2022 (6) TMI 151 - AT - Income Tax

Addition u/s 68 - unexplained cash deposit - deposits during demonetization period - unexplained amount collected by the assessee in the form of Specified Bank Notes from is customers by way of deposits during demonetization period - HELD THAT - In the instant case, there is no dispute with regard to the fact that sources for making deposit by the assessee into its bank account are the money collected from its members. AO is also not doubting that all the SBNs have been collected by the assessee from its members. Accordingly, following the above said decision 2022 (2) TMI 1243 - ITAT BANGALORE we hold that the addition made u/s 68 of the Act is not justified. A.R also submitted that the SBNs have been collected by the assessee prior to the appointed date of 31.12.2016, i.e., only from 31.12.2016, the assessee is precluded from accepting SBNs from its members. In this view of the matter, the reasoning relating to contravention of rules of RBI also fails. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the impugned disallowance.- Appeal of assessee allowed.

Summary

Issues:
1. Addition of Rs.36,16,262 under section 68 of the Act related to demonetized notes.
2. Questioning the jurisdiction of the assessing officer.

Analysis:

Issue 1: Addition under section 68 of the Act related to demonetized notes:
The case involved the appellant challenging the addition of Rs.36,16,262 under section 68 of the Act, concerning the collection of Specified Bank Notes (SBN) during the demonetization period. The assessing officer (AO) contended that the appellant was not permitted to accept demonetized currency during that time, leading to the addition. However, the appellant explained that the SBN deposits were from its members, supported by records. The Tribunal referred to a similar case where such an addition was deleted, emphasizing that the appellant had collected the SBNs before the specified date of cessation of liability as per the Specified Bank Notes (Cessation of liability) Act, 2017. The Tribunal held that the addition under section 68 was not justified, and the AO was directed to delete the disallowance.

Issue 2: Questioning the jurisdiction of the assessing officer:
The appellant also raised a legal ground questioning the jurisdiction of the assessing officer. However, since the Tribunal decided the main issue in favor of the appellant, the legal issue became academic, and there was no need to adjudicate it separately.

In conclusion, the Tribunal allowed the appeal filed by the appellant, setting aside the order of the Ld CIT(A) and directing the AO to delete the impugned disallowance. The judgment highlighted the importance of complying with legal provisions and timelines regarding demonetized currency collections and emphasized the need for thorough documentation and explanation of sources for any cash deposits to avoid being categorized as unexplained money.