Loading judgment…
Facts
The assessee, engaged in poultry business, deposited Rs. 35,52,000/- in specified bank notes during the demonetization period. The Assessing Officer added this amount as unexplained income, which was confirmed by the CIT(A). The assessee argued that the deposit was from regular customer sales and within the legal framework of the demonetization period.
Held
The Tribunal held that the assessee had discharged the burden of proving the source of cash deposits, which were from ordinary business sales recorded in the books of accounts. The AO failed to rebut the evidence, and the provisions of Section 68 could not be invoked. The objection regarding the legal tender status of Specified Bank Notes was also found to be devoid of merit.
Key Issues
Whether the cash deposits made in Specified Bank Notes during the demonetization period, explained by the assessee as arising from regular business sales, could be added as unexplained income.
Sections Cited
69, 143(3), 69A, 115BBE, 271AAC, 44AB, 142(1), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K, HON’BLE & SHRI S.R. RAGHUNATHA, HON’BLE
आदेश /O R D E R
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 04.09.2024 and pertains to assessment year 2017-18.
:-2-: ITA. No: 45/Chny/2025 2. At the outset, we find that there is a delay of 39 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 there is a reasonable cause for the assessee in not filing appeal on or before 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 assessee has raised the following grounds of appeal: A. The order of the National Faceless Appeal Centre (NFAC)/ Commissioner of Income Tax (Appeals) /CIT(A) had erred both in law and on facts by confirming the order of the Assessing Officer. The said Order is just an endorsement of the Learned Assessing officer's order without applying the judicial powers of Appellate Authority in respect of the issues involved. B. Both the LAO and The NFAC / CIT(A) erred in law in treating the SBNs were no longer valid legal tender during the period of 9° November to 31° December, 2016, the period of demonetisation. C. The LAO, after having sought for the details of sales, collections and cash deposits as required under the CBDT Instructions relating to the Assessment relating to demonetisation cases, failed to take cognisance of the data, its meaning and failed to appreciate that the statistics do not portray extraordinary activities leading to any suspicion and that they confirm the Assessee's bonafide nature. The NFAC/ CIT(A) ought to have pointed out the lapses in the Assessment as per CBDT Instructions and hence failed in its duty.
:-3-: ITA. No: 45/Chny/2025 D. The NFAC/ CIT(A) ought to have appreciated that the Assessee has complied with all the requirements demanded by the Ld. AO, in providing the sales transaction details, party ledgers, bank statements, cash deposit details, collection receipt copies, Party addresses with PAN particulars. The details of deposits with the bank by traders and date wise cash deposits directly correlated with the collections from identified and regular customers were submitted by Appellant and hence his part of responsibility is fully discharged. The NFAC/ CIT(A) has failed to point out that the onus has shifted to the department to prove precisely that any part of the details submitted are incorrect or false and that any part of the cash deposits has not been accounted and represented unexplained income. E. That the Appellant craves leave to add, to amend or withdraw to all or any ground on or before the hearing of the appeal.
The brief facts of the case are that, the assessee is an individual carrying on the business in the name of Sai Pooja Agro Farms engaged in broiler integration (poultry). During the assessment year 2017-18, the assessee filed his return of income on 26.03.2018 admitting a total income of Rs.3,00,29,070/-. The case was selected for scrutiny under CASS and statutory notices were issued during the assessment proceedings. The Assessing Officer noticed that the assessee has made a cash deposit of Rs.35,52,000/- during demonetization period into his bank account in specified bank notes. However, from the audited books of accounts furnished by the assessee the AO found that the assessee had cash balance of Rs.3,26,337/- as on 09.11.2016. The assessee :-4-: ITA. No: 45/Chny/2025 explained the source of cash that an amount of Rs.32,26,000/- has been received from his customers in specified bank notes during demonetization period and hence, the same has been deposited to bank account. However, the Assessing Officer has rejected the claim of the assessee and made an addition of Rs.32,26,000/- as unexplained money u/s. 69 of the Act and passed an order u/s. 143(3) of the Act dated 24.12.2019 by holding as under: “6.2 The assessee had submitted that some customers had made direct deposit of SBN's / during the demonetisation period. However, there was restriction imposed by RBI on the cash deposit into the bank accounts by third parties. 6.3 The Assessing Officer has not contested the genuineness of the business transaction carried out by the assessee. The verification has been made purely based on audited books of account and the actual cash deposit made in the bank accounts. Since there was difference in the cash balance as on 09.11.2016 and the cash deposit made in the bank account, it was proposed to bring to tax the unaccounted money .
