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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI MAHAVIR SINGH, HON’BLE & SHRI MANJUNATHA.G, HON’BLE
आदेश / O R D E R
PER MANJUNATHA.G, AM:
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 03.10.2023, and pertains to assessment year 2017- 18.
The assessee has raised the following grounds of appeal:
1) The Older of the Learned First Appellate Authority is bad and erroneous in law.
2) The Assessing Officer as well as the Learned First Appellate Authority erred in not considering the submissions filed and decisions relied on by the Appellant during the course of the appeal proceeding in proper perspective.
3) Without prejudice, the Learned First Appellate Authority erred in not considering the fact that the addition made by the Assessing Officer under Section 69A requires deletion, for the reason that the said section is applicable only when the said sum is not found credited in the books of account maintained by the Appellant.
4) The Assessing Officer and the Learned First Appellate Authority erred in observing that the Appellant should not have received Specified Bank Notes after 08/11/2016 till 31/12/2016 without considering the effect of Section 3 of the Specified Bank Notes (Cessation of Liabilities) Act, 2016.
5) Without prejudice, the Assessing Officer and the Learned First Appellate Authority erred in treating the Cash Deposits as Income of the Appellant, despite accepting the fact that the same were received from customers only in the course of business of the Appellant, more particularly when the same were duly recorded in the books of account, which were not rejected or found to be incorrect and incomplete and when the income returned was also accepted by them. [Relying on the decisions of the Hon'ble Chennai ITAT in dated 14/10/2022 and ITA No. 264/Chny/2023 dated 26/07/2023].
And for other grounds of appeal that may be adduced at the time of hearing, the appellant prays that the appeal be admitted, submissions be considered and justice be rendered.
The brief facts of the case are that the assessee is engaged in the business of manufacturing dhalls like toor dhall, orid dhall, moong dhall, etc., filed his return of income for AY 2017-18 on 21.03.2018 declaring total income of Rs.10,46,030/-. The case was selected for scrutiny under CASS to verify the huge cash deposits into bank account during demonetization period. During the course of assessment proceedings, the AO noticed that the assessee has made cash deposits of Rs.1,33,07,500/- into Axis Bank a/c during demonetization period from 09.11.2016 to 30.12.2016.
Therefore, the AO called upon the assessee to explain source for cash deposits into bank account during demonetization period. In response, the assessee submitted that he is in the business of manufacturing and sales of various dhalls. Further, he has purchased pulses from local market in cash and manufacturing into various dhalls and sells to unregistered dealers in cash. The assessee further submitted that his sales are predominantly in cash and during demonetization period, he has deposited cash into bank account out of opening cash in hand as on 08.11.2016 at Rs.71,76,208/- and balance cash out of cash sales made during demonetization period.
The assessee had also furnished details of cash sales for FY 2015-16 & 2016-17 and cash deposited into bank account for above period and explained that there is no abnormal variation in cash sales and cash deposited into bank account when compared to cash sales during demonetization period with corresponding cash deposits for earlier Financial Year.
The AO after considering relevant submissions of the assessee opined that the assessee could not establish accumulation of cash in hand of Rs.71,76,208/- as on 08.11.2016. Further, the assessee himself claimed that he has received cash in demonetized currency after 09.11.2016 and up to 31.12.2016 contrary to Circular issued by RBI & Government of India in respect of handling demonetized currency. Therefore, the AO opined that the assessee could not establish source for cash deposits of Rs.1,33,07,500/- made during demonetization period into Axis Bank account, and thus, rejected arguments of the assessee and made addition of Rs.1,33,07,500/- as unexplained money u/s.69A r.w.s.115BBE of the Act. The relevant findings of the AO are as under:
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5. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has reiterated his submissions made before the AO towards source for cash deposits during demonetization period and also took support from the Specified Bank Notes (Cessation of Liabilities) Act, 2017. The assessee further submitted that he has submitted all details to prove source for cash deposits during demonetization period and also explained how cash receipts out of sales received from 09.11.2016 to 31.12.2016, is not in violation of Circulars issued by RBI & Government of India.
6. The Ld.CIT(A) after considering relevant submissions of the assessee and also taken note of certain judicial precedents, rejected arguments of the assessee and upheld additions made by the AO towards cash deposits u/s.69A r.w.s.115BBE of the Act, by holding that the assessee could not file any evidences like month wise sales/purchases for FYs 2015-16 & 2016- 17, stock register, and other details to fully substantiate his claim of the cash deposits from sale of materials only. Since, the assessee failed to prove onus of furnishing necessary evidences to prove source for cash deposits made in to bank account during demonetization period, the AO has rightly treated said cash deposits as unexplained money taxable u/s.69A r.w.s.115BBE of the Act. The relevant findings of the Ld.CIT(A) are as under:
7. The Ld.Counsel for the assessee submitted that the Ld.CIT(A) erred in not considering the issue of cash deposits during demonetization period, even though, the assessee has filed necessary evidences to prove source for cash deposits, is out of cash sales made before the date of demonetization and also collections from debtors. The Ld.Counsel for the assessee further submitted that the assessee has filed comparative chart explaining cash sales and cash deposits for FYs 2015-16 & 2016-17 and explained that there is no abnormal variation in cash sales during demonetization period. The assessee had also filed cash book to prove availability of cash in hand as on 08.11.2016 at Rs.71,76,208/- which is out of cash sales during the period before the date of demonetization.
