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Facts
The assessee, engaged in exchanging soiled/mutilated currency notes, faced additions by the AO for unexplained cash deposits under Section 68 of the Income Tax Act for AYs 2012-13 and 2017-18, as the AO disputed their business model. For AY 2017-18, the AO also made an addition under Section 69C for business expenses. The CIT(A) deleted these additions, prompting appeals by the revenue.
Held
The Tribunal upheld the CIT(A)'s decision, confirming the genuineness of the assessee's business model and finding that the cash deposits were properly explained through the cash books, with no negative cash balance. The Tribunal also deleted the Section 69C addition, stating that business expenses duly accounted for in the books could not be treated as unexplained expenditure. The decision for AY 2012-13 was applied mutatis mutandis to AY 2017-18.
Key Issues
Whether cash deposits in bank accounts can be treated as unexplained cash credit under section 68 when the assessee's business model (currency exchange) is disputed, and whether business expenses recorded in books can be disallowed as unexplained expenditure under section 69C.
Sections Cited
Section 143(3), Section 147, Section 68, Section 131, Section 69C
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Income Tax Appellate Tribunal, DELHI BENCH “A”: NEW DELHI
Before: SHRI C. N. PRASAD & SHRI M. BALAGANESH
O R D E R PER M. BALAGANESH, A. M.: 1. These are the appeals in & 1769/Del/2023 and Cross Objections Nos. 78 and 79/Del/2023 for AYs 2012-13 and 2017-18, arise out of the order of the Commissioner of Income Tax (Appeals)-23, New Delhi [hereinafter referred to as „ld. CIT(A)‟, in short] dated 27.03.2023 against the order of assessment passed u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 30.12.2019 by the Assessing Officer, Income Tax Officer, Ward-47(4), Delhi (hereinafter referred to as „ld. AO‟).
& 1769/Del/2023 CO No. 78 & 79/Del2023 B. R. Goel & Sons 2. Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience.
At the outset, we find that there is a delay in filing of appeals by the revenue by 1 day for both the years. Considering the reasons given in the delay condonation petition by the revenue, the delay is condoned and appeals of the revenue are hereby admitted for adjudication.
Let us take up the appeal of the revenue for the Asst Year 2012-13.
Though the revenue has raised several grounds of appeal before us, the effective issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the addition made on account of cash deposit of Rs 2,69,97,300/- made in the bank account as unexplained cash credit u/s 68 of the Act in the facts and circumstances of the case.
We have heard the rival submissions and perused the materials available on record. The assessee has been carrying on the business of exchanging the soiled, mutilated, torn Indian currency notes with clean or new Indian currency notes and the Indian currency notes of higher denomination with Indian currency notes of lower denomination. This business has been carried on by the assessee for the last few decades from his shop cum office located in the area of Chandni Chowk, Delhi. People from different places visit the assessee‟s shop cum office to exchange their Indian currency notes, as per their needs to be utilized in auspicious occasions and ceremonies for distribution of new currency notes to the pundits and others etc. The assessee has been earning income out of such business in the form of commission year after year. The assessee is regularly maintaining its books of accounts and filing returns of income year after year. In the past, the assessment for the Asst Year 2007-08 was framed u/s 143(3) of the Act on 27.10.2009 wherein the business model of the assessee was accepted by the revenue. For the Asst Year 2011-12, the ld. AO reopened the assessment of the assessee on the ground that no return of income was filed by the assessee for the relevant assessment year. In the said reassessment for the Asst Year 2011-12, the very basis of existence of & 1769/Del/2023 CO No. 78 & 79/Del2023 B. R. Goel & Sons assessee‟s aforesaid business was disputed by the revenue and addition was made on account of cash deposits in the sum of Rs 1,09,49,000/- as unexplained cash credit u/s 68 of the Act. The ld. AO based on the decision taken by him in Asst Year 2011-12, reopened the proceedings for the Asst Year 2012-13 also and made similar addition towards cash deposits in the sum of Rs 2,69,97,300/- by verbatim copying the findings and observations made by him in Asst Year 2011-12.
