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Facts
The assessee, engaged in trading mobile phones, did not file an Income Tax Return for A.Y. 2017-18. Based on information of cash deposits totaling Rs. 3,64,500/- in Specified Bank Notes (SBNs) during the demonetization period, the Assessing Officer (AO) made an addition under Section 69A of the Income Tax Act. The CIT(A) sustained this addition, contending that accepting SBNs after 08.11.2016 was contrary to RBI guidelines.
Held
The Tribunal held that the Specified Bank Notes (Cessation of Liabilities) Act, 2017, did not restrict dealing with SBNs until 31.12.2016. Since the assessee had explained the source of cash deposits from business sales, and this explanation was not disputed by the AO, the additions made under Section 69A were ordered to be deleted, supported by judicial precedents.
Key Issues
Whether cash deposits made in Specified Bank Notes (SBNs) during demonetization can be added as unexplained money under Section 69A, when the assessee explains the source from business sales, considering that the law permitted SBN transactions until 31.12.2016.
Sections Cited
142(1), 144, 69A
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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH
Before: Shri Manjunatha G. & Shri K. Narasimha Chary
(निर्धारण वर्ा/Assessment Year: 2017-18) Lakshmi Narayana Chenna Vs. Income Tax Officer Machilipatnam Ward-1 [PAN : DBAPS5532K] Machilipatnam (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri K.Siva Rama Kumar, AR (through Hybrid hearing) रधजस् व द्वधरध/Revenue by:: Dr.Aparna Villuri, DR सुिवधई की तधरीख/Date of hearing: 11/03/2025 घोर्णध की तधरीख/Date of 13/03/2025 Pronouncement: आदेश / ORDER PER. MANJUNATHA G., A.M: This appeal filed by the assessee is directed against the order dated 17.12.2024 of the learned Commissioner of Income Tax (Appeals) [Learned CIT(A)], Mumbai, relating to A.Y.2017-18.
The brief facts of the case are that the assessee, an individual, running business under the name and style of Vara Sidhi Vinayaka Enterprises, is engaged in the business of trading in mobile phones and accessories. The assessee has not filed his return of income for the A.Y.2017-18. Basing on the information Lakshmi Narayana Chenna with the department that the assessee has deposited cash into his bank account during the demonetization period, notice u/s 142(1) of the Income Tax Act, 1961 (“the Act”) was issued to the assessee on 14.03.2018, calling for return of income. The assessee has not filed return of income, in response to notice u/s 142(1) of the Act, hence, proceedings u/s 144 of the Act have been initiated and notice u/s 142(1) of the Act dated 17.12.2019 was issued and duly served on the assessee. In response, the assessee submitted relevant books of accounts, VAT registration certificate and return filed with VAT authorities and submitted that the assessee is into business of trading in mobile accessories and accepted Specified Bank Notes (“SBNs”) after 08.11.2016 on a bonafide belief that there is no restriction for dealing with SBNs upto 30.12.2016. The Assessing Officer (“the AO”), after considering relevant submissions of the assessee and also taking note of various evidences filed by the assessee, observed that there is restriction for the assessee to accept SBNs after 08.11.2016, therefore, rejected the explanation of the assessee and made addition of Rs.3,64,500/- towards cash deposited into bank account during the demonetization period u/s 69A of the Act as unexplained money.
Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A) and reiterated his arguments taken before the AO. The assessee further contended that there is no prohibition under law for accepting SBNs upto 31.12.2016 for business transactions, however, the AO without considering relevant facts, simply made addition towards cash deposits, even Lakshmi Narayana Chenna though the source for cash deposits is explained out of sales declared in the books of accounts. The Ld.CIT(A) after considering relevant submissions of the assessee and also taking note of relevant notifications issued by Govt. of India and RBI held that the assessee himself has admitted that he has accepted SBNs after 08.11.2016, contrary to Notifications and guidelines issued by RBI and therefore, the explanation of the assessee with regard to source for cash deposited in SBNs during the demonetization period cannot be accepted and therefore, rejected the explanation and sustained the addition towards cash deposits u/s 69A of the Act.
Aggrieved by the order of the Ld.CIT(A), the assessee is now in appeal before the Tribunal.
Shri K.Siva Rama Kumar, learned counsel for the assessee submitted that the Ld.CIT(A) erred in sustaining the additions made by the AO towards cash deposited in SBNs during the demonetization period u/s 69A of the Act, without appreciating the fact that once the source for cash deposit is explained out of business income, then, there is no question of making additions u/s 69A of the Act. In this regard, he relied upon the decision of Hon’ble High Court of Delhi in the case of PCIT Vs. Agson Global (P.) Ltd [2022] 135 taxmann.com 256 (Delhi) and the decision of ITAT, Visakhapatna in the case of ACIT vs. Hirapanna Jewellers [2021] 128 taxmann.com 291 (Visakhapatnam-Trib.).
Lakshmi Narayana Chenna 6. The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A) submitted that, the assessee could not explain the source for cash deposits, out of opening cash in hand available as on 08.11.2016 and further, the assessee has admitted acceptance of SBNs even after 08.11.2016, contrary to guidelines / notifications issued by the RBI. The Ld.AO and the Ld.CIT(A), after considering relevant facts has rightly rejected the explanation the assessee and made additions u/s 69A of the Act and therefore, the order of the Ld.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 facts with regard to cash deposited during the demonetization period in SBNs and the explanation of the assessee with regard to source for cash deposits out of sales receipts is not disputed by the AO. The only dispute is with regard to acceptance of SBNs after 08.11.2016 and further whether the said explanation can be accepted for explaining the source for cash deposited into bank account. Although, Govt. of India and RBI issued notifications as on 08.11.2016, restricting to deal with SBNs by a common man, other than for specified purpose and specified category, but the fact remains that the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 and followed by the Specified Bank Notes (Cessation of Liabilities) Act, 2017 allowed acceptance or dealing with SBNs upto 31.12.2016. The assessee in the business of trading in mobile phones and accessories was under bonafide belief that there is no restriction for dealing with SBNs after 08.11.2016 and upto 30.12.2016, more particularly when the Lakshmi Narayana Chenna Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 and followed by the Specified Bank Notes (Cessation of Liabilities) Act, 2017 does not put any restriction in dealing with SBNs upto 31.12.2016. This principle is supported by the decision of Hon’ble High Court of Delhi in the case of PCIT Vs. Agson Global (P.) Ltd (supra) and the decision of ITAT, Visakhapatnam in the case of ACIT vs. Hirapanna Jewellers (supra). In the present case, there is no dispute with regard to the fact that the assessee has explained the source for cash deposit out of sales declared and this fact has not been disputed by the AO. Therefore, we are of the considered view that the AO and the Ld.CIT(A) erred in making additions u/s 69A of the Act. Thus, we set aside the order of the Ld.CIT(A) and direct the AO to delete the additions made towards cash deposits u/s 69A of the Act.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the Open Court on 13th March, 2025.