Although, the Ld.CIT(A) accepted the fact that the assessee has filed cash book, day book, ledger, etc. but observed that the assessee could not file month-wise sales/purchase for FY 2015-16 & FY 2016-17, even though, the AO has reproduced details furnished by the assessee in the assessment order regarding cash sales and cash deposited into bank account for two Financial Years. The Ld.Counsel for the assessee further submitted that the Ld.CIT(A) erred in observing that the assessee is not an exempted category person for accepting demonetized currency after 09.11.2016, even though, the Specified Bank Notes (Cessation of Liabilities) Act, 2017, clearly state that from appointed date 31.12.2016, no person can receive/transact or deal with SBNs. In other words, there is no bar under law for accepting demonetized currency up to 31.12.2016. In this regard, he relied upon the decision of the ITAT Chennai Bench, in the case of Amar Sparklers Factory v. ITO in order dated 11.10.2023.
8. The Ld.DR, Shri AR.V.Sreenivasan, Addl.CIT supporting the order of the AO and the Ld.CIT(A) submitted that the assessee could not file any evidences to prove existence of opening cash in hand as on 08.11.2016.
Further, the assessee could not explain how it can accept demonetized currency from 09.11.2016, even though, the Government of India & RBI prohibits acceptance of demonetized currency from 08.11.2016 onwards.
The Ld.DR further submitted that although, the RBI has allowed acceptance of SBNs for specified persons, but the assessee is not coming under exempted category person, and thus, the claim of the assessee that it has accepted demonetized currency from 09.11.2016 to 31.12.2016 is contrary to Circular issued by RBI, and thus, the AO has rightly rejected the explanation of the assessee and made additions towards cash deposits u/s.69A of the Act.
We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts borne out from the record clearly indicate that the assessee is running a dhall mill and manufacturing various kinds of dhalls. The facts brought on record by the AO further indicated that the assessee procures various kinds of pulses from local market and manufacturing into various kinds of dhalls and sells to unregistered dealers in cash. The assessee has filed comparative cash sales and cash deposits into bank account for FY 2015-16 & FY 2016-17 and also cash sales and cash deposits for the month of October & November, 2015 and October & November, 2016. On perusal of details filed by the assessee, which has been reproduced by the AO in the assessment order, we find that there is no abnormal variation in cash sales and cash deposits into bank account for FY 2015-16 & FY 2016-17. Further, the cash sales achieved by the assessee for FY 2015-16 is higher than the cash sales reported for FY 2016-17. From the details filed by the assessee, it is abundantly clear that there is no sudden increase in cash sales during demonetization period when compared to earlier Financial Years. Further, the assessee has filed cash book and other details to prove availability of cash in hand as on 08.11.2016 at Rs.71,76,208/-. In fact, the AO is not disputed the fact that the assessee has filed cash book and as per said cash book, cash in hand as on 08.11.2016 was at Rs.71,76,208/-. If you go by the nature of business of the assessee and sales trend, it is undoubtedly clear that the assessee’s sales predominantly in cash, and thus, the cash in hand shown by the assessee as on 08.11.2016 appears to be genuine and bona fide. To this extent, in our considered view, the reasons given by the AO to reject explanation of the assessee for source for cash deposits into bank account is devoid of merits.
