Cash deposits from demonetised notes received on retail sales-whether taxable as unexplained money under s. 69; addition deleted.

Whether cash deposits during the demonetization period, sourced from specified banknotes (SBN) received on retail sales, could be treated as unexplained under s. 69 was the dominant issue. The Tribunal held that the AO had accepted the declared sales, stock, and trading results and had not invoked s. 145(3) or treated the transactions as unauthorised receipts; further, in the assessee's line of business, opened bottles could not be returned, compelling acceptance of SBN to avoid total loss, constituting a reasonable and exceptional business necessity. Consequently, the s. 69 addition sustained by the CIT(A) was deleted and the appeal was allowed.

---

---

1. ISSUES PRESENTED AND CONSIDERED

(i) Whether cash deposits in Specified Bank Notes (SBN) during the demonetization period, treated as unexplained under Section 69, were liable to addition where the assessee explained the deposits as arising from cash sales and the Assessing Officer had accepted the declared sales, stock, and trading results without invoking Section 145(3).

(ii) Whether, on the facts found, the assessee had demonstrated a satisfactory source and a reasonable cause/exceptional circumstances for receipt of SBN from retail customers, warranting deletion of the addition confirmed by the first appellate authority.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Sustainability of addition under Section 69 for SBN cash deposits when sales/stock/books were not rejected

Legal framework: The Court examined the addition made under Section 69 on account of cash deposited in bank during demonetization. It also noted, as a relevant factual/legal context, that this was not a case where Section 145(3) was invoked or income was estimated.

Interpretation and reasoning: The Court found that the Assessing Officer accepted the assessee's declared sales and did not disturb the declared stock or reject the books of accounts. The Assessing Officer also did not record a finding that receipt of SBN by the assessee was "unauthorized" in the assessment reasoning, even though the deposit was during demonetization. The addition was made after giving credit of an average sales figure and treating the balance as unexplained; however, the trading results already incorporated such cash sales, and those results stood accepted. In this factual setting, the Court treated the source explanation as intrinsically linked to accepted sales and trading results, undermining the basis for sustaining an unexplained investment/asset addition on the same receipts.

Conclusion: On the admitted acceptance of sales/stock/trading results and absence of rejection of accounts or estimation of income, the cash deposit explanation could not be discarded merely by adopting an "average sales" credit and treating the remainder as unexplained. The addition of Rs. 10,98,000/- under Section 69 was held unsustainable and ordered to be deleted.

Issue (ii): Whether exceptional circumstances constituted a satisfactory explanation for receipt of SBN from customers and consequent bank deposits

Legal framework: The Court considered whether the assessee's explanation regarding circumstances of receipt of SBN during demonetization satisfactorily explained the nature and source of the cash deposited, for purposes of Section 69 treatment.

Interpretation and reasoning: The Court accepted the factual explanation that the assessee was engaged in retail sale of liquor, that sales were in cash, and that customers, after taking the liquor and opening the bottle, compelled acceptance of the sale consideration in SBN. The Court specifically reasoned that once a liquor bottle is opened, it cannot be taken back as a sales return and would cause a total loss to the seller; therefore, in such cases the assessee had no real alternative but to accept the currency tendered to protect business interests and avoid loss. The Court simultaneously observed that SBN should not be accepted during demonetization except when authorized, but held that the narrated circumstances were beyond the assessee's control and constituted a reasonable cause/exceptional circumstance. It also noted that the Assessing Officer had already allowed credit of Rs. 6,00,000/- and nevertheless had accepted the overall trading results where such SBN cash sales formed part of total sales.

Conclusion: The Court held that the assessee had demonstrated exceptional circumstances under which SBN were accepted, and that the source stood explained as arising from retail cash sales already reflected in accepted trading results. Consequently, the addition of Rs. 10,98,000/- confirmed by the first appellate authority was deleted and the appeal was allowed.

---