Unexplained cash deposits during demonetization ruled legitimate collections for mobile service provider under Section 69A

The ITAT Visakhapatnam allowed the assessee's appeal regarding additions under Section 69A read with Section 115BBE for unexplained cash deposits made during demonetization. The assessee operated as a service provider for IDEA Cellular, collecting payments for mobile recharges and bill collections. The tribunal held that cash deposits of SBNs during demonetization were legitimate collections made on behalf of IDEA Cellular as an agent, not unexplained income. The sources were adequately established through books of account showing remittances to IDEA Cellular via ECS, and RBI notifications permitted mobile top-ups during demonetization.

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Issues involved:
The case involves the assessment of unexplained cash deposits made during the demonetization period by an assessee, leading to a dispute regarding the taxable income and liability to pay income tax.

Summary:
The appeal was filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals) arising from the assessment of cash deposits during the demonetization period. The assessee, a firm engaged in IDEA Cellular sales and services, had deposited significant amounts of cash in its bank account, leading to scrutiny by the assessing officer (AO). The AO treated the cash deposits as unexplained money under Section 69A of the Income Tax Act, 1961, and initiated penalty proceedings. The Ld. CIT(A)-NFAC upheld the addition of Rs. 10,14,000 as unexplained income, leading to the appeal before the ITAT Visakhapatnam.

In the appeal, the assessee contended that the deposits were sourced from legitimate business activities as an agent for IDEA Cellular, supported by RBI and Central Government notifications allowing payments in demonetized currency for specific purposes. The ITAT observed that the assessee functioned as an agent/service provider for IDEA Cellular, collecting cash from customers for services and remitting the amounts to the principal, IDEA Cellular. The ITAT found that the assessee's actions were in compliance with the notifications issued during the demonetization period, allowing payments for pre-paid mobile top-ups. Therefore, the ITAT set aside the orders of the Revenue Authorities and allowed the grounds raised by the assessee, concluding that the cash deposits were legitimate and not unexplained income.

The ITAT's decision was pronounced in the open court on 10th August 2023.

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