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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: Shri Manjunatha G. & Shri K. Narasimha Chary
(निर्धारण वर्ा/Assessment Year: 2017-18) Krishna Reddy Nalabolu Vs. ITO, Ward-1 Kodad Suryapet [PAN : AOGPN5115B] (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Mohd.Afzal, AR रधजस् व द्वधरध/Revenue by:: Shri R.Kumaran, DR सुिवधई की तधरीख/Date of hearing: 17/12/2024 घोर्णध की तधरीख/Date of 30/12/2024 Pronouncement: आदेश / ORDER PER. MANJUNATHA G., A.M: This appeal filed by the assessee is directed against the order dated 30.04.2024 of the learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)], National Faceless Appeal Centre, Delhi, pertaining to A.Y.2017-18 on the following grounds :
1. The order of the learned Commissioner of Income Tax (Appeals) is against the law, weight of evidence and probabilities of case.
2. The learned Commissioner erred in assuming that the addition made by the AO of Rs.46,89,500/- u/s 69A of the Act is justified.
2 3. The learned Commissioner ought to have appreciated that the deposits made to the tune of Rs.46,89,500/- is out of turnover / sales made and the AO has not found any adverse fact in respect of this issue, therefore, erred in confirming the addition of Rs.46,89,500/- made u/s 69A of the IT Act, 1961.
4. The learned Commissioner ought to have appreciated that the provisions of section 69A are not applicable in the fact and circumstance of the case, therefore, erred in confirming the addition of RS.46,89,500/- made u/s 69A of the IT Act, 1961.
The learned Commissioner ought to have appreciated that the AO has not found any contrary to establish the amount deposited was from the unknown sources and not from business as recorded in the books of accounts, therefore, erred in confirming the addition of Rs.46,89,500/- made u/s 69A of the IT Act, 1961.
The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary.
2. The brief facts of the case are that the assessee is an individual and engaged in the business of purchase and sale of poultry products under the trade name, Sri Laxmi Poultry Traders. The assessee has filed his return of income for the A.Y.2017-18 on 07.11.2017, by admitting total income of Rs.9,63,540/-. The case was selected for scrutiny under CASS and during the course of assessment proceedings, as per the information gathered, the Assessing Officer noticed that the assessee has made cash deposit of Rs.55,99,000/- in Sudha Cooperative Urban Bank, Suryapet and Rs.21,29,456/- in ICICI Bank, Kodad, during the demonetization period. The Assessing Officer called upon the assessee to furnish relevant evidences to 3 prove source for the cash deposits. In response, the assessee has filed month-wise sales, month-wise cash deposited for the financial year 2015-16 and 2016-17 and explained that the source for the cash deposit is out of day to day collection from various retail centres, towards sale of poultry products. The Assessing Officer, after considering the relevant facts, observed that although the assessee has proved cash deposit out of day to day collections from various retail centres towards sale of poultry products, but the fact remains that the appellant is not authorized to receive or transact any specified bank notes (SBNs) of Rs.500/- and Rs.1000/- during the demonetization period and therefore, rejected the explanation of the assessee and made addition of Rs.46,89,500/- as unexplained money u/s 69A of the Act and brough to tax under the provisions of section 115BBE of the Act.
Being aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the Ld.CIT(A), the assessee reiterated his arguments made before the Assessing Officer and submitted relevant details, including comparative total sales, cash sales, cash deposit in the bank account during the financial year 2015-16 and 2016-17 and argued that the source for the cash deposit is out of day to day collections from retail centres, towards sale of poultry products. The Ld.CIT(A), after considering the relevant submissions of the assessee and also taking note of certain judicial precedents, including the decision of ITAT Chennai in the case of Vidhiyasekaran Pradeep Malliraj vs. ITO in held that once the SBNs ceased to be legal tender, the assessee is not expected to 4 violate the law and accept cash in SBNs even for the purpose of his business. Since the assessee has accepted cash in violation of provisions of law or notification issued by RBI, prohibiting accepting of SBNs after 08.11.2016, the explanation of the assessee with regard to the source for cash deposit cannot be accepted. Therefore, rejected the explanation of the assessee and upheld the additions made by the Assessing Officer u/s 69A of the Act.
Aggrieved by the Ld.CIT(A) order, the assessee is now in appeal before the Tribunal.
5. The learned Counsel for the assessee, Mohd Afzal submitted that the Ld.CIT(A) erred in upholding the additions made towards cash deposited u/s 69A of the Act, even though, he has factually not disputed the fact that the appellant has explained the source for cash deposited out of business receipts. The learned counsel for the assessee, further referring to the decision of ITAT Hyderabad Bench in the case of Aarushi Building Materials (P) Ltd in submitted that this issue is squarely covered in favour of the assessee by the decision of the coordinate bench, where the coordinate bench has dealt with the issue in light of cash deposited during the demonetization period and held that once the assessee explained the cash deposit out of business receipts, then, no additions can be made u/s 69 of the Act. The learned Counsel for the assessee has also relied upon the decision of ITAT Chennai in the case of M/s Purani Hospitals Supplies Pvt. Ltd Vs. DCIT in and submitted that the 5 coordinate bench has considered the reasons given by the Ld.CIT(A) in light of the Circular issued by RBI and after considering the Specified Bank Notes (Cessation of Liabilities) Act, 2017, held that, upto the appointed date 31.12.2016, there is no restriction for transacting or accepting SBNs of Rs.500/- and Rs.1000/- and further, in case, the assessee is able to explain the cash receipts towards its business transactions, then no additions can be made u/s 69A of the Act. Therefore, he submitted that the additions made by the Assessing Officer should be deleted.