7. Since the assessee has not satisfactorily explained the deposit of money amounting to Rs.32,26,000/- into the bank account, the same is brought to tax u/s 69A of the IT Act as unexplained money and charged to tax u/s 115BBE of the IT Act 1961. Penalty proceedings u/s 271AAC is initiated separately, since the addition is covered by the provisions of section 115BBE of the IT Act.” Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Ld.CIT(A)-NFAC.
Before the appellate authorities the assessee stated that the order of the Assessing Officer is erroneous and against the :-5-: ITA. No: 45/Chny/2025 natural justice to the facts and circumstances of the case. The assessee stated that 5. The express legislative provisions as contained in “the Specified Bank Notes (Cessation of Liabilities) Act, 2017”, implemented pursuant to the Demonetisation exercise are being submitted to your consideration as below:
1. 1. Section 5 of the specified bank notes (Cessation of Liabilities) Act, 2017 provides that “On and from the appointed day, no person shall, knowingly or voluntarily, hold, transfer or receive any specified bank note.”
2. Section 2(1)(a) in of the specified bank notes (Cessation of Liabilities) Act, 2017 provides that “appointed day” means the 31st day of December, 2016.”
3. Further Section 3 of specified bank notes (Cessation of Liabilities) Act, 2017 provides that On and from the appointed day, notwithstanding anything contained in the Reserve Bank of India Act, 1934 (2 of 1934) or any other law for the time being in force, the specified bank notes which have ceased to be legal tender, in view of the notification of the Government of India in the Ministry of Finance, number S.O. 3407(E), dated the 8th November, 2016, issued under sub-section (2) of section 26 of the Reserve Bank of India Act, 1934, shall cease to be liabilities of the Reserve Bank under section 34 and shall cease to have the guarantee of the Central Government under sub-section (1) of section 26 of the said Act.”
6. From the above, it is clear that use of specified bank notes (SBN) pursuant to 8th November, 2016 up to 31st December, 2016 was always allowed. It was never the intention of the legislature to prohibit their use for transactions up to 31st December, 2016.
7. The specified bank notes (Cessation of Liabilities) Act, 2017 clearly provides that the specified bank notes shall cease to be liabilities of the Reserve Bank under section 34 and shall cease to have the guarantee of the Central Government under sub-section (1) of section 26 of the said Act from the appointed date, i.e. 31st December, 2016.”
Further, the assessee stated that the Assessing Officer has not contested with the genuineness of the business transactions carried out by the assessee. The assessment was :-6-: ITA. No: 45/Chny/2025 completed by accepting the audited books of accounts and the actual cash deposits made in the bank account. The Assessing Officer has not rejected the books of accounts while making an addition of cash deposit in specified bank notes u/s. 69 of the Act. Further, the assessee stated that the cash deposits are recorded in the books of accounts and received from the customers of the assessee and all transactions are in the normal course of business. Further, the PAN and address of the customers along with ledger account copies of the parties as per the books of accounts of the assessee have also been filed before the Assessing Officer. In these circumstances, it is evident that the Assessing Officer has note down a case calling for an addition u/s. 69 of the Act. However, the Ld.CIT(A) was not convinced with the submissions of the assessee and confirmed the additions made by the Assessing Officer by holding as under: “6. I have perused facts of the case, assessment order of the Assessing Officer, submission of the appellant and the documents available on record. On perusal of the record, it is seen that the addition made is in respect of cash deposits amounting to Rs.32,26,000/- u/s 69A of the IT Act. On perusal of the submissions and the documents filed during appellate proceedings, it is observed that the concern Sai Pooja Agro Farms is engaged in broiler integration. Commercial farming activity is carried on contract basis in which broiler chicks are provided to the farmers spread in villages. The appellants claim is that deposit in its bank account is out of receipts from regular customers of the company for the :-7-: ITA. No: 45/Chny/2025 normal business transaction during the year. However, as per the demonetization scheme, the SBN'S were declared to be no longer legal tenders and the appellant could not have received SBN'S. The appellant has failed to give the source of the SBN's (cash deposited) in the bank account from 09.11.2016 to 31.12.2016. The AO has accepted the cash in hand as on 09.11.2016 and the balance cash deposited amounting to Rs.32,26,000/- has been treated as unexplained/ the source of which is not explained. During the appellate proceedings also, the appellant has not brought anything on record to explain with evidence, the source of the cash deposit.
