Tribunal overturns addition of unexplained income for prepaid card distributor; demonetized deposit deemed legitimate.

The Tribunal ruled in favor of the appellant, a firm engaged as a distributor of prepaid cards, by overturning the addition of Rs.46,000/- as unexplained income under section 69A of the Income Tax Act. The Tribunal found that the appellant was permitted to accept and deposit demonetized currency within the stipulated period, and the suspicion regarding the source of the deposit was unfounded. Consequently, the Tribunal allowed the appeal, deleted the impugned addition, and pronounced the order on 21st July 2022.

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Issues:
Addition of Rs.46,000/- u/s. 69A based on unexplained income.

Analysis:
The appeal pertains to the addition of Rs.46,000/- made by the Assessing Officer under section 69A of the Income Tax Act, which was sustained by the Commissioner of Income Tax (Appeals) [CIT(A)]. The appellant contended that the addition was unjustified as the amount was from business receipts and the source was explained through submitted documents. The CIT(A) upheld the addition based on lack of material to prove the source of the cash deposit. The appellant argued that the rejection was based on conjecture without concrete evidence of undisclosed sources.

The Tribunal noted that the assessee, a resident firm engaged as a distributor of prepaid cards, deposited Rs.49.12 Lacs in a bank account, with Rs.46,000/- deposited on 29.11.2016 in demonetized currency. The appellant claimed that these deposits were from business receipts and permissible under government notifications until 31.12.2016. However, the lower authorities added the amount to the income as unexplained, taxable at a higher rate under section 115BBE.

Upon examination, the Tribunal found that the appellant was allowed to accept demonetized currency until 24.11.2016 and could deposit it until 31.12.2016. The suspicion on the source of the deposit was solely due to the timing of the transaction. Considering that a significant amount was deposited, only a small portion was questioned. Therefore, the Tribunal disagreed with the CIT(A)'s decision, concluding that the addition of Rs.46,000/- as unexplained income was unwarranted. Consequently, the Tribunal allowed the grounds raised by the appellant and deleted the impugned addition.

The Tribunal's decision was in favor of the appellant, allowing the appeal and pronouncing the order on 21st July 2022.

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