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Facts
The assessee, a liquor shop, deposited cash totaling Rs. 19,70,600/- in its bank accounts during the demonetization period (09.11.2016 to 31.12.2016). The Assessing Officer made an addition under Section 69A, treating these deposits as unexplained, which was upheld by the CIT(Appeals). The assessee contended that the cash deposits were from its daily liquor sales.
Held
The Tribunal found that there was no legal restriction on holding or receiving Specified Bank Notes until 31.12.2016, even though they ceased to be legal tender from 08.11.2016. Since the assessee provided sales ledgers and the revenue authorities did not dispute the source of the cash from liquor sales, the addition made under Section 69A was deemed unjustified. The Tribunal relied on a similar decision by the ITAT Visakhapatnam bench.
Key Issues
Whether cash deposits made during the demonetization period from liquor sales can be added under Section 69A when the assessee has explained the source, and whether receiving Specified Bank Notes was prohibited before 31.12.2016.
Sections Cited
147, 148, 69A, 115BB
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Income Tax Appellate Tribunal, ‘SMC’ BENCH, KOLKATA
Before: Shri Duvvuru RL Reddy, Vice-(KZ)
The present appeal is directed at the instance of assessee against the order of ld. Commissioner of Income Tax (Appeals), (A.Y. 2017-2018) Islampur C.S. Shop 2 National Faceless Appeal Centre (NFAC), Delhi dated 15th May, 2024 passed for Assessment Year 2017-18.
The appeal is time barred by 77 days in filing the appeal by the assessee. However, the assessee filed an affidavit dated 14th January, 2025 saying that the assessee is not aware of the order passed by the ld. CIT(Appeals) and he has not received the physical copy of the order. When the assessee came to know about the order passed by the ld. CIT(Appeals), the assessee approached the ld. A.R. to prefer an appeal, due to that there was a delay of 77 days in filing the appeal before the Tribunal. Therefore, he pleaded to condone the delay.
Considering the facts and circumstances of the case, I am inclined to condone the delay since the delay is not due to negligence on the part of assessee and the assessee has established sufficient cause to condone the delay. Hence the delay is condoned.
Brief facts of the case are that the assessee is a firm, which is running a liquor business. As per the ITS data, it was found that one Shri Kamlesh Singha (PAN BEGPS0018P) had deposited cash amounting to Rs.17,57,860/- in the Bank account bearing No.684105040000104 and Rs.1,10,540/- in the bank account bearing No. 684101010050072 in Union Bank of India, Islampur Branch during demonetization period i.e. 09.11.2016 to 31.12.2016 and the same was shown by the assessee in the ITR. In view of these facts, ld. Assessing Officer initiated the (A.Y. 2017-2018) Islampur C.S. Shop 2 proceedings under section 147 and issued notice under section 148 of the Act. In response to the said notice under section 148, the assessee has not filed its return of income as required within 30 days from the date of service of notice. However, the assessee has filed some information on 09.09.2021 at the counter of the jurisdictional Assessing Officer, which was later on uploaded by the ld. JAO, but the same on examination was not sufficient satisfactory evidences. The assessee has only filed copy of Bank statement, but no supporting evidence of cash deposit has been filed except sale ledger and stated that the said amount had been deposited out of sale proceeds made in cash during demonetization period. Since the assessee has not filed any information in support of cash deposited during demonetization period, the ld. Assessing Officer made an addition of Rs.19,70,600/- under section 69A of the Act. Aggrieved by the order of ld. Assessing Officer, the assessee preferred an appeal before the ld. CIT(Appeals).
After considering the written submission filed by the assessee, the ld. CIT(Appeals) dismissed the appeal filed by the assessee.
On being aggrieved, the assessee preferred an appeal before the Tribunal. The main grievance of the assessee is that the revenue authorities have not considered the source of cash deposits, even though the assessee filed ledger account of the sales of liquor and Bank statements.
(A.Y. 2017-2018) Islampur C.S. Shop 2 7. I have heard both the sides. It was the submission of the assessee that the assessee is running a liquor shop and in the entire financial year 2016-17, the total turnover of the assessee is Rs.1,80,71,107/- Even before demonetization, the assessee deposited an amount of Rs.1,00,00,000/- showing the cash sales of liquor. Even after demonetization, the assessee has deposited cash to the bank account, but the only contention of the ld. Assessing Officer and ld. CIT(Appeals) is that during demonetization period, the assessee has deposited an amount of Rs.17,57,816/-. He further submitted that the assessee has no other source of income except the income from the liquor business. He further submitted that there is no prohibition under the demonetization Act to receive the Specified Bank Notes. Therefore, he pleaded to set aside the orders passed by the revenue authorities.
