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Facts
Creamline Dairy Products Ltd. filed appeals against CIT(A) orders for AY 2017-18 & 2018-19, while the Revenue filed a cross-appeal for AY 2017-18. The disputed additions by the Assessing Officer included disallowance of Section 80JJAA deduction for additional employee cost, provision for doubtful debts, cash deposits during demonetization under Section 68, and late payment of employees' PF contributions under Section 36(1)(va).
Held
For AY 2017-18, the Tribunal remanded the Section 80JJAA deduction issue to the AO for merits-based verification, deleted the disallowance of provision for doubtful debts written off, and upheld the CIT(A)'s deletion of the Section 68 addition for demonetization cash deposits. For AY 2018-19, the Tribunal partly allowed the appeal, deleting the disallowance of employees' PF contribution of Rs. 22,40,238/- (paid on time) and remanded the Section 80JJAA deduction issue to the AO for re-examination on merits.
Key Issues
The key legal issues concerned the eligibility for Section 80JJAA deduction when claims/forms are filed belatedly or involve increased expenditure, the allowability of bad debts written off, the addition under Section 68 for demonetization cash deposits, and the disallowance of employees' PF contributions due to late payment under Section 36(1)(va).
Sections Cited
143(2), 142(1), 143(3), 80JJAA, 139(1), 139(4), 68, 36(1)(vii), 36(2), 36(1)(va), 14A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, HYDERABAD “B” BENCH: HYDERABAD
Before: SHRI VIJAY PAL RAO & SHRI MANJUNATHA G
ORDER PER MANJUNATHA G. : The assessee has filed twin appeals ITA.Nos.1156 & 1157/Hyd./2024 against the orders both dated 30.08.2024 of the learned CIT(A)-National Faceless Appeal
2 ITA.Nos.1156, 1157 & 1183/Hyd./2024 Centre [in short the “NFAC”] Delhi, relating to assessment years 2017-2018 & 2018-2019 and the Revenue has filed cross-appeal ITA.No.1183/Hyd./2024 for the assessment year 2017-2018. Since common issues are involved in all these three appeals, these appeals were heard together and are being disposed of by this single consolidated order for the sake of convenience and brevity. First, we take-up appeal of the Assessee ITA.No.1156/Hyd./2024 and appeal of the Revenue ITA.No.1183/Hyd./2024 for the assessment year 2017-2018 as “lead” appeal.
ITA.No.1156/Hyd./2024 - 2017-2018 [Assessee] :
Briefly stated facts of the case are that, the assessee is a Public Limited Company and carrying on the business of dairy and selling of dairy products under the brand name “Jersey”. The assessee-company has filed it’s return of income for the impugned assessment year 2017- 2018 on 31.10.2017 admitting total income of Rs.29,60,32,670/- under normal provisions of the Income Tax Act, 1961. The case was selected for scrutiny under CASS. The Assessing Officer has issued notices
3 ITA.Nos.1156, 1157 & 1183/Hyd./2024 u/sec.143(2) of the Income Tax Act, 1961 dated 13.08.2018 and also issued notice u/sec.142(1) of the Act which were duly served upon the assessee electronically. The Assessing Officer after considering relevant submissions of the assessee-company passed order dated 31.12.2019 u/sec.143(3) of the Income Tax Act, 1961 and determined the total income at Rs.39,25,02,689/- by making, inter alia, additions towards disallowance of membership expenses of Rs. 6 lakhs, disallowance of provision for doubtful debts written back at Rs.20,94,511/-, disallowance of deduction claimed u/sec.80JJA of the Act at Rs.30,09,085/-, disallowance of bad debts written-off at Rs.1,01,75,503/- and addition towards cash deposit into bank account during the demonetization period amounting to Rs.8,44,00,000/-.
Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). The learned CIT(A), for the reasons stated in the appellate order dated 30.08.2024, partly allowed the appeal filed by the assessee-company where the learned CIT(A) has allowed relief and deleted the addition made by the Assessing Officer
4 ITA.Nos.1156, 1157 & 1183/Hyd./2024 towards membership expenses, deleted the addition towards bad debts written off and also deleted the addition made by the Assessing Officer towards cash deposited during demonetisation period. However, sustained the addition made by the Assessing Officer towards disallowance of provision of bad and doubtful debts and disallowance of deduction claimed under section 80JJA of the Income Tax Act, 1961.
4. Aggrieved by the order of the learned CIT(A), the Assessee-Company and the Revenue are in appeals before the Tribunal.
5. The first issue that came-up for consideration from ground no.2 of assessee-company’s appeal is, confirming addition made towards deduction claimed u/sec.80JJAA of the Income Tax Act, 1961 for Rs.30,09,085/-. The assessee-company has claimed deduction u/sec.80JJAA of Rs.30,09,085/- towards additional employee cost. During the assessment proceeding, the assessee-company was asked to produce supporting evidences for the said claim. The assessee-
5 ITA.Nos.1156, 1157 & 1183/Hyd./2024 company has submitted Form 10DA dated 29.03.2018 and thereafter, filed revised return and claimed deduction. The Assessing Officer after considering relevant submissions of the assessee-company and also taking note of the fact that, the assessee-company has not made any claim towards deduction u/sec.80JJAA of the Act in the original return of income filed and also not furnished relevant Form 10DA along with original return of income on or before the due date provided under section 139(1) of the Act, disallowed the claim of deduction u/sec.80JJAA of Rs.30,09,085/- and added back to the total income. On appeal, the learned CIT(A), confirmed the addition made by the Assessing Officer.
