PERUMAL GNANAVEL,CHENNAI vs. ITO, NCW-8(3), CHENNAI

It has been noted that there is a delay of 86 days in the case in filing of this appeal before the tribunal. In its affidavit the assessee has pleaded that he was suffering from health and family issues and because of this the assessee could not file in time. All these activities attributed to the delay which was neither willful nor wanton. The assessee submitted that there will not be case of any non-compliance now. We have considered the justification put forth by the assessee and we are Page - 2 - of 8 satisfied with their adequacy. We are also conscious of the fact that no litigant gains by intentionally delaying its own matters. The Ld. DR did not pose any serious objections to the delay. Accordingly, we hereby condone the delay and proceed to adjudicate this appeal.

The assessee is an individual and engaging in the business of buying and selling of second-hand vehicles. The assessee’s trading activities are carried out in cash and the same has been deposited into his bank account. The assessee had not filed his return of income for the A.Y.2017-18. As per the information available with the department, the assessee had deposited a sum of Rs.11,94,500/- by cash during the demonetization period and hence issued notices to file the return of income. Since the assessee has not responded to the notices, the AO obtained the information from the Tamil Nadu Mercantile Bank and found that the assessee has credits to the tune of Rs.52,44,736/- in his bank account during the impugned assessment year. Despite issue of notices providing opportunities of being heard, the assessee has neither filed return of income nor furnished any document in support of the deposits made. Therefore, the AO passed an order ex-parte u/s.144 of the Act dated 30.11.2019 by treating the cash deposits of Rs.11,94,500/- made during demonetization period as unexplained money u/s.69A of the Act along with estimation of profit at 10% on the other credits in the bank Page - 3 - of 8 account to the tune of Rs.40,50,236/- during the impugned assessment year under head income from business.

Aggrieved by the Exparte order of the AO, the assessee preferred an appeal before the Ld.CIT(A), NFAC, Delhi. In response to the notice of the Ld.CIT(A), NFAC, Delhi, the assessee has filed written submission furnishing the profit and loss account and balance sheet as on 31.03.2017. The assessee stated in his Form 35 that an amount of Rs.28,18,800/- has been deposited in cash during the F.Y.2016-17 apart from demonetization period. The other credits, to the tune of Rs.12,31,436/- has been deposited in the bank other than cash. It clearly shows that the assessee has transacted these amounts out of his second-hand vehicle trading business. The assessee also stated that the cash deposits made during the demonetization period is also from the business transactions collected from the customers. Therefore, the addition made u/s.69A of the act cannot be sustained and the said cash deposit also need to be treated as business transactions. The assessee further stated that the profit of the assessee has been estimated at 10% of the total credits after reducing the cash deposits of Rs. 11,94,500/- made during the demonetization period is not reasonable, and hence prayed for reducing the estimated profit. The assessee also stated that relying on various decisions of this tribunal, collection from Page - 4 - of 8 customer’s deposit of SBNs during the demonetization period is not prohibited. The ld.CIT(A) after considering the Profit and loss account and other submissions made in Form 35, and taking the details of earlier years and subsequent years’ return of income of the assessee, passed an order dated 05.07.2024 and confirms the addition made by the AO on account of unexplained money to the tune of Rs.11,94,500/- u/s.69A of the Act and 10% of the other deposits of Rs.40,50,236/- under the head income from business. Aggrieved by the order of the ld.CIT(A) the assessee preferred an appeal before us.

The ld.AR submitted that the ld.CIT(A) has erred in confirming the addition made by the AO in an exparte order without considering the financial statements filed by the assessee for the impugned assessment year. The ld.AR stated that the assessee is a dealer in second-hand vehicles and the deposits are made out of trade receipts. Further, the ld.AR also stated that the AO as well as ld.CIT(A) have erred in treating portion of deposits as unexplained money and the other portion of deposit as business receipts by blowing hot and cold. In view of the above, the ld.AR prayed for treating the entire deposit as business receipts and to reduce the estimated profit to 8% as per section 44AD of the Act. The Page - 5 - of 8 ld.AR also relied on the following decisions of the Tribunal in support of the grounds. - Mrs. Umamaheshwari vs ITO in ITA No: 527/Chny/2022 dated 14.10.2022 - M/s. Mickey Fireworks Industries vs ACIT in ITA No: 264/Chny/2023 dated 26.07.2023.

Per contra, the Ld. DR supported the orders of the lower authorities and stated that the estimation of profit made is reasonable and prayed for assessing the same along with the confirming of additions made u/s.69A of the Act.

We have heard rival submissions in the light of material available on records and gone through the orders of the lower authorities. Admittedly, the assessee is a dealer in second hand vehicles and carrying his activities in cash only. During the impugned assessment year, the assessee has deposited Rs.11,94,500/- into his bank account in SBNs along with cash and bank transfers to the tune of Rs.40,50,236/-.

We find that the AO has considered deposits other than the cash deposits made during the demonetization period as business receipts of the assessee and estimated the profit at 10% of the same and brought to tax. However, the AO has not proved that the deposits of SBNs are from any other sources of income of the assessee for taxing the same u/s. 69A Page - 6 - of 8 of the Act. However, as relied by the Ld. Counsel for the assessee that there is no prohibition to collect the SBNs during the demonetization period as held in the following cases by this tribunal judgements passed here. - Mrs. Umamaheshwari vs ITO in ITA No: 527/Chny/2022 dated 14.10.2022 - M/s. Mickey Fireworks Industries vs ACIT in ITA No: 264/Chny/2023 dated 26.07.2023 wherein similar addition was made for SBN deposits after 08.11.2016, wherein the Tribunal took note of the Specified Bank Notes (Cessation of Liability), Act 2016 and deleted addition u/s. 69A of the Act.

On perusal of the records, we found that it is not the case of the Revenue that the assessee has any other source of income other than the business of dealing in second hand vehicle. In such a scenario, it could be unsafe to saddle the assessee that the aid of the deeming provision u/s.69A of the Act, the entire SBN deposits during the demonetization period. Since the AO has accepted the cash deposit (other than specified bank notes) as turnover of the assessee from trade receipt, we are of the opinion that the specified bank notes deposit should also be treated as trading receipt and therefore addition u/s.69A would not warrant and hence we direct to delete the same.