INCOME TAX OFFICER, NEW DELHI vs. SATISH KUMAR, NEW DELHI

आदेश /O R D E R PER C.N. PRASAD, J.M.

1. This appeal is filed by the Revenue against the order of the Ld. CIT(Appeals), NFAC, Delhi dated 26.03.2024 for the AY 2017-18 in deleting the addition made u/s 68 of the Act in respect of cash deposits made during demonetization period.

2. Ld. DR made the following submissions:

ITANo.2447/Del/2024 SATISH KUMAR “Assessment Order (i) The assessee is an individual engaged in the trading of ghee and oil under the proprietorship M/s Phool Chand Hari Kishan. He filed his return of income on 26.10.2017 declaring total income of Rs.4,58,120/- for the assessment year 2017-18. (ii) The case was selected for complete scrutiny through Computer Aided Scrutiny Selection (CASS) with the specific reason being “cash deposit during demonetization period.” (iii) During the relevant previous year, the assessee deposited Rs.4,93,13,500/- in cash in four different bank accounts. On verification, Rs.4,60,12,000/- was found to be deposited in Specified Bank Notes (SBNs), i.e., old currency notes of Rs.500 and Rs.1000, after 08.11.2016. (iv) The Assessing Officer issued repeated notices under sections 143(2) and 142(1) requiring the assessee to explain the source of cash deposits, provide denomination- wise breakup of SBNs, submit stock registers, VAT returns, and supporting documents for cash sales. Despite multiple opportunities and a final show cause notice dated 02.12.2019, the assessee failed to furnish the required evidence in a satisfactory and complete manner. (v) In response to the final show cause, the assessee merely reiterated general submissions of cash sales without submitting corroborative documentary evidence such as day-wise sales register, delivery challans, party- wise sale bills, inventory trail, or confirmations from buyers. No details were submitted to prove whether SBNs were actually received from customers, and if so, whether such acceptance was legally permissible. (vi) Accordingly, the Assessing Officer accepted Rs.15,72,520/- as cash in hand but treated the remaining Rs.4,44,39,480/- as unexplained and added the same under section 68 of the Income Tax Act,1961, to be taxed at the rate applicable under section 115BBE. CIT(A) order:- 2 ITANo.2447/Del/2024 SATISH KUMAR The Ld. CIT(A) vide order dated 26.03.2024 allowed the appeal of the assessee and deleted the addition of Rs.4,44,39,480/-. The key findings of the Ld. CIT(A) are summarized as follows: (i) That there was a declining trend in cash deposits and cash sales as compared to the previous financial year, and hence there was no abnormal increase during the demonetization window; (ii) That the books of accounts were audited and no specific defects were pointed out by the AO; (iii) That the turnover and purchases declared by the assessee were not disputed by the AO; (iv) That the assessee deposited the cash from recorded cash sales and hence no addition under section 68 was warranted; (v) That even if there was a violation of RBI Notification in terms of accepting SBNs after 08.11.2016, it did not amount to unexplained cash credit under the Income Tax Act; (vi) That there were no adverse findings from VAT authorities and the entries were supported by audited financials. Aggrieved with the above, the department has filed appeal against the order of Ld.CIT(A) in ITAT. Grounds of Appeal (i) Whether on the facts and in circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made with regard to the unexplained cash deposit amounting to Rs.4,44,39,480/- u/s 68 of the IT Act as the business of the assessee was not covered under specified business to receive specified bank notes (SBN). (ii) Filed additional ground of appeal:- The Ld. CIT(A) has erred in deleting the addition of Rs.4,44,39,480/- made u/s 68 of the Income Tax Act, 1961 by accepting the additional evidences filed by the assessee before CIT(A) and also without providing any opportunity to the assessing officer to examine the additional evidences.