CA, K C Devdas, Learned Counsel for the Assessee, submitted that, the learned CIT(A) was erred in confirming the addition towards disallowance of deduction u/sec.80JJAA of the Income Tax Act, 1961, even though, the assessee-company has satisfied the conditions provided for such claim, only on the ground that, the assessee- company has not made any claim in the original return of 6 ITA.Nos.1156, 1157 & 1183/Hyd./2024 income and also not furnished relevant Form 10DA along with the said return. Learned Counsel for the Assessee referring to the decision of Hon’ble Supreme Court in the case of Goetze (India) Ltd., vs., CIT [2006] 284 ITR 323 (SC) submitted that, if an assessee makes a fresh claim of deduction by filing revised return of income, then, the Assessing Officer is bound to consider the said claim in accordance with law. Although, the assessee filed relevant details to prove the claim of deduction u/sec.80JJAA of the Act, but, the Assessing Officer and the learned CIT(A) disallowed the said claim on the ground that, Form 10DA was filed beyond the due date provided under section 139(1) of the Act. Therefore, he submitted that the addition made by Assessing Officer should be deleted.
Shri Narender Kumar Naik, learned CIT-DR, on the other hand, supporting the order of the learned CIT(A) submitted that, for claiming deduction u/sec.80JJAA of the Act, the assessee-company should file return of income on or before the due date provided under section 139(1) of the Act and also to furnish relevant audit report in Form 10DA
7 ITA.Nos.1156, 1157 & 1183/Hyd./2024 along with the said return. Since, the assessee-company has made a claim in the revised return of income filed on 30.03.2018, which is beyond the due date provided under section 139(1) of the Act and further, the claim of deduction was not supported by audit report in Form 10DA on or before the said date, the Assessing Officer and the learned CIT(A) has rightly denied the claim of the assessee-company and thus, the order of the CIT should be upheld.
We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that, the assessee-company has not made any claim of deduction u/sec.80JJAA the Act in the original return of income filed under section 139(1) of the Act on 30.10.2017. It is also an admitted fact that, the assessee-company has not filed relevant audit report in Form 10DA on or before the due date for filing the return of income under section 139(1) of the Act. The assessee-company has made a claim of deduction by filing a revised return of income on 30.03.2018 and the said claim was supported by audit
8 ITA.Nos.1156, 1157 & 1183/Hyd./2024 report in Form 10DA, which was filed on 29.03.2018. The Assessing Officer denied the deduction only on the ground that, the assessee-company has not made a claim in the original return of income and also made a claim for the first time in the revised return, which is beyond the due date provided under section 139 of the Act and further, the said claim was not supported by relevant audit report in Form 10DA which has been filed beyond the due date provided under section 139(1) of the Act. In other words, the Assessing Officer has denied the claim for belated filing of return of income and audit report, but, has not verified the claim of the assessee-company in light of relevant provisions of section 80JJAA of the Act and also the evidences filed by the assessee-company to justify the said claim. In our considered view, if assessee is eligible for deduction u/sec.80JJAA of the Act, upon satisfaction of relevant conditions provided therein, then, merely for the reason of making a claim in the revised return of income, deduction cannot be denied because, deduction provided u/sec. 80JJAA of the Act is a beneficial provision provided to the 9 ITA.Nos.1156, 1157 & 1183/Hyd./2024 assessees’ for encouragement of new employment. Further, it is not a case of the Assessing Officer that, the assessee- company has not made a claim at all. In fact, the assessee- company has made a claim by filing the revised return of income which is on or before the due date for filing belated return under section 139(4) of the Act and further, the said return was filed on or before the Assessing Officer passes Order under section 143(3) of the Income Tax Act, 1961 on 31.12.2019. Therefore, in our considered view, once the assessee-company filed original it’s return of income on or before the due date provided under section 139(1) of the Act and further, the said return was revised to rectify the errors committed in the original return of income and the same was filed before the Assessing Officer passes his order under section 143(3) of the Act, then, the Assessing Officer ought to have consider the claim of the assessee-company in accordance with law and this fact is further strengthened by the decision Hon’ble Supreme Court in the case of Goetze (India) Ltd., vs., CIT (supra), where the Hon’ble Supreme Court clearly held that, any fresh claim of deduction
10 ITA.Nos.1156, 1157 & 1183/Hyd./2024 towards expenses for allowances can be made only by filing revised return of income. Since the assessee-company has filed revised return of income and made claim for deduction u/sec.80JJAA of the Act, in our considered view, the Assessing Officer is required to verify the claim of the assessee-company in light of relevant provisions of section 80JJAA of the Act and also any other evidences that may be filed by the assessee-company to justify it's case. Since the Assessing Officer has not considered the issue on merits on the allowability of deduction, in our considered view, the matter needs to be set-aside to the file of the Assessing Officer. Thus, we set-aside the Order of the learned CIT(A) and restore the issue back to the file of Assessing Officer. The Assessing Officer is directed to consider the issue of deduction claimed u/sec.80JJAA of the Act, in light of relevant provisions and also any other evidence that may be filled by the assessee-company and decide the issue in accordance with law. Accordingly, grounds of appeal no.2 of the assessee-company is allowed for statistical purposes.
11 ITA.Nos.1156, 1157 & 1183/Hyd./2024 9. The next issue that came-up for consideration from ground no.3 of assessee-company’s appeal is disallowance of provision for doubtful debts written off of Rs.20,94,511/-.
The assessee-company claimed Rs.18,12,038/- and Rs.2,82,473/- towards adjustment for provision of doubtful debts written-off. The Assessing Officer disallowed the said claim on the ground that, these deductions are notional in nature and are not available as per Income Tax Act. On appeal, the learned CIT(A) sustained the addition made by the Assessing Officer.
CA, K C Devdas, Learned Counsel for the Assessee submitted that, the assessee-company has made a provision for Rs.37,46,686/- in earlier assessment year 2016-2017 and the same has been added back to the total income. Out of the said amount, the assessee-company has claimed deduction of Rs.20,94,581/- on account of written- off of bad debts. In this regard, the assessee-company has filed relevant computation of total income for the 12 ITA.Nos.1156, 1157 & 1183/Hyd./2024 assessment years 2016-2017 and 2017-2018 and also relevant extracts of bad debts and advance account, which are written-off in the books of accounts. Therefore, submitted that, the addition made by the Assessing Officer should be deleted.
