2025 (5) TMI 1491 - AT - Income Tax

Deposits of specified bank notes before December 31, 2016 deadline valid under section 68

ITAT Delhi ruled on two issues concerning an assessee's tax assessment. Regarding unaccounted income under section 68, the tribunal held that deposits of ... Unaccounted income u/s 68 - deposits in post demonetization period on account of SBN of Rs. 1,000/- denomination deposited in bank - HELD THAT:-Hon’ble Apex Court in Union of India V/s Wood Paper Ltd.[1990 (4) TMI 55 - SUPREME COURT] has held that the condition regulating the computation of benefit should be interpreted liberally. Thus, hold that in view of the ‘non-obstante’ clause contained u/s. 3 of referred Act No. 2 of 2017, the appointed date for the purposes of holding or receiving specified bank notes has been declared as 31.12.2016. The bank deposit was made on 25.11.2016, which is well before 31.12.2016. CIT(A) has miserably failed to take into consideration the aforesaid Act (No. 2) of 2017 and passed impugned order contrary to the law to this extent. AO is thus directed to delete the addition added u/s. 68 of the Act. Decided in favour of assessee. Disallowance of car expenses - assessee failed to provide any log book in order to verify the claim as to whether the car was used for the personal purposes or for the business purposes - HELD THAT:- It is evident that neither any evidence to this extent was produced before the Revenue Authorities nor before this Tribunal. Hence, disallowance of 10% of the claimed car expenses as personal expenses confirmed. Decided against the appellant assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this appeal are:(a) Whether the appellant assessee was legally permitted to deposit Rs. 13,75,000/- in Specified Bank Notes (SBN) of Rs. 1,000 denomination into the bank account on 25.11.2016, during the post demonetization period, in light of the relevant notifications and the Specified Bank Notes (Cessation of Liabilities) Act, 2017Rs.(b) Whether the appellant assessee was entitled to claim car expenses amounting to Rs. 2,75,873/- for the assessment year under consideration, particularly whether the disallowance of 10% of such expenses as personal in nature was justifiedRs.(c) Ancillary issues raised but not specifically argued included the jurisdiction of the Assessing Officer to frame the assessment under section 143(3) of the Income-tax Act, 1961, the levy of interest under the Act, and alleged violations of natural justice in the assessment process.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Legality of Deposit of Rs. 13,75,000/- in Specified Bank Notes Post DemonetizationRelevant Legal Framework and Precedents: The key statutory provisions considered are the notifications issued by the Ministry of Finance, particularly S.O. 3544(E) dated 24.11.2016, which restricted acceptance of old currency notes of Rs. 1,000 denomination by petrol pumps and other exempt categories after 24.11.2016, and the Specified Bank Notes (Cessation of Liabilities) Act, 2017 (Act No. 2 of 2017), which came into force on 31.12.2016. Section 2(1)(a) of this Act defines the 'appointed day' as 31.12.2016, and Section 5 prohibits holding, transferring or receiving specified bank notes on and from the appointed day.Precedential authority was drawn from a coordinate Bench decision dated 16.03.2022, which interpreted the Specified Bank Notes (Cessation of Liabilities) Act, 2017, holding that the liability of the Reserve Bank of India and guarantee of the Central Government for Specified Bank Notes continued until 31.12.2016, and therefore deposits made before this date could not be treated as illegal or unaccounted income under section 69A of the Income-tax Act.Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer's addition of Rs. 13,75,000/- was premised on the Ministry of Finance notification dated 24.11.2016, which prohibited petrol pumps from accepting Rs. 1,000 denomination notes after that date. However, the Tribunal distinguished this notification from the substantive law enacted by Parliament via the Specified Bank Notes (Cessation of Liabilities) Act, 2017, which explicitly set the 'appointed day' as 31.12.2016. The Tribunal emphasized the primacy of the substantive Act over the notification and held that the deposit on 25.11.2016 was made prior to the appointed day and hence was lawful.The Tribunal further observed the settled legal principle that circulars or notifications issued by the Central Board of Direct Taxes (CBDT) or Ministry of Finance cannot curtail or override substantive statutory provisions, especially when such provisions confer benefits or rights upon the assessee. The Tribunal cited authoritative Supreme Court decisions to underscore that circulars cannot curtail benefits conferred by the Act and that provisions regulating