Having said so, let us come back to the explanation of the assessee with regard to source for remaining cash deposits. The assessee claims that he is into manufacturing of various kinds of dhalls and sells to unregistered dealers in cash. The assessee claims that he has collected cash in demonetized currency from customers even after 09.11.2016 and said cash receipts is not violation of Specified Bank Notes (Cessation of Liabilities) Act, 2017. We find that although, the Government of India & RBI issued various notifications and circulars barring people transacting in SBNs, but, as per Specified Bank Notes (Cessation of Liabilities) Act, 2017, no person shall accept or transact any SBNs from the appointed date. As
per said Act, appointed date is 31.12.2016. From the above, it is very clear that up to appointed date, persons can transact in SBNs. However, the only requirement is, they should be able to establish source for said cash deposits. This principle is further fortified by the decision of the ITAT Chennai Bench in the case of Amar Sparklers Factory v. ITO in order dated 11.10.2023, where the Tribunal after considering relevant facts has held as under:
7. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. In so far as addition of Rs. 6,62,783/-, we find that the assessee itself has admitted shortage of source in their cash flow statement filed before the AO. Therefore, from the above, it is undoubtedly clear that the assessee could not explain source for cash deposits to the extent of Rs. 6,62,783/- and thus, we are of the considered view that, there is no error in the reasons given by the CIT(A) to sustain additions made towards cash deposits to the tune of Rs. 6,62,783/-. In so far as addition of Rs. 20,40,000/- towards advance received from group concerns, it was an argument of the appellant that group concerns have paid advance in cash during demonetization period and deposited into IDBI bank account. In this regard, the appellant has filed necessary details including PAN nos. and confirmation letters from the group concerns to prove receipt of trade advance. The Assessing Officer has not disputed these facts, however made additions only on the ground that the assessee should not have accepted cash in specified bank notes after 08.11.2016. We find that this issue is covered in favour of the assessee by the decision of ITAT, Chennai Benches in the case of M/s. Micky Fireworks Industries vs ACIT in dated 26.07.2023, where the Tribunal under identical set of facts deleted additions made by the Assessing Officer, and the findings of the Tribunal is reproduced as under:
“4. From the facts, the undisputed position that emerges is that the assessee has made sale of fireworks during festival season. The sales are duly accounted for by the assessee in the books of accounts. The accounts have duly been audited. The assessee has realized debtors out of such sale in SBN which have been deposited in the bank account of the assessee. The cash deposited by the assessee has duly been accounted for in the books of accounts. The Ld. AO has not alleged any bogus sales or back dated sales
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It could also be seen that during the course of assessment proceedings, various notices were issued u/s 142(1) from time to time calling numerous details from the assessee. The assessee was required to file numerous details including monthly cash flow statement, inventory of closing stock, copy of sales tax assessment order, monthly cash deposits and credits for various periods, ledger account for purchase and other expenditure, monthly sales gross receipts, monthly purchases, details of old notes and new notes deposited during demonetization period, the day book, Cash book, ledger maintained for business, cash balance as per cash book etc. All these details were duly submitted by assessee vide reply dated 12-12- 2019. The assessee also submitted month-wise cash deposits in all bank accounts, details of old notes deposited at the time of demonetization period. Pertinently, the assessee also furnished details of name, address and PAN of cash depositors who deposited cash during demonetization period. The same has been detailed on pages 24 to 35 of the paper book. Apparently, the same could not be faulted with by Ld. AO. There is no allegation of any irregularity in the books of accounts.
We find that the only reasoning to treat the said deposits as unexplained cash credit u/s 68 is that the assessee was debarred from dealing in SBN after 08-11-2016. However, in the present case, the cash so received by the assessee is backed by sales carried out by the assessee as recorded in the books of accounts. Therefore, the source of cash is duly explained. The provisions of Sec.68 could be invoked only in cases when there was unexplained cash credit in the books of accounts maintained by the assessee. However, the assessee has duly identified the debtors from whom the cash was received and the same could not be disputed by lower authorities. The PAN of respective debtors as well as quantum of cash realized from each of them has duly been detailed by the assessee before Ld. AO during assessment proceedings. No defect has been pointed out in the books of accounts. In such a case, the credit could not be held to be unexplained cash credit and the impugned additions are not sustainable in law.
The SMC bench of this Tribunal in Mrs. Umamaheswari Vs. ITO (supra), on identical facts, deleted similar additions on the ground that the assessee had duly evidenced the source of cash deposit and therefore, addition could not be made u/s 68. Similar is another decision of SMC Raipur Bench in Rahul Cold Storage Vs. ITO (supra) wherein it has similarly been held that when the deposits were sourced out of business receipts duly recorded in the books of accounts, no such addition could be made u/s 68. The other cited decision of Bangalore Tribunal is also on similar lines.
8. Considering the facts and circumstances of the case, we find force in assessee’s case and therefore, delete the impugned addition as made u/s 68. We order so. The Ld. AO is directed to re-compute the income of the assessee.”
In this view of the matter and by following the decision of ITAT, Chennai Benches, we direct the AO to delete additions made towards source for cash deposits at Rs. 20,40,000/- u/s. 69A of the Act.
In the given facts of the present case, there is no dispute with regard to the fact that the assessee’s sales predominantly in cash. It is also an undisputed fact that there is no abnormal variation in total sales, cash sales and cash deposits for two Financial Years. The assessee is also able to file various evidences, including month-wise purchase and sales and cash book to prove availability of cash in hand as on 08.11.2016. Therefore, we are of the considered view that going by the nature of business of the assessee and also details submitted for two Financial Years, the explanation offered by the assessee towards source for cash deposits into bank account during demonetization period, is bona fide and acceptable. The AO and the Ld.CIT(A) without considering the relevant submissions of the assessee simply made addition towards cash deposits u/s.69A r.w.s.115BBE of the Act. Thus, we set aside the order of the Ld.CIT(A) and direct the AO to delete the addition made towards cash deposits u/s.69A r.w.s.115BBE of the Act.
In the result, appeal filed by the assessee is allowed.
Stay Petition No.43/Chny//2023 for AY 2017-18
Since the appeal filed by the assessee has been disposed off, the Stay Petition filed by the assessee becomes infructuous, and thus, Stay Petition filed by the assessee is dismissed as infructuous.
In the result, appeal filed by the assessee in is allowed and Stay Petition filed by the assessee in SP No.43/Chny/2023 is dismissed.