DEEPAK V,CHENNAI vs. ITO, NCW1(2), CHENNAI

Before the ld. CIT(A), assessee stated that out of sum of Rs.1,09,26,810/-, a sum of Rs.11,06,000/- was the cash balance available with the assessee as on 8.112016. The balance cash of Rs.98,20,810/- was out of sale recorded in the 3 books of accounts of two wheelers in cash and it was stated that cash deposited into bank accounts during demonetization is from cash sales, loan repayment from debtors and from cash service receipts. The assessee before the ld. CIT(A) filed complete details and ld. CIT(A) has recorded these facts in his order at para 5.4 (d), (e) and (f) and (g) which reads as under:- ‘’d) In light of the above fact, it is clear that appellant has deposited cash amounting to Rs.98,20,810/- during the demonetization period i.e from 09.11.2016 to 30.12.2016. e) The appellant has claimed that he is in the business of wholesale and retail sale and services of two wheelers. It is noted that the appellant has been provided with numerous opportunities by the Assessing Officer during the course of assessment proceeding. It is also noted that assessee did not submit any details as desired through various notices by the Assessing Officer. During the course of appellate proceeding, the assessee did submit explanation and a documentary evidence in the form of confirmation from Didar Motors certifying that "the sales turnover of vehicles sold by Hardeep Motors is not reported in their books." f) Further, the appellant has stated the same issue i.r.o cash deposit, i.e. the cash deposits are from the sources: loans received in cash, loan repayments received in cash, receipt of gift in cash, other receipts in cash. g) It is pertinent to mention here that the business of the assessee, which is sales/ services of two-wheelers on wholesale and retail basis, had no exemption vide the RBI notificationno S.0.3408(E) dated 08th Nov 2016 and notification no. S.O. 3544(E) dated 24.11.2016. Accordingly, the undersigned is tended to conclude that, as the assessee was not one of the entities authorized by the Central Government to accept SBNs during demonetization period in exchange for goods/services’’.

But ld. CIT(A) has not accepted the explanation of cash deposits made during demonetization period in SBNs amounting to Rs.98,20,810/- and accepted cash balance available in the bank account of Rs.11,06,000/- by observing as under:- ‘’h) Further, as the assessee had deposited the SBNs held by it in to its bank account, and since the Notification in S.O.No. 3408(E) dt. 08-11-2016 issued by the Central Government had withdrawn the legal tender status of SBNs w.e.f 09-11- 2016 but permitted the deposit of such SBNs held by a person into his bank 4 account, the SBNs deposited in bank during demonetization period by the assessee represents the SBNS held by the assessee as on 08.11.2016 and the onus is on the assessee/ appellant to prove the sources for such SBNs. i) In view of the above discussion, out of the total cash deposits of Rs. 1,09,26,810/- in alleged SBNs, the deposit of Rs.11,06,000/- dated 08.11.2016, is being treated out of demonetization period. The balance amount of Rs.98,20,810/- i.e. the cash deposited by the appellant during the period of demonetization is being treated as unexplained and hence, the addition made by the AO is upheld upto the amount of Rs.98,20,810/- subject to the direction contained in para 5.4.(c) of the order’.

The ld. CIT(A) confirmed the action of the ld. Assessing Officer to the tune of Rs.98,20,810/-. Aggrieved, the assessee is in appeal before the Tribunal.

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 6 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’’. Since the issue is squarely covered by the decision of the Co-ordinate Bench of the Tribunal in the case of Tamil Nadu State Marketing Corporation Ltd (supra), we allow the ground raised by the assessee and delete the addition made by the lower authorities.

Order pronounced in the open court on 9th day of October, 2024 at Chennai.