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Facts
The assessee, a partnership firm running a petrol pump, declared an income of Rs. 17,69,830. During demonetization, they accepted Specified Bank Notes (SBNs) totaling Rs. 2,65,51,000. The AO added Rs. 2,38,22,185 as unexplained money under Section 69A of the Act.
Held
The Tribunal held that the addition made by the AO under Section 69A was not justified. Relying on various precedents, the Tribunal found that the assessee had maintained proper records and explained the source of cash deposits, which were from sales of petroleum products.
Key Issues
Whether the cash deposits made by accepting Specified Bank Notes (SBNs) during the demonetization period can be treated as unexplained money under Section 69A of the Income Tax Act, 1961, when the source of such deposits from sales is explained.
Sections Cited
143(3), 250, 69A, 115BBE, 68, 271AAC
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Income Tax Appellate Tribunal, PUNE BENCHES “B”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of assessee pertaining to A.Y. 2017-18 is directed against the order dated 26.12.2024 passed by National Faceless Appeal Centre, Delhi u/s.250 of the Income-tax Act, 1961 (in short ‘the Act’) arising out of the Assessment order dated 27.12.2019 passed u/s.143(3 of the Act.
Brief facts of the case are that the assessee is a partnership firm engaged in the business of running a Petrol Pump and is Authorised Dealer of Reliance Industries Ltd. Income of Rs.17,69,830/- declared in the return of income e-filed on 30.10.2017. Case selected for complete scrutiny followed by validly serving of statutory notices under the Act. During the course of assessment proceedings, ld. AO noticed that total cash deposit during the demonetization period amounts to V R Auto Services Rs.4,01,16,000/- out of which the Specified Bank Notes (SBNs) deposited in the demonetization period amounted to Rs.2,65,51,000/-. Ld. AO observed that as per the Gazette Notification dated 08.11.2016 and 13.11.2016 only the Public Sector Oil and Gas Marketing companies are allowed to accept the SBNs for sale of Petrol, Diesel and Gas but the said Notification was not applicable on the Authorised dealers of Private Companies. Ld. AO after examining the records further noticed that out of the deposit of SBNs deposited during the demonetization period, closing cash balance as on 08.11.2016 at Rs.28,17,815/- deserves to be excluded and the remaining amount of Rs.2,38,22,185/- has been added in the hands of assessee as unexplained money u/s.69A of the Act along with invoking the provisions of section 115BBE of the Act.
Aggrieved assessee preferred appeal before ld.CIT(A) but failed to succeed. Now the assessee in appeal before this Tribunal.
Ld. Counsel for the assessee submitted that the issue is squarely covered in favour of the assessee by plethora of decisions including that in the case of ITO Vs. M/s. Ashapura Petrochem Marketing Pvt. Ltd. in order dated 18.10.2023 wherealso similar issue came up for adjudication in the case of assessee who was the Authorised Dealer of Petrol Pump of Reliance Industries Ltd. and SBNs were received during the demonetization period and the Coordinate Bench deleted the addition observing that the assessee had duly explained the source of cash received and duly disclosed it in the regular books of account, stock registers duly maintained and updated.
