AI Drafter 
TaxTMI 
TaxTMI 
2025 (7) TMI 822
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....es up to 30.12.2016 and here Specified Bank Notes were received prior to 30.12.2016 (iii) Even assuming that Demonetized notes has ceased to be legal tender, it does not mean that the amount collected by the assessee from its clients would become Unexplained Income. This aspect has been dealt in "Prathamika Krushi Pattina vs. The Income Tax Officer, Ward -5, ITA No. 593/Bang/2021" (iv) All such deposits are in the normal course of business and the information is adequately disclosed its nature explained in Note: 33 of Audited Financial Statements and also disclosed in the audit report (v) Further such receipts have been duly recorded in the Books of accounts are explained and supported by evidence, hence there is no reason to treat the same as unexplained Money under Section 69A. The Assessing Officer as well as CIT (A), NFAC have not explained how contravention of demonetization act, can attract tax under sec 69A. (vi) All such receipts are against dues from existing borrowers, against pre-existing contracts, and they, can in no way, be termed as income from unexplained sources and taxed u/s 115BBE. (vii) Assessing officer erred in addi....
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....fficer accordingly held the said deposits of Rs. 39,66,15,500/- as unexplained money u/s 69 of the I.T. Act, 1961 while passing the assessment order dated 30/12/2019. 4. The assessee challenged the action of the Assessing Officer before the learned CIT (A) but could not succeed. 5. Before the Tribunal, the learned AR of the assessee has submitted that the assessee operates under highly regulated environment as the activities of the assessee are regulated by the RBI. The assessee is required to maintain the record of category of customers, KYS norms, proper loan agreement, repayment schedule and disclosure of interest rates etc. The books of account of the assessee are subjected to annual audit as per the provisions of the Companies Act, 2013 as well as the Tax Audit under the I.T. Act, 1961. The RBI conducts annual inspection of the company's records and to ensure the compliance with the RBI directions, the assessee is not permitted to take unsecured borrowings from any source other than the corporates. Therefore, generation of any unexplained income in the hand of the assessee is not possible. The assessee operates its business through a network of 700 branches spread out in....
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....d the specified bank notes (SBN) of Rs. 39,66,15,500/- only against the total collection of Rs. 196,09,54,572/- which were collected from its borrowers against 3 existing agreements; therefore, the acceptance of Specified Bank Notes was only 20% of the total collection and deposits made by the assessee. Thus, the recovery of debts would not partake the character of income when the assessee has already declared interest income which is not disputed by the Assessing Officer. Thus, the learned AR has submitted that when the collection of loan from borrowers is a business receipt of the assessee and the genuineness of the same is not disputed by the Assessing Officer, then the addition made by the Assessing Officer only because of the reason that the deposits was made in SBNs is not justified and sustainable. He has referred to instruction No.3 of 2017 issued by the CBDT dated 21/02/2017 whereby the tax authorities are instructed to follow the procedures and source specific general guidelines in respect of the cash deposits in the bank account. As per the instructions annexed to the said instructions, the cash received from identifiable persons can be verified only to see whether the r....
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....cal facts, this Tribunal has taken a consistent view that when there is no significant change in the cash deposits during the demonetization period, then merely for the reason that the assessee has accepted the specified bank notes in violation of circular/notification dated 08/11/2016, the source explained by the assessee cannot be rejected. He has further submitted that once the transactions are duly recorded in the books of account of the assessee, then without prejudice to the rights and submission of the assessee, the provisions of section 69A cannot be invoked. 7. On the other hand, the learned DR has submitted that once the currency notes of the denomination of Rs. 500 and Rs. 1000 declared are no longer legal tender by the notification/ ordinance of the Govt. of India which was subsequently enacted as Act, then the claim of the assessee cannot be accepted that the source of the deposits in the bank account is recovery from the borrowers during the demonetization period. He has relied upon the orders of the authorities below. The learned DR has also relied upon the following decisions: i) Hon'ble Madras High Court in the case of Salem Sree Ramavilas vs. Dy. C....
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..... NO.3543(E) [F.NO.10/03/2016- CY.I], DATED 24-11-2016; S.O. NO.3599(E) [F.NO.10/03/2016- CY.I], DATED 30-11-2016 AND S.O. NO. 4086(E) [F.NO.10/03/2016-CY.I], DATED 17-12-2016) Whereas, the Central Board of Directors of the Reserve Bank of India (hereinafter referred to as the Board) has recommended that bank notes of denominations of the existing series of the value of five hundred rupees and one thousand rupees (hereinafter referred to as specified bank notes) shall be ceased to be legal tender; And whereas, it has been found that fake currency notes of the specified bank notes have been largely in circulation and it has been found to be difficult to easily identify genuine bank notes from the fake ones and that the use of fake currency notes is causing adverse effect to the economy of the country; And whereas, it has been found that high denomination bank notes are used for storage of unaccounted wealth as has been evident from the large cash recoveries made by law enforcement agencies; And whereas, it has also been found that fake currency is being used for financing subversive activities such as drug trafficking and terrorism, causi....
