TaxTMI 
TaxTMI 
2024 (4) TMI 1241
X X X X Extracts X X X X
X X X X Extracts X X X X
....from some exempted category of people, no other person was allowed to accept SBN (Specified Bank Notes) during the demonetization period. One of the reasons in the Notification No. 2652 dated 08.11.2016 is "2. SBNs being used for storage of unaccounted wealth". The Ld. CIT (A) should have appreciated the assessment order in the background of the idea of SBNs being used for storage of unaccounted wealth. 3. The Ld. CIT (A) had failed to appreciate the intention of the legislature which was to examine and verify the nature of cash deposit/ cash possession in the hands of any individuals. Even if the contention of the assessee is accepted, the assessee by accepting cash from the purchasers after 09.11.2016 in SBNs has conveniently assisted in hiding the identity of the individuals in possession of SBNs thereby defeating the intention of the legislature and demonetization exercise. 4. The Ld CIT (A) had failed to appreciate the fact that, the assessee*failed to produce the details of persons who paid in cash for sales during the demonetisation period with documentary evidences. 5. The Ld. CIT (A) had failed to appreciate the fact that, the cash sales made were re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ME Branch, Nagercoil. The Assessing Officer, called upon the assessee to furnish necessary evidences including source for cash deposits, comparative details of total sales, cash sales, cash deposits for the financial years 2015-16 and 2016-17. In response, the assessee has furnished details of total sales, cash sales and cash deposits into bank account for two financial years. The Assessing Officer, on the basis of details filed by the assessee observed that, the assessee has made cash deposits in specified bank notes into various bank accounts during demonetization period in Rs. 500 and Rs. 1000 demonetized currency notes from 08.11.2016 to 30.12.2016 amounting to Rs. 9,39,19,000/-. The Assessing Officer, further noted that the assessee has cash balance as on 08.11.2016 at Rs. 1,62,53,948/-. The balance amount of Rs. 7,75,65,500/- has been deposited out of cash receipts in specified bank notes from 08.11.2016 to 30.12.2016, in violation of notifications issued by Government of India and Reserve Bank of India. The Assessing Officer, has allowed cash in hand as on 08.11.2016, towards source for cash deposits into bank account and balance cash deposit of Rs.&....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to source for cash deposits, which is backed by necessary evidences. The ld. CIT(A), further observed that the appellant had declared sales which is supported by sales bills. The appellant is having corresponding purchases, which is backed by purchase bills. The Assessing officer, has not pointed out any discrepancies in books of accounts maintained by the assessee including stock details. In absence of any observations with regard to incorrectness in books of accounts maintained by the assessee, merely for the reason that there is a deviation in cash sales declared by the assessee for the impugned assessment year, genuine cash sales which is supported by necessary details cannot be rejected as source for cash deposits into bank account during demonetization period. Therefore, the ld. CIT (A) held that the Assessing Officer is erred in making additions towards cash deposits as unexplained credit u/s. 68 of the Act and thus, directed the Assessing Officer to delete additions made towards cash deposits u/s. 68 of the Act. The relevant findings of the ld. CIT (A) are as under: "5.4 I have carefully considered the arguments of AO and the submissions of the appellan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nstructions of the Board. It is argued that there is no finding of booking of sales which is non-existent to show pumping of unaccounted money in old currency notes. It is also argued that the AO has not pointed out non-availability of stock or attempts to inflate stock by introducing fictitious purchases by the appellant. 5.6 Appellant argued that it had furnished explanation with regard to the nature and source of the cash deposited in banks in demonetized currency which was not found to be false by the Department. The explanation offered by the assessee was in line with the trend of cash sales and cash deposits in the past years which were accepted by the Department in the assessments made u/s 143(3) of the Act in the past. In support of the same the appellant gave a Table of cash sales for last few years to prove the point that cash sales constitute about 95% of the sales every year, and the FY 2016-16 is no exception. AO has not brought on record any material to draw an inference that the explanation offered by the assessee was incorrect or unreasonable or that the impugned sum represented income of the assessee from undisclosed sources as against the entries recorded....