DHAIRYA LAKSHMI CELLULAR ,VIJAYAWADA vs. INCOME TAX OFFFICER, WARD-2(1), VIJAYAWADA

PER DUVVURU RL REDDY, Judicial Member :

This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [NFAC] in DIN & Order No. ITBA/NFAC/S/250/2022-23/1047472662(1), dated 17/11/2022 arising out of the order passed U/s. 144 of the Income Tax Act, 1961 [the Act], dated 5/12/2019 for the AY 2017-18.

2 2. Brief facts of the case are that the assessee is a firm

engaged in the IDEA Cellular sales and service point in the name

and style of Dhairya Lakshmi Cellular by providing facility of

sales, bill collections, post-paid and prepaid recharges for Mobile

SIMs and Top-up sales for which commission is received by the

assessee as an agent. For the impugned assessment year the

assessee has not filed its return of income as the assessee does

not have any taxable income. On verification of the data relating

to ‘cash deposits during the demonetization period’ available in

AIMS module of ITBA, it is noticed that there were substantial

cash deposits in the case of the assessee during the

demonetization period. Subsequently, notice U/s. 142(1) was

issued on the assessee on 15/2/2018 and 13/8/2019. Since the

assessee did not respond to the notices, show cause notice dated

19/9/2019 was issued to the assessee and the assessee was

requested to file its explanation on or before 25/09/2019. In the

meantime, for verification purposes, notices U/s. 133(6) of the

Act were issued to the Central Bank of India. On perusal of the

bank account statements of the assessee furnished by the Bank,

the Ld. AO observed that the assessee had deposited cash of Rs.

18,62,500/- in its bank account during the demonetization

period relevant to the AY 2017-18. Further, as per the said

3 details the assessee had deposited Rs. 10,14,000/- in SBNs in its

Bank account. Thereafter, in reply to the show cause notice, the

assessee furnished information on 24/09/2019 wherein it was

stated that the assessee firm is a service point for IDEA Cellular

for collection of bills and also provide pre-paid and post-paid

bookings. The assessee further submitted that it collects cash

from the customers and the same is being deposited into the

assessee’s account and later the collected amount is being

remitted to the IDEA Cellular through ECS. On perusal of the

assessee’s submissions, the Ld. AO opined that the explanation

given by the assessee is not tenable since the assessee is not

permitted to accept SBNs of the other persons, even from their

customers, and deposit the same in to his bank accounts in

exchange. In this regard the Ld. AO relied on the Notification

given by the Central Government dated 8/11/2016. The Ld. AO

further observed that the assessee is not one of the specified

persons like carrying on business in petrol bunks, gas agencies

etc., to receive SBNs against sales. Therefore, the Ld. AO treated

the SBNs deposited during the demonetization period amounted

to Rs. 10,14,000/- as unexplained money U/s. 69A of the Act for

taxation as provided U/s. 115BBE of the Act. Further, the Ld.

AO also initiated the penalty proceedings U/s. 271AAC of the Act

4 in respect of the said unexplained income. Thus, the Ld. AO

determined the total income of the assessee at Rs. 10,14,000/-

and passed the assessment order U/s. 144 of the Act dated

5/12/2019. Aggrieved by the order of the Ld. AO, the assessee

went on appeal before the Ld. CIT(A)-NFAC.

assessee has submitted that the Ld. AO has ignored the

Notifications issued by the Reserve Bank of India [RBI] from time

to time, the assessee has not uploaded the copies of such

notifications viz., 3408, 3416, 3448. The Ld. CIT(A)-NFAC further

observed that the assessee has not furnished any satisfactory

evidence to prove the source of deposits made during the

demonetization period. The Ld. CIT(A)-NFAC further also

observed that when the assessee has made cash deposit of Rs.

10,14,000/- during the demonetization period alone, the

appellant firm would have taxable income and liability to pay

income tax. The Ld. CIT(A)-NFAC also stated that the assessee

firm has not even availed the provisions of section 44AD of the IT

Act, 1961 and paid the tax. Thus, the Ld. CIT(A)-NFAC

concluded that the action of the Ld. AO in making addition of Rs.

