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Facts
The assessee, Kasiviswanathan Medical Agencies Pvt. Ltd., filed its income-tax return for AY 2017-18. The Assessing Officer (AO) made an addition of Rs. 82,38,500/- under section 68 of the Income-tax Act, 1961, on account of deposits of Specified Bank Notes (SBNs) received during the demonetization period. The CIT(A) sustained this addition.
Held
The Tribunal held that the AO was not justified in rejecting the assessee's explanation that the SBN deposits represented cash collections from the sale of pharmaceutical products. The collections made by agents on 08.11.2016, when SBNs were legal tender, were valid receipts. The reconciliation statement established that the cash deposited was fully explained and sourced from legitimate business receipts.
Key Issues
Whether the addition made by the AO on account of demonetized currency deposits is justified, or if the assessee's explanation is acceptable.
Sections Cited
68, 115BBE, 250
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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: HON’BLE SHRI MANU KUMAR GIRI & HON’BLE SHRI JAGADISH
PER MANU KUMAR GIRI, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) for the assessment year 2017-18, vide order dated 23.06.2024.
The assessee has raised the following grounds of appeal: A. For that the order of the Ld. Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre (NFAC) under section 250 of the Income-Tax Act, 1961 (Act) dated 23.06.2025 is erroneous, bad in law, and was passed ignoring the facts and merits of the case. B. For that the Ld. CIT(A) failed to appreciate that receipt of Specified Bank Notes (SBNs or Demonetized Currency) was not illegal or barred
:-2-: ITA. No: 1989/Chny/2025 by any legal provisions during the demonetization period (from the night of 08.11.2016 to 31.12.2016). C. For that the Ld. CIT(A) ought to have noted the detailed two extracts of cash collected by agents of the appellant from customers (dealers of medicine) on 08.11.2016 before observing that the cash deposit out of cash sales is a bald self serving averment. D. Without prejudice to the above grounds of appeal, the Ld. CIT(A) failed to note that pass book supplied by bank to assessee are not books of account so as to bring entries therein to taxation as cash credit u/s 68 of the Act. E. Without prejudice to the above grounds of appeal, the rate of tax on the addition made u/s 68 of the Act in respect of cash deposits before 01.04.2017 ought to have been at 30% and not at 60%. F. For these and other additional grounds that may be adduced before or at the time of hearing, the appellant prays that the appeal be allowed.
Brief facts are that the assessee is M/s. Kasiviswanathan Medical Agencies Pvt. Ltd., a domestic company, filed its original income-tax return for Assessment Year (A.Y.) 2017-18 on 24.10.2017, declaring a total income of Rs.1,50,55,870/-. The return was selected for complete scrutiny. A notice u/s.143(2) was issued to the assessee through the e-filing portal on 24.09.2018. Later, a notice u/s.142(1) dated 04.09.2019 along with a questionnaire was issued through the ITBA system, asking the company to provide specific details. The assessee responded by submitting the required information, which was reviewed during the proceedings. After examining the Annual Report for the financial year relevant to A.Y. 2017-18, it was noticed that the company had :-3-: ITA. No: 1989/Chny/2025 received a total of Rs.83,58,500/- in demonetized currency during the demonetization period, which it reported as permitted receipts in its Annual Report. The assessee was then instructed to provide complete details of permitted receipts of demonetized notes received after 08.11.2016, along with supporting evidence, through a notice u/s.142(1) dated 30.08.2019. In reply, the assessee submitted the breakup of cash deposits, including deposits made in Specified Bank Notes (SBNs) during the demonetization phase. Assessee was further asked to explain the source of these demonetized notes deposited into the bank. The assessee stated that the SBN deposits represented cash collections from the sale of pharmaceutical products. Bank statements for the period 01.04.2016 to 31.03.2017 were obtained under section 133(6). Verification showed that the assessee had deposited demonetized notes (Rs.1000 and Rs.500 notes) totaling Rs.83,58,500 during the demonetization period. AO also noted that according to the Central Government’s Gazette Notification No. 2652 dated 08.11.2016, Rs.500 and Rs.1000 notes ceased to be legal tender starting 09.11.2016. These notes could no longer be used for business transactions except for specific purposes allowed temporarily until 15.12.2016. Therefore, demonetized notes received from customers after 08.11.2016 had no legal validity, as SBNs were not acceptable
:-4-: ITA. No: 1989/Chny/2025 tender for normal transactions. The assessee’s explanation that the cash deposits represented sales receipts was not acceptable, since such transactions were legally invalid. In addition, dealing in SBNs was prohibited after the notification.
The AO further noted that the assessee deposited demonetized notes totaling Rs.83,58,500/-. As per the cash book, the closing cash balance on 08.11.2019 was Rs.2,21,624/- out of which Rs.1,20,000/- consisted of SBNs. After considering this allowable cash balance of Rs.1,20,000/- and the remaining amount of Rs.82,38,500/- of SBN deposits is added to the assessee’s income u/s.68 of the Income-tax Act, 1961.
Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the CIT(A). On perusal of written submissions and order of the Assessing Officer, the ld.CIT(A) sustained addition of Rs.82,38,500/- u/s.68 r.w.s 115BBE of the Act.
Aggrieved, now the assessee is in appeal before us.
The Ld.AR for the assessee stated that the ld.CIT(A) has erred in not considering the key submissions of the assessee. The ld.AR referred pages 28-35 of the paper book which details the cash collected by agents on 08th day of November, 2016 and deposited at :-5-: ITA. No: 1989/Chny/2025 Mumbai office on 09th November, 2016. He further referred page 38 of the paper book which speaks of AYs wise total turnover and cash deposits as under: A.Y. Total Turnover Cash Deposit % of Cash deposit 2015-16 787,024,791 372,880,436 47.38 2016-17 870,935,399 388,209,935 44.57 2017-18 895,039,701 361855525 40.43
Cash Deposits on Earlier Years Month Wise YEAR October November 2014 31,467,200 33,942,870 2015 32,290,050 31,267,457 2016 31,989,440 25,792,850 He further referred case law citations as under: i. Ganapathy Palaniyappan v. DCIT (ITA No.557/Chny/2022 dt. 04.01.23) ii. Tamilnadu State Marketing Corporation Ltd., v. ACIT (170 taxmann.com 641)(Chennai ITAT) iii. Atish Singla v. ITO (ITA No.1185/Del/2021 dated 06.04.2022) iv. Kishore Jeram Bhai Khaniya v. ITO (ITA No.980, 1220/Del./2011 dated 13.05.2014) v. Durga Automotives Pvt. Ltd., v. DCIT (ITA No.675/Kol/2024 dated 22.04.2025) vi. Anita Garg v. ITO (ITA No.4053/Del/2024 dated 30.07.2025) vii. Goldman Tapes P. Ltd. v. ACIT (ITA No.547/Mum/2024 dated 17.06.2025) viii. Naranbhai Samatbhai Bharwad v. ITO (ITA No.272/Ahd/2024 dated 03.01.2025) ix. National Thermal Power Co. Ltd. v. CIT (229 ITR 383) (SC)
:-6-: ITA. No: 1989/Chny/2025
Per contra, the Ld.DR supported orders of the lower authorities and prayed for dismissal of the appeal.
We have heard rival contentions and perused materials available on record and gone through orders of authorities below and case law citations. It has been argued by the ld.AR that the order passed by the Assessing Officer (“AO”), is contrary to law, facts, and settled judicial principles. We find that the AO has made additions by disregarding genuine business transactions, valid explanations, and documentary evidence furnished by the assessee, particularly in relation to Specified Bank Notes (SBN) held and deposited during the demonetisation period. The impugned order is unsustainable as the AO has failed to appreciate, the nature of the assessee’s business, the accounting system consistently followed, and the factual position supported by books of account and confirmations. We find that collections made by Agents on 08.11.2016, when SBN were legal tender, were valid receipts on behalf of the assessee. Accordingly, collections made by Agents up to 08.11.2016 must be treated as cash received by the assessee and considered as available cash balance for remittance into banks thereafter. A detailed reconciliation statement was furnished, showing opening cash balances, collections by Agents, deposits made by customers, receipts and payments during the period, and deposits into banks. The reconciliation clearly establishes that the cash deposited into banks was fully explained, sourced from legitimate business receipts, and duly recorded in the books of account. The judgment of the Hon’ble Supreme Court in the case of Lalchand Bhagat Ambica Ram v. CIT (37 ITR 88) (SC) aptly apply in this case. The Hon’ble Supreme Court held that once the books of :-7-: ITA. No: 1989/Chny/2025 account are accepted as genuine, the explanation regarding the source of cash cannot be partly accepted and partly rejected without cogent evidence. In the present case the books of account are not rejected, entries are supported by confirmations, and therefore, the AO was not justified in rejecting the assessee’s explanation. Affirmations from payers establish that payments in SBN were made to the Agents when such notes were legal tender. These amounts were remitted into banks on the next available working day, i.e., 10.11.2016, which is fully in accordance with law and RBI guidelines. The AO has not brought any adverse material on record to prove that the cash was unexplained, the receipts were non- genuine, or the deposits represented undisclosed income. Mere suspicion cannot take the place of proof. In this regard, we respectfully following the orders of the co-ordinate bench of Tribunal referred supra in the index, we direct the AO to delete the addition of Rs.82,38,500/- u/s.68 r.w.s 115BBE of the Act.
Additional ground raised by the assessee is not being adjudicated as the same is infructuous in the light of our above order.
In the result, the appeal of the assessee is allowed.
Order pronounced in the court on 2nd January, 2026 at Chennai.