In view of the above discussion, it is held that the addition made by the assessing officer amounting to Rs.32,26,000/- as unexplained cash credit as per the provisions of section 9A is upheld and the grounds of appeal no. 2, 3 and 4 are dismissed.”
Aggrieved by the order of the Ld.CIT(A), the assessee preferred an appeal before us.
7. The Ld.AR for the assessee stated that the Ld.CIT(A) has confirmed the addition made by the Assessing Officer u/s. 69 of the Act to the tune of Rs.32,26,000/- without considering the provisions of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 implemented pursuant to the demonetization announced on 08.11.2016. The relevant extracts are given below:
1. 1. Section 5 of the specified bank notes (Cessation of Liabilities) Act, 2017 provides that “On and from the appointed day, no person shall, knowingly or voluntarily, hold, transfer or receive any specified bank note.”
2. Section 2(1)(a) in of the specified bank notes (Cessation of Liabilities) Act, 2017 provides that “appointed day” means the 31st day of December, 2016.”
:-8-: ITA. No: 45/Chny/2025 3. Further Section 3 of specified bank notes (Cessation of Liabilities) Act, 2017 provides that On and from the appointed day, notwithstanding anything contained in the Reserve Bank of India Act, 1934 (2 of 1934) or any other law for the time being in force, the specified bank notes which have ceased to be legal tender, in view of the notification of the Government of India in the Ministry of Finance, number S.O. 3407(E), dated the 8th November, 2016, issued under sub-section (2) of section 26 of the Reserve Bank of India Act, 1934, shall cease to be liabilities of the Reserve Bank under section 34 and shall cease to have the guarantee of the Central Government under sub-section (1) of section 26 of the said Act.”
7.1 The Ld.AR stated that the specified bank notes pursuant to 08.11.2016 up to 30.12.2016 was always allowed and it was never the intention of the Legislature to prohibit their use for transactions up to 31.12.2016. In support of the above, the assessee relied on the decision of ITO vs Tatiparti Satyanarayana of ITAT Visakhapatnam, wherein the Tribunal held as under: 9. We have heard both the parties and perused all the documents on record. We find that there was sufficient cash balance with the assessee as detailed in page No.30 of the paper book. The Specified Bank Notes (Cessation of Liabilities) Act, 2017, defines "appointed day" vide Section 2(1)(a). As per Section 2(1)(a), "appointed day" means the 31 Day of December 2016. Section 5 of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 also deals with prohibition on holding, transferring or receiving specified bank notes. Section 5 states that "On and from the appointed day, no person shall knowingly or voluntarily, hold, transfer or receive any specified bank note". We therefore, find that the specified bank notes can be measured in monetary terms since the guarantee of the Central Government and the liability of Reserve Bank of India does not cease to exist till 31.12.2016. In view of the above, the contention of the Ld. DR, treating the receipt of SBNs from cash sales as illegal and hereby
:-9-: ITA. No: 45/Chny/2025 invoking the Provisions of section 69A is not valid in law. Therefore, we dismiss this ground of the Revenue.”
7.2 The assessee also relied on the decision of Ganapathy Palaniyappan vs DCIT, ITAT Chennai Benches dated 04.01.2023 held as under: “12. In this view of the matter and by following the decision of we are of the considered view that the AO as well as the CIT(A) has erred in sustaining addition towards cash deposits to bank account u/s. 69 of the Act and also levied tax u/s. 115BBE of the Act. Hence, we direct the AO to delete addition made towards cash deposits u/s. 69 of the Act."
7.3 Further, the assessee filed the details of turnover, cash collections and cash deposits made by the assessee by providing the month wise analysis. The Ld.AR submitted that during the assessment year 2017-18 the turnover was Rs.32.87 crores and the cash collections from customers made was Rs.11.81 crores, out of which the assessee has deposited Rs.9.38 crores into his bank account and substantial portion of Rs.8.19 crores was deposited before the demonetization period. Further, the ld.AR submitted that only Rs.1.18 crores was deposited after demonetization, out of which only Rs.35,52,000/- was deposited in specified bank notes.
