TaxTMI 
TaxTMI 
2025 (6) TMI 1303
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....e Assessing Officer under section 69A of the Income Tax Act, 1961 ["Act" in short] in the facts and circumstances of the case. 4. Brief facts of the case are that the assessee is an individual and a proprietor of "Son Fuels" and filed his return of income for the AY 2017-18 on 17.10.2017 admitting a total income of Rs..3,95,600/-. The return filed by the assessee was processed under section 143(1) of the Act. Subsequently, the case of the assessee was selected for limited scrutiny under CASS to examine "cash deposit during the year". Accordingly, the Assessing Officer issued notice under section 143(2) of the Act dated 24.08.2018 and further notice under section 142(1)/reposting letter/questionnaire dated 08.07.2019, 07.08.2019, 28.08.2019, 04.09.2019, 04.10.2019 & 08.11.2019 were issued to the assessee calling for various details. In response to the notices, the AR of the assessee produced the day book, ledger account book & cash book, etc. The Assessing Officer verified the cash deposits appeared in the bank account statement with the assessee's books of account for the FY 2016-17. The Assessing Officer noted that the assessee has shown the cash balance as on 08.11.2016 at Rs.....
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....the assessee has deposited any unaccounted cash into bank account in SBNs. Under such situation, the point at issue is whether the cash deposits made in SBNs during the period from 25.11.2016 to 30.12.2016 can be brought to tax under section 69A of the Act or not. Before us, the ld. AR relied on the order of the Tribunal in the case of Tamil Nadu State marketing Corporation Ltd. v. ACIT (supra), wherein, the Tribunal has observed and held as under: 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 SBNs in view of Question No.2 of FAQ issued by RBI on 08.11.2016 vide Circular No.DCM(Plg) No.1226/10.27.00/2016-17. The ld. Senior DR has argued that vide this very circular, the Government of India has declared the SBNs as not a legal currency w.e.f. 09.11.2016 except only from few notified business transactions were permitted to transact in SB....
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.... 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 shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention or default was committed without his knowledge or that he had exercised all due diligence to prevent the contravention or default. ....
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....l 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, these notes i.e., SBNs in demonetized currency was not held to be illegal tender and there is no provision that holding these notes or transacting the same will amount to violation of any law. Before us, the ld. counsel compared the earlier demonetization scheme of 1978, i.e., The High Denomination Bank Notes (Demonetization) Act, 1978 w....
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....ence 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 the value of Rs. two lakhs being included therein. In fact, the Revenue itself was satisfied about the inclusion of 96 notes of Rs. 1,000 each therein. The amount of Rs. 1,04,000 was added as income from undisclosed sources only because, according to the Revenue, the assessee failed to discharge the onus cast on him to prove the acq....
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....ted 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 circulars including any instructions on demonetization requires any person to disclose the source of SBNs. We noted from the facts of the case placed before us that out of total deposits of Rs. 2635.35 Crores were in cash for the month of November 2016, which has been accepted as the value of liquor sold for a sum of R....
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....nt 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 in demonetized currency, the AO needs to analyze the business model of the assessee, its books of account and analysis of sales etc. In this case, if we go by analysis furnished by the assessee in respect of total sales, cash sales including the cash received in demonetized currency and cash deposits,....