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

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ITA 226/KOL/2024Status: DisposedITAT Kolkata15 January 2025AY 2017-186 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the addition of ₹46,35,884 was not sustainable. The Tribunal noted that the AO had accepted that the assessee carried out trading operations and made cash sales during the demonetization period, including reporting sales to VAT authorities. The Tribunal found that the same amount was brought to tax twice: first, by inclusion in the audited books of accounts, and second, by the AO's addition under Section 69A. The Tribunal emphasized that the same income cannot be taxed twice. The Tribunal also reasoned that it was not the AO's role to determine if sales were made in legal tender; such violations of RBI circulars should be addressed by the competent authority. Relying on the decision of a co-ordinate bench in Vidyasagar Samabay Krishi Unnayan Samity Ltd. vs. ACIT, the Tribunal concluded that the deposits could not be treated as unexplained income under Section 69A, as the source was explained. The addition was ordered to be deleted. Ground no. 2 was not adjudicated as the addition was deleted.

What were the facts?

The assessee, Gauri Sankar Mondal, filed its return for AY 2017-18 declaring income of ₹27,19,120. The case was selected for scrutiny due to quantitative details and large cash deposits during demonetization. The assessee, a wholesale dealer of fertilizers and pesticides, deposited ₹2,24,78,000, of which ₹49,06,000 were in Specified Bank Notes (SBNs). The Assessing Officer (AO) noted cash in hand on 01.11.2016 was ₹2,70,116. The AO added ₹46,35,884 under Section 69A as unexplained money, stating SBNs were not legal tender after 09.11.2016. The assessee contended the deposits were from sundry debtors and cash sales. The AO accepted that cash sales occurred and VAT was reported. The National Faceless Appeal Centre (NFAC), Delhi, confirmed the addition. The assessee appealed to the ITAT.

What were the issues?

1. Whether the addition of ₹46,35,884 as unexplained money under Section 69A of the Income Tax Act, 1961, is sustainable when the assessee has explained the source of the deposits as cash sales and realizations from sundry debtors, and the AO accepted that cash sales occurred during the demonetization period? Assessee's Contention: The assessee argued that the addition was made despite the AO accepting that cash sales occurred and VAT was reported. The assessee contended that the same amount was brought to tax twice: once through the books of accounts and again by the AO's addition. The assessee also argued that it is not the AO's job to determine if sales were made in legal tender, but rather the Reserve Bank of India's role to take action for violations. Revenue's Contention: The revenue, through the AO, argued that Specified Bank Notes (SBNs) were not legal tender after 09.11.2016, and therefore, deposits made in SBNs constituted unexplained money. The AO's addition was based on the difference between total SBN deposits and the cash in hand on 01.11.2016.

Which sections of the Income-tax Act were involved?

Section 69A,Section 115BBE,Section 133(6),Section 143(3),Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, KOLKATA

Before: SHRI RAJESH KUMAR, AM & SHRI PRADIP KUMAR CHOUBEY, JM

For Appellant: Shri Sunil Surana, AR
For Respondent: Shri AK Bandyopadhyay, DR
Hearing: 30.12.2024Pronounced: 15.01.2025

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.

2.

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.

3.

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)

4.

In the appellate proceedings, the ld. CIT (A) simply dismissed the appeal.

5.

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.

6.

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

“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

8.

Since, we have deleted the addition of ₹46,25,884/-, the issue raised in ground no.2 did not require any adjudication.

9.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 15.01.2025.

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