2022 (4) TMI 593 - AT - Income Tax

Tribunal upholds deletion of income addition under IT Act, criticizes Assessing Officer

The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision to delete the addition of Rs. 3,22,80,000 to the assessee's income under ... Addition u/s 69A - cash deposits made in the bank account during the demonetization period - HELD THAT:- We find from the order of the Ld. AO that he has not disputed the books of accounts of the assessee. We also find from the paper book submitted by the assessee that the requirements like membership of the depositor, date of deposit, amount received, depositor PAN, AADHAR and other particulars are provided by the assessee before the Ld. AO which was not disputed by the Ld. AO. We also find no merit in the orders of the Ld.AO that section 69A can be invoked. In the instant case, the assessee has recorded the cash in its books of account, explained the details of deposits, provided the credentials of the depositors to the AO. AO merely because of two depositors namely Mr. B. Kanakaraju and Mr. G. Santosh Kumar denied to have opened any account with the assessee, it cannot be a ground to be declared the deposits as bogus. AO has not provided any opportunity to the assessee to cross-examine these two persons by the assessee. AO erred in observing that the deposits received from C. Venkata Rao and Smt. Chaganti Lakshmi are by way of cheques but has wrongly noted that the deposits have been received by cash by the assessee. AO is also not correct in declaring ₹ 500/- and ₹ 1000/- SBN notes as illegal from 8/11/2016 because section 2(1)(a) of The Specified Bank Notes (Cessation of Liabilities) Act, 2017 states that 'appointed day' means the 31st day of December, 2016. Further, section 5 of The Specified Bank Notes (Cessation of Liabilities) Act, 2017 also states that from the appointed day, no person shall, knowingly or voluntarily, hold, transfer or receive any specified bank note. So it can be inferred from the said Act that the amounts are considered to be legally tendered till 31/12/2016. AO also failed to observe that in the absence of an alternative, when there is only one option available to the assessee ie., to deposit the specified bank notes with a bank, and accordingly the assessee has deposited ₹ 3,22,80,000/- into the bank. These cash deposits which is the aggregate of opening balance of ₹ 2,96,34,776/- as on 8/11/2016 and the amount of cash deposits received from 8/11/2016 to 2/12/2016 amounting to ₹ 3,22,80,000/- is in accordance with law. In view of the above discussions, we find no infirmity in the order of the Ld. CIT(A) and therefore no interference is required. - Decided in favour of assessee. Issues:Appeal by Revenue against CIT(A) order - Invocation of section 69A of the IT Act - Addition of Rs. 3,22,80,000 to income - Validity of CIT(A) decision to delete the addition - Dispute over cash deposits during demonetization period - Compliance with section 69A requirements - Opportunity for cross-examination of witnesses - Legal tender status of specified bank notes - Legality of cash deposits during demonetization period.Analysis:The appeal before the Appellate Tribunal ITAT Visakhapatnam involved the Revenue challenging the CIT(A)'s decision regarding the addition of Rs. 3,22,80,000 to the assessee's income under section 69A of the IT Act for the AY 2017-18. The Revenue contended that the CIT(A) erred in deleting the addition and argued that the cash deposits made during the demonetization period were unexplained and from undisclosed sources. The CIT(A) had directed the deletion of the addition after considering the written submissions and additional grounds raised by the assessee. The Revenue, dissatisfied with the CIT(A)'s order, appealed before the Tribunal.During the proceedings, the Revenue argued that the cash deposits during demonetization had increased significantly and highlighted discrepancies in the list of depositors provided by the assessee. On the other hand, the assessee's representative contended that section 69A could not be invoked as the deposits were accounted for in the books of accounts. The assessee maintained that the cash deposits were duly recorded and supported by the cash book entries. The Tribunal examined the submissions, noting that the assessee had multiple branches and maintained proper accounts without dispute from the Assessing Officer.In its analysis, the Tribunal referred to section 69A of the IT Act, emphasizing that unexplained money not recorded in the assessee's books could be deemed as income. The Tribunal found that the assessee had recorded the cash deposits, provided details, and furnished depositors' credentials to the Assessing Officer. It criticized the Assessing Officer for not allowing cross-examination of certain depositors and misinterpreting the legal status of specified bank notes during demonetization. The Tribunal cited a Supreme Court case emphasizing the importance of providing opportunities for cross-examination and highlighted errors in the Assessing Officer's observations regarding the legality of the deposits.Ultimately, the Tribunal dismissed the Revenue's appeal and allowed the Cross Objection filed by the assessee. It concluded that the CIT(A)'s decision to delete the addition was valid, given the assessee's compliance with accounting requirements and the legal tender status of the specified bank notes during the relevant period. The Tribunal found no merit in the Revenue's arguments and upheld the CIT(A)'s order, emphasizing the legality and proper documentation of the cash deposits made by the assessee during the demonetization period.