ITANo.2447/Del/2024 SATISH KUMAR Revenue’s appeal (i) The Ld. CIT(A) erred in ignoring that the assessee’s line of business (trading of ghee and oil) was not included under the categories permitted to accept SBNs under the RBI Notification dated 08.11.2016 and subsequent notifications. (ii) The assessee failed to furnish denomination-wise breakup of cash deposits, corresponding sale bills, or customer details to justify receipt of over Rs.4.60 crore in SBNs post-09.11.2016. (iii) Even assuming cash sales occurred, once the acceptance of SBNs after 08.11.2016 was legally restricted to only notified categories, any such receipt was impermissible and unaccounted in the eyes of law. (iv) In the absence of day-wise sales records, stock movement registers, delivery challans, or confirmations from customers, the assessee’s explanation that the cash deposits represented proceeds from regular business sales remains unsubstantiated. Mere summary statements or cash flow charts without underlying transactional evidence do not meet the standard of proof required under section 68. The assessee was given multiple opportunities during the assessment to produce these primary records but failed to do so. As such, the explanation offered lacks both credibility and evidentiary support, and the onus cast upon the assessee under section 68 to prove the nature and source of the cash credits remains un-discharged. (v) The Ld. CIT(A) has erred in law by deleting the addition of Rs.4,44,39,480/- u/s 68 on the basis of additional evidences which was not produced during assessment proceedings despite repeated opportunities, and which were admitted in appellate proceedings without recording any satisfaction under Rule 46A(1) and without affording the Assessing Officer an opportunity to examine or rebut the same through a remand report, thereby violating both the procedural mandate of Rule 46A and the principles of natural justice.

ITANo.2447/Del/2024 SATISH KUMAR In view of the above, it is respectfully prayed that the order of the Ld. CIT(A) deleting the addition of Rs. 4,44,39,480/- be set aside and the order of the Assessing Officer be restored. This is in view of the assessee, not being permitted under RBI norms to accept SBNs, failed to substantiate the genuineness of cash deposits during the demonetization period, and the addition rightly made under section 68.”

3. The Ld. Counsel for the assessee made the following submissions:

S.No. Particulars Paper Book No(s).

Particulars Amount of Cash deposited in Bank account 01.04.2015 to 31.12.2015 31.24 crore 01.04.2016 to 13.65 crore 18.59 crore 08.11.2016 (Pre- demonetization period) 09.11.2016 to 4.94 crore 31.12.2016 (Demonetization period) • Details of Cash Deposit is given below for the preceding year & previous year: Period FY 2015- FY 2016- Difference 16 17 (In crore) (In crore) (In crore) 1st April to 24.35 13.65 -10.7 8th November 9th 6.89 4.94 -1.95 November 31st to December 1st January 17.70 2.38 -15.32 31st to March Total 48.94 20.97 -27.97 • During the demonetization period Rs.4.90 crore were deposited in the bank account from the sale proceeds made by the assessee in the year from his business namely Phool Chand Hari Kishan. • Hence, from the above it can be clearly seen that there was no abnormal increase in cash deposits during pre-demonetization period. • Therefore, the basis on which the case was taken for scrutiny is factually incorrect evidenced on the order of the Ld. AO itself.

ITANo.2447/Del/2024 SATISH KUMAR

3. Addition u/s 68 of the Act • At the time of assessment proceedings as well as CIT(A) proceedings, assessee have duly explained the source of the cash deposit of Rs.4,44,39,480/- as arising from cash sales made in the ordinary course of business (sale of ghee and oil), which are duly recorded in the books of accounts. • These sales and corresponding cash receipts are recorded in the regular books of accounts, which were audited, and income- tax has been duly paid on the profits thereof. Hence, the addition leads to double taxation of the same income. • At the time of assessment proceedings, Ld.AO has not doubted the genuineness of the sales, the purchases, Ld. AO himself accepted the audited the financials and the declared income of Rs.4,58,120/- was assessed without modification. • It is to be noted that section 68 of the Act applies only when there is no satisfactory explanation for a credit in the books. Here, the explanation was clear and evidenced by documentary evidence (books, audit report), and the Ld. AO failed to bring any adverse finding. • Assessee had duly furnished the month wise details of sales and cash deposited into account for the year under consideration and preceding year. • Even if there was any procedural issue regarding demonetized notes, such contravention does not render the cash unexplained u/s 68 of the Act. • In various case laws Hon’ble High Court and Appellate Tribunals held that where cash deposits are from declared sales and properly accounted for, no addition u/s68 of the Act is warranted and if there is any addition that would lead to the double addition.

ITANo.2447/Del/2024 SATISH KUMAR • Since the cash deposits are explained, accounted for, audited and already taxed, the addition u/s 68 of the Act is unjustified and amounts to double taxation, which is impressible in law.

4. Addition based solely on acceptance of SBNs post 09.11.2016 is unjustified • The Ld. AO made the addition purely on the Para 6.2 of ground that the assessee accepted cash in Page no. 11 of Specified Bank Notes (SBNs) from 09.11.2016 the assessment onwards, without bringing any independent order. adverse material on record. “As the assessee could not have accepted the cash in SBNs from 09.11.2016 onwards, therefore, only inference can be drawn is that this the out of books of cash of the assessee as on 08.11.2016, which he has tried to explain as cash out of sales.” • The mere fact that SBNs ceased to be legal tender does not simply that’ sales proceeds received in such notes become un explained income u/s 68 of the Act. • It is to be noted that there was no prohibition under the Income Tax Act or any other law from accepting SBNs during the demonetization window up to 31.12.2016; RBI notifications and the Specified Bank Notes (Cessation of Liabilities) Act,2 2017 confirm this position. • At the time of Assessment proceedings and appellate proceedings, assessee has demonstrated that: • Cash sales were made in the regular course of business, • Cash was duly recorded in the books and cash book, • VAT returns were accepted by the Department, • Sales were out of stock and reflected in 8 ITANo.2447/Del/2024 SATISH KUMAR audited accounts, • Cash was deposited in the bank and accepted without objection. • Section 5 of the SBN Act prohibits dealing in SBNs only from 31.12.2016 onwards. Until then, SBNs had monetary value and were exchangeable at banks, hence had representational value and could be validly recorded in accounts. • In view of the above, the Ld. AO’s assumption that the amount was unexplained simply because it was received in SBNs is contrary to law and facts and deserves to be deleted. • It is to be noted thatLd.CIT(A) has delete 5. the addition u/s 68 of the Act on the following facts without accepting any additional evidence: Para 5.2 of the a. Trend analysis of data with regard to CIT(A) order page 19 of 27 cash deposits, b. Acceptance or otherwise of the books of accounts and the figures reported therein and c. Adjudication on the AO’s arguments on the grounds of addition. • Ld. CIT(A) noted that the assessee deposited Rs.4.94 crores during the demonetization period, which was actually lower than Rs.6.89 crores deposited during the same period in the previous year, and consistent with regular business activity. • With total depositsofRs.24.34 crore in the earlier year and significant cash sales/deposits even before demonetization (Rs.6 crores in April 2016, Rs.4.5 crores in May 2016), along with a declining turn over trend, the Ld. CIT(A) rightly held there was no unusual or unexplained spike in deposits. • Further, Ld. CIT(A) has said that the Ld. AO 9 ITANo.2447/Del/2024 SATISH KUMAR accepted the audited books of accounts, declared turnover, purchases and cash sales. • Since the cash sales and source of deposits are recorded and accepted, addition u/s 68 is unjustified. Judicial precedents, including the Hon’ble Supreme Court’s decision in CIT vs. Devi Prasad Vishwanath Prasad, support that no addition can be made without rejecting the books u/s 145(3) or finding defects. • AO’s main ground rejected: The AO made the addition claiming the assessee accepted old currency (SBNs) after 09.11.2016, which was not allowed. However, courts have held that even if there’s a violation of RBI notifications, it does not automatically invoke section 68 of the Income Tax Act. • From the above, it is evident that the Ld. CIT(A) has rightly deleted the addition made u/s 68 of the Act after considering the factual matrix, including the consistent trend of cash deposits, acceptance of books of accounts, and absence of any adverse finding regarding sales, purchases, or profit margins. The cash deposits were clearly explained as arising from regular business sales, and merely accepting old currency notes post-demonetization does not invoke section 68, as supported by judicial precedents.

S.No. Particulars Page No.