computation of benefits should be interpreted liberally.Key Evidence and Findings: The Tribunal noted the assessee's submission that the sale proceeds were deposited within the permissible period as per the Specified Bank Notes (Cessation of Liabilities) Act, 2017. The Assessing Officer had verified purchase bills and stock registers and found no adverse inference on the increase in cash deposits. The Tribunal found no material to justify the addition under section 68 of the Act.Application of Law to Facts: Applying the statutory provisions and judicial precedents, the Tribunal held that the deposit of Rs. 13,75,000/- in Specified Bank Notes on 25.11.2016 was lawful and did not constitute unaccounted income. The CIT(A) erred in confirming the addition without considering the Specified Bank Notes (Cessation of Liabilities) Act, 2017.Treatment of Competing Arguments: The Revenue's reliance on the Ministry of Finance notification dated 24.11.2016 was rejected as subordinate to the substantive Act. The Tribunal gave precedence to the statutory provisions over executive notifications and rejected the Revenue's contention that the deposit was illegal and liable to be added as unexplained cash under section 68.Conclusion: The Tribunal set aside the addition of Rs. 13,75,000/- made under section 68 of the Act and ruled in favor of the assessee on this issue.Issue 2: Disallowance of 10% of Car Expenses Claimed by the AssesseeRelevant Legal Framework: Under the Income-tax Act, expenses incurred for personal purposes are not allowable deductions against business income. The onus lies on the assessee to prove that claimed car expenses pertain to business use. Maintenance of a log book is standard practice to substantiate the business use of a vehicle.Court's Interpretation and Reasoning: The Assessing Officer disallowed 10% of the claimed car expenses amounting to Rs. 27,587/- on the ground that the assessee failed to maintain a log book or provide evidence to distinguish personal use from business use. The CIT(A) upheld this disallowance.Key Evidence and Findings: The record showed absence of any log book or documentary evidence supporting the business use of the vehicle. The assessee did not produce any such evidence before the Tribunal either.Application of Law to Facts: Given the lack of evidence, the Tribunal held that the Assessing Officer and CIT(A) had rightly exercised their discretion to disallow 10% of the car expenses as personal in nature.Treatment of Competing Arguments: The assessee contended entitlement to the full claim, but failed to substantiate the claim with requisite evidence. The Tribunal declined to interfere with the discretionary finding of the Revenue authorities.Conclusion: The disallowance of Rs. 27,587/- was upheld against the assessee.Ancillary Issues:The first ground raised by the assessee challenging the jurisdiction of the Assessing Officer to frame assessment under section 143(3) was dismissed for want of specific pleadings or submissions. Similarly, other grounds relating to levy of interest and alleged violations of natural justice were not specifically argued and hence not entertained.3. SIGNIFICANT HOLDINGSThe Tribunal made the following crucial legal determinations:'In view of the 'non-obstante' clause contained u/s. 3 of the above referred Act No. 2 of 2017, the appointed date for the purposes of holding or receiving specified bank notes has been declared as 31.12.2016. The bank deposit was made on 25.11.2016, which is well before 31.12.2016. Ld. CIT(A) has miserably failed to take into consideration the aforesaid Act (No. 2) of 2017 and passed impugned order contrary to the law to this extent.'Further, the Tribunal reiterated the principle that 'a circular of CBDT, no doubt, has the force of law, can even supplant the law in cases where it is beneficial to the assessee and can mitigate or relax the rigors of the law. The powers of the CBDT in issuing circular for general guidance are subject to two important conditions. One is that it does not entitle the income tax authority including the Board to issue instructions or circulars contrary to the substantive provision of law or curtailing the relief to which the assessee is otherwise entitled under law.'On the car expenses, the Tribunal concluded that 'neither any evidence to this extent was produced before the Revenue Authorities nor before this Tribunal. Hence, we are not inclined to interfere in the judicious discretion exercised by the ld. AO and confirmed by the ld. CIT(A) by disallowing 10% of the claimed car expenses as personal expenses.'In summary, the Tribunal allowed the appeal partly by deleting the addition of Rs. 13,75,000/- under section 68 of the Income-tax Act and upheld the disallowance of 10% of car expenses. The other grounds were either dismissed or not pressed.