Shri Narender Kumar Naik, learned CIT-DR on the other hand, supporting the order of the learned CIT(A) submitted that, the assessee-company could not file any evidence to prove bad debts written-off in the books of accounts and in absence of relevant evidences, the Assessing Officer has rightly disallowed the provision for bad debt written-off, as notional expenditure. Therefore, he submitted that, the addition made by the Assessing Officer should be upheld.
We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that, the assessee-company has made a provision for bad and doubtful debts at Rs.37,46,686/- for the assessment year 2016-2017 and the same has been added
13 ITA.Nos.1156, 1157 & 1183/Hyd./2024 back to the total income, which is evident from the computation of total income furnished by the assessee- company which is available in paper book at page nos.88 to 93. The assessee-company has made a claim of deduction of Rs.20,94,511/- for the assessment year 2017-2018 in the statement of total income on the ground that, it was written-off provision of bad and doubtful debts in the books of accounts, which is evident from computation of income filed for the assessment year 2017-2018, which is available in paper book at page nos.94 to 99. The assessee-company had also filed relevant ledger extract of bad and doubtful accounts and proved that the said provision for bad and doubtful accounts has been written-off in the books of accounts, which is available in paper book filed by the assessee-company. Once the assessee-company has written-off the debts in the books of accounts by debiting to provision for bad and doubtful account and crediting to the respective parties account, in our considered view, nothing more is required to be furnished by the assessee-company to prove the claim of deduction towards bad and doubtful
14 ITA.Nos.1156, 1157 & 1183/Hyd./2024 debts written-off account. The Assessing Officer and the learned CIT(A) without appreciating the relevant facts simply sustained the addition towards provision of bad and doubtful debts written off account. Thus, we set aside the order of the learned CIT(A) on this issue and direct the Assessing Officer to delete the addition made towards disallowance of bad and doubtful debts written-off account. Ground No.3 of assessee’s appeal is allowed.
In the result, appeal ITA.No.1156/Hyd./2024 of the assessee-company is partly allowed for statistical purposes.
ITA.No.1183/Hyd./2024 – A.Y. 2017-2018 [Revenue Appeal]:
The next issue that came-up for consideration from Revenue appeal through ground nos.2 to 5 is deletion of addition of Rs.8,44,00,000/- made towards cash deposit during demonetisation period under section 68 of the Income Tax Act 1961.
15 ITA.Nos.1156, 1157 & 1183/Hyd./2024 16. The facts with regard to the impugned dispute are that, during the course of assessment proceedings, the Assessing Officer noted that, the assessee company has provided requisite disclosure in Note.46 to the financial statements as to the holding of Specified Bank Notes [in short “SBNs”] as on 08.11.2016 and up-to 30.12.2016 as well as dealings in SBNs during the period 08.11.2016 to 30.12.2016. As per the disclosure in the notes to financial statements, the assessee-company has transacted in SBNs of Rs.8,44,00,000/- for sale of milk and milk products. The Assessing Officer after considering the relevant disclosure in Note.46 to the financial statements observed that, the Central Government withdrawn the legal tender of Rs.500 and Rs.1000 currency notes with effect from 09.11.2016. Further, in the said Notification, a facility was granted to the holders for SBNs to deposit the said SBNs in the account maintained with any Bank on or before 30.12.2016. In the present case, the assessee-company, in violation of relevant notification issued by the Government of India, has accepted SBNs after 09.11.2016 and up-to 30.12.2016 for 16 ITA.Nos.1156, 1157 & 1183/Hyd./2024 sale transactions. Therefore, the Assessing Officer observed that, the assessee-company has violated the relevant Notifications issued by the Government of India and RBI and, therefore, rejected the explanation of assessee- company with regard to source for cash deposit in SBNs and made addition of Rs.8,44,00,000/- under section 68 of the Income Tax Act 1961. The relevant findings of the Assessing Officer are as under :
“5.1. The company has provided requisite disclosures in note 46 to the financial statements as to the holding of SBNs on November 8, 2016 and December 30, 2018 as well as dealings in SBNs during the period from November 8, 2016 to December 30, 2016. However, as stated in note 46 to these financial statements, amounts aggregating to Rs.8,44,00,000/- as represented have been received from transactions which are not permitted. In this regard the following discussion in subsequent paragraphs merits attention. 5.2. Following the decision of the Central Government to withdraw the legal tender status to the existing series of bank notes of the value of Rs.500 and Rs. 1000 w.e.f. 09-11-2016, a notification in S.O.No.3407(E) dt. 08-11-2016 was issued withdrawing the legal tender status to the bank notes of the value of Rs.500 and Rs.1000 (referred to as specified bank notes or SBNs). However, in the said Notification a facility was granted to the holders of SBNs for the deposit of such SBNs in their account maintained with any bank on or before 30-12-2016 so that the equivalent value of SBNs will be credited to such accounts. The Government had further announced that the SBNs will continue to be legal tender during demonetization period for the limited purpose of making payments at places like petrol bunks, gas agencies, etc. Thus, except where the SBNs were deposited in a bank, or exchanged for goods/services at designated places like petrol bunks etc.. in all other cases such SBNs are no longer legal tender w.e.f.09-11-2016.
17 ITA.Nos.1156, 1157 & 1183/Hyd./2024
5.3. Coming to the present issue on hand, it is not in dispute that the assessee has received amounts aggregating to Rs.8,44,00,000/- from transactions which are not permitted. As already discussed above, in a concluded and valid Contract of Sale, price for the goods sold shall only be the receipt of money in legal tender. Once the assessee says that he has carried out sales, even during demonetization period, it has to be understood that he has received the money in legal tender only but not in SBNs, because from 09- 11-2016 onwards, the SBNs are no longer money but a mere piece of paper as between the seller and the buyer, and do not constitute money in legal tender. The assessee cannot take a contradictory stand that he received price in SBNs. Thus, a valid contract of sale during demonetization period and SBNs are mutually exclusive, and the assessee cannot be permitted to club both of them.