10,14,000/- holds merit and therefore the Ld. CIT(A)-NFAC

5 confirmed the addition and dismissed the appeal of the assessee.

Aggrieved by the order of the Ld. CIT(A)-NFAC, the assessee filed

the present appeal before us by raising the following Grounds of

Appeal:

“1. The order of the Ld. CIT (A) is contrary to the facts and also the law applicable to the facts of the case.

submitted that during the course of assessment proceedings, the

Ld. AO failed to verify / consider the documentary material as

well as the details available on record and made the addition

under the head unexplained cash deposits. The Ld. AR further

submitted that the sources of the cash deposits are partly out of

closing cash balance as on 8/11/2016 and partly out of the

receipts during the demonetization period. The Ld. AR further

submitted that the RBI has issued various Notifications from time

6 to time viz., 3408, 3416, 3448 giving the list of persons including

“for making payments towards pre-paid mobile top-up” who can

accept old SBNs till 15th December, 2016. In support of his

submission, the Ld. AR drawn our attention to the document

showing the caption of “Transactions for which payment in old

Rs. 500/- Notes valid till 15/12/2016”. The Ld. AR further

submitted that in continuation of various Notifications issued by

the RBI as well as the Central Government, the Ministry of

Finance (Department of Economic Affairs), issued a Notification

dated 24th December, 2016 [S.O. 3544(E)] wherein it is clearly

mentioned in para-2, column (u) that “for making payment

towards pre-paid mobile top-up up to a limit of Rs. 500/- for

every top-up”. He further submitted that the assessee firm is a

service point for IDEA Cellular for collection of bills and also

provide pre-paid and post-paid bookings. In this line of business,

the assessee being an agent / service provicer merely collects the

cash from the customers after providing services as mentioned

above, and deposits the collected amounts initially into the

assessee’s account and later remits the same to the IDEA

Cellular’s account through ECS. Therefore, the assessee acted

merely as an agent / service provider to the IDEA Cellular and

during the demonetization period. Further, the RBI as well as

7 the Central Government have also approved for making payments

towards pre-paid mobile top-up to a limit of Rs. 500/- for every

top-up through their Notifications mentioned supra. The Ld. AR

further submitted that the Ld. AO has also wrongly interpreted

the provisions of the Act by invoking the provisions of section

69A r.w.s 115BBE of the Act. The Ld. AR also submitted that the

Ld. CIT(A)-NFAC ought to appreciated all the facts and

submissions made before the Ld. AO as well as before the Ld.

CIT(A)-NFAC but failed to do so and fell into error in confirming

the addition made by the Ld. AO by stating that the assessee has

not furnished any satisfactory evidence in support of the deposits

made during the demonetization period. The Ld. AR therefore

pleaded that the orders of the Ld. Revenue Authorities may be

set-aside and the assessee may be granted relief.

Revenue Authorities and argued in support of the same. The Ld.

DR further submitted that as per the Notification in S.O. No.

3407(E), dated 8/11/2016 through which the Central

Government withdrew the legal tender status of SBNs from

9/11/2016, the assessee is not permitted to accept the SBNs of

other persons, may be from his customers, and deposit the same

8 into his bank account in exchange. The Ld. DR further

submitted that it is a clear cut case that the assessee was

holding unaccounted SBNs as on 9/11/2016 and deposited the

same into its bank account in the guise of collection of bills and

also providing pre-paid and post-paid bookings. The Ld. DR

therefore submitted that the action of the Ld. AO treating the

deposit of SBNs during demonetization period to the tune of Rs.

10,14,000/- as unexplained cash credits by invoking the

provisions of section 69A r.w.s 115BBE of the Act is appropriate

and the Ld.CIT(A)-NFAC in the absence of any satisfaction

explanation from the assessee properly upheld the addition made

by the Ld.AO. Therefore, the Ld. DR pleaded that the order of the

Ld. CIT(A)-NFAC needs no interference.

available on record and the orders of the Ld. Revenue

Authorities. It is fact that the assessee has made deposits worth

Rs. 10,14,000/- in its bank account with Central Bank of India.

