FMCG Business: Demonetized Currency Unexplained Deposit Ruling

The Tribunal upheld the CIT(A)'s decision that Rs. 28,00,000 deposited in demonetized currency by the FMCG business was unexplained and subject to treatment under Section 69A. The Tribunal found the assessee's explanations inadequate, emphasizing the prohibition on accepting demonetized currency and the failure to substantiate the source of the deposited amount. The appeal was dismissed, affirming the addition of the deposited sum as unexplained investment.

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Issues Involved:
1. Validity of cash deposits during demonetization.
2. Alleged failure to apply principles of natural justice.
3. Appropriateness of invoking Section 69A.
4. Legitimacy of accepting demonetized currency.
5. Allegations of money laundering.

Summary:

1. Validity of Cash Deposits During Demonetization:
The assessee, engaged in the business of FMCG goods, deposited Rs. 28,00,000 in demonetized currency on 12.11.2016. The CIT(A) observed that the cash book revealed a balance of only Rs. 252.40 as on 08.11.2016, and the assessee failed to substantiate the source of the deposited amount. The assessee contended that the cash was from sales and debtor collections between 08.11.2016 and 12.11.2016, supported by a computerized cash book and certified documents. However, the Tribunal found no error in CIT(A)'s order, emphasizing that the assessee was not permitted to accept demonetized currency and failed to prove the source of Rs. 28,00,000.

2. Alleged Failure to Apply Principles of Natural Justice:
The assessee argued that the AO failed to issue a specific show cause notice and did not consider the assessee's replies and evidence, violating natural justice principles. The CIT(A) dismissed this ground, stating it was general in nature and did not need separate consideration. The Tribunal upheld this view, finding no merit in the assessee's claims.

3. Appropriateness of Invoking Section 69A:
The assessee challenged the invocation of Section 69A, arguing that the transactions were recorded in regular books of accounts and adequately explained. The CIT(A) and Tribunal found that the assessee failed to provide satisfactory evidence for the source of the cash deposits, justifying the application of Section 69A.

4. Legitimacy of Accepting Demonetized Currency:
The assessee claimed that accepting demonetized currency was lawful up to 30 December 2016. However, the CIT(A) and Tribunal noted that the assessee was not authorized to accept such currency post-demonetization, rendering the deposits unexplained.

5. Allegations of Money Laundering:
The AO alleged money laundering against the assessee. The CIT(A) and Tribunal found no basis for these allegations but focused on the unexplained nature of the cash deposits, affirming the addition of Rs. 28,00,000 as unexplained investment.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s order that the Rs. 28,00,000 deposited in demonetized currency was unexplained and liable to be treated as such under Section 69A. The principles of natural justice were deemed to have been followed, and the assessee's explanations were found insufficient.

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