5.4. The issue can also be tested from another angle. Since the sale of goods is also a contract, the relevant provisions of Indian Contract Act will also apply to such sale. As per the provisions of Sec. 23 of the Contract Act, every contract, of which the consideration is 'unlawful', is void. The said section also enumerates various circumstances under which the consideration of a contract is said to be unlawful Two such circumstances are, (i) the consideration of a contract is of such nature that, if permitted, it would defeat the provisions of any law, or (ii) the Court regards it as immoral or opposed to public policy. Hence, if any one says that he has received price in SBNs as a part of contract of sale, such contract itself is void and non-est in the eyes of law, because the claim of receipt of such price in SBNs as a part of contract of sale, if accepted, would defeat the provisions of Sec.26(2) of RBI Act. 1934 and the Notification in S.O.No.3407(E) dt. 08-11-2016 issued there under, through which the Central Government has withdrawn the legal tender status of SBNs from 09-11-2016 onwards. As per the said Notification, the only way-out given to the persons holding SBNs as on 09-11-2016 to realize the equivalent value of such SBNs is to deposit the same in to his bank account (please see Para 2(iii) and 2(iv) of the Notification). If the SBNs are claimed to have been dealt by the persons who held the SBNs as on 09-11-2016, in a manner other than what was prescribed in the statutory Notification, like exchanging the same with unauthorized persons other than banks, and if such a claim is accepted, it would bring the said statutory Notification, which was issued as a measure to tackle black money, to ridicule and renders it nugatory. Also, since the 'public policy' behind the withdrawal of legal tender status to the SBNs from 09-11-2016 onwards was explained by the Central Government to be a 18 ITA.Nos.1156, 1157 & 1183/Hyd./2024 measure to tackle the black money in the economy, to lower cash circulation which is directly linked to corruption, fake currency etc., any claim of acceptance of SBNs as a part of contract of sale is opposed to the said 'public policy' as announced by the Central Government and vitiates the whole exercise of demonetization. Hence, for these reasons, the contract of sale if it involves receipt of SBNs as 'price', is ab-initio void as per the provisions of Sec.23 of the Contracts Act, 1872 and thus non-est in the eyes of law. Hence, such SBNs cannot be treated as having arisen out of a contract for sale.
5.5. The assessee company is in the manufacture of milk and milk products and hence does not come under the exempt category of entities allowed to accept OHD notes during the demonetisation period. Further even the company has operated milk booths the company has not submitted any evidence like authorisation of the government for milk booths to accept OHD notes during the specified period. 5.6. To conclude, as the assessee is not one of the entities authorized by the Central Government to accept SBNs during demonetization period in exchange for goods/services, and as the assessee has claimed that they have carried out valid sales during the demonetization period by duly paying VAT and by reporting such sales to the VAT authorities through statutory returns, such sales, by virtue of the provisions of Sec.4 of the Sale of Goods Act, 1930, pre-suppose the receipt of price in legal tender, and accordingly any other claim to the contrary is not acceptable. In view of the above, the sum of Rs.8,44,00,000/- represents unexplained cash and added to the total income of the assessee company.”
On being aggrieved by the assessment order passed by the Assessing Officer, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the appellant company contended that the Company is in the business of selling of milk and milk products through it’s Agents appointed across the State. Further, during the 19 ITA.Nos.1156, 1157 & 1183/Hyd./2024 period of demonetization the appellant company has to make cash sales to it’s customers through it’s Agents as part of normal business practice, without which, the business of the appellant company cannot be run. Further, the appellant company followed business model through the Agents and who sells milk in different places and deposit cash into the appellant company bank account. Since the product dealt with by the appellant company is perishable in nature and also an essential commodity for the common people, the appellant company has sold it’s products only to keep it’s business by accepting SBNs during the initial period of demonetization i.e., up-to 09.11.2016 to 11.11.2016 and the same has been deposited into bank account. These facts has been explained to the Assessing Officer. However, the Assessing Officer rejected the explanation of assessee and made the addition. Therefore, requested to delete the addition.
The learned CIT(A) after considering the relevant submissions of the appellant company and also taking note of relevant Circulars issued by the CBDT to deal with cash
20 ITA.Nos.1156, 1157 & 1183/Hyd./2024 deposited into bank during demonetization period, deleted the addition made by the Assessing Officer towards cash deposit into bank during demonetization period in SBNs on the ground that, receipt of money during demonetization period by the specified person like milk vendor, petrol bunk is legal and further, going by the Specified Bank Notes [Cessation of Liability] Act, 2016, from the appointed date i.e., 31.12.2016, no person shall knowingly or voluntarily hold or transfer any SBNs. From the above, it is clear that, SBNs are not to be used w.e.f. 31.12.2016 and before 31.12.2016 it can be accepted for specified business transactions. Since the appellant company has explained the source for cash deposit during demonetization period out of sale proceeds of milk and milk products for the initial period of demonetization, the learned CIT(A) held that, the cash deposit of Rs.8,40,00,000/- cannot be treated as unexplained cash credit. Since the Assessing Officer has made the addition without even considering the relevant Circular issued by the CBDT for verification of cash deposit during demonetization period and simply made the addition
21 ITA.Nos.1156, 1157 & 1183/Hyd./2024 only on the basis of Notification issued by the Government of India dated 09.11.2016, the learned CIT(A) deleted the addition made u/sec.68 of the Income Tax Act, 1961.
Shri Narender Kumar Naik, learned CIT-DR, supporting the order of the Assessing Officer submitted that, the learned CIT(A) erred in deleting the addition made towards cash deposit during demonetization period without appreciating the fact that, acceptance of SBNs during demonetization period is contrary to Notification issued by the Government of India and RBI and, therefore, the explanation of assessee with regard to source of cash deposit during demonetization period cannot be accepted. The Learned DR further referring to the reasons given by the learned CIT(A) submitted that, assessee itself has admitted the fact that, it has accepted SBNs during demonetization period. Further, the assessee is not covered under exempted categories of persons as notified by the Government of India from time to time. Although, the milk vendors are allowed to accept SBNs during demonetization period to certain dates, but, said exemption was provided only to the vendors
22 ITA.Nos.1156, 1157 & 1183/Hyd./2024 appointed by the State owned milk vending companies, but, not applicable to the appellant company which is a private company engaged in selling milk and milk products. Since the assessee could not offer any explanation as to why it has accepted the SBNs during demonetization period, even though, there is a legal bar for accepting the said notes after 08.11.2016, the Assessing Officer has rightly rejected the claim of the appellant company with regard to source for cash deposit. The learned CIT(A), without appreciating the relevant facts, has simply deleted the addition. He, therefore, submitted that, the order of the Assessing Officer should be upheld.
