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Facts
The assessee, running a coaching centre, deposited demonetized currency (Specified Bank Notes - SBNs) received as fees. The Assessing Officer (AO) added Rs. 24,00,000/- as unexplained cash deposits and Rs. 48,17,383/- for unexplained investments in properties purchased in earlier years but brought into books later. The CIT(A) confirmed these additions.
Held
The Tribunal held that the acceptance of SBNs was not prohibited under the Specified Bank Notes (Cessation of Liabilities) Act, 2017, and the assessee had explained the source of deposits. For property additions, it was found that the properties were purchased in earlier years from borrowed funds and disclosed income, making the additions a double taxation. Therefore, both additions were deleted.
Key Issues
Whether cash deposits made in SBNs during the demonetization period are unexplained, and whether properties purchased in earlier years and brought into books later constitute unexplained investments.
Sections Cited
69A, 115BBE, 143(3), 69, 68
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K, HON’BLE & SHRI S.R. RAGHUNATHA, HON’BLE
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), dated 31.07.2024 for the assessment year 2017-18.
2. The assessee has raised the following grounds of appeal: Ground no:1
:-2-: ITA. No:2489/CHNY/2024 a) The CIT(A)NFAC erred both in law and in facts in confirming additions of Rs.24,00,000/- (being demonetized Cash deposited out of fee receipts) u/s 69A as unexplained deposits and taxed u/a 115BEE b) He failed to understand the fact that Rs.24,00,000/- was added to the income of appellant as unexplained cash deposits which were explained as fee receipts of invalid notes and already offered as income with full details of persons from whom it was received as contravention of RBI Rules without any legal framework and he had also failed to go through the Return of DMC filed with IT department. The instructions given by CBDT for scrutinising deposit during demonetised period will show that the appellant had complied the instructions given as is there is no violation of CBDT instructions. The Assessing Officer and CIT NFAC had failed to take into consideration the above while passing the order
Ground no:2 a) The CIT(A) NFAC erred both in law and in facts in confirming additions of Rs.48,117,383/-(Being properties purchased in earlier years brought into books by crediting capital account) u/s69 as unexplained investments and taxed u/s 115BEE b) He failed to into consider the rep dt. 03/12/2019 given by appellant showing how the personal property is purchased were brought into books to understand the fact that the personal properties purchased in 2006, 2008, 2009, 2010 and 2012 out of debits to Capital Account brought into business books by CREDITING Capital Account to give a better view of financial affairs, taking only one part of the ENTRY in the book and treated as UNEXPLAINED INVESTMENTS which were explained in earlier years and NOT belonging to current year of Rs.48,17,383/-.
For these reasons and for other reason that may be added at the time of hearing the appellant request you to cancel the additions as bad in law and in facts and render justice.
The assessee is an individual carrying on the business of running a coaching centre for recruitment done by State Public Service Commission. The assessee had filed his return of income for the assessment year 2017-18 on 24.01.2018 admitting a taxable
:-3-: ITA. No:2489/CHNY/2024 income of Rs.2,92,93,680/-. Later, the case was selected for scrutiny under CASS and statutory notices were issue for completing the assessment. Based on the information available with the Department, the assessee had made huge cash deposits during the demonetization period and he was asked to submit and explain the source of the same along with other details in respect of expenditure, assets and liabilities. During the assessment proceedings, the AO observed that the assessee had deposited an amount of Rs.1,52,00,000/- during the demonetization period into his bank account and found that the assessee had a closing cash balance as per cash book as on 08.11.2016 was Rs.1,28,51,251/-. Further, an amount of Rs.24 lakhs has been collected from the students after announcement of demonetization in the form of SBNs and the same had been deposited to the bank. Since the assessee had accepted the SBNs after the announcement of demonetization on 08.11.2016, the AO made an addition of Rs.24 lakhs as unexplained cash deposit u/s.69A r.w.s. 115BBE of the Act by passing an order u/s.143(3) of the Act dated 10.12.2019. Further, the AO has observed that there is a substantial difference between opening WDV of fixed assets as per ITR of current year and closing WDV of fixed assets as per ITR of preceding year. The assessee stated that some of the immovable properties purchased during the :-4-: ITA. No:2489/CHNY/2024 years 2006 to 2012 to the extent of Rs.48,17,383/- have not been shown in the fixed asset schedule as on 31.03.2016 and the same have been brought to the balance sheet in the asset side by correspondingly increasing the capital account as on 31.03.2017. Hence, there is an increase in the WDV of fixed assets as on 31.03.2017. However, the AO was not convinced with the explanations given by the assessee and made addition of Rs.48,17,383/- as unexplained investment u/s.69 r.w.s.115BBE of the Act. Apart from that the AO has made an addition of Rs.84,000/- under the head ‘rental income’ and also the difference in turnover as per the service tax return and as per the income-tax return to the tune of Rs.2,14,36,263/- under the head ‘business income’. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A).