1. Objection for accepting additional ground • Ld. AO has made the application for Para 5.2 of the accepting the additional ground that the CIT(A) order page Ld.CIT(A) while deleting the addition has 19 of 27 erred in accepting the additional evidence without providing the opportunity of being heard to the Ld. AO in the form of Remand Report. • It is to be noted that Ld.CIT(A) has deleted the addition u/s 68 of the Act on 10 ITANo.2447/Del/2024 SATISH KUMAR the following facts without accepting any additional evidence: a. Trend analysis of data with regard to cash deposits, b. Acceptance or otherwise of the books of accounts and the figures reported therein and c. Adjudication on the AO’s arguments on the ground of addition • Further, Ld. CIT(A) has said that the Ld. AO accepted the audited books of accounts, declared turnover, purchases and cash sales. • From the above, it is evident that the Ld. CIT(A) has rightly deleted the addition made u/s 68 of the Act after considering the factual matrix without relying on the any additional evidence (if any), which was claimed by the Ld. Sr. DR in the additional ground application, including the consistent trend of cash deposits, acceptance of books of accounts, and absence of any adverse finding regarding sales, purchases, or profit margins. • Therefore, the contention raised by the Ld. Sr. DR in the additional ground does not hold merit and deserves to be rejected.

S.No. Citation Relevant Relevant extract of the case Court 1. M/s Ayyan Fire Hon’ble ITAT Held that when there is no Works Factory Pvt. Chennai significant change in cash deposits Ltd. Vs. DCIT, ITA demonetization period, then No.2363/Chny/2024, merely for the reason that the dated: 05.02.2025 assessee has accepted specified bank notes in violation of circulation/notification issued by Government of India & RBI, the source explained for cash deposits cannot be countenanced.

4. Sri Bhageeratha Hon’ble ITAT Held that the case of the A.O is Patina Sahakara Bangalore that the assessee has collected the Sangha Niyamitah demonetized notes after 8.11.2016 vs. ITO, ITA in violation of the notifications No.646/Bang/2021, issued by RBL. Accordingly, he has dated 18.02.2022 taken the view that the above said amounts represents unexplained money of the assessee. I am unable to understand the rationale in the view taken by A.O. I noticed that the AO has invoked the provisions of sec.68 of the Act for making this addition. I also noticed that the assessee has also complied with the requirements of sec. 68 of the Act. The AO has also not stated that the assessee has not discharged the responsibility placed on it u/s 68 of the Act. Peculiarly, the AO is taking the view that the assessee was not entitled to collect the demonized notes and accordingly invoked sec.68 of the Act. 1 am unable to understand as to how the contraventions, if any, of the notification issued by RBI would attract the provisions of sec. 68 of the Income tax Act.

5. Smt. Saraniyaa Hon’ble ITAT Held that the assessee's sole source Karthick vs. ITO, ITA Chennai of income was the ticketing No.715/Chny/2023, business. It found that the cash 12 ITANo.2447/Del/2024 SATISH KUMAR dated 09.08.2023 deposits, including SBN, were received from clients booking tour packages using demonetized currency. Therefore, these receipts constituted legitimate business earnings and could not be deemed unaccounted money.

3. S. Balaji Mech-Tech Hon’ble ITAT Delhi Held that the AO/CIT(A) Private Ltd. vs. ITO, ITA cannot invoke the No.556/Del/2024, dated provisions of section 68 or 25.09.2024 69A when the assessee is already declared the source for cash deposit in the books of accounts and the lower authorities without their being any material to support on their contrary view, the provisions of section 68 or 69A cannot be invoked.

by the Revenue.

6. ACIT vs. Hari Om Retail Hon’ble ITAT Delhi Thus where the books of Pvt. Ltd., ITA account of the assessee- No.1700/Del/2024, company have been audited dated 28.08.2024 and accepted by the assessing officer. The assessing officer has not disputed the cash sales made during the year which were duly recorded in the regular books of account, quantitative details of stock were being maintained, including the sales effected in cash Thus, all the purchases, stock, sales (including cash sales) were accepted by the assessing officer. Then sales were fully recorded in books and also corroborated with VAT returns which have been accepted by the sales tax/ VAT authorities, with VAT/ sales tax having been paid thereon. Assessee had sufficiently discharged the onus, and same has been duly examined by the Ld. 15 ITANo.2447/Del/2024 SATISH KUMAR CIT(A).

7. DCIT vs. Akshardham Hon’ble ITAT Delhi Held that in the preceding Jewellers P. Ltd., ITA and subsequent year the No.2631/Del/2022, assessee has made cash dated 31.10.2023 sales during the month of November. Merely because demonetisation was in progress cannot be the basis to suspect the genuine business transactions. The Revenue has not brought any material to controvert the finding of the Id.CIT(A). Therefore, we do not see any infirmity in the impugned order. The same is hereby affirmed.

