TaxTMI 
TaxTMI 
TaxTMI 
2024 (10) TMI 1614
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.....69 of the Act in respect of cash deposits made in Specified Bank Notes(SBNs) during demonetization period i.e., 09.11.2016 to 31.12.2016. For this, assessee has raised various grounds and the same read as under:- 1. The Order of the National Faceless Appeal Centre ("NFAC") /CIT(A) is contrary to law, facts and circumstances of the case. 2. The NFAC / CIT(A) erred in confirming the addition of Rs.57.29 crores as unexplained investment u/S.69 of the Act in respect of cash deposit of SBN during demonetization period. 3 The NFAC / CIT(A) ought to have appreciated it is not the case that the amount of cash deposits in SBNs has come out from undisclosed sources or under suspicious circumstances only to change the color of the money. 3.1 The NFAC / CIT(A) ought to have appreciated that the Appellant is a company wholly owned by Government of Tamil Nadu conducting its retail business of IMFS and Beer through 6200 (In November, 2016) Retail Vending shops located all over Tamil Nadu. These shops functioned under the control of 38 District Managers. 3.2 The NFAC / CIT(A) ought to have appreciated that in all these widespread retail shops, individu....
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....e cash collections of the Appellant has been more or less similar in the earlier years and in the year under appeal and hence there is no extra circumstances to deal with the cash deposits assessable u/s.69 of the Act. 8. The NFAC / CIT(A) failed to appreciate that due to the extenuating circumstances the employees of Appellant's retail shops had no other alternative but to accept SBNs. 9. The NFAC / CIT(A) erred in holding that the transactions made in SBN on or after 09.11.2016 as prohibited by law cannot be entered into cash books. 10. The NFAC / CIT(A) failed to appreciate that in the notice issued by the Assessing Officer it has been mentioned that the Appellant has submitted complete details of stock, sales, realization and closing stock. Therefore, there can be no question of presumption that the sales during this demonetization period were for not valid currency and these demonetized notes were received as consideration for sales which were accounted in the books, especially given that all the details of stocks and sales have been furnished and accepted and these amounts form part of our accounted receipts. 11. The NFAC / CIT(A) ought....
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....r the physical threat, which was given by the customers of liquor and beer. Hence, the employees accepted the SBNs and the individual purchases were made by these customers in demonetized currency. The CIT(A) dealt with this issue vide paras 5.3 to 5.7 & 6 as under:- 5.3 The explanation put forth by the appellant appears to be a bit too convenient for my comfort. It can be assumed that might be in some of the places the workers could be under physical threats but how could be it be possible that threats were given to the workers in 3037 shops out of 6200 shops which is around 50% of the total shops the appellant owns. If so much chaos was created and threats were given by the customers, the appellant being a government entity should have escalated the matter to the other Government Authorities who has the power to impose certain reasonable restriction on the right to assemble of the people. It is also pertinent to mention here that it was also not a spontaneous gathering which gathered at once and beaten the workers. Appellant claimed that threats were received at various places which created law and order problem. However the appellant has not taken any preventive measure....
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.... Laboratories (P.) Ltd. [2022] 135 taxmann.com 286 (SC) faced an identical matter where the activities carried out were prohibited by law, wherein it was held that since acceptance of freebies by medical practitioners was punishable as per Circular issued by Medical Council of India under MCI regulations, 2002, gifting of such freebies by assessee-pharmaceutical company to medical practitioners would also be prohibited by law and thus, expenditure incurred in distribution of such freebie swould not be allowed as a deduction in terms of Explanation 1 to section 37(1). The relevant portion of the order is reproduced here as under:- ................ ................ ............... 5.7 During the Demonetization period, the exchange of SBNs (Except in few eligible businesses) is prohibited by the Government of India. In the present case the appellant company during the demonetization period accepted the SBNs with no legal tender and in exchange supplied to its customers non-essential & non-perishable commodity like liquor & beer. By doing so, the appellant company had given asset back to well-intended and well thought policy of Government to curb the....
