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Facts
The assessee, a firm engaged in trading used bottles, deposited Rs. 54,68,000 in cash during the demonetization period. The Assessing Officer treated Rs. 22,34,000 as unexplained income under Section 69A of the Income Tax Act, accepting the remaining amount as cash in hand as of 08.11.2016.
Held
The Tribunal held that the addition of unexplained money, which was already part of the disclosed turnover and derived from business receipts, would result in double taxation. They noted that the explanation for the cash deposits was out of sale proceeds and that the source was not disputed.
Key Issues
Whether cash deposits made during the demonetization period, explained as business receipts and consistent with sales figures, can be treated as unexplained income under Section 69A of the Income Tax Act.
Sections Cited
69A, 68, 69, 115BBE
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Income Tax Appellate Tribunal, ‘A’ (SMC
Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL & HON’BLE SHRI MANU KUMAR GIRI
[PAN: ACHFS 2783D] (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/ Appellant by : Shri Yeshwanth Kumar, C.A., ��यथ� क� ओर से /Respondent by : Shri Ashwin D. Gowda, IRS, Addl. CIT. सुनवाई क� तार�ख/Date of Hearing : 22.10.2024 घोषणा क� तार�ख /Date of Pronouncement : 11.12.2024 आदेश / O R D E R PER MANU KUMAR GIRI (Judicial Member)
This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in order No.ITBA/NFAC/S/250/2023-24/1058944848(1) dated 21.12.2023. The assessment was framed by the Income Tax Officer, Non Corporate Ward 1(5), Coimbatore for the assessment year 2017-2018 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order dated 30.12.2019.
Brief facts of the case are that assessee is a firm engaged in the business of trading in used bottles. The assessee filed its return of income declaring loss of Rs.75,4237-. The assessee made cash deposits of Rs.54,68,000/- in its bank account maintained with the Dena Bank and South Indian Bank during the impugned year. During the assessment proceedings, the assessee submitted that the sources of the deposits was cash in hand of Rs.32,34,213/- as on 08.11.2016 and business receipts after 08.11.2016. The ld. Assessing Officer accepted the contention of the assessee that cash in hand as on 08.11.2016 and treated the remaining amount of Rs.22,34,000/- [Rs.54,68,000 – Rs.32,34,213] as unexplained. Therefore, the ld. Assessing Officer added to the total income unexplained money of Rs.22,34,000/- u/s. 69A of the Act. Aggrieved, assessee preferred an appeal before the ld. CIT(A).
Before the ld.CIT(A), assessee placed reliance on various judicial precedents to buttress its claim. The ld.CIT(A) considered the arguments of the assessee and observed that the ld. Assessing Officer in para 2.1 of the assessment order has stated that as per the notification of Ministry of Finance in S.O. 3407(E) dated: 08.11.2016, the specified bank notes (SBNs) ceased to be legal tender from 08.11.2016. Further, as per notifications in S.O. 3408(E) dated: 08.11.2016, S.O. 3416(E) dated: 09.11.2016 and S.O. 3429(E) dated: 10.11.2016 only certain transactions were allowed to be made in SBN. Once it is made clear in the notifications that transaction in SBN's were allowed only in a select few categories of goods/services, it is implied that transactions other than those specified categories settled in SBN's are not valid in the eyes of law. It is not the case of the assessee that his business transactions were covered under the notifications. Therefore, the ld.CIT(A) of the opinion that submission of the assessee that the cash deposited was out of business receipts during the demonetization is liable to be rejected. Assessee’s other contention was that the addition of unexplained money resulted in double taxation because the said amount was already part of the turnover disclosed. The ld.CIT(A) directed the ld. Assessing Officer to ascertain whether the business turnover declared in the return included the cash deposited in the demonetization period, if so, reduce the corresponding gross profit relatable to cash deposited. Further, before the ld. CIT(A), assessee also challenged the addition made u/s. 69A of the Act stating that the cumulative conditions specified in the section were not fulfilled as the assessee recorded the transaction in the books of account and explained the nature and source of the deposits made in the account. There is no dispute that the assessee recorded the cash transaction in the cash book. In the assessment order, the AO clearly brought out that there was cash deposit (credit) in the assessee's books and the explanation of nature and source of the cash deposits was not tenable vis-à-vis the government notifications. Therefore, the provisions of section 68 of the Act are attracted as against section 69 of the Act. Mere quoting of section 69 of the Act instead of section 68 of the Act in the order while making the addition does not vitiate the order. Hence, the ld.CIT(A) rejected the argument of the assessee and confirmed the action of the ld. Assessing Officer. The assessee also challenged the disallowance of Rs. 55,000/- being rent related to A.Y. 2016-17. The assessee stated that it was not claimed during A.Y. 2016-17 and was claimed in the impugned year after it was crystallised and hence requested to allow the claim. As per the ld.CIT(A), the assessee has not submitted any document/proof in support of its claim. Hence, ld.CIT(A) dismissed the ground raised
by the assessee. Aggrieved, assessee preferred an appeal before the Tribunal.
4. Before us, the ld. Counsel for the assessee submitted and referred cash book for the period 08.11.2016 to 31.12.2016 (Pg 2-10), total sales during the period April 2016 to March 2017 (Pg 11), total sales during the period April 2015 to March 2016 (Pg 12) and break up of sales carried out during the period April 2016 to March 2017 (Pg 13) and contended that the source of deposits was cash in hand of Rs.32,34,213/- as on 08.11.2016 and business receipts after 08.11.2016. The ld. counsel further contended that AO had not disturbed the purchases / any other element with respect to the sales. The ld. counsel further contended that the ld.AO neither found any manipulations with invoices filed nor fictitious purchases introduced or non-availability of stock.