4. The Ld. CIT(A) considering the submissions of the assessee and the evidences placed on record and also the remand report of the Ld. Assessing Officer deleted the addition observing as under:

“5.2 I have perused the submissions of the appellant along with the supporting documents. The framework within which this appeal is to be decided is threefold, (i) trend analysis of data with regard to cash deposits, (ii) acceptance or otherwise of the books of accounts and the figures reported therein and (iii) adjudication on the AO's arguments on the grounds of addition. 5.2.1 i) trend analysis of data with regard to cash deposits:

ITANo.2447/Del/2024 SATISH KUMAR It is seen from the reported figures that the cash sales in the relevant assessment year is approx. at Rs.21,00,00,000/- which was approx Rs.49,00,00,000/- in the previous year. Further it is seen that the cash deposit from 01.04.2015 to 31.12.2015 was approximately Rs.31,00,00,000/-. This in contrast to the cash deposits from 01.04.2016 to 31.12.2016 which is at Rs.18,00,00,000/- approximately. At the outset there is merit in the appellant's claim that both the cash sales and cash deposits are substantially lower than the previous year, which prima facie rules out any abnormality in the cash figures which can be lead to doubting the reported figures as per books. Further it is also seen that cash deposits between 01.04.2016 to 08.11.2016 is approximately Rs.13.64 crores against the deposit of approximately Rs.4.9 crores during the demonetization period from 9.11.2016 to 31.12.2016. The corresponding figure of total cash deposited from 01.04.2015 to 08.11.2015 wasapprox. Rs.24.34 crores. There is no abnormal deviation in the cash deposits in the aforementioned periods on a proportionate basis. It is also significant to know that the cash deposited in bank from 09.11.2015 to 31.12.2015 (corresponding period in the previous year) was Rs.6,89,18,000/-, against Rs.4,94,11,200/- during the demonetization period. In summary it is seen that there is a decrease/declining trend in all the parameters and there is no abnormality or abrupt deviation which can raise suspicion about the nature and source of the cash deposits. It is also seen that the cash deposits made in November and December 2016 are not abnormal as the appellant has made cash sales and corresponding cash deposits approx. to the tune of Rs.6 crores in April 2016 and approx. Rs. 4.5 crores in May 2016 as well, prior to demonetization. All this against the fact that the reported turn over for the year under consideration is Rs.24,20,37,584/-. The corresponding total turnover for the previous year 2015- 16 was approx. Rs.54.93 crores. 5.2.2 ii) acceptance of the books of accounts: The appellant has contended that the reported turnover has been accepted by the AO and the sales are out of the 23 ITANo.2447/Del/2024 SATISH KUMAR available stock and the purchases which have been duly recorded in the books of accounts and audited. It is seen from the records that the AO has accepted the cash sales as reported. There is nothing on record to show that either the purchases or the sales have been proven to the bogus. The AO has accepted the GP and the NP as declared and there is no discrepancy found or amendments made to the declared GP & NP ratios. The Assessing Officer has not pointed any defects in the audited books, or the cash statement produced before him. The appellant has also placed on record that the VAT returns have been audited, filed and accepted by the concerned department. Once the cash sales have been duly accepted by the AO by accepting the books of accounts, the addition u/s 68 is unjustifiable since the nature and source of the cash deposit stands explained and accepted. There are enough Judicial Precedents (cited in the appellant’s submission) wherein it has been held that sales cannot be added u/s 68 of the Act. These judicial precedents cited by the appellant in its submissions are applicable to the facts of this case. Reliance is also placed on the following judicial precedents on the issue of such addition made without rejecting the books of account u/s 145(3) of the Act, and/or pointed out any specific defect in the books calling for such additions: a) Hon’ble Patna High Court In case of Lakshmi Rice Mills vs. CIT {1974} 97 HR 258, wherein it was held that where the books of accounts were accepted is genuine, the feet that, there is sufficient cash balance in the books, no addition can be made. b) Hon’ble Allahabad High Court in case of CIT vs. Neel Giri Krishi Farms Pvt Ltd. (38 taxmonn.com 69) c) Hon’ble ITAT Mumbai In ACIT vs. Ram Lal Jewellers Pvt. Ltd., d) Hon'ble Chandigarh Tribunal in Charu Agrawal vs. DCIT (2022) 140 taxmann.com 588 e) Hon'ble ITAT Vishakhapatnam in the case of M/s Hira Panna Jeweller In that “once 24 ITANo.2447/Del/2024 SATISH KUMAR there is no defect in the purchase and sales and the same are matching with in flow and outflow of stock, there is no reason to disbelieve the same.” f) Hon’ble Jaipur Bench of ITAT in the case of ACIT, Central Circle-2, Jaipur Vs. M/s Motisons Jewellers Ltd. g) Hon’ble Amritsar Bench of ITAT in the case of Rajkumar (Radhika Sales Corp.) Vs. ITO (ITA No. 195/Asr/2022). h) The ITAT Ahmedabad In the case of Chirag Nareshbhai Soni Vs. ITO in has specifically visited the issue and observed as follows: "generally the instances for fie rejection of the books of account include when entries in respect of certain transactions are all together omitted or incorrect or where the accounts show an abnormally low rate of profit or where there is an inherent lacuna in the system of accounting.” 5.2.2.1 In view of the above and respectfully the following judicial precedents including the decision of the Hon'ble Apex Court in the case of CIT vs. Devi Prasad Vishwanath Prasad, once the books of account have been accepted and no discrepancy found in the reported figure therein the addition made u/s 68 of the Act is not found to be correct. 5.2.3 iii) AOs arguments on the grounds of addition: Finally coming to the arguments of the AO in favour of making the impugned addition. The AO has primarily made the addition on ground that the assessee has accepted cash in SBM after 09.11.2016 which it was not permitted to do so. The appellant’s reply on this issue is reproduced below: 11. Addition was made only for the reason that the assessee has accepted the cash in SBNs from 09.11.2016 onwards ITANo.2447/Del/2024 SATISH KUMAR 11.1. Ld. AO made the addition without having any basis and merely stated that at Para 6.2 Page no 11 of the Assessment order; “As the assessee could not have accepted the cash in SBNs from 09.11.2016 onwards, therefore, only inference can be drawn is that this is the out of books cash of the assessee as on 08.11.2016, which he has tried to explain as cash out of sales." 11.2. From the perusal of the assessment order, it can be clearly seen that the Ld. AO has made the addition only for the reason that the assessee have accepted the cash in SBNs from 09.11.2016 onwards. 11.3. Merely because demonetized notes ceased to be legal tender, it does not mean that the amount collected by the assessee from its sales would become unexplained money of the assessee. 11.4. It is pertinent to note that nowhere “The income Tax Laws” impose any restrictions on Indian citizens and prohibiting them to make the sale and acceptance of old currency during demonetization period. 11.5. In the current scenario, the assessee was engaged in cash sales, subsequently depositing the proceeds into his bank account. These transactions were duly acknowledged and incorporated into the audited financial statements of the assessee. 11.6. Nothing adverse against the appellant firm has been brought in record by the Ld. AO and the appellant has proved that: 11 6.1. The cash deposited is from the proceeds of cash sales and is not unexplained. 11.6.2. The said deposits were duly accepted by the banks itself. 11.6.3. Sales were made out of stocks maintained by the appellant firm in normal course of business.