We find that the return of income for the Asst Year 2012-13 was filed by the assessee on 18.1.2013 declaring total income of Rs 11,95,150/- . The ld. AO had primafacie observed that assessee was not doing the business of change of currency. The ld. DR before us also placed a factual report from the ld. AO wherein it was categorically mentioned that the facts in Asst Year 2011-12 are exactly identical with facts in Asst Year 2012-13. The observations made by the ld. AO in Asst Year 2011-12 which were relied upon by the ld. AO in Asst Year 2012-13 are as under:-
“a. Assessee received huge amount of credit from difference parties in his bank account and after that cash was withdrawn from the bank. In the same manner, huge amount of cash was deposited in the bank and amounts were credited to different parties. The assessee gave explanation during the course of assessment, that he was indulged in the business of change of tom currency and also of old notes with new one. The assessee submitted that for this business, there was requirement of the fund which he took from the different parties. The assessee further submitted that funds so received from different parties so credited in his bank account were withdrawn by the assessee as "Cash" and was given to its customer. It was further submitted by the assessee that the torn and old currency received from the customer were also deposited in his bank account, the assessee generally had the practice to with draw new and fresh currency from the bank whenever he required. b. In this regard, the information was sought from the concerned bank Axis Bank who submitted as under:- "We have retrieved to vouchers of 2010 and 2011, all the deposits are normal cash deposits by client and no details of torn notes are mentioned on the vouchers..." In the reply the bank categorically denied assessee's claimed that on certain specific dates he had received new notes from the bank. In view of above, facts were established that the assessee Sh. BR Goel & Sons was indulged in the business of money laundering. He arranged funds to give it to further to the persons who required.”
& 1769/Del/2023 CO No. 78 & 79/Del2023 B. R. Goel & Sons 8. The ld. AO observed that since the modus operandi of the business of the assessee is not accepted by the revenue, the assessee had not established the source of cash deposits made in the bank account. Further the ld. AO observed that the bank statements revealed that there were huge amount of credit entries from the different parties and after that the same was withdrawn as „Cash withdrawal‟ from the same bank account. Again there were huge cash depsoits again transferring the same to different parties. The ld. AO observed that assessee took unsecured loan of Rs 2.67 crores and further gave loans and advances of Rs 84 lakhs which was not found to match with the line of business of the assessee i.e. business of change of torn notes. The cash book submitted by the assessee did not show even a single entry of commission received against the change of old notes with new one and small denomination with bigger denomination. The assessee failed to provide all names and addresses of the persons to whom he had provided the services of change of currency from old note with new one and also of those from whom he had received torn notes and provided from new notes. The ld. AO further observed that from the cash book submitted it revealed that amount withdrawn from the bank was put into cash book and from cash book after some time it was put into bank again and sent to other parties. Cash was not used for the business activity admitted by the assessee in it sreply so submitted during the course of assessment proceedings. Summons u/s 131 of the Act issued to the assessee remained uncomplied by the assessee. With these observations, the ld. AO proceeded to treat the cash deposits made in the bank account in the sum of Rs 2,69,97,300/- as unexplained cash credit u/s 68 of the Act in the reassessment.
9. We find that the aforesaid observations were made by the ld. AO because of the reason that the business model of the assessee per se and modus operandi adopted therein has been disputed by the ld. AO. We find that the ld. CIT(A) had observed that the activity of the assessee entails frequent deposit of currency notes in the bank account and also its withdrawal from the bank account. The ld. CIT(A) even took cognizance of the finding of fact recorded by the co-ordinate bench of this Tribunal in assessee‟s own case for the Asst Year 2011-12 and deleted the addition made by the ld. AO on merits.
ITA No.1768 & 1769/Del/2023 CO No. 78 & 79/Del2023 B. R. Goel & Sons 10. At the outset, we find that the entire issue in dispute is squarely covered by the decision of this Tribunal in assessee‟s own case for the Asst Year 2011-12 in dated 21.2.2023 wherein it was held as under:-
“8. Apropos ground nos. 7 to 11 the learned counsel submitted that from the copy of the assessment order for A.Y. 2007-08 para 2 it is clear that the AO himself noted that the assessee is engaged in the business of Exchange of Torn/Soiled/Mutilated Indian Currency Notes into New/Fresh and vice-versa discount/commission basis. The learned counsel further submitted that the assessee during the course of reassessment proceedings clarified to AO that torn currency notes were deposited with normal currency notes while providing date wise details of cash withdrawn and cash deposited in the bank account. The learned counsel further submitted that the assessee used to withdraw cash out of its bank account and used to deposit the cash in its bank accounts from time to time and the cash transactions were duly recorded in the cash book available at page no. 14 to 39 of assessee's paper book. The learned counsel further pointed out that at no point of time during FY 2010- 11there was any negative cash balance and the opening cash in hand/stock was of Rs. 68,99,594/- which was reflected in the balance sheet as on 31.03.2010 and brought as opening balance on 01.04.2010. The learned counsel further explained that the closing cash in hand/stock was Rs. 1,58,45,705/- which amount was reflected in the balance sheet on 31.03.2011 as cash in hand/stock. The learned counsel further pointed out that the AO has made addition of Rs. 1,09,49,000/- without any basis which was the amount of cash deposited to the bank accounts of the assessee with Axis Bank and Standard Chartered Bank. The learned counsel further submitted that the Assessing Officer has deliberately ignored a very relevant fact that the assessee withdrawn the assessee has withdrawn of Rs. 1,99,30,000/- from said two bank accounts which is very higher than the total amount deposited by the assessee to the said bank accounts. The learned counsel submitted that when the assessee is in the business of Exchange of Torn/Soiled/Mutilated Indian Currency Notes into New/Fresh and vice-versa on discount/commission basis then it is obvious that the assessee would deposit cash/notes received from clients and would also simultaneously withdraw cash/notes from the bank accounts for the purpose of returning the same to the customer. Therefore there was no valid reason for the AO to make addition u/s. 68 of the Act of entire amount of cash deposited to the bank accounts of the assessee. The learned counsel also place reliance on the judgment Hon'ble jurisdictional High Court of Delhi in the case of Sona Electric Co. vs. Commissioner of Income Tax (152 ITR 507) and order of ITAT Delhi in the case of ITO Mrs. Deepali Sehgal (ITA No. 5660/Del/2012 order dated 05.09.2014 and Smt. Parminder Kaur Matharoo vs. ITO (ITA No. 840/Del/2021 order dated 15.11.2022 and submitted that addition made by the AO and upheld the Ld. CIT(A) may kindly be set aside and deleted.
