MARRU VENKATESHWAR RAO,SURYAPET vs. DCIT., CIRCLE-3(1), HYDERABAD
Income Tax Appellate Tribunal, HYDERABAD “SM-B” BENCH: HYDERABAD
Before: SHRI VIJAY PAL RAO & SHRI MANJUNATHA G
PER MANJUNATHA G. :
This appeal has been filed by the Assessee against the order dated 10.02.2025 of the learned CIT(A)-
National Faceless Appeal Centre [in short the “NFAC”],
Delhi, relating to the assessment year 2017-2018. 2. The assessee, Marru Venkateshwar Rao is an individual and engaged in the business of retail trading of liquor. The assessee filed his return of income for the 2
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assessment year 2017-2018 on 13.09.2017 admitting total income of Rs.18,89,580/-. The case was selected for scrutiny to verify large cash deposit during demonetization period. During the course of assessment proceedings, the Assessing Officer noticed that, the assessee has deposited
Rs.5,22,500/- in his bank account maintained with State
Bank of India, NH Road Branch, Suryapet during demonetization period. The Assessing Officer called-upon the assessee to file relevant evidences to prove the source.
In response, the assessee submitted cash book and as per the cash book submitted by the assessee, opening cash balance as an 08.11.2016 was at Rs.3,29,359/-. The assessee had also explained the source, out of sales declared for the period from 09.11.2016 to 30.11.2016. The Assessing Officer accepted the source to the extent of opening cash balance of Rs.3,29,359/- and balance amount of Rs.1,93,141/- has been added under section 69 of the Income Tax Act, 1961 [in short "the Act"] on the ground that, the assessee has accepted Specified Bank Notes [in short “SBNs”] during the demonetization period.
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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 assessee filed relevant evidences and argued that, source for cash deposit is out of sales declared for the period from 09.11.2016 to 30.11.2016 and the same has been accounted in the books of accounts for the relevant period and also offered to tax. Therefore, addition cannot be made merely for the reason of accepting SBNs during the demonetization period. The learned CIT(A) after considering the relevant evidences filed by the assessee and also taking note of Notification no.2652 dated 08.11.2016 observed that, SBNs cannot be used for business transaction or stored for future use. Since the assessee admitted to have received cash in SBNs after demonetisation period, the Assessing Officer has rightly rejected the explanation with regard to source and made addition under section 69 of the Act. Thus, the learned CIT(A) rejected the arguments of the assessee and sustained the addition made by the Assessing Officer.
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SNSR Chinmai, Learned Counsel for the Assessee referring to various evidences submitted that, the Assessing Officer never disputed the fact of sales declared for the period from 09.11.2016 to 30.11.2016 which is the source for cash deposit into bank account. The only ground, on which, the Assessing Officer made addition is, acceptance of SBNs during demonetization period, but, the fact remains that, there is no prohibition for accepting SBNs during demonetization period for business transactions up-to 30.12.2016. In this regard, the assessee relied upon decision of ITAT, Chennai Bench, Chennai in the case of Tamil Nadu State Marketing Corporation Ltd., vs., ACIT, Corporate Circle-3(1), Chennai in ITA.No.431/CHNY/2023, dated 07.10.2024. 5. Shri Pavitran Kumar J, learned Sr. AR for Revenue, supporting the order of the learned CIT(A) submitted that, assessee himself not disputed that, cash deposit to the extent of Rs.1,93,141/- is in SBNs and further acceptance of SBNs after 08.11.2016 is illegal. Therefore, the Assessing Officer has rightly rejected the 5 ITA.No.426/Hyd./2025
explanation of assessee with regard to source for cash deposit and thus, the order of 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 source of cash deposit of Rs.1,93,141/- which is out of SBNs accepted after 08.11.2016 towards sale of goods. Although, legal tender of SBNs is withdrawn from 08.11.2016 onwards, but, few business establishments have continued to accept the said SBNs for the purpose of business transactions on the ground that, there is no explicit prohibition for acceptance of said notes up-to 31.12.2016 and the said belief was on the basis of Specified Bank Notes [Cessation of Liabilities] Act, 2016, where, it has been impliedly provided that, from the appointed date i.e., 31.12.2016 onwards, no person can transact or accept SBNs. In the present case, the Counsel for the Assessee submitted that, the assessee is into the business of retail trading of liquor and during the period of demonetisation
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period i.e., after 08.11.2016, for a few days, he has accepted the SBNs for sale of goods and the same has been recorded in the books of accounts and also deposited into bank account. In our considered view, from 08.11.2016 onwards, legal tender of SBNs was withdrawn and this has been notified by the various Notifications issued by the Reserve
Bank of India [in short “RBI”] and Government of India.
Going by the said Notifications, the assessee cannot accept the SBNs for any transaction including business transaction, except, as provided under exceptions, in a separate Notification issued by the RBI. Although, the assessee does not fall under the category of “Exempted
Persons” for accepting SBNs, in our considered view, considering the smallness of amount involved and also the fact that, the assessee has explained source out of his business receipts, the explanation of assessee with regard to source for cash deposit, needs to be accepted, more particularly, when the Assessing Officer has not made-out a case that, there is an abnormal deviation in cash sales or cash deposit during demonetization period, when compared
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to earlier period. The learned CIT(A) without appreciating the facts, has simply sustained the addition made by the Assessing Officer. Thus, we set-aside the order of the learned CIT(A) and direct the Assessing Officer to delete the addition of Rs.1,93,141/- made u/sec.69 of the Income Tax
Act, 1961, towards cash deposit into bank account during demonetisation period.
In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 16.07.2025. [VIJAY PAL RAO]
[MANJUNATHA G]
VICE PRESIDENT
ACCOUNTANT MEMBER
Hyderabad, Dated 16th July, 2025
VBP
Copy to 1. Marru Venkateshwar Rao, 1-6-141/29/F, Sri Ram Nagar,
SURYAPET – 508 213. Telangana.
2. The DCIT, Circle-3(1), Signature Tower, Kondapur,
Hyderabad.
3. The Pr. CIT, Hyderabad.
4. The DR ITAT “SM-B” Bench, Hyderabad.
5. Guard File.
//By Order//
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