ITANo.2447/Del/2024 SATISH KUMAR 11.6.4. Cash received was duly recorded in cash book, i.e., books of accounts maintained by the appellant 11.6.5. Government VAT department has duly accepted the VAT returns acknowledging the sales made during the year, 11.6.6. The books of accounts were duly audited by an independent auditor. 11.6.7. Cash sales were duly accepted by the Ld. AO himself. 11.7. SBNs were accepted and allowed for the purpose of transactions can be derived from the Notifications enacted pursuant to Demonetization: a. Point No. 2 of the Notification No. 2652 dt. 8th November 2016 states that the specified bank notes held by a person other than a banking company referred to in sub-paragraph (1) of paragraph 1 or Government Treasury may be exchanged at any Issue Office of the Reserve Bank or any branch of public sector banks, private sector banks, foreign banks. Regional Rural Bonks, Urban Cooperative Banks and State Cooperative Banks for a period up to and including the 31st December, 2016. b. The words used are ‘may be' and not "shall be”. Thus, the person is allowed to use SBNs other than exchanging at the modes specified. c. Further the Notification does not explicitly prohibit holding, transferring or receiving any specified bank note upto 31st December, 2016. 11.8. The above view attains finality from plain reading of the Specified Bank Notes (Cessation of Liabilities) Act, 2017, implemented pursuant to the Demonetization exercise: a. Section 5 of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 states that “0n and from the appointed day, no person shell, knowingly or voluntarily, hold, transfer or receive any specified bank note,"