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....irectly into such account and the rest of the amount, if any, shall be subject to such conditions as the Reserve Bank of India may specify: Provided further that the deposit of an amount exceeding Rs. 5000 shall be made only once per account until 30th December, 2016; ] 2aa [ (iiia) there shall not be any limit on the quantity or value of the specified bank notes that are tendered for payment and deposit under the Taxation and Investment Regime for the Pradhan Mantri Garib Kalyan Yojana, 2016; ] (iv) the equivalent value of specified bank notes tendered may be credited to an account maintained by the tenderer at any bank in accordance with standard banking procedure and on production of valid proof of Identity; (v) the equivalent value of specified bank notes tendered may be credited to a third party account, provided specific authorisation therefor accorded by the third party is presented to the bank, following standard banking procedure and on production of valid proof of identity of the person actually tendering; 3 [ (vi) cash withdrawal from a bank account over the counter shall be such as may be specified by the Reserve Bank of India from t....
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....the preparation for implementing this scheme and remittance of the specified bank notes to nearby currency chests or the branches or offices of the Reserve Bank and receipt of bank notes having legal tender character. (2) All ATMs, Cash Deposit Machines, Cash Recyclers and any other machine used for receipt and payment of cash shall be shut on 9th and 10th November, 2016. (3) Every bank referred to in sub-paragraph (1) of paragraph 1 shall recall the specified bank notes from ATMs and replace them with bank notes having legal tender character prior to reactivation of the machines on 11th November, 2016. (4) The sponsor banks of White Label ATMs shall be responsible to recall the specified bank notes from the White Label ATMs and replacing the same with bank notes having legal tender character prior to reactivation of the machines on 11th November, 2016. (5) 6[***] (6) The banking company referred to in sub-paragraph (1) of paragraph 1 and Government Treasuries shall resume their normal transactions from 10th November, 2016. 4. Every banking company referred to sub-paragraph (1) of paragraph 1, shall at the close of business of e....
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....Ns from other person and then deposit in the bank as it would defeat the very object of the demonetization. Therefore, it is highly unlikely that the holder of the SBNs after the notification dated 8/11/2016 would use the SBN as a legal tender and currency in circular because no person of ordinary prudence would enter into such a transaction of accepting or tendering the SBNs other than the manner and purpose allowed in the said notification. The assessee being a Non-Banking- Finance Company (NBFC) is also not supposed to deal in SBNs after the said notification dated 8/11/2016. Therefore, the claim of the assessee that the amount deposited in the Bank A/c during the demonetization period from 9/11/2016 to 31/12/2016 is a recovery from the borrowers during the said period is not only in contravention of the notification dated 8/11/2016 but also subsequent ordinance/Act on Specified Bank Notes (Cessation of Liabilities) Act, 2017 as well as against the preponderance of human probabilities. The CBDT has also issued various circulars including Circular No.225/100/2017/TA-II dated 21/02/2017 notifying the Standard Operating Procedure (SOP) to be followed by the AO in verification of th....
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....entral Government in S. O. 3407(E) dated 8th November 2016; categorically declares that the specified bank notes shall cease to be legal tender with effect from the 9th November 2016 to the extent specified in the said notification. The said notification categorically directed that the specified bank notes held by a person other than banking company, or the government treasury may be exchanged at any issue office of the Reserve Bank or any branch of public sector banks etc. for a period up to and including the 30th December 2016, subject to certain conditions for exchange, deposit and withdrawal specified therein. Further the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 itself in its preamble referred that the central government on the recommendations of the central board of Reserve Bank vide notification number S.O.3407(E) dated 8th November 2016, declared the then existing series of bank notes of the denominational value of Rs. 500 and Rs. 1000 to ceased to be legal tender with effect from the 9th November 2016 to the extent specified therein. In the backdrop of demonetization and the returning of bank notes to the Reserve Bank of India which have ceased to be ....
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.... The appellant submitted that from a comparative analysis of cash deposits made during the demonetization period against cash deposits of earlier year, the appellant submitted that the average monthly deposits during the financial year 2016- 17 was around Rs 80.93 crores and during the demonetization the cash deposit was Rs. 130.54 crores out of which SBN deposits was Rs. 39.66 crores. From this the appellant argued that no abnormality was noticed in the data furnished & hence it is evident that these collections and deposits are out of normal business operations. Such an analysis & comparisons may not hold water in the eyes of the notifications issued declaring the specified bank notes as ceased to be legal tender with effect from 9th November 2016 and there is no reason for anyone much less than an NBFC of appellant's stature to transact in SBNs and the alleged transaction of recovery is devoid of any merit. 12. The appellant contented that in order to attract section 69A as an explained money the following 4 conditions have to be satisfied cumulatively. 1. Assessee is found to be the owner of any money, bullion or article etc. and 2. Such money, bullio....
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....ell founded, no reliance whatsoever can be placed on the accounts and notes to the accounts relied on by the appellant. 15. In the above circumstances, I do not find any infirmity in the order of the assessing officer and more so, the assessing officer having not satisfied about the appellant's explanation about the impugned cash deposits in SBNs amounting to Rs. 39,66,15,500, correctly taxed the same as unexplained money under section 69A of the Income tax Act,1961." 11. Thus, the AO as well as the CIT (A) has made the addition by rejecting the claim of the assessee that the source of the said cash is the collection made by the assessee from the borrowers during the demonetization period solely on the basis of the notification issued by the Govt. and without verifying the relevant record and particularly, the correctness of the claim of the assessee in the light of SOP issued by the CBDT. Accordingly, we are of the considered opinion that this matter requires a proper verification and examination of the record as well as the genuineness of the claim of the assessee in the light of the SOP issued by the CBDT in this respect. Hence, the impugned order of the CIT (A) is s....