CA, K C Devdas, Learned Counsel for the Assessee, on the other hand, strongly supporting the order of the learned CIT(A) submitted that, there is no dispute with regard to the acceptance of SBNs during demonetization period because, the assessee itself has provided note to it’s financial statements and explained the reasons for acceptance of SBNs. Further, going by the nature of business of the appellant company and products
23 ITA.Nos.1156, 1157 & 1183/Hyd./2024 dealt with, it is an undisputed fact that, the appellant company dealing in perishable products like milk and milk products. Further, milk is an essential commodity required for the day-to-day life of common people. Therefore, considering the nature of goods and also it is an essential commodity, the appellant company has accepted the SBNs during initial days of demonetization period. Learned Counsel for the Assessee further, referring to the business model followed by the appellant company submitted that, the appellant company sells milk and milk products through its’ Agents appointed for this purpose at different locations. The Agents sells milk and milk products in cash and deposit cash into the bank account of the appellant company. Therefore, during the initial days demonetization period, the appellant company could not send message to all of its’ Agents on the issue of demonetization and withdrawal of legal tender of SBNs. Since the appellant company is dealing in perishable products and also on essential commodity and further, the business model requires sales in cash, the appellant company allowed it’s Agents to accept
24 ITA.Nos.1156, 1157 & 1183/Hyd./2024 the SBNs for a period of 4-5 days and the same has been accounted for in the books of accounts of the appellant company. Although, the appellant company has explained these facts to the Assessing Officer, but, the Assessing Officer without considering the relevant facts, has simply made the addition only on the basis of Notification issued by the Government of India for withdrawal of legal tender of SBNs from 09.11.2016 onwards. The learned CIT(A) after considering the relevant facts, has rightly deleted the addition made by the Assessing Officer and therefore, he pleaded that the order of the learned CIT(A) should be upheld.
We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The Assessing Officer made addition of Rs.8,44,00,000/- towards cash deposit into bank account during demonetization period on the ground that, assessee has accepted the SBNs after 09.11.2016 even though, the legal tender of SBNs of Rs.500/- and Rs.1000/- has been withdrawn by the Government of India and RBI. Except this 25 ITA.Nos.1156, 1157 & 1183/Hyd./2024 reason, the Assessing Officer has not verified the issue of cash deposit into bank account during demonetization period in light of arguments of the appellant company that, source for cash deposit is, out of sale proceeds recorded in the regular books of accounts for the relevant period. Therefore, it is necessary for us to examine the claim of the appellant company in light of nature of business of the appellant company, the business model adopted for trading in milk and milk products through it’s Agents and also explanation offered by the appellant company for accepting the SBNs during demonetization period. Admittedly, the appellant company is dealing in milk and milk products which are highly perishable in nature. The appellant company operates throughout the State and sells it’s products through Agents appointed for this purpose. Milk and milk products are transported from various locations to Agents situated in different parts of State for the purpose of sales. According to the appellant company, there is a time gap of 2-3 days from despatch of goods from it’s manufacturing location to the Agent’s location. Further, the 26 ITA.Nos.1156, 1157 & 1183/Hyd./2024 appellant company sells milk and milk products in cash through it’s Agents and allow Agents to deposit cash directly into bank account of the appellant company. The Agents sells goods on day-to-day basis and deposit the cash into bank account of the appellant company at their location. Upon declaration of demonetization on 08.11.2016 w.e.f. 09.11.2016, the appellant company could not send message to it’s Agents for dealing with cash sales in light of relevant Notification issued by the Government of India and RBI for 2-3 days. This is because, the appellant company has already despatched the goods from it’s factory location to various places which is reached to the Agents before the demonetization and further, the same is perishable in nature and thus, the appellant company allowed its’ Agents to sell milk and mil products by accepting the cash in SBNs. Further, the Company has accepted the SBNs only for 3-4 days from 09.11.2016 because, if the products are not sold, then, the assessee will incur losses. Further, the Agents will collect the cash and deposit in subsequent dates. If the amount is not accepted in SBNs, then, it may be bad debt.
27 ITA.Nos.1156, 1157 & 1183/Hyd./2024 Therefore, considering the nature of business and also the products dealt by the appellant company, it has accepted SBNs in light of relevant Notification issued by the RBI from time to time to deal with SBNs during demonetization period.
We, further note that, the RBI has permitted certain category of persons including milk vendors for accepting the SBNs during demonetization period up-to certain period. The only condition was that, the milk vendors appointed by the State or Central Government controlled companies dealing in milk and milk products were allowed to accept SBNs. Although, the appellant company is not coming under the exempted category of persons for accepting the SBNs, but, going by the nature of goods dealt with by the appellant company and it’s nature, in our considered view, the arguments of the appellant company towards acceptance of SBNs during initial days of demonetization should be accepted. Since the assessee has accepted the SBNs during the initial days of it’s demonetization, considering the nature of business, in our
28 ITA.Nos.1156, 1157 & 1183/Hyd./2024 considered view, the explanation of assessee with regard to source for cash deposit out of sales needs to be examined in light of relevant SOP issued by the CBDT for verification of cash deposit during demonetization period.