Replying to the above the learned Senior DR strongly supported the orders of the authorities below and submitted that the Assessing Officer after considering the cash book of assessee rightly held that the assessee could not satisfy about the source of cash deposited to the bank accounts therefore he has right in making addition in the hands of assessee u/s. 68 of the Act.
& 1769/Del/2023 CO No. 78 & 79/Del2023 B. R. Goel & Sons 10. On careful consideration of rival submission first of all in the assessment order for A.Y. 2007-08 the AO himself noted that the assessee is in the business of Exchange of Torn/Soiled/Mutilated Indian Currency Notes into New/Fresh and vice- versa on discount/commission basis.
11. From the submissions of the assessee and facts noted by the authorities below it is clearly discernable that the Assessing Officer made addition of Rs. 1,09,49,000/- which was the total amount of cash deposited to the two bank accounts of the assessee. The learned Senior DR could not controvert that the assessee also withdrew Rs. 1,99,30,000/- from the same bank accounts during FY 2010-11. When the assessee is in the business of exchange of old Torn/Soiled/Mutilated currency noted then the modus operandi of business would be the same as stated by the learned counsel of the assessee that is the assessee has to deposit old Torn/Soiled/Mutilated notes to the bank account and he is required to withdraw amounts from the bank account for the purpose of giving the same in exchange to its customer and clients. Therefore we declined to approve basis taken by the AO for making addition of entire cash deposited to the bank accounts of the assessee and ignoring the high amount of cash withdrawn by the assessee for the purpose of its business. Therefore addition made by the AO and upheld by the Ld. CIT(A) has no legs to stand. Our above noted conclusion also gets strong support from the judgement of the Hon'ble Delhi High Court in the case of Sona Electric Co. Vs. CIT (supra) and orders of ITAT Delhi Bench in the case of ITO vs. Mrs. Deepali Sehgal and Smt. Parminder Kaur Matharoo vs. ITO (supra) to hold that the addition made by the AO u/s 68 of the Act is not sustainable. Therefore we direct the AO to delete the same. Accordingly grounds no. 7 to 11 of assessee on merits are also allowed.”
Hence from the aforesaid findings of this Tribunal in Asst Year 2011-12 in assessee‟s own case and given the fact that the ld. AO himself had admitted that the facts of Asst Year 2012-13 are exactly identical with Asst Year 2011-12 , we hold that the business model of the assessee as detailed in the beginning part of this order needs to be accepted as genuine.