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lity of stock or attempts to inflate stock by introducing fictitious purchases. Further, the AO has not rejected the books of accounts. I am of the opinion that if there are no defects in the purchases and sales and the same are matching with inflow and the outflow of Stock, there is no reason to disbelieve the sales. The cash sales made by the assessee had been credited in the books of account and reduction in the stock has not been doubted by the AO. If the reduction of stock position is matching with the sales, it proves that the cash received/deposited represents the sales. The AO has not rejected the books of accounts. 5.8 It is an accepted fact that no businessmen can refuse to make sales to any customer when stock is available and if it is within the four corners of law, especially when price of the gold was high and there is demand for gold at that time of the day. There is also no rule that sales cannot be made late in the evening or in the night. If minimum details of the customers are taken on sale bills as required under a VAT Act that sales cannot be doubted, particularly in the rush of the hour. If the AO alleges that the appellant has brought the unaccounted....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g with the sales, it proves that the cash received/deposited represents the sales. The AO has not rejected the books of accounts. 5.11 Appellant relied on number of case laws. I have gone through and find those decisions support the arguments of the appellant. Bangalore Bench in the case of Anantpur Kalpana in ITA No. 541/Bang/2021 dt. 13.12.2021 has held that section 26(2) of the RBI Act, 1934 which provides that government can specify certain notes as not legal tender. It was argued that if there is any violation of the statutory provisions, the consequences will be only under the relevant provisions of RBI Act, 1934 and those violations cannot lead to any addition under section 68 of the Act; Visakhapatnam's, in the case of Sri Tatiparti Satyanarayana in ITA No. 76Niz/2021, after considering relevant provision of Specified Bank Notes (Cessation of Liabilities) Act, 2017, held that there is no prohibition under the Act to deal with Specified Bank Notes up to 31.12.2016. 5.12 I find a the decision of Hon'ble ITAT, Visakhapatnam Bench in the case of ACIT Central Circle - Visakhapatnam vs. Heera Panna Jewellers is most appropriate to quote. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s for which the assessee offers no explanation, the said sum is deemed to be income of the assessee. In the instant case the assessee had explained the source as sales, produced the sale bills and admitted the same as revenue receipt. Therefore, the addition made by the AO is hereby deleted. The appellant gets the relief. The grounds of appeal 2 to 7 are allowed." 6. The ld. DR, Shri. D. Hema Bhupal, JCIT, submitted that the ld. CIT (A) erred in deleting additions made towards cash deposits u/s. 68 of the Act, without appreciating fact that apart from the exempt category of persons, no other person was allowed to accept specified bank notes during demonetization period, as per notifications issued by the Government of India and RBI. The ld. DR, further submitted that from 08.11.2016 onwards legal tender of Rs. 500 and Rs. 1000 currency notes were withdrawn by the Government of India. The RBI has issued guidelines from time to time to deal with demonetized currency notes and as per notifications issued by RBI, there is a prohibition for accepting demonetized currency notes. Further, the specified bank notes (Cessation of Liability) Act, 2017 deals with guarantee g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isputedly clear that there is no restriction for accepting specified bank notes up to appointed date i.e., on 31.12.2016. Further, cash sales declared by the assessee are supported with necessary details. The Assessing Officer, has not pointed out any discrepancy in books of accounts maintained by the assessee nor observed any inconsistency or negative movement of stock. In absence of any incorrectness in books of accounts maintained by the assessee, the Assessing Officer cannot make additions towards cash deposits u/s. 68 of the Act, more particularly, when law is very clear in respect of KYC details of customers as per 114B of I.T. Rules, 1962, where the assessee is not require to take KYC details of customers in case sale value is less than Rs. 2 lakhs. The ld. CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer and their order should be upheld. 8. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the appellant has deposited sum of Rs. 9,38,19,000/- cash into bank account during demonetization p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee, that in any case, sales to a single customer has been made more than Rs. 2 lakhs. In absence of any observation with regard to sales made by the assessee about Rs. 2 lakhs, it should be considered that all sales made by the assessee is less than Rs. 2 lakhs to a single customer and further, the assessee is not required to collect KYC details of customers. In fact, the assessee has filed necessary details to prove that sales to a single customer does not exceed Rs. 2 lakhs. Therefore, in our considered view, the assessee has established identity of the customers. 