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Facts
The assessee firm filed an appeal against the CIT(A)'s order confirming the AO's addition of Rs. 5,26,320/- as unexplained money under Section 69A. The addition was based on cash deposits made during the demonetization period, which the assessee explained as cash sales recorded in its books.
Held
The Tribunal held that the AO's reasoning for addition, based solely on the assessee being debarred from receiving Specified Bank Notes (SBNs) after a certain date, was not sustainable. The assessee had provided a nature and source of the SBNs as sale proceeds, which was supported by its audited books of accounts.
Key Issues
Whether the addition of cash deposits as unexplained money under Section 69A is justified, given the assessee's explanation of sale proceeds backed by books of accounts.
Sections Cited
69A, 115BBE, 143(1)
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeal)/Addl./JCIT(A)-7, (hereinafter referred to as ‘Ld.CIT(A)‘), Mumbai, dated 11.02.2025 for the Assessment Year (hereinafter referred to as ‘AY‘) 2017-18.
At the outset, it is noted that there is a delay of ‘166’ days in filing of appeal. The assessee is noted to have filed petition for condoning the delay as well as affidavit spelling out the reasons for the cause of delay.
Having gone through the reasons for delay along with the affidavit, we (AY 2017-18) M/s. Amirtha Distributors find that there exists reasonable cause for condoning the delay and therefore, we excuse the same and proceed to consider the grounds of appeal raised by the assessee on merits.
3. The main grievance of the assessee is against action of the Ld.CIT(A) confirming action of the AO adding cash deposits of ₹5,26,320/- as unexplained money u/s.69A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) and levying tax @60% u/s.115BBE of the Act.
4. The brief facts as noted by the AO are that the assessee-Firm had filed its return of income (RoI) for AY 2017-18 on 23.01.2018 admitting total income at ₹4,78,320/-, which return was processed u/s.143(1) of the Act on 04.03.2018; and later selected for scrutiny inter alia to verify “cash deposits during demonetization period”. The AO noted that the assessee had deposited ₹2,57,05,860/- in its ICICI Bank current account and asked the assessee to prove the nature and source of the same including the Specified Bank Notes (SBNs) deposited during demonetization period from 08.11.2016 to 31.12.2016. In its reply, the assessee submitted that the cash deposits were from its cash sale which fact is backed by the sales recorded in the books of accounts. The AO noted that out of the cash deposits of ₹2,57,05,860/- made in its bank account, the assessee has deposited SBNs during demonetization period (AY 2017-18) M/s. Amirtha Distributors to the tune of ₹40,24,000/- and explained that it had closing cash in hand as on 08.11.2016 ₹34,97,680/-. Considering this crucial fact, the AO drew adverse view against the balance amount and made addition of ₹5,26,320/- [₹40,24,000/- minus ₹34,97,680/-] u/s.69A of the Act on the ground that the assessee ought not to have received SBNs from its customers even if it is sale proceeds during demonetization period, since it was not allowed to receive any SBNs after 08.11.2016.
5. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who confirmed the action of the AO.
Aggrieved, the assessee is in appeal before this Tribunal.
We have heard both the parties and perused the material available on record. The facts afore stated are not disputed and note that the only reason given by the authorities below to treat SBNs deposited during demonetization period to the tune of ₹5,26,320/- as unexplained since the assessee was debarred from transacting in SBNs after 08.11.2016.
However, we can’t accept such a reason given by AO for holding SBNs as unexplained, when the assessee has been able to show the nature & source of SBNs to the tune of ₹5,26,320/- as sale proceeds which facts are backed by books of accounts. It is noted that in the relevant assessment year, the assessee had deposited cash to the tune of ₹2,57,05,860/- in its bank account and when asked by the AO to prove (AY 2017-18) M/s. Amirtha Distributors the nature and source of it, is not to have discharged the burden of proof by proving the nature and source of the same to be sale proceeds/business income, duly recorded in the books of accounts. The AO is noted to have accepted the same and didn’t drew any adverse view regarding cash of ₹2,16,81,860/- [₹2,57,05,860/- minus ₹40,24,000/-] and SBNs of Rs.34,97,680/- [₹40,24,000/- minus ₹5,26,320/-] And the only reason for making addition of SBNs to the tune of ₹5,26,320/- was that the assessee when barred from receiving SBNs [even as sale proceeds after 08.11.2016] ought not to have received the same, hence adverse view was taken against the SBNs deposited in bank. Such a ground/reasoning can’t be accepted and find that very same reasoning given by Income Tax Authorities had undergone examination by this Tribunal in a plethora of decisions and in this regard, it would be gainful to refer to the reasons given by the Tribunal in the case of Kumar Naveenraj v. ITO in for AY 2017-18 order dated 23.04.2025, wherein the Tribunal has dealt with similar reasoning of the AO at Para No.7 which is as under:
7. The only other reason given by the AO to make addition u/s.69A of the Act was that assessee could not have transacted/received SBNs during demonetization period by presumably relying on the notification issued by the Government of India. No doubt Specified Bank Notes of Rs.500/- & Rs.1,000/- has been withdrawn from circulation from 09th November, 2016 onwards. However, the Government of India and RBI is noted to have issued various notifications and SOP’s to deal with specified bank notes. Further, the RBI allowed certain category of persons to accept and to deal with specified bank notes up to 31st December, 2016. Further, the specified bank notes (cessation of liability) Act, 2017, also stated that from the appointed date no person can receive or accept and transact specified bank notes, and appointed date has been stated as 31st December, 2016. Therefore, there is no clarity on how to deal with demonetized currency from the date of demonetization to 31st December, 2016. Therefore, under these circumstances, some persons continued to accept and transact the specified banknotes and deposited into bank accounts. Therefore, merely for the reason that there (AY 2017-18) M/s. Amirtha Distributors is a violation of certain notifications/GO issued by the Government in transacting with specified bank notes, the genuine explanation offered by the assessee towards source for cash deposit cannot be rejected, unless the Assessing Officer makes out a case that the assessee has deposited unaccounted cash into bank account in specified bank notes.
The reasoning of the AO/Ld.CIT(A) that only because assessee was debarred from receiving SBNs after 08.11.2016 and hence, the action of assessee receiving SBNs would attract addition u/s.69A of the Act, cannot be accepted on the very same reasoning adopted by the Tribunal supra, and hence hold the ground for making the impugned addition is untenable; and instead we find that the assessee has been able to discharge the burden to prove the nature and source of SBNs deposited to the tune of ₹5,26,320/- as sale proceeds from its business activity which fact has been duly recorded in its books of accounts, and thus the nature & source of SBNs stands explained, which has not been doubted by the AO, the question of making addition u/s.69A of the Act is not sustainable.
Further, the audited books of accounts of the assessee have been accepted, hence the question of making addition of ₹5,26,320/- doesn’t arise and therefore, addition made of ₹5,26,320/- is directed to be deleted.
In the result, appeal filed by the assessee is allowed. Order pronounced on the 04th day of February, 2026, in Chennai.