Before the Ld.CIT(A), the assessee submitted that fees collected from students during the demonetization period in SBNs was not prohibited up to the date of 30.12.2016 (appointed date) and hence, the additions made by the AO is not justified. In support of the claim of the assessee, he relied on the decision of Vizag Bench of ITAT in & CO No.42/Viz/2024 and prayed for deleting the addition. However, the Ld.CIT(A) on :-5-: ITA. No:2489/CHNY/2024 perusal of the submissions made by the assessee was not convinced and confirmed the addition of Rs.24 lakhs by passing an order dated 31.07.2024 by holding as under:- “7.1 Grounds of appeal number 1: Vide ground number 1, the appellant has assailed the addition of Rs.24,00,000/- made by AO as unexplained cash deposits. The appellant has claimed that the source of these deposits were explained as fee receipts of invalid notes and already offered as income with full details of persons from whom it was received as contravention of RBI Rules without any legal framework. The Submissions made by the appellant have been examined. However, the findings of the AO that as per demonetarization scheme the nature of business of the assessee does not come under the exempted categories, are in order and thus treating excess deposit of invalid notes over & above the amount available as per closing cash balance of cashbook as on 08.11.2016 as per cash as unexplained cash deposit under section 69A r.w.s 115BBE of the Act is reasonable. Therefore, the addition of Rs.24,00,000/- made by the AO u/s 69A r.w.s. T15BBE of the Act. for AY 2017-18 treating it as unexplained cash deposit is confirmed. However, considering the fact that the appellant has treated this Rs.24,00,000/- as business receipt also in calculation of his income from business and profession, the AO is directed to reduce the business income of the appellant to the tune of Rs.24,00,000/-. Accordingly, the ground no 1 of the appeal is dismissed.”
4.1 Further, in respect of additions made on account of difference in the WDV of fixed assets, the assessee stated that these were immovable properties which have been purchased in the earlier years out of the declared source of income but not included in the financials of the assessee. Therefore, the addition is not justified by the AO and hence, prayed for deleting the same. The assessee stated that these immovable properties have been properly registered in the earlier years in the name of the assessee after
:-6-: ITA. No:2489/CHNY/2024 payment of valid stamp duty and registration fees to the State Government. On perusal of the submissions, the Ld.CIT(A) was not convinced and sustained the additions made by the AO by holding as under:- “7.2 Grounds of appeal number 2: Vide ground number 2, the appellant has assailed the addition of Rs.48,17,383/- made by AO as unexplained investments without appreciating the fact that the personal properties purchased in 2006, 2008, 2009, 2010 and 2012 out of debits to Capital Account brought into business books by crediting Capital Account to give a better view of financial affairs, taking only one part of the entry in the book and which were explain in earlier years and not belonging to current year. The appellant is filing his return of income in the capacity of Individual and has declared the properties purchased earlier for first time in the return of income under consideration. In the absence of any documentary evidence, the action of the AO in treating the amount of Rs. 48,17,383/- as unexplained investment u/s 69 r.w.s 115BBE of the Act is justified. Therefore, the addition of Rs.48,17,383/- made by the AO u/s r.w.s.115BBE of the Act for AY 2017-18 treating it as unexplained investment is confirmed. Accordingly, the ground no.2 of the appeal is dismissed.”
Aggrieved, assessee is in appeal before us.