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....dmit additional grounds of appeal, this ground does not require any adjudication. Accordingly Ground No. 12 &13 are Dismissed. Aggrieved, now assessee is in appeal before the Tribunal. 5. Before us, the ld.counsel for the assessee filed details of opening cash balance as on 09.11.2016, sales made in cash from 09.11.2016 to 30.12.2016, cash deposited in bank account from 10.11.2016 to 30.12.2016 and closing balance as on 30.12.2016 as under:- Cash Balance (Opening Balance) As on 09/11/2016 Cash collection (cash Sales in TASMAC shop) From 09/11/2016 to 30/12/2016 Cash Deposited in Bank from (*) 10/11/2016 to 30/12/2016 Closing Balance as on 30/12/2016 84.23 (#) 3490.21(**) 3506.47 67.97 The ld.counsel explained that out of opening cash balance of Rs.84.23 crores consisting of SBNs amounting to Rs.81.57 crores and other denomination of notes amounting to Rs.2.66 crores. Further, he explained that out of total cash collection of Rs.3490.21 crores, the cash collection in SBNs during demonetization period i.e., 09.11.2016 to 30.12.2016 was Rs.57.29 crores. The ld.counsel explained that it was explained before AO that the demonetization was announced w.e.f....
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....ted that the assessee has given complete information called for by the Department and he narrated the following:- i. District wise / Bank wise / Account No. wise / copies of bank statement from 09.11.2016 to 30.12.2016. ii. District wise, shop wise, opening stock of liquor as on 09.11.2016, Stock transfer from Depot to Shop (Receipt of goods from depot to Shops) from 09.11.2016 to 30.12.2016, Sales effected in the shop from 09.11.2016 to 30.12.2016 and Closing stock as on 30.12.2016. iii. Remittance of sales proceeds from 10.11.2016 (09.11.2016 was bank holiday) to 30.12.2016. iv. Remittance reconciliation district wise for the period from 09.11.2016 to 30.12.2016. v. Comparable figures for corresponding period in the previous year. 5.2 The ld.counsel explained that the AO added the amount received by assessee in demonetized currency of Rs.500/- and Rs.1000/- notes for sale of liquor (amounting to Rs.57.29 crores) u/s.69 of the Act as unexplained investment. Provision of section 69 of the Act states the investment which are not recorded in the books of accounts can be added as unexplained investment. He argued that in the instant case....
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....e evidence that it had indeed sold its goods to customers in exchange of SBNs during the period between 09.11.2016 and 30.12.2016, not a single iota of verifiable evidence was produced. Since the claimed source of possession of SBNs to the tune of 57 crore was not substantiated with valid and verifiable evidence, this sum of 57 crores was assessed as deemed income within the provisions of section 69 of the Act. The AO was right in not accepting the claim of the assessee that the assessee had indeed sold its goods against the SBNs for the following reasons:- (he narrated the reasons in writing as under) a. As per the provisions of section 101 to 106 of the Indian Evidence Act, 1872, the burden to prove that it had indeed traded its goods against the SBNs given by its customers is on the Appellant. b. The appellant could not produce a single verifiable evidence of sale made by obtaining the SBNs from its customer. c. There is not even any circumstantial evidence to indicate that the customers of the appellant had indeed given the SBNs and not the legal tender while purchase of their goods. d. There is not even any circumstantial evidence to indicat....
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....of our audit except cash shortages/thefts noticed at various retail outlets during the year as detailed in Note No. 13 & 18 to the financial statements. we are unable to obtain sufficient and appropriate audit evidence to report on whether the disclosures of Cash in hand as on specified dates, handling of specified bank notes(SBN), non- permitted transactions and its treatment in books of accounts (which were reportedly based on banks scrolls and statements) are correct" h. Further, the statutory Auditor has reported that there has been no audit trace to indicate that the sale of goods have been made by obtaining the SBNs from its customers. Such reporting has been made in his audit report not in one place but at two places as reproduced under, clearly establishing the fact that the claim made by the appellant that the SBNs of Rs.57 crore is a part and parcel of its business turnover. Page No. 23, Para.4: The Management based on the scrolls and statements received from various banks, in respect of Non-operative collection, has disclosed in the Notes on accounts, Cash on hand as on 08th November 2016 and the acceptance of Specified Bank Notes and other notes between 9th Nov....
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....stion No.2 of its FAQ. Only very few notified business transactions were permitted to transact in SBNs that too for a limited period ending on 24.11.2016 as far as Rs.1000 denomination is concerned and for denomination of Rs.500/- up to 15.12.2016. He further argued that is the assessee covered under the limited notified entities to transact its business in SBN No. The assessee's nature of business is not covered under the Gazette of India dated 08.11.2016. He further posed a question, Has Government treated the SBNs as illegal tender? No. The Government has not declared the SBNs as an illegal tender. However, since there is bar in transacting in SBNs for business purpose (as mentioned at Para-2 above), anybody transacting its business with SBNs for its goods and service, shall have to prove with verifiable evidence that it had indeed transacted its goods and service business against SBNs. Otherwise, any holding of SBNs during the period from 09.11.2016 to 30.12.2016 will be treated as SBNs held by the people/entities as though they have been holding the same as on the midnight of 08.11.2016. 5. Has Government treated possession of t....