10. In so far as, the genuineness of transactions is considered, the sales declared by the assessee has been recorded in the books of accounts maintained for the relevant assessment year and is supported by necessary sales bills. The sales declared by the assessee is supported by corresponding purchases and stock in trade. There is no observation from the Assessing Officer with regard to books of accounts maintained by the assessee and their incorrectness. In fact, the Assessing Officer has accepted the fact that there is no discrepancy in books of accounts maintained by the assessee an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....netized currency from the date of demonetization and up to 31st December, 2016. Therefore, under those circumstances, some persons continued to accept and transact the specified bank notes and deposited into bank accounts. Therefore, merely for the reason that there 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 Assessing Officer makes out a case that the assessee has deposited unaccounted cash into bank account in specified bank notes. 12. Coming back to case laws relied upon by the assessee. The Ld. Counsel for the assessee has relied upon the decision of ITAT, Chennai Benches in ITO vs Sahana Jewellery Exports Pvt Ltd in ITA No. 999/Chny/2022. The ITAT Chennai Benches, under identical set of facts and also in respect of cash deposits during demonetization period held that, when source for cash deposits has been explained out of cash sales made during the period, then cash sales made by the assessee cannot be treated as unexplained credit taxable u/s. 68 of the Act. The relevant findings of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e company and also purchased jewellery from them. The Assessing Officer, on the basis of enquiry conducted u/s. 131(1) of the Act, came to the conclusion that the assessee could not substantiate cash receipts received from various persons towards sale of jewellery before the date of demonetization. Therefore, vide letter dated 24.12.2019 called upon the assessee to file confirmation from all the parties and also called upon the assessee to show cause 'as to why' the credits should not be considered as unexplained cash credit u/s. 68 of the Act. In response, the assessee submitted that as per law, it is not required to collect complete address and PAN from the persons to whom it has sold jewellery. Further, as per Rules 114B of the Income Tax Rules 1962, if sale value of jewellery is in excess of Rs. 2 lakhs to a single person, then, it is required to collect PAN. Since, there is no requirement of collecting PAN, the assessee does not having details of PAN and correct postal address of the persons from whom it has received trade advances for sale of jewellery. Therefore, assessee submitted that the question of filing confirmation letter from the parties, from whom, it has colle....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and not able to explain credits to the satisfaction of the AO, then, such cash credits need to be examined in light of provisions of Sec. 68 of the Act. In case, the assessee claims that it has received trade advances in cash and the same has been subsequently converted into sales by issuing sale bills, then, said trade advance cannot be examined in light of provisions of Sec. 68 of the Act, because, trade advances have been subsequently converted into sales and sales has been accounted in the books of accounts of the assessee. Therefore, in our considered view, the AO has committed a fundamental mistake in examining the cash receipts claimed to have been received by the assessee towards sale of jewellery in light of provisions of Sec. 68 of the Act. 14. Be that as it may. The fact remains that, the assessee has furnished name and address of the customers from whom it has received cash for sale of jewellery. The assessee need not obtain confirmation and submit to the AO, because, the law does not mandate colleting PAN details of the persons, if sale value of jewellery does not exceed Rs. 2 lakhs as per Rule 114B of Income Tax Rules, 1962. In so far as compliance of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly sales cannot be rejected on the ground that sale for the particular month or period is higher when compared to corresponding previous period. In our considered view, there cannot be any reason for uniform sales in all days or month or year. There may be various reasons for increase or decrease in sales which depends upon various factors, including festival sales, clearing sales, yearend sales, etc. Therefore, in our considered view, the explanation of the assessee that it has received cash from various customers towards sale of jewellery and subsequently the advances have been converted into sales, appears to be bona fide and reasonable. 16. Coming back to second observation of the AO in rejecting explanation of the assessee with regard to source for cash deposits. Initially, assessee claims that source for cash deposits is out of trade advances received in cash from various persons. However, during the course of assessment proceedings itself, the assessee claimed that it was an error in making a submission that it has received trade advances from various persons before the date of demonetization, but fact remains that authorized representative who appeared and made sub....