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

PER DUVVURU RL REDDY, Judicial Member :

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.

3. On appeal the Ld. CIT(A)-NFAC observed that though the 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.

4. Any other grounds may be urged at the time of hearing.”

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.

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.

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.