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....t does not use the wordings transact'; exchange; deposit. For to hold, transfer or receive, there is no reciprocal consideration or action required from a third party whereas in respect of transact, exchange, deposit, there is a reciprocal action or consideration required from the other third party in such activity. Further, this matter has been fully settled by the Hon'ble Supreme Court vide Para.290 to Para, 303 while deciding on the various Writ Petitions filed challenging the constitutional validity of various Gazette of India issued by the Government in connection with the Demonetization in the case of Vivek Narayan Sharma Vs. Union of India dated 02.01.2023. It had clearly held that "the interpretation which makes the textual interpretation match the contextual has to be preferred. A statute is best interpreted when the reason and purpose for its enactment is ascertained. The statue must be read first as a whole and then section by section, clause by clause, phrase by phrase and word by word " Thus significance of 'appointment date' is with respect to the deadline by which the SBN would seize to be the liability of the RBI (issuer) to even exchange it wit....
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....SBNs should be considered on par with receipt of other currency notes which continue to be legal tender. Receipt of SBNs cannot be put on a different footing for the purpose of sec 68 or 69 of the Act from other currency as the source of SBNs are the same as the source for other currency. That the SBNs are not legal tender is of no consequence tor determining the source, because the SBNs can be encashed for their face value with the Bank without any question being raised. Neither the RBI circulars on demonetization nor any CBDT circular including various CBDT instructions (as to how the Department should examine the cash deposits during the demonetization), require any person to disclose the source of the SBNs. CBDT instructions to IT Authorities on the SOP for examination of deposits during demonetization period do not require the Assessee to disclose the source from whom the SBNs were received. When SBNs are deposited in Banks, RBI Circular does not require the depositor to disclose the particulars of persons from whom SBNs were received (and consequently the source of that person). 7.1 Having not required to obtain the particulars of persons from whom the SBNs were obtained, ....
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....ars about the persons from whom SBNs were received are furnished, the deposit of SBNs should be added as unexplained income, which CBDT have consciously not done. The Observation of the AO that branch-wise details of deposits of SBNs were not available is not correct. Complete details of deposit of SBNs account-wise, branch-wise was submitted to the AO. AO or the CIT(A) had not taken any further steps to make any further investigation on this matter. A totally fresh stand that sale had been made against legal tender and later the same was substituted by SBNs is without any basis or documents or examination of any person to support the same. This contention made purely on assumption and presumption and cannot be accepted. There is no finding that there was unexplained spike in cash deposits compared to other years.In case, SBNs have no value, how they can be assessed as unexplained "income" of the assessee. 7.3 In every sale, both, SBNs and other currency would have been received from the same person (as the sale price is not exact multiple of Rs 500/-), one part of sale consideration received in SBNs cannot be considered as unexplained while the balance received in other currenc....
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.... AO and CIT(A) and accepted the sales made by assessee including the sales made in demonetized currency from 09.11.2016 to 30.12.2016 and received demonetized currency of Rs.57.29 crores, which was added by AO u/s.69 of the Act as unexplained investment. Admittedly, the amount of Rs.57.29 crores is received by assessee on account of sale of liquor as no contrary evidence was produced by Revenue except a simple allegation that the assessee is unable to substantiate its claim with valid verifiable evidence that it had indeed sold its goods to customers in exchange of SBNs during the period between 09.11.2016 to 30.12.2016. The assessee has produced complete evidence giving the branch-wise and date-wise deposit of SBNs, even now before us which are enclosed in assessee's paper-book at pages 19 to 238. 8.1 Now the question arises whether the demonetized currency received by assessee on account of sale of IMFS and beer to the customers and accepted demonetized currency in return is to be assessed u/s.69 of the Act or not as unexplained investment. The ld.Senior DR has raised a question on this that when there was an express bar by Government on transacting business from 09.11.2016 in....
