Loading judgment…
Facts
The assessee, a liquor trader, deposited Rs. 5,22,500 in his bank account during demonetization. The Assessing Officer added Rs. 1,93,141 to the assessee's income, considering it as unexplained income from Specified Bank Notes (SBNs) accepted after November 8, 2016.
Held
The Tribunal held that while SBNs were withdrawn as legal tender from November 8, 2016, there was no explicit prohibition for accepting them for business transactions until December 31, 2016. Given the assessee's explanation of the source from sales and the smallness of the amount, the addition was deleted.
Key Issues
Whether cash deposits made in Specified Bank Notes (SBNs) after the withdrawal of legal tender, but before the explicit cessation date, can be considered unexplained income when the source is explained from business sales.
Sections Cited
69
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, HYDERABAD “SM-B” BENCH: HYDERABAD
Before: SHRI VIJAY PAL RAO & SHRI MANJUNATHA G
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD “SM-B” BENCH: HYDERABAD BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MANJUNATHA G, ACCOUNTANT MEMBER ITA.No.426/Hyd./2025 Assessment Year 2017-2018 Marru Venkateshwar Rao, The DCIT, Circle-3(1), SURYAPET – 508 213 vs. Kondapur, Hyderabad. PAN AJSPR0561N (Appellant) (Respondent) For Assessee : SNSR Chinmai, Advocate For Revenue : Shri Pavitran Kumar J. Sr. AR Date of Hearing : 09.07.2025 Date of Pronouncement : 16.07.2025 ORDER 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.
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 ITA.No.426/Hyd./2025 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.
3 ITA.No.426/Hyd./2025 3. 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.
4 ITA.No.426/Hyd./2025 4. 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.
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
6 ITA.No.426/Hyd./2025 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
7 ITA.No.426/Hyd./2025 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.