5. Per contra, the ld.DR, Mr. Ashwin D Gowda, Addl. CIT vehemently supported the orders of the lower authorities and contended that source of the cash deposits was not tenable vis-à-vis the government notifications hence, pleaded for the dismissal of the appeal.
We have heard the rival submissions and perused the orders of the authorities below and paper books filed. We find that the opening balance as on 08.11.2016 was Rs.32,34,213/-. We also have gone through the total sales during the period April 2015 to March 2016. We also compared the total sales during the period April 2016 to March 2017 (Pg 11) and during the period April 2015 to March 2016 (Pg 12) and find consistency in the cash sales and credit sales during the FY 2016-17. We also note that subsequent receipts after 08.11.2016 out of sales proceeds of the business, which has not been disputed by the AO. We accept the arguments of the assessee the addition of unexplained money which is already a part of the turnover would result in double taxation. Further, going by the explanation of the assessee that the cash deposited in SBNs during demonetization period is out of sale proceeds and this issue stands covered in favour of the assessee by the co-ordinate bench of the Tribunal in the case of Tamil Nadu State Marketing Cooperation Ltd. Vs ACIT in for AY 2017-18 dated 07.10.2024 and wherein it was held as under: 8.4 We have gone through the notifications issued by the RBI and Government of India, to deal with specified bank notes. The only premise of the Revenue is mainly on the issue of notification issued by the RBI to deal with the specified bank notes and argument is that the assessee is not one of the eligible person to accept or to deal with specified bank notes and thus, even if assessee furnish necessary evidence, the assessee cannot accept specified bank notes after demonetization and the explanation offered by the assessee cannot be accepted. No doubt specified bank notes of Rs. 500 & Rs. 1000 have been withdrawn from circulation from 09.11.2016 onwards. The Government of India and RBI has issued various notifications and SOP 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 31.12.2016. 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 31.12.2016. Therefore, there is no clarity on how to deal with demonetized currency from the date of demonetization and up to 31.12.2016. Therefore, under those circumstances, some persons continued to accept and transact the specified bank notes and deposited into bank accounts. Therefore, merely for the reason that there 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 AO makes out a case that the assessee has deposited unaccounted cash into bank account in specified bank notes. 8.5 We further noted that the Central Board of Direct Taxes had issued a circular for the guidance of the Revenue Officer to verify cash deposits during demonetization period in various categories of explanation offered by the assessee and as per the circular of the CBDT, examination of business cases, very important points needs to be considered is analysis of bank accounts, analysis of cash receipts and analysis of stock registers. From the circular issued by the CBDT, it is very clear that, in a case where cash deposit found in business cases, the AO needs to verify the explanation offered by the assessee with regard to realization of debtors where said debtors were outstanding in the previous year or credited during the year etc. Therefore, from the circular issued by the CBDT, it is very clear that, while making additions towards cash deposits in demonetized currency, the AO needs to analyze the business model of the assessee, its books of account and analysis of sales etc. In this case, if we go by analysis furnished by the assessee in respect of total sales, cash sales including the cash received in demonetized currency and cash deposits, there is negligible amount in demonetized currency. Therefore, we are of the considered view that when there is no significant change in cash deposits during demonetization period, then merely for the reason that the assessee has accepted specified bank notes in violation of circular/notification issued by Government of India and RBI, the source explained for cash deposits cannot be rejected. Simpliciter violation of certain notification issued by RBI or demonetization scheme announced by Government of India on 08.11.2016 will not entitle the Revenue to make addition u/s.69 or 69A of the Act. Because, the mandate of the provisions of Section 69 & 69A of the Act, i.e., unexplained investments and unexplained money etc., may be deemed to be the income of the assessee for the financial year relevant to assessment year concerned, in which the assessee is found to be the owner of such money, bullion, jewellery or valuable article or unexplained expenditure, if, the such expenditure or such money etc., are not recorded in the books of accounts, if any, maintained by assessee for any source of income and the assessee offers no explanation about the nature and source of such expenditure or acquisition of such money, etc., or the explanation offered by him, in the opinion of AO is not satisfactory. For violation of any RBI notification, etc., can have any civil or criminal liability and can be dealt with under any other provision of law by the concerned authority but for the purpose of bringing the amount under Income-tax, the provisions are very clear i.e., 69 & 69A of the Act. In our considered view, to bring any amount u/s. 69 or 69A of the Act, the nature and source of investment, needs to be examined. In case the assessee explains the nature and source of investment, then the question of making addition towards unexplained investment u/s. 69 of the Act does not arise. In this case, the source of deposits has not been disputed and has been created out of ordinary business sales which has been credited into books of accounts and profits has also been duly included in the return of income filed in relevant assessment year. Therefore, we are of the considered view that, additions cannot be made u/s. 69 of the Act and taxed u/s. 115BBE of the Act towards cash deposits made to bank account of demonetized cash in SBNs.
Therefore, on the given facts, the impugned addition is not sustainable in the eyes of law and hence, we are of the considered view that the action of the ld.CIT(A) in not deleting the addition need be interfered and hence we allow the grounds raised
by the assessee. 8. In result, appeal of the assessee is allowed. Order pronounced in the open court on 11th day of December, 2024