Admittedly, the CBDT has issued instructions on 21.02.2017 for verification of cash deposit during demonetization period and the same has been modified from time to time and instructed it’s Field Officers to carry-out relevant verification by calling for details, where the assessee’s claimed to have deposited cash into bank account during demonetization period out of sales etc. As per the instructions of CBDT, the Assessing Officer is required to verify the cash deposit in light of comparative analysis of cash sales, month-wise cash sales and cash deposits and also comparison of last 3 years total cash sales and cash deposits. In the present case, the assessee has filed relevant evidences and argued that, there is no abnormal deviation in total sales, cash sales or cash deposits during demonetization period when compared to the similar period for earlier financial years. In fact, the 29 ITA.Nos.1156, 1157 & 1183/Hyd./2024 appellant company has filed relevant evidences which is available in paper book filed by the appellant company and upon verification of the details, we find that, there is an uniform pattern of cash sales and cash deposits into bank account throughout the financial years 2015-2016 and 2016-2017. We do not find any abnormal deviation in cash deposits during demonetization period. Since the appellant company has filed relevant comparative details and also explained the source for cash deposit out of sales declared for the relevant period, in our considered view, the Assessing Officer ought to have accepted the explanation of appellant company with regard to source for cash deposits. The learned CIT(A) after considering the relevant facts, has rightly deleted the addition made by the Assessing Officer.
Coming back to various case laws relied upon by the assessee i.e., (i) Decision of ITAT, Pune in the case of M/s. Bhagur Urban Credit Co-operative Society Ltd., vs., ITO, Ward-1(1), Nashik in ITA.No.561/Pun./2022, order dated 03.01.2023 wherein the ITAT, Pune Bench on 30 ITA.Nos.1156, 1157 & 1183/Hyd./2024 identical set of facts in light of cash deposit during demonetization period in SBNs has held as under :
I have heard the rival submissions and perused the relevant material on record. It is seen that the assessee is a Urban Cooperative Credit Society which received Rs.1,78,400/- from 15 depositors whose all the necessary particulars have been given. The list comprises receipt of Rs.85,970/- from 3 small saving agents and Rs.94,000/- from 12 customers. The assessee furnished necessary details in respect of the depositors. The AO refused to accept the genuineness of the transaction and made the addition u/s.68 of the Act. The ld. AR has brought to my notice an order passed by the Bangalore Bench of the Tribunal in Prathamika Krushi Pattina M/s. Bhagur Urban Credit Co-operative Society Ltd., Sahakari Sangha Niyamitha Itagi Pkpssn (ITA No.593/Bang/2021) dt. 01-06-2022 in which the addition made under similar circumstances has been deleted. In this order, the Tribunal relied on another order in Bhageeratha Pattina Sahakara Sangha Niyamitha Vs. ITO - dt. 18-02-2022, that has been referred to in para 5 of the order. No contrary order on such facts, in favour of the Revenue, has been brought on record by the ld. DR. Respectfully following the precedent, I overturn the impugned order and direct to delete the addition of Rs.1,78,500/- sustained in the first appeal.
In the result, the appeal is allowed.”
The assessee has also relied upon the decision of ITAT, Ahmedabad Bench in the case of Shri Umiya Cooperative Credit Society ltd., vs., ITO, Ward-1(3)(1), Petlad in ITA.No.277/Ahd./2022, where under identical set of facts, the Coordinate Bench of Ahmedabad Tribunal has held that, if source for cash deposit is out of business
31 ITA.Nos.1156, 1157 & 1183/Hyd./2024 receipts, then, merely for the reason of acceptance of SBNs during demonetization period, addition cannot be sustained.
In this view of the matter and respectfully following the decisions of the Coordinate Benches of the Tribunal referred hereinabove, we are of the considered view that, the Assessing Officer is erred in making additions towards cash deposit in SBNs during demonetization period u/sec.68 of the Income Tax Act, 1961, as unexplained cash credits. The learned CIT(A) after considering the relevant facts, has rightly deleted the addition made by the Assessing Officer. Thus, we are inclined to uphold the order of the learned CIT(A) and reject the ground nos.2 to 5 taken by the Revenue in it’s appeal.
The next issue that came-up for consideration through ground no.6 of Revenue’s appeal is deletion of addition towards bad debts written-off for Rs.1,01,75,000/-.
The appellant company has written-off bad debts to the tune of Rs.1,01,75,000/- during the year towards bad debts as the receivables became bad/un-recovered. The 32 ITA.Nos.1156, 1157 & 1183/Hyd./2024 Assessing Officer disallowed the bad debts written-off on the ground that, the assessee has not provided party-wise break-up of details as to the previous years, in which, such debts have been offered as income. In absence of the same, the bad debts written-off cannot be treated as allowable deduction in computing the income of the assessee.
On being aggrieved, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the appellant company has filed relevant evidences in respect of bad debts written-off and argued that, it has written-off bad debts by debiting to P & L A/c and crediting to respective debtors account. The appellant company further contended that, once the assessee has written-off bad debts in the books of accounts, there is no requirement of proving the debt is recoverable or not. In this regard, the appellant company relied upon the decision of Hon’ble Supreme Court in the case of TRF Ltd., vs., CIT [2010] 190 Taxman 391 (SC). The learned CIT(A) after considering the relevant submissions of the appellant company and also taking not of relevant evidences filed by the appellant
33 ITA.Nos.1156, 1157 & 1183/Hyd./2024 company has deleted the addition made towards disallowance of bad debts on the ground that, once the assessee has written-off the debt in the books of accounts, it is enough and it is not necessary for the appellant company to establish that the debt has become bad. If the debt has been written-off in the books, then, it would be sufficient to allow the deduction. Therefore, the learned CIT(A) has deleted the addition made by the Assessing Officer.
