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Facts
The assessee, a partnership firm, reported an income of Rs.19,56,800/- for A.Y. 2017-18. Its case was selected for scrutiny due to an abnormal cash deposit of Rs.26.00 lakhs during the demonetization period. The AO made an addition u/s 68, deeming it unexplained cash credit, and invoked Section 115BBE, which the CIT(A) upheld.
Held
The Tribunal, following previous Coordinate Bench decisions, observed that the assessee demonstrated regular business activity, cash and credit sales, and that the deposits were from available cash balances. It was held that merely depositing cash during demonetization, when sources are explained through business sales, does not warrant an addition under Section 68 or invocation of Section 115BBE. Therefore, the addition was deleted.
Key Issues
Whether cash deposits made during the demonetization period, claimed as business sales, can be treated as unexplained cash credit under Section 68 of the Act and whether Section 115BBE can be invoked in such cases.
Sections Cited
250, 143(3), 68, 115BBE, 44AD, 143(1), 142(1), 69, 69A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, KOLKATA BENCHES “SMC”, KOLKATA
Before: DR.MANISH BORAD
आदेश / ORDER PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal pertaining to Assessment Year 2017- 18 at the instance of assessee is directed against the order dated 24.06.2024 passed by National Faceless Appeal Centre, Delhi u/s.250 of the Income-tax Act, 1961 (in short ‘the Act’) which in turn is arising out of Assessment Order dated 24.12.2019 passed u/s.143(3) of the Act.
The assessee has raised legal ground vide Grounds of appeal No. 1 and 2 challenging the validity of assessment order u/s.143(3) of the Act contending them to be without jurisdiction, however, during the course of proceedings, ld. Counsel for the assessee submitted that he is not pressing those grounds. Therefore, Grounds of appeal No.1 and 2 are dismissed as ‘Not Pressed’.
Remaining Grounds of appeal No.3 to 5 revolves round the issue of addition u/s.68 of the Act for unexplained cash credit in the form of cash deposited during the demonetization period amounting to Rs.26.00 lakh and ld. AO erred in invoking section 115BBE of the Act.
4. Tersely, the facts of the case are that the assessee is a partnership firm engaged in the business of trading and manufacturing of Artificial plants and Decorative items. Income of Rs.19,56,800/- declared in the return furnished on 28.03.2018 for A.Y. 2017-18. The case of the assessee selected for scrutiny on account of reasons of Abnormal increase in cash deposited during the demonetization period as compared to pre- demonetization period. After validly serving of notices u/s.143(1)/142(1) of the Act, ld. AO carried out the assessment proceedings and asked the assessee to explain the source of cash deposit of Rs.26.00 lakh during the demonetization period, i.e. from 09.11.2016 to 30.12.2016. It was claimed by the assessee that the alleged cash deposit is from cash sales which are part of the total turnover of the assesssee firm and the profit earned therefrom has been duly offered to tax and that the assessee had cash balance prior to the date of alleged cash deposits. The assessee also claimed that it is disclosing income under Presumptive Taxation Scheme u/s.44AD of the Act and the assessee is not required to maintain books of account and other details. However, ld. AO was not satisfied with the explanation given by the assessee and he concluded the proceedings making addition of Rs.26.00 lakh u/s.68 of the Act and also invoked provisions of section 115BBE of the Act.
5. Aggrieved assessee preferred appeal before the ld.CIT(A) and inspite of furnishing the requisite details failed to succeed. Now the assessee is in appeal before the Tribunal assailing the impugned order.
6. Ld. Counsel for the assessee on the strength of financial statements and placing reliance on the decision of Coordinate Bench in the case of Vasant & Company in dated 09.10.2024 submitted that the assessee is a partnership firm regularly carrying out its business activity. The assessee is registered with the VAT department regularly filing the returns, quarterly returns incorporating cash sales which have given rise to alleged cash deposit are also part of the gross sales. He also submitted that at the time of demonetization period lot of customers gave cash against the outstanding debtors as well cash sales took place and therefore neither addition u/s.68 of the Act is called for nor section 115BBE can be invoked.
On the other hand, ld. Departmental Representative vehemently argued supporting the orders of the lower authorities.