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l of the extract of the statement made by managing director of the assessee (as recorded in " the assessment orders in-issue) would show that all that he had stated was that it was the assessee's own money, given in the form of loan and/or bogus sales or purchases, that had been routed back to the assessee in the form of share capital/share premium, albeit, through banking channels. [Para 10.3] * The Tribunal, in this context, records a finding of fact that "no unaccounted income of the assessee" had been introduced in its books of account in the form of share capital. Based on this, the Tribunal concluded that there was 'no confession' made by the managing director that unaccounted income had been introduced by the assessee in the form of share capital. Therefore, according to the Tribunal, the statement made under section 132(4) did not constitute incriminating material. [Para 10.4] * The Tribunal, has correctly analyzed the statement of the managing director. The statement does not allude to the fact that the assessee had introduced 'unaccounted money' in the form of share capital/share premium through investor entities. The retraction lette....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The books of account were duly audited, both, under the Companies Act, 2013 and the Income-tax Act; no defects concerning books were found either by the Assessing Officer or the Commissioner (Appeals). Thus, according to it, no incriminating evidence was found. [Para 15.1] * Insofar as the abated assessment years were concerned i.e., assessment years 2015-16, 2016-17 and 2017-18, it was, apparent that the assessee had purchased goods, which were in value less than the sum for which they were sold. Therefore, as held by the Assessing Officer, in the deviation report, if the purported bogus purchases were to be disallowed then necessarily the sales shown in the assessee's regular books of account would also have to be excluded which would result in the assessee's income falling below the returned/declared income. [Para 15.1] * Furthermore, the Assessing Officer had not placed on record any material to justify the disallowance of 25 per cent of the purchases on the ground that they were bogus without carrying out any inquiry or investigation. In particular, the Tribunal also flagged the issue that the purported shortage of stock was based on a reference made ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urchases is an aspect, which cannot be ignored and has been correctly highlighted by the Tribunal. [Para 15.8] * If the revenue chooses to disallow bogus purchases, it would necessarily have to ignore the corresponding sales recorded against the very same parties. As pointed out by the Tribunal, the Commissioner (Appeals) could have rejected the books of account only, after it had examined and come to the conclusion that he was not satisfied as regards their correctness or completeness. The finding of fact returned by the Tribunal is that books of account were not examined by the Commissioner (Appeals). If that be so. then, section 145(3) could not have been triggered by the Commissioner (Appeals), based on the mere statement of the managing director of the assessee. Besides this, as noted by the Tribunal, the Commissioner (Appeals) had attempted to quantify the profit by resorting to a methodology, which was incomprehensible. [Para 15.9] * The average cash deposited by the assessee with its bankers before demonetization was, approximately Rs. 42.35 crores, whereas the actual sum deposited during the demonetization period was Rs. 180.53 crores. The asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase of M/s. Hirapanna Jewellers, Visakhapatnam, in ITA No. 253A/Viz/2020 and CO No. 02/Viz/2021, AY2017-18, wherein, the ITAT Visakhapatnam Bench, under identical set of facts has held as under: "We have heard both the parties and perused the material placed on record. In the instant case, the assessee has admitted the receipts as sales and offered for taxation. The assessing officer made the addition u/s 68 as unexplained cash credit of the same amount which was accounted in the books as sales. In this regard, it is worthwhile to look into section 68 which reads as under: 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year; From the perusal of section 68, the sum found credited in the books of accounts for which the assessee offers no explanation, the said sum is deemed to be income of the assessee. In the instant case the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led that test of being unexplained as envisaged u/s 68 of the Income Tax Act. In view these of the addition of Rs. 51,39,39,100/- stands deleted. 19. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the AO is erred in making additions towards cash receipts received for sale of jewellery, which has been subsequently converted into sales, for the impugned assessment year as unexplained cash credits taxable u/s. 68 of the Act. The Ld.CIT (A) after considering relevant facts has rightly deleted the additions made by the AO, and thus, we are inclined to uphold the findings of the Ld.CIT (A) and dismiss the appeal filed by the Revenue." 