Shri Narender Kumar Naik, learned CIT-DR, supporting the order of the Assessing Officer submitted that, the learned CIT(A) erred in deleting the addition made towards bad debt written-off without appreciating the fact that, the appellant company has failed to satisfy the conditions provided u/sec.36(1)(vii) and 36(2) by filing relevant evidences including ledger account of debtors in the books of accounts of the appellant company. In absence of relevant evidences, the Assessing Officer has rightly made the addition. However, the learned CIT(A) without considering the relevant evidences has simply deleted the addition made by the Assessing Officer. Therefore, he
34 ITA.Nos.1156, 1157 & 1183/Hyd./2024 submitted that, the order of the Assessing Officer should be upheld.
CA, K C Devdas, Learned Counsel for the Assessee, on the other hand, strongly supporting the order of the learned CIT(A) submitted that, the appellant company has written-off bad debt in the books of accounts by passing relevant entries and credited to the accounts of the debtors. The appellant company has fulfilled the conditions provided u/sec.36(1)(vii) read with sec.36(2) of the Income Tax Act, 1961 and also filed relevant evidences before the Assessing Officer. The Assessing Officer without appreciating the relevant facts, has simply made the addition towards bad debts written-off only on the ground of not establishing income offered in earlier years. The learned CIT(A) after considering the relevant evidences filed by the appellant company, has rightly deleted the addition made by the Assessing Officer. Thus, the order of the learned CIT(A) should be upheld.
35 ITA.Nos.1156, 1157 & 1183/Hyd./2024 32. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that, the appellant company has claimed deduction towards bad debts written-off to the extent of Rs.1,01,75,503/-. In fact, the Assessing Officer did not dispute the fact that, the appellant company has written-off the debts in the books of accounts by passing entries into accounts of the debtors. However, disallowed the claim only on the ground that, appellant company has not filed any evidences to prove income offered in any earlier financial years towards bad debts written-off. In our considered view, the Assessing Officer has completely erred in disallowing bad debts written-off on the reason that, appellant company has not furnished any evidence to prove income offered in the earlier financial years because, the bad debts written-off in the books are arising out of sales declared for the earlier financial years and the same are subjected to taxation of previous financial years. Further, the assessee has filed relevant ledger account of parties and proved that bad debts
36 ITA.Nos.1156, 1157 & 1183/Hyd./2024 has been actually written-off in the books of accounts by debiting the bad debt written-off account and crediting to respective parties account. Once the appellant company has filed relevant evidences and proved that, debt has been actually written-off in the books of accounts as irrecoverable, in our considered view, it is sufficient compliance of provisions of sec.36(1)(vii) r.w.s.36(2) of the Income Tax Act, 1961 and appellant company is not required to establish that it’s debt has become bad. This legal proposition is supported by the decision of Hon’ble Supreme Court in the case of TRF Ltd., vs., CIT (supra). Similar view has been taken by the Hon’ble Delhi High Court in the case of CIT vs., Times Business Solution Ltd., [2013] 33 taxmann.com 173 (Del.). Since the appellant company has proved bad debt written-off by filing relevant evidences which is available in paper book filed by the appellant company, in our considered view, the learned CIT(A) has rightly deleted the addition made by the Assessing Officer. Thus, we are inclined to uphold the order
37 ITA.Nos.1156, 1157 & 1183/Hyd./2024 of the learned CIT(A) and direct the Assessing Officer to delete the addition.
In the result, appeal ITA.No.1183/Hyd./2024 of the Revenue is dismissed.
ITA.No.1157/Hyd./2024 – A.Y. 2018-2019 [Assessee Appeal]:
Brief facts of the case are that, the Assessing Officer has completed the assessment u/sec.143(3) of the Income Tax Act, 1961 vide order dated 06.04.2021 and determined the income of the appellant company at Rs.16,42,21,685/-. During the course of assessment proceedings, the Assessing Officer has made three additions i.e., (i) by disallowing claim of the appellant company towards employees contribution to PF by invoking provisions of sec.36(1)(va) of the Act at Rs.22,75,083/-; (ii) disallowance u/sec.14A of the Act at Rs.5,63,080/- and disallowance of claim u/sec.80JJAA of the Act at Rs.41,93,632/-. In appeal, the learned CIT(A) sustained the additions.
38 ITA.Nos.1156, 1157 & 1183/Hyd./2024 35. The first issue that came-up for consideration from ground nos.2 and 3 of appellant company’s appeal is, disallowance of employees contribution to PF u/sec.36(1)(va) of the Income Tax Act, 1961.
The facts with regard to the impugned dispute are that, while processing the return of income u/sec.143(1) of the Income Tax Act, 1961, the CPC has disallowed an amount of Rs.22,75,083/- for late payments made towards employees contribution to PF u/sec.36(1)(va) of the Act. The Assessing Officer, in the assessment order passed u/sec.143(3) of the Act, has confirmed the disallowance made by the CPC without going into the facts of the case and without calling for any information on the claim made u/sec.36(1)(va) of the Act.
Before the learned CIT(A), the assessee filed relevant evidences. However, the learned CIT(A) without considering the relevant evidences submitted by the assessee, sustained the addition made by the Assessing Officer.
39 ITA.Nos.1156, 1157 & 1183/Hyd./2024 38. CA, K C Devdas, Learned Counsel for the Assessee, referring to the due date for payment of PF and actual date of payment submitted that, the assessee has paid Rs.22,40,238/- for the month of February, 2018 on 14.03.2018 which is before the due date for payment on 15.03.2018. In respect of remaining three payments, all the payments are beyond the due date for payment of PF. In this regard, the appellant company has furnished relevant challan for payment of PF and also supporting bank statement and, therefore, requested that the addition made by the Assessing Officer in respect of an amount of Rs.22,40,238/- may be deleted.
Shri Narender Kumar Naik, learned CIT-DR on the other hand, supporting the order of the learned CIT(A) submitted that, the appellant company could not file any evidences to justify payment on or before the due date. The appellant company has filed a challan showing payment within the due date before the Tribunal and we do not know whether said challan has been filed before the Assessing Officer or not and, therefore, a direction may be given to the 40 ITA.Nos.1156, 1157 & 1183/Hyd./2024 Assessing Officer to verify the claim of assessee and allow deduction as per law.