6. The learned DR, on the other hand, supporting the order of the Ld.CIT(A) submitted that once the SBNs ceased to be legal tender, then no person can transact in the said SBNs. In the present case, from 08.11.2016 onwards, bank notes of Rs.500/- and Rs.1000/- ceased to be valid legal tender, except in few cases, as notified by the RBI. The appellant is not coming under the exception, therefore, he cannot accept SBNs after 08.11.2016, even for business transactions. Therefore, the Assessing Officer and the Ld.CIT(A), after considering the relevant facts and also by following the decision of ITAT Chennai in the case of Vidhiyasekaran Pradeep Malliraj vs. ITO (supra) has held that cash deposited during the demonetization period is unexplained money, which is taxable u/s 69A of the Act. Therefore, the order of the Ld.CIT(A) should be upheld.
We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the appellant
6 explained the cash deposit during the demonetization period out of day to day collection from retail centres, towards sale of poultry products. It is also an admitted fact that the Assessing Officer and the Ld.CIT(A) analysed the financial statements of the assessee for two financial years and recorded a categorical finding that there is no abnormality in cash sales and cash deposits into bank account during the demonetization period, when compared to same period of earlier financial year. In fact, the Assessing Officer and the Ld.CIT(A) never disputed the fact that the appellant has explained the source for the cash deposit out of business receipts and also recorded the receipts in its books of accounts. To this extent, there is no dispute. The only dispute is with regard to acceptance of SBNs of Rs.500/- and Rs.1000/- after 08.11.2016. According to the Assessing Officer and the Ld.CIT(A), SBNs of Rs.500/- and Rs.1000/- are ceased to be legal tender from 08.11.2016. Therefore, any person transacting in SBNs after 08.11.2016 is against law, and therefore, the explanation with regard to the source for the cash deposit out of SBNs cannot be accepted.
We have given our thoughtful consideration to the reasons given by the Assessing Officer and the Ld.CIT(A), in light of various arguments of counsel of the assessee and we ourselves do not subscribe to the reasons given by the Ld.CIT(A) to sustain the additions made by the Assessing Officer u/s 69A of the Act, for the simple reason that as per the Specified Bank Notes (Cessation of Liabilities) Act, 2017, from the appointed date i.e. 31.12.2016, no person is authorized to deal with SBNs of Rs.500/- and Rs.1000/-. In other words, although there are 7 certain Circulars from RBI prohibiting dealing with SBNs of Rs.500/- and Rs.1000/- from 08.11.2016, except for few category of persons, but the fact remains that the Specified Bank Notes (Cessation of Liabilities) Act, 2017 has allowed persons to transact, receive and deal with the bank notes upto 31.12.2016. Therefore, from the above, it is very clear that there is no restriction as to transactions with SBNs of Rs.500/- and Rs.1000/- upto 31.12.2016, provided the persons dealing with the said notes should explain the source for the cash transacted in Rs.500/- and Rs.1000/- after 08.11.2016. In the present case, the appellant has received cash during the demonetization period after 08.11.2016 from his business activity of selling poultry products and deposited cash into bank account. The assessee has furnished all details including the relevant statement explaining the cash sales and cash deposited during the financial years and proved that there is no abnormal deviation in the cash deposited during the demonetization period. Since the appellant has explained the source for cash deposit out of business receipts and also proved that there is no abnormal deviation in cash sales and cash deposited during demonetization period, in our considered view, the explanation of the assessee with regard to source for the cash deposit needs to be accepted. Therefore, we are of the considered view that once the assessee explained the sources for the cash deposit out of business receipts, the Assessing Officer ought not to have made additions u/s 69A of the Act.
At this stage, it is relevant to refer to the decision of ITAT Chennai benches in the case of M/s Purani Hospitals Supplies 8 Pvt. Ltd Vs. DCIT (supra), where the coordinate bench considered an identical issue and after considering identical facts of cash deposits during the demonetization period held as under : “10. Coming back to the observations of the Assessing Officer with regard to GO/notification issued by the RBI and by the RBI to deal with the specified bank notes and argued 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 has been withdrawn from circulation from 09th November, 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 31st December, 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 31st December, 2016. Therefore, there is no clarity on how to deal with demonetized currency from the date of demonetization and up to 31st December, 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 Assessing Officer makes out a case that the assessee has deposited unaccounted cash into bank account in specified bank notes.
11. We further, noted that the Central Board of Direct Taxes had issued a circular for the guidance of the Assessing 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 9 found in business cases, the Assessing Officer 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 Assessing Officer needs to analyze the business model of the assessee, its books of account and analysis of sales etc. In this case, if you go through analysis furnished by the assessee in respect of total sales, cash sales realisation from debtors and cash deposits during financial year 2015-16 & 2016-17, there is no significant change in cash deposits during demonetization period. 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 circulation/notification issued by Government of India and RBI, the source explained for cash deposits cannot be rejected. In our considered view, to bring any amount u/s. 69 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.”
In view of this matter, considering the facts and circumstances and also by respectfully following decision of ITAT Chennai Benches in the case of M/s Purani Hospitals Supplies Pvt. Ltd Vs. DCIT (supra), we are of the considered view that the Assessing Officer has erred in making additions towards cash deposits during the demonetization period u/s 69A of the Act as unexplained money. The Ld.CIT(A) without considering relevant facts simply sustained the additions made
10 by the Assessing Officer. We, therefore, set aside the order passed by the Ld.CIT(A) and direct the Assessing Officer to delete the additions made u/s 69A r.w.s. 115BBE of the Act.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the Open Court on 30th December, 2024.