The Ld.AR for the assessee submitted that the assessee has maintained proper books of accounts which were duly audited u/s.44AB of the Act and the assessee has furnished the entire cash book explaining the sources of cash deposits during both assessment and first appellate proceedings. Before us, the Ld.AR submitted a paper-book having 885 pages consisting of cash book
:-7-: ITA. No:2489/CHNY/2024 for the entire financial year 2016-17, receipts collected from students including the SBNs, cash balance as on 08.11.2016, statement of fixed assets as on 31.03.2016 as well as 31.03.2017 along with the details of written down value, property documents acquired earlier to 31.03.2016. Further the assessee explained that the cash receipts in SBNs has been collected in the regular course of business operations from the students and the same has been deposited into his bank account maintained by the assessee. Further, the Ld.AR stated that the collection of fees from the students in SBNs during the demonetization period was not prohibited as the appointment date for not transacting in SBNs was 31.12.2016 as per the Specified Bank Note (Cessation of Liabilities) Act, 2017. In support of the above argument, the assessee relied on this Tribunal’s decision in the case of ITO vs. M/s. Surabhi Gold in dated 05.04.2024. The Ld.AR has also relied on the following decisions:- 1. ITAT, Chennai Bench in M/s. Purani Hospital Supplies Pvt. Ltd., vs. DCIT,
ITAT, Chennai Bench in ITO vs. Sahana Jewellery Exports Pvt. Ltd., in ITA No.999/CHNY/2022 3. ITAT, Vizag Bench in ITO vs. Sri Tatiparti Satyanarayana in ITA No.76/Viz/2021 4. Hon’ble Delhi High Court in PCIT vs. Agson Global Pvt. Ltd., [2022] 134 taxmann.com 256 (Delhi) 5. Hon’ble Supreme Court in Lalchand Bhagat Ambica Ram vs. CIT, [1959] 37 ITR 288 (SC) 6. ITAT, Chennai Bench in DCIT vs. M/s. Navaratna Maaligai, ITA No.801/CHNY/2023
:-8-: ITA. No:2489/CHNY/2024 7. ITAT, Chennai Bench in DCIT vs. M/s. D.Gem Mount in 8. ITAT, Bangalore Bench in Anantpur Kalpana vs. ITO in
ITAT, Delhi Bench in DCIT vs. Bawa Jewellers Pvt. Ltd., in ITA No.352/Del/2021 5.1 Further, in respect of the issue of addition to the fixed assets the Ld.AR stated that the assessee had purchased the immovable properties in his personal capacity during the years 2006 to 2012 out of the debits made to the capital account and hence, the same had been added in the financials upto 31.03.2016. However, during the financial year 2016-17, the assessee had incorporated these assets in the fixed assets schedule of the assessee by crediting the corresponding amount to the capital account. The Ld.AR drew our attention to pages 19 to 22 of paper-book filed to show that these immovable properties have been included as on 31.03.2017 based on the registered documents (Sale deeds for purchase) duly registered to show that these are properties which have been purchased in earlier years. The list of eight properties which were acquired from 2006 to 2012 are given below:- Details Document No. Date of Purchase Amount in Rs. year Plot No. 24, Shree 11222/2006 20.09.2006 3,43,490/- Balaji Nagar Plot No. 27, 12131/2006 10.10.2006 1,42,245/- Associate Avenue Plot No. 17, 12132/2006 10.10.2006 1,38,720/- Associate Avenue
:-9-: ITA. No:2489/CHNY/2024 Plot No. 302, 12917/2006 31.10.2006 1,04,880/- Naveen Nagar II No.135, 7325/2008 27.05.2008 1,23,260/- Narasamangalam Flat @ Kilkattalai 2160/2009 16.06.2009 5,27,212/- Village House ICL Home 3308/2010 29.03.2010 21,94,900/- Phase part 2 Flat F 3rd floor 3470/2012 08.11.2012 12,42,676/- Azeez Nagar II Street Total 48,17,383/- The registered documents for the above said properties are given in pages 396 to 550 of assessee’s paper-book. Since the assets have already been purchased in the earlier assessment years out of the explained source of income and by debiting to the capital account during the respective earlier assessment years, the addition made in the impugned assessment year amounts to double taxation and hence, prayed for deleting the same.
Per contra, the Ld.DR submitted that the assessee has accepted the SBNs after announcement of demonetization by the Government of India and hence, there is no infirmity in the order of the Ld.CIT(A) and hence, prayed for confirming the same.
6.1 In respect of the difference in WDV of the fixed asset, compared to 31.03.2016 and 31.03.2017, the Ld.DR stated that :-10-: ITA. No:2489/CHNY/2024 since the assessee has brought in the assets during the impugned assessment year, which were not disclosed to the Revenue authorities in the year of acquisition and the same have been brought to the light of the Department in the impugned assessment year and hence, the decision of Ld.CIT(A) need not be disturbed and hence, prayed for confirming the same.