ITANo.2447/Del/2024 SATISH KUMAR b. Section 2(1)(a) in Specified Bank Notes (Cessation of Liabilities) Act, 2017 states that “appointed day” means the 31st day of December 2016. c. Further Section 3 of Specified Bank Notes (Cessation of Liabilities) Act, 2017 states that “On and from the appointed day, notwithstanding anything contained in the Reserve Bank of India Act, 1934 or any other law for the time being in force, the specified hank notes which have ceased to be legal tender, in view of the notification of the Government of India in the Ministry of Finance, number S.O. 3407(E), dated the 8th November, 2016, issued under section 26(1) of the RBI Act, 1934, shall cease to be liabilities of the Reserve Bank under section 34 and shall cease to have the guarantee of the Central Government under section 26(1) of the said Act". 11.9. From the above, it is clear that use of Specified Bank Notes (SBN) pursuant to 8th November, 2016 up to 31st December, 2016 was always allowed. It was never the intention of the Law to prohibit its use for transaction up to 31st December, 2016. 11.10. The contention of the Ld. AO is entirely contrary to the above-mentioned provisions of law, for the reasons mentioned below: Section 3 of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 clearly states that the specified bank notes shall cease to be liabilities of the Reserve Bank under section 34 and shall cease to have the guarantee of the Central Government under section 26(1) of the said Act from the appointed date, i.e. 31st December, 2016, 11.11. Therefore, the contention of the AO regarding SBNs on or after 9th November is incorrect in law. 11.12. The expression 'money' has different shades of meaning. In the context of income-tax provisions, it can only be a currency token, bank notes or other circulating medium in general use, which has representative value. 28 ITANo.2447/Del/2024 SATISH KUMAR Therefore, the currency notes on the day when they were found to be in possession of the assessee should have had the representative value, namely, it could be tendered as money, which has intrinsic value. The RBI is bound to exchange the SBNs when they were tendered for exchange until 31st December 2016. Hence these notes cannot be termed as pieces of papers that bear no value. 11.13. The SBNs of 500 and 1000 rupee denominations can be measured in monetary terms sicnew the guarantee of Central Government and liability of Reserve Bank of India does not cease to exist until 31st December 2016 in lieu of the 500 and 1000 rupee SBNs. 11.14. Since the RBI is obligated to exchange the SBNs of 500 and 1000 and the liability can be measured with certainty amounting to the values imprinted on these bank notes, these bank notes do possess value and be recorded in the books of accounts. 11.15. Hence the contention that it cannot be journalized in the books of accounts based on the SBNs having no monetary value is not valid. Therefore, the same cannot be treated as unexplained money u/s 66 and brought to tax. 11.15.1. Chennai ITAT Rubs in favor of assesses, deletes Addition of Demonetization Deposits Despite RBI Notification Violation has eliminated the addition of cash deposits made during the demonetization period, despite a violation of RBI notification. The ITAT concluded that the assessee’s genuine explanation for the source of the cash deposit should not be rejected solely due to the violation of the RBI/Government of India notification regarding specified bank notes The assesses, involved in the distribution of pharmaceutical goods, surgical and diagnostics goods, underwent scrutiny for the Assessment year 2017-16 due to substantial cash deposits during the demonetization period and significant cash receipts from third parties. 11.15.2. Hon’ble ITAT Chennai in case of Smt. Saraniyaa Karthick vs. ITO held that the assesee’s sole source of income was the ticketing business, it found ITANo.2447/Del/2024 SATISH KUMAR (that the cash deposits, including SBN, were received from clients booking tour packages using demonetized currency. Therefore these receipts constituted legitimate business earnings end could not be deemed unaccounted money. 