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Income Tax Appellate Tribunal, B BENCH, CHENNAI
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 15.10.2024.
The assessee has raised the following grounds of appeal:
:-2-: ITA. No:3123/Chny/2024 1. The order of the NFAC, Delhi dated 15.10.2024 vide DIN & Order No.ITBA/NFAC/S/250/2024-25/1069673613(1) for the above mentioned Assessment Year is contrary to law, fact and in circumstances of the case.
2. The NFAC, Delhi erred in sustaining the addition of Rs.35,32,500/- being the cash deposits in SBNs during demonetisation period as unexplained money in terms of Section 69A in the computation of taxable total income without assigning proper reasons and justification. 3.The NFAC, Delhi to appreciate that provisions of Section 69A of the Act had no application to the present facts and in circumstances of the case, thereby vitiating the findings in relation thereto.
4. The NFAC, Delhi failed to appreciate that the pre-requisite conditions required for making an addition in terms of Section 69A of the Act were absent in the present case and in circumstances, thereby negating the findings in relation thereto. 5.The NFAC, Delhi failed to appreciate that having not examined the books of accounts, which were made available at every stage of proceedings, the presumption of unexplained money should be reckoned as wholly unjustified and not sustainable in law.
6. The NFAC, Delhi failed to appreciate that having not rejected the audited financial statements as faulty, the presumption of unexplained money within the scope of Section 69A from the disputed cash deposits was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.
7. The NFAC, Delhi failed to appreciate that having impliedly accepted the explanation offered for the cash deposits by reducing such sum from the computation of income under the head "Income from Business" by making a standalone addition in terms of Section 69/A of the Act for want of explanation for nature and source should accordingly be reckoned as bad in law.
8. The NEAC, Delhi failed to appreciate that having not taken no certificate issued by the Banks with regard to the cash deposits in SBNs was only to the tune of Rs. 25,47,500/- as against the total sum reckoned by the Assessing Officer at Rs.35,32,500/, the consequential addition made and sustained should accordingly be reckoned as bad in law.
The NFAC, Delhi failed to appreciate that in any event having not independently examined the nature of the cash deposits made earned from the sale of inverters, UPS, batteries, the consequential sustenance of the entire addition as unexplained money in terms of Section 69A of the Act was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.
:-3-: ITA. No:3123/Chny/2024 10. The NFAC, Delhi failed to appreciate that the findings from para 5 of the impugned order were wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law 11, The NFAC, Delhi failed to appreciate that the entire re-Computation of taxable total income was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.
The NFAC, Delhi failed to appreciate that having not adhered to the prescription of faceless appellate regime, the consequential appellate order passed should be reckoned as bad in law.
The NFAC, Delhi failed to appreciate that there was no effective/proper opportunity given before passing the impugned order including non granting of personal hearing and any order passed in violation of the principles of natural justice is nullity in law.
The Appellant craves leave to file additional grounds/arguments at the time of hearing,
In brief the sole ground before us raised by the assessee is the ld.CIT(A) has erred in confirming the addition of Rs.35,32,500/- u/s.69A of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).
The brief facts are that the assessee is an individual, engaged in the business of retails trading of inverters, UPS, batteries and stabilizers, having its place of business at Chennai, deriving income from business including rental income The assessee filed his return of income for the assessment year 2017-18 on 28.10.2017, admitting an income of Rs.10,91,350/- including rental income of Rs.3,00,000/-. The return was selected for scrutiny assessment under CASS to verify cash deposit during the year. Accordingly, :-4-: ITA. No:3123/Chny/2024 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 was from sale/service income earned by the assessee. 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 05.12.2019 by assessing Rs.35,32,500/- as unexplained money u/s.69Ar.w.s. 115BBE of the Act. Further, the AO reduced the corresponding net profit @ 1.18% on Rs.35,32,320/- from the returned income i.e., Rs.38,205/-.
4.1 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 wrongly mentioned as SBNs have :-5-: ITA. No:3123/Chny/2024 been collected during the demonetization period from his customers against the actual fact that the assessee had furnished the details as deposits were made out of his cash balance held as at 08.11.2016. Further, the assessee also furnished the bank’s certificate to show that the assessee has deposited of SBNs Rs.25,47,500/- only during the demonetization period but not the amount assumed by AO an amount of Rs.35,32,500/-. Further, the AO has justified the collection of SBNs after announcement of demonetization is not permitted to the nature of business carried out by the assessee and hence made an addition of Rs.35,32,500/- u/s.69A of the Act.
4.2 The assessee raised 30 grounds of appeal in Form No.35 against the order of the AO and 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 passing an order dated 15.10.2024 by holding as under:
:-6-: ITA. No:3123/Chny/2024 “ The appellant has not furnished any document other than copy of statement of Bank from Canara Bank A/c no. 2782201001014 regarding deposited SBNs, copy of summary of cash sales to substantiate his claim in the appellate proceedings. Therefore, I will form my opinion based on the material available on record before me. To the prime contention of the appellant, he claims that the cash deposits were part of genuine sales and expenditure incurred and the same should be considered as genuine sales but no receipts/vouchers/invoices and other form of bills of expenses and sales were produced regarding same till date.