7.4 Therefore, the Ld.AR submitted that the assessee has explained all the transactions of cash deposits to the tune of :-10-: ITA. No: 45/Chny/2025 Rs.32,26,000/- after considering the cash balance held as on 09.11.2016 and hence, the Assessing Officer has erred in treating the said amount as unexplained money without rejecting the books of accounts or without specifying any defect or error in the evidences. Further, the ld.AR relied on the following decisions in support of his arguments and prayed for deleting the additions made by the Assessing Officer i) DCIT vs M.C. Hospital ii) DCIT vs Karthik Construction Co iii) ITO vs JK Wood India P Ltd iv) Tamilnadu State Marketing vs ACIT v) Raju Dinesh Kumar vs DCIT vi) RM Sales Corporation vs ITO vii) Vasanth Co Tirupur vs ITO viii) Muthalif Moideen vs DCIT
Per contra, the ld.DR relied on the orders of the lower authorities.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The fact with regard to the impugned dispute are that the assessee has deposited a sum of Rs.35,52,000/- in specified bank notes during demonetization period to his bank account beyond the cash balance held on 08/11/2016. It is admitted from the :-11-: ITA. No: 45/Chny/2025 records that the assessee is engaged in the business of poultry. The case was selected for scrutiny to verify the source for cash deposited and called for certain details. The assessee deposited cash of Rs.35,52,000/- after announcement of demonetization by Government of India. Out of which the assessee shown cash balance on 09/11/2016 of Rs.3,26,337/- and hence explained the source for cash deposits of Rs.32,26,000/-. The Assessing Officer confirmed the addition of Rs.32,26,000/- u/s.68 of the Act. In response to notice u/s. 142(1) of the Act, the assessee had furnished cash book, sales register, purchase register, bank statements. The assessee has maintained proper books of accounts which are subjected to tax audit u/s. 44AB of the Act. 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 sales 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 / collections made from debtors/retailers by the assessee have been credited in the :-12-: ITA. No: 45/Chny/2025 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 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. The allegations/statistics relied upon by Assessing Officer to take an adverse view is not backed up by relevant evidence/material and therefore the impugned action of authorities below cannot be countenanced. Moreover, since cash generated out of sales / collection from debtors/retailers has been recorded in the books of accounts, the provisions of section 68 could not be invoked in the present case.
As regards, the objection on legal tender of Specified Bank Notes on or after 08.11.2016, we find that as per the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016, which came into effect from 31.12.2016 appointed date for this purpose means 31.12.2016. Further, as per Section 5 of said Ordinance, from the appointed date, no person shall, knowingly or voluntarily, hold or transfer or receive any Specified Bank Notes. From the above what is clear is that up to the appointed
:-13-: ITA. No: 45/Chny/2025 date i.e.31.12.2016, there is no prohibition for dealing with Specified Bank Notes. Therefore, in our considered view, the objection of the Ld.CIT(A) and that of AO on this issue in light of said Act is devoid of merits. Further, the Ld.AR relied on the following decisions of the Tribunal has addressed the similar issue in favour of the assessee. i) DCIT vs M.C. Hospital ii) DCIT vs Karthik Construction Co iii) ITO vs JK Wood India P Ltd iv) Tamilnadu State Marketing vs ACIT v) Raju Dinesh Kumar vs DCIT vi) RM Sales Corporation vs ITO vii) Vasanth Co Tirupur vs ITO viii) Muthalif Moideen vs DCIT
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 demonetization 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 :-14-: ITA. No: 45/Chny/2025 regard to realization of debtors where said debtors were outstanding in the previous year or 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 during demonetization period, then merely for the reason that the assessee has accepted specified bank 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 of 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 :-15-: ITA. No: 45/Chny/2025 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 such expenditure or 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
:-16-: ITA. No: 45/Chny/2025 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 and hence set aside the order of the Ld.CIT(A) and allow the grounds of appeal of the assessee.
As, the appeal filed by the assessee is allowed, stay petition filed by the assessee becomes academic.