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. The undisputed fact of the case is that the assessee is running a coaching centre for aspirants for recruitment done by State Public Service Commission. The assessee’s business involves cash collection from the trainees. During the assessment proceedings the assessee have furnished the books of accounts, cash book, Service tax returns in support of the turnover along with reconciliation, bank statements and sales records. Further, the assessee has explained the source of cash deposit was from the business, collected on account of fees collected from the trainees and the entire list of candidates to show the nature and source of the cash deposit were furnished before the AO. We note that the AO and the ld.CIT(A) have not pointed out any defects or irregularities in the books of :-11-: ITA. No:2489/CHNY/2024 accounts of the assessee and further the same have not been rejected. In this scenario making an addition of Rs.24,00,000/- as unexplained money on account of the cash deposit made in SBN during the demonetisation period is not sustainable in law. Therefore, we do not countenance the action of the ld.CIT(A) in confirming the addition made by the AO for the reason that the assessee was not authorised to accept the SBN during the demonetisation period. Our view is also supported by the decision of this Tribunal in the case of ITO vs. M/s. Surabii Gold in ITA No.372/CHNY/2023. The relevant paragraphs are extracted below: “14. Coming back to decision relied upon by the ld. DR, in the case of M/s.Vidhiyasekaran Pradeep Malliraj vs ITO (Supra). We have gone through case law relied upon by the ld. DR, and we find that, in the said case, the Tribunal after considering the decision of Hon’ble Apex Court in the case of Apex Laboratories (P) Ltd vs DCIT (135 Taxmann.com 236), held that, one arm of the law cannot be utilized to defeat the other arm of law and doing so would be opposed to public policy and bring the law into ridicule. In our considered view, the case law relied upon by the ld. DR is not applicable to the facts of the present case for the simple reason that, the Tribunal has not considered the facts of cash deposits in light of explanation offered by the assessee with regard to source for cash deposits. However, it went on the legal issue of validity of legal tender of specified bank notes after 08.11.2016. The said issue has been considered by the coordinate bench in the case of M/s. Purani Hospitals Suppliers Pvt Ltd vs DCIT (Supra) and held that, there is no prohibition in accepting specified bank notes from 08.11.2016 up to 31.12.2016, in light of specified bank notes (Cessation of Liability) Act, 2017. Therefore, we prefer to follow the decision of Coordinate bench, which is more appropriate in light of facts of the present case and thus, we reject case law relied upon by the ld. DR present for the revenue.
:-12-: ITA. No:2489/CHNY/2024 15. In this view of the matter and considering facts and circumstances of the case, we are of the considered view that, the assessee has explained source for cash deposits to the tune of Rs. 7,75,65,100/- into bank account during demonetization period, out of cash sales recorded in the books of accounts maintained by the assessee. The ld. CIT(A), after considering relevant facts has rightly held that the Assessing Officer is erred in making additions towards cash deposits u/s. 68 of the Act, when the appellant has explained source for cash deposits. Thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss appeal filed by the revenue.
7.1 Therefore, in the present case the assessee though the assessee has collected the SBN during the demonetisation period, the same was not prohibited as per the specified bank notes (Cessation of Liability) Act, 2017. Further, we find that the assessee has explained the source of the cash deposit also. Hence, in the present facts and circumstances of the case and respectfully following the decision of the tribunal (supra) we are of the considered view that the ld.CIT(A) has erred in confirming addition u/s.69A of the Act as unexplained money in respect of cash deposited in SBN during the demonetisation for the reason that the assessee was prohibited to accept the same. Therefore, we are inclined to set aside the order of the ld.CIT(A) and direct the AO to delete the addition of Rs.24,00,000/- made u/s.69A of the Act as unexplained money and recompute the income accordingly. Coming to the other issue of additions, it is made on account of difference between opening WDV of Fixed assets as per ITR and :-13-: ITA. No:2489/CHNY/2024 closing WDV of Fixed assets as per ITR of the preceding year to the tune of Rs.48,17,383/-. The AO has made the addition u/s.69 of the Act as an unexplained investment stating that the assessee has made addition to the assets which were not disclosed, instead of crediting to P & L Account as income, has credited to the capital account. On appeal the same was confirmed by the ld.CIT(A). On perusal of the documents furnished by the assessee before the lower authorities, we find that these immovable properties were purchased during the years 2006 to 2014. We note that the assessee has furnished the cash flow statement from 01.04.2002 to 31.03.2013 (Page No.803 of 811 of paper book) showing that these assets have been purchased by debiting the same to the capital account in the respective assessment year along with the borrowings from the banks/financial institutions. We find that the assessee has borrowed from banks / financial institutions to purchase/acquire these assets as detailed below: Asst.Year Name of the Bank Amount 2006-07 PNB Housing Finance 13,00,000/- 2010-11 TNSC Bank Noombal – 3308/2010 21,94,900/- 2013-14 Dhanam Agency 11,50,000/- Total 46,44,900/- 7.2 We find that the assessee has duly submitted the particulars pertaining to the loans obtained for the purpose of acquiring the :-14-: ITA. No:2489/CHNY/2024 assets in question and has substantiated the sources of funds utilized for such acquisitions during the relevant assessment years, in addition to the income declared in those respective years. Furthermore, it is observed that the immovable properties in question, acquired during the period from Year 2006 to 2012, are supported by registered sale deeds executed in favour of the assessee. In light of the foregoing, it is our considered view that the ld. CIT (A) has erred in upholding the additions in the assessment year under consideration, without duly appreciating the fact that the said assets had been acquired in earlier years from borrowed funds and disclosed sources of income. Accordingly, the order of the ld. CIT(A) is set aside, and the Assessing Officer is directed to delete the impugned additions by allowing the grounds raised by the assessee.
In the result, the appeal filed by the assessee is allowed.