The appellant filed ITR for the assessment year 2017-18 on 28.10.2017 declaring total income of Rs. 10,91,350/-. The appellant's case was selected for scrutiny for the reason "Cash Deposit during the Demonetization Period."
Various notices were sent by the A.O to the appellant i.e. 143(2) on 03.09.2018 requisitioning the appellant of the details regarding the business and the cash deposited during demonetization period.
The appellant complied to the notices issued and it was confirmed in the assessment order that the appellant was doing business of retail and trading of inverters, UPS batteries under PGBP and rental income under Income from house property. The appellant in the present case was in the possession of two bank accounts. The accounts i.e. 2782261000012 and 2782201001014 were held with Canara Bank, in both the bank accounts the amount deposited during demonetization period was held to be 35,32,500/-.
The A.O controverted the explanation of the appellant that the amount deposited was the amount of cash sales during demonetization period through SBNs which were not a legal tender after 09.11.2016 and the sales through old notes of Rs. 500 and Rs. 1000 notes after the declaration of demonetization were not acceptable and to be added to the income under unexplained money u/s 69A of the Income Tax Act, 1961. The A.O. referred to RBI Act, 1934 which says that if Central Govt. on the recommendation of Central Board by notification in Gazette of India may declare any series of Bank notes will cease to be legal tender from the date as notified in Gazette and term as specified in the notification. Any business activity performed through SBNs after that date apart from the businesses i.e. emergency services like hospitals, petrol pumps, rail reservation etc. will not be :-7-: ITA. No:3123/Chny/2024 accepted and the amount of cash transacted will automatically be rendered to assessed under section 69A.
I am in agreement with the A.O that the appellant could not submit any evidence/reasoning to show that business in Old Currency notes during the demnonetization period was valid by law and the amount in cash that was deposited in bank accounts during the period was out of genuine sales before demonetization. The trade receipts play vital role in establishing the genuineness of the cash. No nexus between the previous sales and the cash deposited during demonetization has been explained by the appellant.
Therefore, I uphold the decision of the A.O to add the sum of Rs. 35,32,500 to be added to the income of the appellant under section 69 or the Income Tax Act. 1961 which has been excluded by the A.O from the total sales turnover of the impugned previous year.”
Aggrieved by the impugned order of the ld.CIT(A), the assessee preferred an appeal before us.
5. The Ld.AR for the assessee assailed that the ld.CIT(A) has erred in confirming the addition made u/s.69A r.w.s. 115BBE of the Act, even though the assessee has explained and substantiated the cash deposits by explaining the source as business collections and out of cash balance held on 08.11.2016.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 :-8-: ITA. No:3123/Chny/2024 and has not rejected the audited books of accounts furnished by the assessee and not found any defects or mistakes in the same.
5.1 The ld.AR stated that the ld.CIT(A) has erred in confirming the addition made by the AO, though 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 Assessee also furnished the month wise cash sales / collections from customers along with cash expenses and cash deposit for the months from Apr 2016 to Dec 2016.
5.2 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 Volume -I consisting of 1 to 64 pages: Sl.No. Date Particulars Page No. RETURN OF INCOME & FINANCIALS 1. 28.10.2017 Return of Income for Assessment year 1 2014-18 2. 23.10.20217 Tax audit report in Form No.3CB 2 3. 23.10.2017 Audited financials for Assessment year 12 2017-18 :-9-: ITA. No:3123/Chny/2024 SCRUTINY ASSESSMENT PROCEEDINGS 4. 05.12.2019 Scrutiny assessment order passed under 17 section 143(3) of the Act FIRST APPELLATE PROCEEDINGS 5. 04.12.2021 1st Written Submissions filed before the 25 First Appellate Authority 6. 03.12.2019 Certificate issued by the Canara Bank 31 2nd Written Submissions filed before the 7. 26.09.2024 33 First Appellate Authority 8 - Summary of cash deposits for period 43 between 01.04.2016 to 31.12.2016 9. 15.10.2024 Order of the First Appellate Authority 44 (Impugned Order)
5.3 In this paper book the ld.AR drew our attention to particularly the documents submitted before the AO as well as the ld.CIT(A), the bank’s certificate for SBN deposits from Canara Bank and also the tax audit report along with the audited financials of the assessee. 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 :-10-: ITA. No:3123/Chny/2024 the following decisions of this Tribunal held in favour of the assessee. a) Shri Raju Dinesh Kumar Vs. DCIT – dated 19/01/2024 b) M/s.Micky Fireworks Industries Vs.ACIT – dated 26/07/2023 c) Mrs.Umamaheshwari Vs.ITO - ITA No. 527/Chny/2022 dated 14/10/2022 d) Amar Sparklers Factory vs ITO - ITA No. 808/Chny/2023 dated 11/10/2023.