However, it is a fact that there were cash deposits made by the assessee in his bank accounts, for which the assessee is duty bound to explain the sources for the same. It is not in dispute that the assessee had duly furnished the cash book for the entire year before the ld. AO. The commission income would certainly not get reflected in explicit terms as it would always need to be inferred from the figures reflected in the cash book. It is not in dispute that the assessee always had stock in hand in the form of currency notes and also has closing stock of currency in hand as on 31.3.2012 at Rs 1,75,45,287/- which is duly reflected in the Balance Sheet of the assessee as on 31.3.2012. In the said Balance Sheet, the unsecured loans received & 1769/Del/2023 CO No. 78 & 79/Del2023 B. R. Goel & Sons by the assessee and loans and advances given by the assessee are duly reflected apart from the capital and other items. There is absolutely no dispute raised by the ld. AO with regard to these items. The ld. AO had only doubted the business model of the assessee and had resorted to make addition towards cash deposits as not properly explained by the assessee with sources. Hence arithmetically, the assessee is bound to explain the sources of cash deposits in the bank account. The ld. AR before us placed on record the extract of the cash book already forming part of the records and submitted the availability of cash balance in tabular form as under:-
“Chart containing summary of Cash Transactions/Extracts of Cash Book for FY 2011-12 Particulars Cash Outflow Cash Inflow Opening Cash as on 01.04.2011 15845704 Cash withdrawals 26450000 Cash Deposited 26997300 Cash Commission 2950280 Cash Utilization (Expenses etc.) 703397 Closing Cash in hand 17545287 Total 45245984 45245984
From the above table, it is evident that the entire cash deposits made in the bank account stood properly explained. We have also gone through the cash book for the whole year which are already forming part of the records and there is absolutely no negative cash balance on any given day in the year. Hence the entire cash deposits made in the bank account stood properly explained by the assessee. In our considered opinion, given the business model of the assessee, the nature and source of credit within the meaning of section 68 of the Act stood properly explained in the instant case and accordingly no addition could be made as unexplained cash credit u/s 68 of the Act. Accordingly, the grounds raised by the revenue are dismissed.
The assessee has preferred Cross Objections before us challenging the validity of assumption of jurisdiction u/s 147 of the Act. Since the relief is granted to the assessee hereinabove on merits, the adjudication of Cross Objections of the assessee would be merely academic in nature. Hence no decision is given thereon & 1769/Del/2023 CO No. 78 & 79/Del2023 B. R. Goel & Sons and it is left open. Accordingly, the Cross Objection of the assessee is dismissed as infructuous for the Asst Year 2012-13. – Asst Year 2017-18 – Revenue Appeal
We find that the facts of Asst Year 2017-18 are identical with facts of Asst Year 2012-13 and hence the decision rendered hereinabove for Asst Year 2012-13 with regard to addition made towards cash deposits, shall apply mutatis mutandis for Asst Year 2017-18 also , except with variance in figures. Further, we find that the assessee is only exchanging old notes with new notes in lower denomination of Indian currency, it would obviously not be holding higher denomination currency. Accordingly, the assessee had not deposited any currency in Specified Bank Notes during the demonetization period. Hence the observation made by the ld. AO in this regard is totally baseless and devoid of merits. The ld. AR before us placed on record the extract of the cash book already forming part of the records and submitted the availability of cash balance in tabular form as under:-
“Chart containing summary of Cash Transactions/Extracts of Cash Book for FY 2016-17 Cash Particulars Outflow Cash Inflow Opening Cash as on 01.04.2016 53026347 Cash withdrawals 18525000 Cash Deposited 16982000 Cash Commission 3532061 (Rs.3073751/- being the amount of commission plus Rs.458310/- being the amount of service tax) Cash Utilization (Expenses etc.) 1118217 Closing Cash in hand as on 31.03.2017 56983191 Total 75083408 75083408
From the above table, it is evident that the entire cash deposits made in the bank account stood properly explained. We have also gone through the cash book for the whole year which are already forming part of the records and there is absolutely no negative cash balance on any given day in the year. Hence the entire cash deposits made in the bank account stood properly explained by the assessee. In our considered opinion, given the business model of the assessee, the nature and & 1769/Del/2023 CO No. 78 & 79/Del2023 B. R. Goel & Sons source of credit within the meaning of section 68 of the Act stood properly explained in the instant case and accordingly no addition could be made as unexplained cash credit u/s 68 of the Act. Accordingly, the grounds raised by the revenue are dismissed.
We find that in Asst Year 2017-18, the ld. AO had even resorted to make addition towards entire business expenses in the sum of Rs 17,31,062/-. Strangely, we find that this addition has been made by the ld. AO u/s 69C of the Act treating the said expenditure as „Unexplained Expenditure‟. At the outset, we find that the entire business expenses of Rs 17,31,062/- had already been accounted in the regular books of accounts of the assessee and hence the sources for incurrence of the same are drawn from the books of accounts regularly maintained by the assessee. It is not the case of the ld. AO that the said expenditure had been met by the assessee out of its books. Hence in our considered opinion, the provisions of section 69C of the Act per se cannot be made applicable in the instant case and hence the addition made by the ld. AO in this regard had been rightly deleted by the ld. CIT(A).
We find that the Cross Objection preferred by the assessee for the Asst Year 2017-18 is only supportive of the order of the ld. CIT(A) and hence is hereby dismissed as infructuous.
In the result, both the appeals of the revenue are dismissed and both the Cross Objections of the assessee are dismissed as infructuous.