11.15.3. Hon’ble ITAT Bangalore in case of Sri Bhageeratha Pattina Sahakara Sangha Niyamitha Vs ITO, dated 18 02.2022 heid that the case of the AO is that the assesses has collected the demonetized notes after 8.11.2016 in violation of the notifications issued by RBI. Accordingly, he has taken the view that the above said amounts represents unexplained money of the assesses, I am unable to understand the rationale in the view taken by AO. I noticed that the AO has invoked the provisions of sec. 68 of the Act for making this addition, I also noticed that the assesses has also complied with the requirements of sec. 68 of the Act. The AO has also not stated that the assesses has not discharged the responsibility placed on it u/s 68 of the Act. Peculiarly, the AO is taking the view that the assessee was not entitled to collect the demonized notes and accordingly invoked sec. 68 of the Act. I am unable to understand as to how the contraventions, if any, of the notification issued by RBI would attract the provisions of sec. 68 of the Income Tax Act. 11.15.4. Hon’ble ITAT in case of Prathamika Krushi Pattina Sahakari Sangha Niyamitha Itagi Pkpassa Itagi vs. ITO, dated 30.05.2022 relied on the decision of the ITAT in the case of Bhageeratha Patiina Sahakara Sangha Niyamitha vs. ITO in which it was ruled that the deposit of demonetized notes collected by the assessee from its members would not be hit by the provisions of section 68. 11.15.5. Hon’ble ITAT Chennai in the following cases observed that even though there is certain violation of any other Acts or Rules, AO cannot make additions towards cash deposits: a. Vidhiyasekaran Pradeep Mallira vs. ITO, dated 07.02.2023 ITANo.2447/Del/2024 SATISH KUMAR b. Mr. Ganapathy Palaniyappan vs. DCIT (ITA No.557/Chny/2022 dated 04.01.2023). c. Sri Madheswara Agencies vs. ITO (ITA No.551/Chny/2022 dated 21.07.2022). d. Hence, the appellant strongly objects to the fact that the addition made by the Ld. AO which is purely on the only basis of acceptance of cash in SBNs from 09.11.2016 onwards.” 5.2.3.1 I find merit in the appellant’s submission. Respectfully following the Judicial precedents on this issue, triggering the provision of section 68 simply on the ground that the assessee has accepted cash in SBNs post 9.11.2016, is unsustainable. There is merit in the appellant’s submission on the interpretation of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 and the direct judgments on this issue, wherein it has been held that even if, there is any contravention of the notifications issued by the RBI, it would in no cash attract the provisions of section 68 of the Income Tax Act. Further, as discussed in the above paragraphs, once no discrepancy has been found in the reportd figure of cash sales against stock available and purchase, there is no justifiable reason to add back the cash deposit during the relevant period as undisclosed income. The appellant has fairly justified the availability of the cash balance out of sales. 5.3 In summary, in view of the judicial precedents and the entirety of the facts and circumstances of the case, I hold that the addition u/s 68 is not justified. Accordingly, the AO is directed to delete the addition of Rs.4,44,39,480/- u/s 68 of the Act. Ground no. 1 to 4 is allowed.”

5. Heard rival submissions and perused the material placed before us and the orders of the authorities below.

ITANo.2447/Del/2024 SATISH KUMAR 6. On careful perusal of the order of the Ld. CIT(Appeals), we find that the Ld. CIT(A) deleted the addition for the reason that the AO did not reject the audited books of account, did not point out any defects in sales, purchases stocks and placing reliance on various judicial precedence on the issue of such addition made without rejecting books of account and/or pointing any specific defect in the books, no addition can be made. Ld. CIT(A) also placed reliance on the decision of the Apex Court in the case of CIT vs. Devi Prasad Vishwanath Prasad, wherein their lordships have held that once the books of account have been accepted and no discrepancy found in the reported figures therein the addition made u/s 68 of the Act is found to be incorrect. Thus, we hold that there is no good reason to interfere with the findings of the Ld. CIT(A) in deleting the addition made u/s 68 of the Act in respect of cash deposits made during demonetization period. Hence, we sustain the order of the Ld. CIT(A) and reject the grounds raised by the Revenue.