We have heard the rival contentions and perused the record placed before us. Addition u/s.69A for unexplained money of Rs.2,38,33,185/- is in dispute before us. Assessee is an Authorised Dealer of Reliance Industries Limited running a Petrol Pump. During the year under consideration, demonetization scheme was announced, however, looking to the necessity of general public Gazette Notification Nos.3408(E) and 3447(e) dated 08.11.2016 and 13.11.2016 issued stating that SBNs are allowed to be accepted “for purchase of Petrol, Diesel and Gas” at the stations operating under the authorisation of Public Sector Oil and Gas Marketing companies”. It is an accepted fact that the general perception of the public at that point of time was that for purchasing the Petrol, Diesel and Gas at the petrol pumps SBNs can be utilised and state of confusion persisted in the minds of Authorised Dealers also and all Authorised Dealers of the PSUs as well as Private Limited Companies started receiving SBNs. Though at a later stage on realising the mistake the Private Sector authorised petrol pumps stopped receiving the SBNs. Same is the case of assessee. However, there is no dispute about the explanation of the source of cash received by the assessee from sale of Petroleum products. Books of accounts are duly audited. VAT returns stood filed. Stock records at the petrol pumps are duly maintained and stock details mentioned in the audit report. Revenue authorities have not observed any discrepancy in such details but have made the impugned addition solely for receiving the SBNs in the capacity of owner of petrol pump of Private company which in this case is Reliance Industries Limited. We find under similar set of facts the Coordinate Bench, Ahmedabad in the case of M/s. Ashapura Petrochem Marketing Pvt. Ltd. (supra) after placing reliance on various decisions has held in favour of the assessee and deleted the addition made u/s.68 of the Act observing as follows :
“7. We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the assessee. The addition made by the Ld. Assessing Officer of Rs. 1,24,59,500/- u/s. 68 of the Act mainly on the ground that the assessee was not authorized to accept Specified Bank Notes during demonetization period as observed in the assessment order. Thus it is an admitted fact that the cash deposit is on account of sale of petrol, diesel and other petroleum products. These sales have been duly recorded in the books of accounts and appropriate VAT taxes also collected by the assessee. The Manager of the assessee company also filed a Notarized Affidavit dated 29-03-2017 accepting the above facts during the course of assessment proceedings. Thus it is clearly established that the Ld. A.O. on one side accepting the source of cash deposit and on the other side, he is making the cash deposit as unexplained cash credit which is self-contradictory. The Assessing Officer following the Circular dated 08-11-2016, which is not applicable since Para (e) of the Circular deals with the cases of purchase of petrol, diesel etc., and not to sale of petrol, diesel by accepting Specified Bank Notes. Thus the invocation of Section 68 is invalid in law.
7.1 Further the assessee filed complete details of Purchase register, Sales register, Cash Book, Bank statement, Month-wise details of purchase and sales, Copies of VAT returns etc. However the Ld. A.O. is not able to find any defect in the books of accounts, except general statements made in the assessment order. Though the A.O. has doubted the sales made during the year, he is not doubted the purchases made or stock maintained by the assessee during the year. Further the assessee also demonstrated the fluctuations in the sales during the entire period and there is no drastic increase in sales during the period of demonetization. It is further noticed that it is the month of May 2016 sales reported at 84.81 lacs. Similarly, in the month of November 2016 (demonetization period), the sales is reported at 1.04 crores which is not found to be drastic higher figure. Thus the deletion made by the Ld. CIT(A) does not require any interference.
8. The Co-ordinate Bench of this Tribunal in the case of Shree Sanand Textiles Industries Ltd. (cited supra) held as follows:
"....9.6. We also note that the provisions of section 68 cannot be applied in relation to the sales receipt shown by the assessee in its books of accounts. It is because the sales receipt has already been shown in the books of accounts as income at the time of sale only.
9.7. We are also aware of the fact that there is no iota of evidence having any adverse remark on the purchase shown by the assessee in the books of accounts. Once the purchases have been accepted, then the corresponding sales cannot be disturbed without giving any conclusive evidence/finding. In view of the above we are not convinced with then finding of the leamed CIT(A) and accordingly we set aside the same with the direction to the AO to delete the addition made by him."
8.1. The Co-ordinate Bench of the Bangalore Tribunal in the case of M/s. Manasa Medicals (cited supra) held as follows:
"....11. On the other hand, the Id. AR submitted that the assessee is covered by the Category of exempted entities who were permitted to accept SBN during the demonetization period. The Id. AR also submitted that the AO has not rejected the turnover of the assessee, but has treated the same as unexplained only for the reason that the assessee has not produced the prescriptions and the identity of the persons who bought the medicines with regard to the sales made. The id. AR further submitted that the accounts of the assessee are audited and there is no discrepancy found during the audit. It is also contended by the Id. AR that the assessee has produced all the details with regard to the sales including the ledger accounts, cash book, VAT returns etc, during the course of assessment and the AO did not reject the books of accounts of the assessee. The Id. AR drew our attention to the relevant Notification wherein it is stated that for making payments in all Pharmacies on production of Doctor's prescription and proof of identity, however, there is no mandate given that the Doctor's prescription and identity of persons purchasing the medicines need to be kept for record. The Id. AR also placed reliance on the decision of Vishakapatnam Bench of the Tribunal in the case of Hirapanna Jewellers V. ACIT in dated 12.05.2021, where it is held that once the assessee admits the sales as revenue receipts, there is no case for making addition u/s.