13. The appellant has also relied upon the decision of ITAT, Chennai Benches in the case of M/s. Purani Hospitals Suppliers Pvt Ltd vs DCIT, in ITA NO. 489/Chny/2022, dated 31.05.2023. The Tribunal under identical set of facts and in light of cash deposits during demonetization period has held as under: "8. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The facts borne out from records ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ar, the assessee has made investments which are not recorded in the books of accounts, if any, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by the assessee is not in the opinion of the Assessing Officer, satisfactory, then the value of the investments may be deemed to be the income of the assessee of such financial year. In order to invoke provisions of section 69 of the Act, two conditions must be satisfied. First and foremost condition is there should be an investment and second condition is the assessee could not explain source for said investment. In this case, if you go through evidence filed by the assessee including comparative details of amount collected out of sales for financial year 2015-16 & 2016-17 and details of cash deposit into bank for above financial years, we find that there is no abnormal deviations from its normal course of business. Further, on verification of analysis of cash sales and cash deposits to bank account there is no deviation of cash sales and cash deposits when compared to earlier financial year and demonetization period. Further, the assessee is dealing in essential commodities l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ainly on the issue of notification issued by the RBI to deal with the specified bank notes and argued that the assessee is not one of the eligible person to accept or to deal with specified bank notes and thus, even if assessee furnish necessary evidence, the assessee cannot accept specified bank notes after demonetization and the explanation offered by the assessee cannot be accepted. No doubt specified bank notes of Rs. 500 & Rs. 1000 has been withdrawn from circulation from 09th November, 2016 onwards. The Government of India and RBI has issued various notifications and SOP to deal with specified bank notes. Further, the RBI allowed certain category of persons to accept and to deal with specified bank notes up to 31st December, 2016. Further, the specified bank notes (cessation of liability) Act, 2017, also stated that from the appointed date no person can receive or accept and transact specified bank notes, and appointed date has been stated as 31st December, 2016. Therefore, there is no clarity on how to deal with demonetized currency from the date of demonetization and up to 31st December, 2016. Therefore, under those circumstances, some persons continued to accept ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct does not arise. In this case, the source of deposits has not been disputed and has been created out of ordinary business sales which has been credited into books of accounts and profits has also been duly included in the return of income filed in relevant assessment year. Therefore, we are of the considered view that, additions cannot be made u/s. 69 of the Act and taxed u/s. 115BBE of the Act towards cash deposits made to bank account. 12. At this stage, it is relevant to consider certain judicial precedents relied upon by the ld. Counsel for the assessee. The Ld. Counsel for the assessee relied upon the decision of Delhi High Court in the case of Agson Global Pvt Ltd vs ACIT [2022] 325 CTR 001. The Hon'ble Delhi High Court held that additions made on the sole ground of deviation in the ratio of cash sales and cash deposits during the demonetization period with that of earlier period, is improper and unlawful. 13. The assessee had also relied upon the decision of ITAT Indore Bench in the case of Dewas Soya Ltd, Ujjain vs ITO in ITA No. 336/Ind/2012, where it has been held as under: The Hon'ble Indore ITAT Bench in the case of DEWA....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Officer to delete additions made towards cash deposits u/s. 69 r.w.s. 115BBE of the Act." 14. Coming back to decision relied upon by the ld. DR, in the case of M/s. Vidhiyasekaran Pradeep Malliraj vs ITO (Supra). We have gone through case law relied upon by the ld. DR, and we find that, in the said case, the Tribunal after considering the decision of Hon'ble Apex Court in the case of Apex Laboratories (P) Ltd vs DCIT (135 Taxmann.com 236), held that, one arm of the law cannot be utilized to defeat the other arm of law and doing so would be opposed to public policy and bring the law into ridicule. In our considered view, the case law relied upon by the ld. DR is not applicable to the facts of the present case for the simple reason that, the Tribunal has not considered the facts of cash deposits in light of explanation offered by the assessee with regard to source for cash deposits. However, it went on the legal issue of validity of legal tender of specified bank notes after 08.11.2016. The said issue has been considered by the coordinate bench in the case of M/s. Purani Hospitals Suppliers Pvt Ltd vs DCIT (Supra) and held that, there is no prohibition in accepting specifie....