6. 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.35,32,320/- made after the announcement of demonetization. Therefore, the ld.DR relied on the 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. The fact with regard to the impugned dispute are that the assessee has deposited a sum of Rs.35,32,320/- in specified bank notes during demonetization period to the bank account. It is admitted from the records that the assessee is engaged in the trading business inverters, UPS and stabilizers. The case was selected for scrutiny to :-11-: ITA. No:3123/Chny/2024 verify the source for cash deposited and called for certain details. The assessee has deposited cash in SBN of Rs.25,47,500/- only, after announcement of demonetization by Government of India on 08.11.2016. 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 and furnished the cash book, Audited financials, Tax audit report for the relevant period. 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.
7.1 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.
:-12-: ITA. No:3123/Chny/2024 Thus, the 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. We find that the AO has made certain assumptions in arriving the facts and concluded the assessment without considering the submissions of the assessee and made the additions. Further, the AO has also stated that these amounts of SBNs have been collected from the customers/sales after the announcement of the demonetisation, which is not prohibited according to the assessee. Further, the assessee also shown that the demonetized currency was deposited only to the extent of Rs.25,47,500/- as per the certificate issued by Canara bank (Page No.31 of Paper book) as against the AO’s assumed amount of deposit of Rs.35,32,320/-. 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 Shri Raju Dinesh Kumar vs DCIT (Supra), where the Tribunal under the identical set of facts deleted the additions made by the Assessing Officer, after considering this Tribunal’s following decisions: a) M/s.Micky Fireworks Industries Vs.ACIT – dated 26/07/2023 :-13-: ITA. No:3123/Chny/2024 b) Mrs.Umamaheshwari Vs.ITO - dated 14/10/2022 c) Amar Sparklers Factory vs ITO - dated 11/10/2023, by holding 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, 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.
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 :-14-: ITA. No:3123/Chny/2024 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 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 :-15-: ITA. No:3123/Chny/2024 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 or back dated sales made by the assessee. No defect has been pointed in the books of accounts as maintained by the assessee.
It could also be seen that during the course of assessment proceedings, various notices were issued u/s 142(1) from time to time calling numerous details from the assessee. The assessee was required to file numerous details including monthly cash flow statement, inventory of closing stock, copy of sales tax assessment order, monthly cash deposits and credits for various periods, ledger account for purchase and other expenditure, monthly sales gross receipts, monthly purchases, details of old notes and new notes deposited during demonetization period, the day book, Cash book, ledger maintained for business, cash balance as per cash book etc. All these details were duly submitted by assessee vide reply dated 12-12-2019. The assessee also submitted month-wise cash deposits in all bank accounts, details of old notes deposited at the time of demonetization period. Pertinently, the assessee also furnished details of name, address and PAN of cash depositors who deposited cash during demonetization period. The same has been detailed on pages 24 to 35 of the paper book. Apparently, the same could not be faulted with by Ld. AO. There is no allegation of any irregularity in the books of accounts.
We find that the only reasoning to treat the said deposits as unexplained cash credit u/s 68 is that the assessee was debarred from dealing in SBN after 08-11- 2016. However, in the present case, the cash so received by the assessee is backed by sales carried out by the assessee as recorded in the books of accounts. Therefore, the source of cash is duly explained. The provisions of Sec.68 could be invoked only in cases when there was unexplained cash credit in the books of accounts maintained by the assessee. However, the assessee has duly identified the debtors from whom the cash was :-16-: ITA. No:3123/Chny/2024 received and the same could not be disputed by lower authorities. The PAN of respective debtors as well as quantum of cash realized from each of them has duly been detailed by the assessee before Ld. AO during assessment proceedings. No defect has been pointed out in the books of accounts. In such a case, the credit could not be held to be unexplained cash credit and the impugned additions are not sustainable in law.
7. The SMC bench of this Tribunal in Mrs. Umamaheswari Vs. ITO (supra), on identical facts, deleted similar additions on the ground that the assessee had duly evidenced the source of cash deposit and therefore, addition could not be made u/s 68. Similar is another decision of SMC Raipur Bench in Rahul Cold Storage Vs. ITO (supra) wherein it has similarly been held that when the deposits were sourced out of business receipts duly recorded in the books of accounts, no such addition could be made u/s 68. The other cited decision of Bangalore Tribunal is also on similar lines.
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.”
8. In this view of the matter and by following the decision of ITAT, Chennai Benches, we direct the AO to delete additions made towards source for cash deposits at Rs. 20,40,000/- u/s. 69A of the Act.
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 :-17-: ITA. No:3123/Chny/2024 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.”
7.3. In the given facts and circumstances of the present case, the cash deposit in SBN made by the assessee was only Rs.25,47,500/- during the demonetisation period and source for the same is explained as cash in hand held as on 08.11.2016 as well as amount collected from sales / customers. Therefore, the AO and ld.CIT(A) without considering the relevant submissions of the assessee made addition of cash deposits of Rs.35,32,500/- as unexplained money U/s.69A of the Act r.w.s.115BBE of the Act. Thus, by considering the facts of the case and respectfully following the decisions (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.69A 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.