2023 (2) TMI 629 - AT - Income Tax

Unexplained income u/s 68 - Deposit of cash to the bank during the period of demonetization - AR submitted that during the demonetisation period, assessee deposited cash that were received from its members that are verifiable - assessee ought not to have accepted SBN s which were no longer a legal tender - HELD THAT - It is very important to note that whether the case of the assessee falls into statistical analysis, which suggests that there is a booking of sales, which is non-existent and thereby unaccounted money of the assessee in old currency notes (SBN) have been pumped into as unaccounted money. The instruction dated 21/02/2017 that the assessing officer basic relevant information e.g. monthly sales summary, relevant stock register entries and bank statement to identify cases with preliminary suspicion of back dating of cash and is or fictitious sales. The instruction is also suggested some indicators for suspicion of back dating of cash else or fictitious sales where there is an abnormal jump in the cases during the period November to December 2016 as compared to earlier year. It also suggests that, abnormal jump in percentage of cash trails to on identifiable persons as compared to earlier histories will also give some indication for suspicion. Non-availability of stock or attempts to inflate stock by introducing fictitious purchases is also some indication for suspicion of fictitious sales. Transfer of deposit of cash to another account or entity, which is not in line with the earlier history. Therefore, it is important to examine whether the case of the assessee falls into any of the above parameters are not. The assessee is directed to establish all relevant details to substantiate its claim in line with the above applicable instructions. We are aware of the fact that not every deposit during the demonetisation period would fall under category of unaccounted cash. However the burden is on the assessee to establish the genuineness of the deposit in order to fall outside the scope of unaccounted cash. Appeal filed by the assessee stands allowed for statistical purposes.

Summary

Issues:
1. Treatment of deposit of cash during demonetization period as unexplained income under section 68.

Analysis:

Issue 1: Treatment of deposit of cash during demonetization period as unexplained income under section 68

The appellant, a cooperative credit society, filed its return of income for the assessment year declaring Nil income after claiming deductions under section 80P. The Assessing Officer (AO) noted that the appellant had deposited Specified Bank Notes (SBNs) received from its members during demonetization into its bank accounts. The AO made an addition of the deposited amount under section 68 of the Income Tax Act, stating that the appellant should not have accepted banned SBNs as legal tenders. The appellant contended that it merely acted as an intermediary in utilizing old currency that ceased to be accepted as legal tender, and the deposited cash was received from its members. The appellant argued that the authorities did not verify the genuineness of the deposits and requested a remand for further consideration based on the evidence provided.

The Tribunal observed that the appellant had indeed deposited cash during the post-demonetization period. The Tribunal noted that the cash book and confirmations filed by the appellant should have been verified. Referring to various instructions issued by the Central Board of Direct Taxes, the Tribunal highlighted the importance of conducting a comparative analysis of cash deposits and sales, examining monthly sales summaries, stock register entries, and bank statements to identify cases of unaccounted money. The Tribunal emphasized the need for the AO to establish whether the appellant's case fell under the parameters indicating suspicion of fictitious sales or unaccounted money. The Tribunal directed the AO to verify all details and evidence provided by the appellant, granting the appellant a physical hearing to justify its claim. The Tribunal allowed the appeal for statistical purposes, emphasizing that the burden was on the appellant to establish the genuineness of the deposits to avoid being categorized as unaccounted cash.

In conclusion, the Tribunal directed the AO to re-examine the case, consider the evidence provided by the appellant, and grant a proper opportunity for the appellant to be heard. The appeal was allowed for statistical purposes, emphasizing the importance of substantiating the genuineness of the deposits made during the demonetization period to avoid being treated as unexplained income under section 68 of the Income Tax Act.