2023 (9) TMI 939 - AT - Income Tax

Tribunal overturns cash deposit addition during demonetization, citing evidence and belief in notification benefit

The Tribunal allowed the appeal, overturning the addition of cash deposits during demonetization and the application of a flat tax rate. The Tribunal ... Addition u/s 69A - cash deposited in bank on various dates during the demonetization period - Appellant being a milk supplier was exempt under the Government/RBI notification and as such the source of the cash deposits stood explained satisfactorily - CIT(A) dismissed the appeal by simply stating that the Appellant has not been able to show that the Appellant is entitled to claim benefit of Notification No. S.O. 3408(E), issued by Ministry of Finance (Department of Economic Affairs), dated 08.11.2016 as the Appellant has not filed any material to establish that the Appellant qualify as a milk booth operating under authorization of Central or State Government - HELD THAT:- The approach adopted by the CIT(A) cannot be countenanced. Notification No. S.O. 3408(E), provided that SBNs would continue to be legal tender for purchase of milk at GCMM. Thus, in our view, AO as well as CIT(A) were incorrect in holding that the Appellant was not covered by the notification. Even if for the sake of arguments it is believed that that though the Appellant was not covered by the aforesaid Notification, the Appellant had a bonafide belief that the Appellant was entitled to the benefit of the Notification and therefore, permitted to receive SBNs, and that the Appellant did accept SBNs as valid tender. Appellant had provided explanation about the source and nature of the cash deposited in the bank account as cash received from sale of milk in the normal course of business. The explanation furnished by the Appellant was rejected by the AO and CIT(A) by merely holding that the Appellant could not have received SBNs as legal tender and therefore, cash deposited by the Appellant was undisclosed income without verifying the documents and testing the explanation offered by the Appellant by examining the actual purchase/sale of milk. Thus, the averments made by the Appellant, which in our view are supported by the documents furnished, went uncontroverted. Addition made by the AO u/s 69A of the Act is deleted. Present appeal preferred by the Appellant is allowed. Issues Involved:The judgment involves challenges to an order passed by the Ld. Commissioner of Income Tax (Appeals) regarding cash deposits during demonetization and application of tax rates under the Income Tax Act, 1961.Challenge 1 - Cash Deposits during Demonetization:The Appellant contested the addition made under section 69A of the Act for cash deposits during demonetization, arguing that as a milk supplier, the cash deposits were exempt under Government/RBI notification. The Assessing Officer held the cash as undisclosed income due to lack of evidence supporting the claim.The CIT(A) upheld the addition of cash deposits, stating that the Appellant failed to provide documentary evidence of the source of the cash. Despite the Appellant's submissions and documents, the CIT(A) dismissed the appeal, emphasizing that the Appellant did not qualify as a milk booth authorized by the government, as per the notification.The Tribunal found that the Appellant substantiated the source of cash deposits through documents like license, bank statements, and purchase records. The Tribunal disagreed with the CIT(A)'s approach, noting that the Appellant had a genuine belief in entitlement to the notification benefit. Therefore, the Tribunal deleted the addition of INR 13,60,000 made by the Assessing Officer under Section 69A of the Act.Challenge 2 - Tax Rate Application:The Appellant also challenged the application of a flat tax rate of 60% under section 115BBE to the unexplained income. The Appellant argued that since the cash deposits were explained, the flat tax rate should not apply.The CIT(A) upheld the tax rate application along with the addition of unexplained income. The Tribunal, after considering the Appellant's submissions and supporting documents, concluded that the addition of unexplained cash deposits was unjustified. Thus, the Tribunal allowed the appeal, overturning the CIT(A)'s decision.In conclusion, the Tribunal allowed the appeal, emphasizing the Appellant's substantiation of cash sources and overturning both the addition of cash deposits and the application of the flat tax rate.Order pronounced on 24.05.2023.