GAURI SANKAR MONDAL,MURSHIDABAD vs. ITO, WARD 42(1), KOLKATA

Per Rajesh Kumar, AM:

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 06.12.2023 for the AY 2017-18. 02. The issue raised in ground no.1 by the assessee is against the confirmation of addition of ₹46,35,884/- by the ld. CIT (A) as made by the ld. AO u/s 69A of the Act on account of cash deposit during demonetization period.
03. The facts in brief are that the assessee filed its return of income on 27.09.2017, declaring total income at ₹27,19,120/-. Thereafter, the case of the assessee was selected for scrutiny under Computer
Assisted Scrutiny Selection (CASS), for two reasons namely; (i)
Gauri Sankar Mandal; A.Y. 2017-18

quantitative details of Principal items of goods of raw materials as well as finished goods as not submitted and (ii) large value of deposits during demonetization period. Accordingly, the statutory notices were duly issued and served upon the assessee. The assessee is engaged in the business of wholesale of fertilizers, pesticides and other goods.
During the course of assessment proceedings, the ld. AO observed on the basis of information/ detail furnished by the assessee that assessee has deposited cash to the tune of ₹2,24,78,000/- in the bank account during the year. The ld. AO further noted from the information gathered from the bank by issue of notice u/s 133(6) of the Act and noted that the assessee had deposited cash to the tune of ₹49,06,000/- in SBNs (specified bank notes) out of total deposits of ₹2,24,78,000/-. Accordingly, the show cause notice was issued to the assessee to explain the source of the said cash deposits in SBN during demonetization period, which was replied by the assessee by submitting that it was out of the realizations of sundry debtors and current cash sales. The ld. AO further noted that cash in hand on 01.11.2016, was ₹2,70,116/- and even if the same is presumed to be in specified currency notes, then still there is difference of ₹46,35,884. The show cause notice was issued to the assessee which was extracted on page no.2 to 4 of the assessment order. On page no.3
para 3 the AO accepted the fact that the assessee has carried out his trading operations, made cash sales during demonetization period including sales tax (VAT), wherever required and also reported such sales to the VAT authorities. The ld. AO further noted thereafter that on concluded and valid contract of sales the prices for good sold shall only be received in legal tender. According to the ld. AO that from 9.11.2016 onwards SBNs were not legal tender and were merely a piece of paper. Therefore, did not constitute money in legal tender.
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Finally, the ld. AO added the same u/s 69A of the Act i.e. unexplained money of ₹46,35,884/- in the assessment framed u/s 143(3) dated
16.11.2019. 04. In the appellate proceedings, the ld. CIT (A) simply dismissed the appeal.
05. After hearing the rival contentions and perusing the material available on record, we find that the assessee is carrying on the business as wholesale dealer, which is not doubted by the AO and the ld. AO accepted the same in Para 3 of page no.3 of the assessment order that assessee has in fact carried out sales during the demonetization period in cash and collected VAT wherever required and also reported the sales to the VAT authorities. We have examined the books of accounts comprising cash book for the period 08.11.2016 to 31.12.2016 and found that the assessee has received the cash on account of sale of fertilizers and pesticides.
06. The only objection of the ld. AO was that the sales consideration were not received in legal tender as the specified bank notes (SBNs) were not legal tender after
09.11.2016
and therefore, he added
₹46,35,884/- to the income of the assessee and brough to tax u/s 115BBE of the Act at 60%. In the appellate proceedings, the case of the assessee was simply dismissed by the ld. CIT (A) without even perusing the assessment order wherein the said amount has been brought to tax twice i.e. first by way of accepting the books of accounts in which the said cash sales were shown and; duly included in the books of accounts and assessee has offered the same to tax and secondly when the addition was made by the AO. We note that the assessee’s books of accounts have been duly audited and all these information’s were before the ld. AO along with the necessary
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evidences / details etc. The ld. AO added the same sales for the second time when the addition was made on account of unexplained money u/s 69A of the Act, which is contrary to the provisions of the Act. In our opinion, the same amount cannot be subject to tax for two times. We note that even the books of account of the assessee have not been rejected before making the said addition. In our opinion it is not the job of the ld. AO to see whether the sales were made in terms of legal tender and it is in fact for Reserve Bank of India to take the action for the said violation of receiving the sales consideration in non- legal tender post 09.11.2016 as the assessee has received the money in non-legal tender in SBN, in violation of the RBI Circular. The case of the assessee is squarely covered by the decision of the co-ordinate bench in the case of Vidyasagar Samabay Krishi Unnayan Samity
Ltd. vs. ACIT, Circle 38, Kolkata in ITA No. 06/KOL/2024 for A.Y. 2017-18, wherein the co-ordinate bench has held as under:-
“5. We have heard the rival contentions and gone through the record. In this case, the ld. counsel has explained that no cash sales were made during the demonetization period. That the amount in question was already collected by the agents of the society from the farmers-members which was deposited by the agents with the assessee-society and the same was further deposited by the assessee-society in the bank account. Even from the record/cash sales register etc., there is no evidence on the file that the assessee-society has made cash sales by accepting demonetized currency during the demonetization period. The ld. counsel has duly explained that the amount in question was collected and deposited during the first three days of the demonetization period which supports the contentions of the assessee that already collected amount by the agents was called for and deposited immediately in the bank account and no fresh cash sales were made and there was no violation of the RBI
Circular. Even otherwise, in our view, the impugned additions are not sustainable as deposits cannot be said to be unaccounted income of the assessee u/s 69A of the Act. No doubt, the Specified Bank Notes as per the Reserve Bank of India’s notification ceased to be legal tender w.e.f.
09.11.2016, the assessee made the cash sales accepting the Specified Bank
Notes in in violation of the said circular of Reserve Bank of India. The action of violation of the said circular can be taken by the competent authority in this respect. However, for the purpose of Income tax Act, what is to be examined is as to whether the said amount received by the assessee was unexplained income of the assessee u/s 69A of the Act? The assessee has duly explained the Gauri Sankar Mandal; A.Y. 2017-18

source of deposits, which has also been accepted by the Assessing Officer. The only contention of the Assessing Officer is that the assessee has violated the notification of the Central Government dated 08.11.2016 and accepted the Specified Bank Notes in lieu of sales made. For that, it is for the competent authority who may take action against the assessee as may be provided/applicable in relevant law. However, for the purpose of either section 68 or 69 of the Act, the said deposits cannot be treated as unexplained income of the assessee. Our above view is fortified by the decision of the Coordinate
Bangalore
Bench of the Tribunal in the case of ‘Sri
BhageerathaPattinaSahakara
Sangha
Niyamitha vs.
ITO’
in ITA
No.646/Bang/2021 order dated 18.02.2022. The relevant part of the order is reproduced as under:
“15. The case of the A.O is that the assessee has collected the demonetized notes after 8.11.2016 in violation of the notifications issued by RBI. Accordingly, he has taken the view that the above said amounts represents unexplained money of the assessee. I am unable to understand the rationale in the view taken by A.O. I noticed that the AO has invoked the provisions of sec.68 of the Act for making this addition.
I also noticed that the assessee has also complied with the requirements of sec.68 of the Act. The AO has also not stated that the assessee has not discharged the responsibility placed on it u/s 68 of the Act.
Peculiarly, the AO is taking the view that the assessee was not entitled to collect the demonized notes and accordingly invoked sec.68 of the Act. I am unable to understand as to how the contraventions, if any, of the notification issued by RBI would attract the provisions of sec. 68 of the Income tax Act. In any case, I notice that the assessee has also explained as to why it has collected demonetized notes after the prescribed date of 8.11.2016. The assessee has explained that it has stopped collection after the receipt of notification dated 14.11.2016
issued by RBI, which has clearly clarified that the assessee society should not collect the demonetized notes. Accordingly, I am of the view that the deposit of demonetized notes collected by the assessee from its members would not be hit by the provisions of section 68 of the Act in the facts and circumstances of the case. Accordingly, I set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete this disallowance.
16. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.”
In view of the above discussion, the addition made/confirmed by the lower authorities in the case of the assessee on this issue is not sustained and the same is accordingly ordered to be deleted.
7. In the result, the appeal of the assessee stands allowed.”
07. Since the facts of the assessee’s case are materially same vis-à-vis the facts of the case as decided by the co-ordinate Bench above, we
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therefore, respectfully following the same, set aside the order of ld.
CIT (A) and direct the ld. AO to delete the addition.
08. Since, we have deleted the addition of ₹46,25,884/-, the issue raised in ground no.2 did not require any adjudication.
09. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 15.01.2025. (PRADIP KUMAR CHOUBEY)
(RAJESH KUMAR)
(JUDICIAL MEMBER)
(ACCOUNTANT MEMBER)

Kolkata, Dated:15.01.2025
Sudip Sarkar, Sr.PS
Copy of the Order forwarded to :

Sr. Private Secretary/ Asst.