We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The Assessing Officer disallowed an amount of Rs.22,75,083/- for late payment of employees contribution to PF u/sec.36(1)(va) of the act. The Assessing Officer has disallowed 4 payments amounting to Rs.22,75,083/-. The first payment at Rs.22,40,238/-, which was due for payment on 15.03.2018 has been disallowed by the Assessing Officer on the ground that, no evidence has been placed on record to prove the payment on or before the due date. The appellant company has filed challan dated 14.03.2018 and the same has been presented for payment to State Bank of India which is evident from debit in the bank account of appellant company on 14.03.2018. Since the assessee has filed challan for payment of Rs.22,40,238 on 14.03.2018 which is before the due date of payment on 15.03.2018, in our considered view, the Assessing Officer is erred in making addition u/sec.36(1)(va) of the Act. The 41 ITA.Nos.1156, 1157 & 1183/Hyd./2024 learned CIT(A) without considering the relevant facts, has simply sustained the addition made by the Assessing Officer. Thus, we direct the Assessing Officer to delete the addition of Rs.22,40,238/- towards late payment of employees contribution to PF u/sec.36(1)(va) of the Income Tax Act, 1961. In so far as remaining three payments of Rs.1362/-, Rs.24,595/- and Rs.8,888/-, all the payments are made beyond the due date for payment and this fact has been admitted by the Counsel for the Assessee. Since the assessee has paid the amount beyond the due date for making payments, in our considered view, the Assessing Officer has rightly disallowed belated payments towards contribution to employees PF u/sec.36(1)(va) of the Income Tax Act, 1961. Grounds of appeal nos.2 and 3 of the appellant company’s appeal is partly allowed.
41. The next issue that came-up for consideration from ground nos.4 and 5 of appellant company’s appeal is disallowance of deduction u/sec.80JJAA of the Act for Rs.41,93,632/-.
42 ITA.Nos.1156, 1157 & 1183/Hyd./2024 42. During the preceding assessment year 2017- 2018, the appellant company has claimed deduction u/sec.80JJAA for Rs.30,09,085/- towards additional cost of employees. For the assessment year 2018-2019 the appellant company has claimed deduction for Rs.41,93,632/- which is as per the eligible employees and conditions laid down in the provisions of sec.80JJAA of the Act. The claim for the said deduction u/sec.80JJAA was made in the return of income filed for the impugned assessment year 2018-2019 on 30.10.2018. The assessee has also filed audit report in Form 10DA on 23.10.2018. The Assessing Officer disallowed deduction on two counts. The first reason given by the Assessing Officer is that, there is an increase in the expenditure during the year under consideration as compared to the preceding assessment year and further, deduction claimed u/sec.80JJAA for the assessment year 2017-2018 has been disallowed. On appeal, the learned CIT(A) sustained the addition made by the Assessing Officer.
43 ITA.Nos.1156, 1157 & 1183/Hyd./2024 43. CA, K C Devdas, Learned Counsel for the Assessee submitted that, the learned CIT(A) has erred in confirming the addition made towards disallowance of deduction u/sec.80JJAA of the Act, even though, the appellant company has satisfied the conditions provided for claiming such deductions and further, filed return of income on or before the due date provided for filing the return u/sec.139(1) of the Act. Learned Counsel for the Assessee further submitted that, the Assessing Officer disallowed the deduction on the ground that there is an increase in the expenditure. However, the fact remains that, the assessee has filed revised Form 10DA on the very same day i.e., 23.10.2018 by correcting the mistake and the same has been furnished to the Assessing Officer. The Assessing Officer and the learned CIT(A) without considering the relevant submissions of the assessee, simply disallowed the claim. Therefore, he submitted that, the addition made by the Assessing Officer should be deleted.
Shri Narender Kumar Naik, learned CIT-DR on the other hand, supporting the order of the learned CIT(A)
44 ITA.Nos.1156, 1157 & 1183/Hyd./2024 submitted that, although, there is no effective increase in employment for the year under consideration, the appellant company has made an enhanced claim for deduction. The appellant company is not able to clarify the discrepancy. Therefore, the Assessing Officer has rightly disallowed the claim of deduction u/sec.80JJAA of the Act and the learned CIT(A) after considering the relevant facts, has rightly sustained the addition made by the Assessing Officer and thus, the order of the learned CIT(A) should be upheld.
We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The Assessing Officer disallowed deduction u/sec.80JJAA of the act for the assessment year 2017-2018 on the ground that, appellant company has made the claim for deduction in the revised return of income and the same has been filed beyond the due date provided u/sec.139 of the Act. The Assessing Officer disallowed deduction u/sec.80JJAA for the assessment year under consideration on the very same ground and also on the ground that there is an increase in expenditure when
45 ITA.Nos.1156, 1157 & 1183/Hyd./2024 compared to the preceding financial year. Otherwise, the Assessing Officer has not verified the claim with regard to eligibility of the appellant company for claiming such deduction in light of relevant provisions of the Act. The issue of deduction u/sec.80JJAA for the assessment year 2017-2018 has been set-aside to the file of Assessing Officer to verify the issue in light of conditions provided therein for claiming deduction. Since the issue has been set-aside for the earlier assessment year and the basis for the Assessing Officer to make disallowance for the year under consideration is also similar, in our considered view, the issue for the year under consideration also needs to be set- aside to the file of Assessing Officer. Thus, we set-aside the issue to the file of Assessing Officer and direct the Assessing Officer to re-examine the claim of assessee in light of provisions of sec.80JJAA of the Act and any other evidences that may be filed by the appellant company to justify it’s claim including discrepancy, if any, in amount claimed for the year under consideration in light of two Form 10DA filed by the appellant company on the very same day i.e., on 46 ITA.Nos.1156, 1157 & 1183/Hyd./2024 23.10.2018. Grounds of appeal nos.4 and 5 of the appellant company are allowed for statistical purposes.
46. In the result, appeal ITA.No.1157/Hyd./2024 of the appellant company is partly allowed for statistical purposes.
47. To sum-up, appeals ITA.Nos.1156 and 1157/Hyd./2024 of the appellant company are partly allowed for statistical purposes and appeal ITA.No.1183/Hyd./2024 of the Revenue is dismissed. A copy of this common order be placed in the respective case files.
Order pronounced in the open Court on 16.07.2025.