Therefore, the ld. AR submitted that the CIT(A) has correctly allowed the appeal in favour of the assessee.
We have heard the rival submissions and perused the material on record. We notice that the assessee during the course of assessment has produced various details including the books of accounts, VAT returns, details of cash deposits made in the requisite format and other details called for by the AO. In the order of assessment, the AO has brought to tax the impugned addition u/s. 68 by stating that -
"3.7 I have carefully gone through the reply of the assessee. The assessee has made cash deposit during demonetization period of Rs. 2,18,38,160/-. On verification of the e-filed cash book it is seen that cash balance as on 08/11/2016 is Rs. 6,32,731/-. From this it is clear that the assessee has made cash deposit of Rs. 2,18,38,160/-, out of opening cash balance as on 08/11/2016 of Rs. 6,32,731/- & cash sales from 09/11/2016 to 31/12/2016 of Rs. 2,12,05,429/-.
3.8 As per RBI notification vide no. SO 3416(E) dated 09/11/2016 and subsequent SOS it is clearly mentioned that "For making payments in all Pharmacies on production of doctor's prescription and proof of identity",... However, the assessee in the reply has stated that they are not required by law to keep the copy of the prescription for record; hence, they have not maintained it. From this it is very clear that the assessee firm has violated the RBI guidelines and accepted SBN (old notes) during demonetization by doing cash sales. Further, the assessee firm has not been authorized to accept SBN's for cash sales during demonetization period. Furthermore, the assessee has failed to furnish the details of sales made in SBN's (old notes) & Non- SBN."
3.9 In view of the above, it is concluded that the assessee has violated RBI guidelines and accepted the cash sales during demonetization period. Accordingly, the cash sales made and deposited in bank account during demonetization period is treated as unexplained cash.
3.10 Accordingly, cash sales during demonetization period from 09/11/2016 to the tune of Rs. 2,12,05,429/- (Rs. 2,18,38,160/-(-) Rs. Cash balance as on 08/11/2016 of Rs. 6,32,731/-) is brought to tax under the head Income from other sources as unexplained cash u/s. 68 and tax rates applicable as per provisions of section 115BBE of the Act.
3.11 From the above it is clear that the assessee has made cash deposits in bank accounts out of unexplained cash u/s. 68 and tax rates applicable as per provisions of section 115BBE of the Act. Hence, I am satisfied that this is a fit case for initiation of penal proceedings u/s. 271AAC of the Act."
From the above it is clear that the AO is not questioning the source of the cash deposit since he has recorded a finding that cash sales during the demonetization period is brought to tax u/s. 68 which makes it clear that it is admitted fact that sales is the source for cash deposits. The revenue is contending that there is a requirement as per the Circular that the Doctors prescriptions and identity of the persons purchasing medicines needs to be kept in record to substantiate the cash sales during demonetization period. However, from the plain reading of the said Circular, there is no specific mention as contended by the department. Further, the AO did not reject the books of accounts of the assessee and has not brought anything contrary on record
to show that cash sales is not the source for the cash deposited during demonetization period. We are therefore of the opinion that there is no case here for making the addition as unexplained u/s.68. In view of this discussion, we see no reason to interfere with the order of the CIT(A)."
8.2. The Co-ordinate Bench of the Bangalore Tribunal in the case of Sri Bhageeratha Pattina Sahakara Sangha Niyamitha (cites supra) held as follows:
...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.Ο. to delete this disallowance."
Respectfully following the above judicial precedents, we have no hesitation in confirming the deletion of Rs. 1,24,59,500/- made u/s. 68 of the Act. Thus the grounds raised by the Revenue are devoid of merits, hence, the same are hereby dismissed.”
From going through the above decisions and also examining the facts of the instant case, we find that the same is squarely applicable on the assessee in the instant appeal as the assessee has also maintained all the specific records for successfully explaining the alleged cash deposit and since the source of alleged cash is explained therefore section 69A cannot
In the result, appeal of the assessee is allowed.
Order pronounced on this 06th day of May, 2025.