2024 (6) TMI 1206 - AT - Income Tax

Assessee's cash deposits during demonetization allowed as explained money under section 69A and 115BBE

The ITAT Chennai allowed the assessee's appeal against addition under section 69A read with section 115BBE for cash deposits during demonetization. The ... Addition u/s 69A r.w.s.115BBE - cash deposits treated as unexplained money - assessee could not establish source for cash deposits made during demonetization period into Axis Bank account - assessee could not establish accumulation of cash in hand - assessee himself claimed that he has received cash in demonetized currency after 09.11.2016 and up to 31.12.2016 contrary to Circular issued by RBI & Government of India in respect of handling demonetized currency - assessee could not file any evidences like month wise sales/purchases for FYs 2015-16 & 2016- 17, stock register, and other details to fully substantiate his claim of the cash deposits from sale of materials only. HELD THAT:- The facts borne out from the record clearly indicate that the assessee is running a dhall mill and manufacturing various kinds of dhalls. The assessee procures various kinds of pulses from local market and manufacturing into various kinds of dhalls and sells to unregistered dealers in cash. From the details filed by the assessee, it is abundantly clear that there is no sudden increase in cash sales during demonetization period when compared to earlier Financial Years. Further, the assessee has filed cash book and other details to prove availability of cash in hand as on 08.11.2016 at Rs.71,76,208/-. In fact, the AO is not disputed the fact that the assessee has filed cash book and as per said cash book, cash in hand as on 08.11.2016 was at Rs.71,76,208/-. If you go by the nature of business of the assessee and sales trend, it is undoubtedly clear that the assessee’s sales predominantly in cash, and thus, the cash in hand shown by the assessee as on 08.11.2016 appears to be genuine and bona fide. To this extent, in our considered view, the reasons given by the AO to reject explanation of the assessee for source for cash deposits into bank account is devoid of merits. As considering explanation of the assessee with regard to source for remaining cash deposits.assessee claims that he has collected cash in demonetized currency from customers even after 09.11.2016 and said cash receipts is not violation of Specified Bank Notes (Cessation of Liabilities) Act, 2017. As per Specified Bank Notes (Cessation of Liabilities) Act, 2017, no person shall accept or transact any SBNs from the appointed date. As per said Act, appointed date is 31.12.2016. From the above, it is very clear that up to appointed date, persons can transact in SBNs. However, the only requirement is, they should be able to establish source for said cash deposits. In the given facts of the present case, there is no dispute with regard to the fact that the assessee’s sales predominantly in cash. It is also an undisputed fact that there is no abnormal variation in total sales, cash sales and cash deposits for two Financial Years. The assessee is also able to file various evidences, including month-wise purchase and sales and cash book to prove availability of cash in hand as on 08.11.2016. Therefore, we are of the considered view that going by the nature of business of the assessee and also details submitted for two Financial Years, the explanation offered by the assessee towards source for cash deposits into bank account during demonetization period, is bona fide and acceptable. The AO and the Ld.CIT(A) without considering the relevant submissions of the assessee simply made addition towards cash deposits u/s.69A r.w.s.115BBE - Assessee appeal allowed. Issues Involved:1. Legality of the order by the First Appellate Authority.2. Consideration of submissions and decisions by the Assessing Officer (AO) and First Appellate Authority.3. Applicability of Section 69A for addition.4. Acceptance of Specified Bank Notes (SBNs) post-demonetization.5. Treatment of cash deposits as income despite being recorded in the books of account.Detailed Analysis:1. Legality of the Order by the First Appellate Authority:The appellant contended that the order by the First Appellate Authority was 'bad and erroneous in law.' This broad claim underpins the subsequent more specific issues raised by the assessee.2. Consideration of Submissions and Decisions by AO and First Appellate Authority:The appellant argued that both the AO and the First Appellate Authority failed to properly consider the submissions and decisions presented during the appeal proceedings. The appeal highlighted that the authorities did not adequately weigh the evidence and judicial precedents cited by the appellant.3. Applicability of Section 69A for Addition:The appellant challenged the addition made under Section 69A, asserting that this section applies only when the sum is not found credited in the books of account maintained by the appellant. The AO had added Rs.1,33,07,500/- as unexplained money under Section 69A read with Section 115BBE, arguing that the appellant could not substantiate the source of the cash deposits made during the demonetization period.4. Acceptance of Specified Bank Notes (SBNs) Post-Demonetization:The appellant contended that the authorities erred in concluding that SBNs should not have been received after 08/11/2016 until 31/12/2016 without considering Section 3 of the Specified Bank Notes (Cessation of Liabilities) Act, 2016. The appellant argued that there was no legal prohibition on accepting SBNs until the appointed date of 31/12/2016, provided the source of the cash was legitimate.5. Treatment of Cash Deposits as Income Despite Being Recorded in the Books of Account:The appellant argued that the cash deposits should not be treated as unexplained income since they were received in the course of business, recorded in the books of account, and not found incorrect or incomplete by the authorities. The appellant relied on decisions by the ITAT Chennai in similar cases, which supported their position.Tribunal's Findings:On the Legality of the Order and Consideration of Submissions:The Tribunal noted that the authorities did not properly consider the appellant's submissions and evidence. The Tribunal emphasized that the appellant had provided detailed records, including cash sales and deposits for the relevant financial years, which showed no abnormal variation during the demonetization period.On the Applicability of Section 69A:The Tribunal found that the appellant had adequately explained the source of the cash deposits, which were recorded in the books of account. The Tribunal observed that the appellant's business involved significant cash transactions, and the cash in hand as on 08/11/2016 was substantiated by the cash book and other records.On Acceptance of SBNs Post-Demonetization:The Tribunal agreed with the appellant's interpretation of the Specified Bank Notes (Cessation of Liabilities) Act, 2017, noting that transactions in SBNs were permissible until 31/12/2016. The Tribunal referenced a similar decision by the ITAT Chennai, which supported the appellant's position that accepting SBNs during this period was not illegal.On Treatment of Cash Deposits as Income:The Tribunal concluded that the cash deposits were legitimate business receipts, duly recorded in the books of account. The Tribunal cited previous ITAT decisions, which held that when cash deposits are backed by recorded sales and the books of account are not found defective, such deposits should not be treated as unexplained income.Conclusion:The Tribunal set aside the order of the First Appellate Authority and directed the AO to delete the addition made under Section 69A read with Section 115BBE. The appeal was allowed, and the Stay Petition was dismissed as infructuous. The Tribunal's decision underscored the importance of considering detailed records and the legal context of transactions during the demonetization period.Order Pronounced:The order was pronounced on the 19th day of January, 2024, in Chennai.