On the other hand, it was the submission of the ld. D.R. that since the assessee deposited an amount of Rs.19,70,600/- in old currency, which is invalid currency, therefore, it is illegal and also fundamentally unjustified. Therefore, the revenue authorities made an addition of Rs.17,57,816/- under section 69A of the Act.
I have perused the material available on record. The assessee also challenged the reopening of the assessment. However, ld. Counsel for the assessee argued before the Bench on merit. The only contention is that during entire financial year, the assessee deposited more than 1 crores rupees in the Bank account and only Rs.19,70,600/- deposited during demonetization period and there (A.Y. 2017-2018) Islampur C.S. Shop 2 is no bar to except old currency notes and the ld. Counsel for the assessee has produced the sale register and ledger account of the assessee. The revenue authorities also not disputed the sale transactions of the assessee, but the only objection of the ld. Assessing Officer as well as ld. CIT(Appeals) was that the assessee has accepted the Specified Bank Notes. Even though Reserve Bank of India has prohibited dealing with Specified Bank Notes from 08.11.2016 onwards except for certain emergency services. On this aspect, I do not find any merit in the reasons given by the ld. Assessing Officer and ld. CIT(Appeals). No doubt, from 08.11.2016 midnight onwards, demonetization currency notes of Rs.500/- and Rs.1,000/- were legally banned, but the RBI has issued various guidelines and SOPS for dealing with Specified Bank Notes from 08.11.2016 onwards till Cessation of Liabilities Bill, 2017 for Specified Bank Notes, was notified by the Government. The Bill provides that the specified bank notes (old Rs 500 and Rs 1,000) will cease to be liabilities of the Reserve Bank of India (RBI) from December 31, 2016 onwards. Further, these notes will no longer be guaranteed by the central government. As per the said Bill from the ‘appointed date’, no person shall knowingly or voluntarily hold, transfer or receive any Specified Bank Notes, which is punishable offence and prohibited by law.
9.1. Further according to Section 3 of the above said bill, 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 (A.Y. 2017-2018) Islampur C.S. Shop 2 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.
From the above Bill, it is clear that upto ‘appointed date’, i.e. 31.12.2016, there is no restriction in holding or receiving Specified Bank Notes, even though legal tender is banned from 08.11.2016 onwards. Therefore, I am of the view that there is no blank prohibition of receiving specified bank notes upto 31.12.2016. In this case, admittedly, the assessee has explained the source of its cash deposits and the revenue authorities were not disputing the same. Therefore, I am of the view that when the assessee has explained the reasons for accepting these Specified Bank Notes, even after 08.11.2016. The ld. Assessing Officer ought to have accepted the explanation furnished by the assessee, when he is not disputing the nature of business and source for cash deposits as discussed above. The assessee was engaged in the business of selling liquor therefore, sale transactions of liquor should be only by way of cash. Therefore, as per the above detailed discussion, the ld. Assessing Officer is not right in making the addition towards cash deposit. On this aspect, several Coordinate Benches of the Tribunal have taken the same view. The relevant findings of the ITAT, Visakhapatnam Bench are 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 6 (A.Y. 2017-2018) Islampur C.S. Shop 2 Liabilities) Act, 2017, defines "appointed day" vide Section 2(l)(a). As per Section 2(l)(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 SB Ns from cash sales as illegal and thereby invoking the Provisions of section 69A is not valid in law. Therefore, we dismiss this ground of the Revenue."
In view of the decision of the Coordinate Bench of ITAT, Visakhapatnam dated 16th March, 2022 in ITA No. 76/Viz./2021 in the case of ITO -vs.- Sri Tatiparti Satyanarayana, I am of the firm view that the ld. Assessing Officer as well as ld. CIT(Appeals) has erred in sustaining the addition towards cash deposits to the Bank account under section 69A of the Act and levied tax under section 115BB of the Act. Hence, I direct the ld. Assessing Officer to delete the addition made towards cash deposits to the Bank under section 69A of the Act. Therefore, the grounds raised by the assessee are allowed.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 21/03/2025.