I have heard the rival contentions and perused the record placed before me. The grievance of the assessee is that ld.CIT(A) erred in confirming the action of the ld. AO making addition u/s.68 of the Act at Rs.26.00 lakh for the alleged unexplained cash deposit and also ld. AO erred in invoking section 115BBE of the Act. I observe that the assessee is a partnership firm and carrying out the business from past many years. Copy of balance sheet is placed on record. Opening stock as on 01.04.2016 is Rs.14,92,158/-. Gross sales effected during the year are Rs.1,12,81,863/- which includes cash sales as well as credit sales. Net profit of Rs.19,50,950/- has been offered to tax which if added by the remuneration paid to one of the partner at Rs.1,80,000/- comes to around 19% net profit rate. The assessee is also registered with Sales Tax VAT authorities and this fact is not disputed by the lower authorities. Even though the assessee has offered the income under the Presumptive Taxation Scheme u/s.44AD of the act but still the assessee is maintaining regular books of account which is evident from the perusal of the trading profit and loss account and balance sheet. The Revenue authorities have not doubted the gross sales and more particularly the credit sales effected during the demonetization period and the total sales effected in the period other than the demonetization period. It establishes that the assessee has been carrying out the regular business activity and making sales during the year which has been accepted by the Revenue authorities. Merely for the reason that there is cash deposit during the demonetization period, the present issue has arisen. It is accepted that nobody was aware about the declaration of Demonetization Scheme and the moment it was announced it created panic. In this process, people tend to make some cash purchases and also to pay their outstanding debtors. Until and unless the source of cash is not explained one cannot doubt the genuineness of cash deposit. In the instant case, the assessee successfully demonstrated that it is carrying out regular business activity, making regular sales both through cash and credit and that the alleged deposit is out of the cash balances available with the assessee in its books of account and therefore I find merit in the contention of the ld. Counsel for the assessee. My view is further fortified by the decision of the Coordinate Bench in the case of Vasant and Company (supra) wherealso similar issue came up for adjudication and was decided by this Tribunal observing as follows :
“5. We have heard the rival contentions and perused the material on record. The assessee before us explained that they are in the business of distribution of FMCG products and are the authorised distributor for M/s. Hindustan Unilever Limited, M/s. Britannia Industries Ltd and M/s. Kalleesuwari Refinery Private Limited etc. They purchase in wholesale from the manufacturers and sell them to retail outlets spread over their area of operation. Payments are collected from them either on the same day of sales are in due course. Irrespective of their collection, assessee has to make payments to our suppliers. The Turnover of the assessee for the last three years are as under:
Financial year 2014-15 43.44 crores Financial year 2015-16 48.17 crores Financial year 2016-17 57.93 crores
Assessee is constantly maintaining an average sale of 4 to 5 crores per month and there gross profit ratio is very low and there from they will not be able to extend much of credit to their customers as the same will eat out on our Return on Investments. Assessee’s customers range from departmental store to small petty shops and assessee is supposed to cater to all the shops within the area as their principles want the penetration of their product fully in the market. Amounts were received by Cheques/Bank transfers from big customers and in cash from smaller shops. When demonetization was announced there was a scarcity of Quid cash in nondemonetised currencies. Smaller traders had to accept payments from their customers in demonetised and non-demonetised currencies as well because of the fact that non acceptance will lead to fall in sales and put their customers into hardship. The traders in turn started making payments in demonetised currencies to assessee which forced them to accept in order to maintain a smooth working capital cycle. Assessee also enquired with their bankers regarding the same, who in turn advised that they will be accepting payments up to 30th December, 2016. Based on this, assessee was under the bonafide belief that acceptance of cash in demonetised form from identifiable customers is permitted and therefore assessee were accepting from such customers for a few days. As soon as assessee came to know that only specified persons can accept demonetised currency they stopped receiving the same. The amount received during the initial few days were remitted to the bank account. This was the reason for acceptance of the demonetized currency to the tune of Rs.51,05,940/- from their customers, which were remitted in to account then and there. Going by the explanation of the assessee that the cash deposited in SBNs during demonetization period is out of sale proceeds and this issue stands covered in favour of the assessee by the decision of the Co-ordinate of the Tribunal in the case of Tamil Nadu State Marketing Corporation Ltd vs. Assistant Commissioner of Income Tax, Chennai in for assessment year 2017- 2018 dated 07.10.2024 and wherein it was held as under:-
‘’8.4 We have gone through the notifications issued by the RBI and Government of India, to deal with specified bank notes. The only premise of the Revenue is mainly on the issue of notification issued by the RBI to deal with the specified bank notes and argument is that the assessee is not one of the eligible person to accept or to deal with specified bank notes and thus, even if assessee furnish necessary evidence, the assessee cannot accept specified bank notes after demonetization and the explanation offered by the assessee cannot be accepted. No doubt specified bank notes of Rs. 500 & Rs. 1000 have been withdrawn from circulation from 09.11.2016 onwards. The Government of India and RBI has issued various notifications and SOP to deal with specified bank notes. Further, the RBI allowed certain category of persons to accept and to deal with specified bank notes up to 31.12.2016. Further, the specified bank notes (cessation of liability) Act, 2017, also stated that from the appointed date no person can receive or accept and transact specified bank notes, and appointed date has been stated as 31.12.2016. Therefore, there is no clarity on how to deal with demonetized currency from the date of demonetization and up to 31.12.2016. Therefore, under those circumstances, some persons continued to accept and transact the specified bank notes and deposited into bank accounts. Therefore, merely for the reason that there is a violation of certain notifications/GO issued by the Government in transacting with specified bank notes, the genuine explanation offered by the assessee towards source for cash deposit cannot be rejected, unless the AO makes out a case that the assessee has deposited unaccounted cash into bank account in specified bank notes.
8.5 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 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 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, the 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 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’’.
Since the issue is squarely covered by the decision of the Co- ordinate Bench of the Tribunal in the case of Tamil Nadu State Marketing Corporation Ltd (supra), we allow the ground raised by the assessee and delete the addition made by the lower authorities.
In the result, the appeal filed by the assessee stands allowed.”
Respectfully following the decision of the Coordinate Bench of the Tribunal and the same being squarely applicable on the facts of the instant case, finding of ld.CIT(A) is reversed. The impugned addition made u/s.68 of the Act is directed to deleted and the action of the AO invoking provisions of section 115BBE is also set-aside. Effective Grounds of Appeal raised by the assessee on merits are allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced on this 31st day of January, 2025.