It is the case of the Ld. AO that the deposits were made by the

assessee during the demonetization period with SBNs which is an

unaccounted money under the guise of collection of bills and also

providing pre-paid and post paid bookings and therefore the Ld.

9 AO brought the deposits amounting to Rs. 10,14,000/- to tax and

made an addition U/s. 69A r.w.s 115BBE of the Act under the

head unexplained cash deposits. On appeal, the Ld. CIT (A)-NFAC

dismissed the appeal of the assessee by holding that the onus is

on the assessee to provide the satisfactory explanation with

respect to the deposits made into its bank account and since the

assessee had not discharged its onus, the action of the Ld. AO in

making the addition U/s. 69A r.w.s 115BBE is sustained. Before

us, it is the contention of the assessee that the sources for the

alleged cash deposits are partly out of closing cash balance as on

8/11/2016 and partly out of the receipts during the

demonetization period. We also observed that with regard to the

cash deposits of SBNs pertaining to the demonetization period,

the RBI and the Central Government has issued various

Notifications from time to time giving list of persons exempted

from making payments in certain categories. In continuation of

such Notifications issued by the RBI as well as the Central

Government, the Ministry of Finance (Department of Economic

Affairs), issued a Notification dated 24th December, 2016 [S.O.

3544(E)] wherein it is clearly mentioned in para-2, column (u)

that “for making payment towards pre-paid mobile top-up up

to a limit of Rs. 500/- for every top-up”. We further observed

10 that the assessee firm is a service point for IDEA Cellular for

collection of bills and also provide pre-paid and post-paid

bookings / recharges. In this line of business, the assessee like

agents / service providers merely collects the cash from the

customers after providing services like facility of sales, bill

collections, post-paid and prepaid recharges for Mobile SIMs and

Top-up sales for which commission is received by the assessee as

an agent and deposits the collected amounts initially into the

assessee’s (service provider or agent) account and later remits the

same to the IDEA Cellular’s account through ECS. It is also

pertinent to note that the assessee being a service provider on

behalf of IDEA Cellular is responsible for collection of moneys

from the pre-paid and post-paid subscribers and the IDEA

Cellular holding the position of Principal pays commission /

incentives to its agents / service providers (assessee in the

present case). Therefore, the assessee acted merely as an agent to

the IDEA Cellular and during the demonetization period, the RBI

as well as the Central Government have also approved for making

payments towards pre-paid mobile top-up to a limit of Rs. 500/-

for every top-up through their Notifications mentioned supra.

Further, the Ld. AR has also demonstrated that the assessee

remitted the collection of receipts to the IDEA Cellular Services

11 through its books of account. Therefore, we can safely come to a conclusion that the deposit of cash on receipt from various persons for sale of pre-paid and post-paid recharge bookings is not the sales of the assessee nothing but the amount collected on

behalf of IDEA Cellular. Considering all these facts and circumstances of the case, we are of the considered the view that the assessee is entitled to deposit the SBNs or the amounts collected during the demonetization period into its bank account and the sources are fully established by the assessee. In such situation, we cannot approve the action taken by Ld. AO as well

as the order of the Ld. CIT(A)-NFAC who sustained the addition made by the Ld. AO. Accordingly, we hereby set-aside the orders of the Ld. Revenue Authorities and allow the grounds raised by the assessee.

Pronounced in the open Court on 10th August, 2023.

Sd/- Sd/- (एस बालाकृ�णन) (दु�वू� आर.एल रे�डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सद�य/ACCOUNTANT MEMBER �या�यकसद�य/JUDICIAL MEMBER

Dated :10/08/2023

12 OKK - SPS आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- 1. �नधा�रती/ The Assessee – Dhairya Lakshmi Cellular, D.No. 29-37-61, Beside BIG-C, Near Vijetha Hospital, Eluru Road, Suryaraopet, Vijayawada. 2. राज�व/The Revenue – Income Tax Officer, Ward-2(1), CR Buildings, MG Road, Vijayawada. 3. The Principal Commissioner of Income Tax, 4.आयकर आयु�त (अपील)/ The Commissioner of Income Tax (Appeals), 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, Visakhapatnam 6.गाड� फ़ाईल / Guard file

आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam