 69A of the Act, i.e., unexplained investments and unexplained money etc. may be deemed to be the income of the assessee for the financial year relevant to assessment year concerned, in which the assessee is found to be the owner of such money, bullion, jewellery or valuable article or unexplained expenditure, if, the such expenditure of such money etc., are not recorded in the books of accounts, if any, maintained by assessee for any source of income and the assessee offers no explanation about the nature and source of such expenditure or acquisition of such money, etc., or the explanation offered by him, in the opinion of AO is not satisfactory. For violation of any RBI notification, etc., can have any civil or criminal liability and can be dealt with under any other provision of law by the concerned authority but for the purpose of bringing the amount under Income-tax, the provisions are very clear i.e., 69 & 69A of the Act. In our considered view, to bring any amount u/s 69 or 69A of the Act, the nature and source of investment, needs to be examined. In case the assessee explains the nature and source of investment, then the question of making addition towards unexplained investment u/s 69 of the Act does not arise. In this case, the source of deposits has not been disputed and has been created out of ordinary business sales which has been credited into books of accounts and profits has also been duly included in the return of income filed in relevant assessment year. Therefore, we are of the considered view that, additions cannot be made u/s. 69 of the Act and taxed u/s. 115BBE of the Act towards cash deposits made to bank account of demonetized cash in SBNs.
Further, we find that the assessee has filed the certificate from Lakshmi Vilas Bank, which states that the cash deposited during the demonetisation includes the currency of Rs.2,000/- also apart from the SBNs ( Paper book page No.21 to 23).
In the given facts and circumstances of the present case, the source for cash deposit in SBN made by the assessee during the demonetisation period has been explained as cash in hand held as on 08.11.2016 along with collection from the business debtors. Therefore, the AO and ld.CIT(A) without considering the relevant submissions of the assessee made addition of cash deposits as unexplained money U/s.68 of the Act r.w.s.115BBE of the Act. Thus, by considering the facts of the case and respectfully following the :-11-: ITA. No: 2963/Chny/2024 decision (supra) of the Tribunal, we set aside the order of the Ld.CIT(A) and direct the AO to delete the addition made towards cash deposits u/s.68 r.w.s.115BBE of the Act by allowing the related grounds raised by the assessee.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 05th May, 2025 at Chennai.