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....ion of a court in relation to any case pending in that court. 6. Whoever knowingly and wilfully makes any declaration or statement specified under sub-section (1) of section 4, which is false in material particulars, or omits to make a material statement, or makes a statement which he does not believe to be true, shall be punishable with fine which may extend to fifty thousand rupees or five times the amount of the face value of the specified bank notes tendered, whichever is higher. Penalty for contravention of section 5 7. Whoever contravenes the provisions of section 5, shall be punishable with fine which may extend to ten thousand rupees or five times the amount of the face value of the specified bank notes involved in the contravention, whichever is higher. Offences by companies 8. (1) Where a person committing a contravention or default referred to in section 6 or section 7 is a company, every person who, at the time the contravention or default was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the contravention or default and s....
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.... thereof these Bank Notes cannot be used for transacting business and/or store of value for future usage. The Specified Bank Notes (SBNs) were allowed to be exchanged for value at RBI Offices till December 30, 2016 and till November 25, 2016 at bank branches/Post Offices and deposited at any of the bank branches of commercial banks/Regional Rural Banks/Co-operative banks (only Urban Co-operative Banks and State Co-operative Banks) or at any Head Post Office or Sub- Post Office during the period from November 10, 2016 to December 30, 2016. 3. What is the Specified Bank Notes (Cessation of Liabilities) Act 2017? On February 27, 2017 Government of India notified the Specified Banknotes (Cessation of liabilities) Act 2017. The Act repealed the Specified Banknotes (Cessation of liabilities) Ordinance 2016 providing for cessation of liabilities for the Specified Banknotes (SBNs) and for matters connected therewith and incidental thereto, with effect from December 31, 2016. The SBNs cease to be the liabilities of the Reserve Bank under Section 34 of the RBI Act and cease to have the guarantee of the Central Government. 8.2 The ld.counsel explained that till 31.12.2016....
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....nt. His explanation in regard to the source of this amount in part was not accepted. It was in that context that the Supreme Court observed that where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the Income- tax Officer is entitled to draw the inference that the receipts are of an assessable nature. That is not the position in the case before us. In this case, the assessee could prove satisfactorily the source and nature of the amounts. Addition was made not for that reason. The assessee was further required to prove the receipt of the amount of Rs. 2 lakhs therefrom in high denomination notes. In other words, the assessee was asked to prove as to when and from whom he received the amount in high denomination notes. The assessee gave reasonable explanation for his inability to give detailed account of receipts and disbursements of amounts from time to time in currencies of various denominations including high denomination notes. He could, however, satisfy the authorities about the fact that he was often in possession of Rs. 1,000 denomination notes and the probability of high denomination notes of th....
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.... a currency is not a legal tender, only the recipient may refuse or cannot force to receive currency which is not legal tender. When both parties to the transaction agrees, there is no prohibition for one party to transfer and the other party to receive SBNs in the course of a legal transactions prior to 31.12.2016. We noted that with the notification of ''The Specified Bank Notes (Cessation of Liabilities) Act, 2017", even this liability to honour such exchange, transact, transfer or hold SBNs ceased to be operative from 31.12.2016, the appointed date. 8.3 In view of the above provisions, as in the present case, once the receipt of SBNs by assessee is not illegal or barred by any legal provisions the receipt of SBNs cannot be put on a different footing for the purpose of Section 68 or Section 69 of the Act from other currency as the source of SBNs are same as the source of other currency. The SBNs though are not legal tender, is of no consequence for determination of source, because the SBNs can be encashed for the face value with the bank without any question being raised. We further noted from the RBI circulars or CBDT circulars that neither the RBI circulars nor any CBDT cir....
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....e is a violation of certain notifications/GO issued by the Government in transacting with specified bank notes, the genuine explanation offered by the assessee towards source for cash deposit cannot be rejected, unless the AO makes out a case that the assessee has deposited unaccounted cash into bank account in specified bank notes. 8.5 We further noted that the Central Board of Direct Taxes had issued a circular for the guidance of the Revenue Officer to verify cash deposits during demonetization period in various categories of explanation offered by the assessee and as per the circular of the CBDT, examination of business cases, very important points needs to be considered is analysis of bank accounts, analysis of cash receipts and analysis of stock registers. From the circular issued by the CBDT, it is very clear that, in a case where cash deposit found in business cases, the AO needs to verify the explanation offered by the assessee with regard to realization of debtors where said debtors were outstanding in the previous year or credited during the year etc. Therefore, from the circular issued by the CBDT, it is very clear that, while making additions towards cash deposits i....