Cash deposits in Specified Bank Notes during demonetization cannot be unexplained income under sections 68/69 when source explained

ITAT Kolkata held that cash deposits made in Specified Bank Notes during demonetization period cannot be treated as unexplained income under sections 68 or 69 of Income Tax Act when source is duly explained and accepted by AO. The cooperative credit society had adequately explained deposit sources. While AO contended violation of Central Government notification dated 08.11.2016 regarding acceptance of Specified Bank Notes, such violation falls under competent authority's jurisdiction, not income tax assessment. Addition confirmed by lower authorities was deleted and assessee's appeal was allowed.

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Issues:
Confirmation of addition by CIT(A) of cash deposits made during demonetization period as unexplained income under section 69A of the Income Tax Act.

Analysis:
The appeal was filed by the assessee against the order of the National Faceless Appeal Centre confirming the addition of Rs. 91,87,680 as unexplained income by treating cash deposits made during demonetization as per section 69A of the Act. The Assessing Officer noted that the cooperative credit society had deposited Rs. 2,20,97,000 during demonetization, out of which Rs. 91,87,680 was from cash sales made in Specified Bank Notes. The Assessing Officer added this amount to the income of the assessee. The CIT(A) upheld this addition.

The assessee contended that no cash sales were made during demonetization, and the deposited amount was collected from agents before demonetization and deposited in the bank account. The assessee argued that no violation of RBI circular occurred and that the provisions of section 69A were not applicable. The Tribunal noted that there was no evidence of cash sales during demonetization and that the deposits were made from collected amounts within the first three days of the period. The Tribunal held that the deposits could not be considered unaccounted income under section 69A, even if Specified Bank Notes were involved. The Tribunal referred to a similar case from the Bangalore Tribunal to support its decision.

The Tribunal emphasized that while the violation of RBI circular could attract action by the competent authority, it did not make the deposits unexplained income under the Income Tax Act. The Tribunal ordered the deletion of the addition made by the lower authorities, stating that the deposits were not sustainable as unexplained income under section 69A. Consequently, the appeal of the assessee was allowed, and the addition was deleted.

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