2023 (3) TMI 314 - AT - Income Tax

Unexplained money u/s. 69A and levied tax u/s. 115BBE - Unexplained cash deposits - HELD THAT - As per the explanation of the assessee source for cash deposits is out of realization of sundry advances shown in the balance sheet as on 31.03.2016. We have gone through various evidences filed by the assessee including ITR filed for earlier three years and financial statements of the assessee and we find that the assessee has declared substantial income for earlier years and also maintained books of accounts. The assessee has shown sundry debtors in his books of accounts and said return have been filed before demonetization. From the above explanation of the assessee it is very clear that source for cash deposits is out of realization of sundry debtors appears to be genuine and bonafide. In fact, the assessee has filed cash book explaining date wise receipts from various parties and deposited into bank account. AO is completely erred in making additions towards cash deposits into bank account as unexplained money u/s. 69A of the Act and levied tax u/s. 115BBE when the assessee has explained source for said cash deposits. CIT(A), without considering relevant facts simply sustained additions made by the AO. Thus, we direct the AO to delete additions made towards cash deposits u/s. 69A of the Act. Appeal filed by the assessee is allowed.

Summary

Issues:
1. Addition of Rs.37,34,000 under Section 69A of the Income Tax Act.
2. Rejection of explanation for cash deposits post-demonetization.
3. Legal implications of depositing demonetized currencies.
4. CIT(A)'s decision to sustain additions made by the AO.

Issue 1: Addition of Rs.37,34,000 under Section 69A:
The appellant contested the addition made by the Assessing Officer (AO) under Section 69A, arguing that the cash deposit was from realization of sundry advances as per balance sheet. The AO doubted the explanation provided, citing violation of RBI guidelines post-demonetization. The CIT(A) upheld the addition, stating lack of material supporting the realization of sundry advances. However, the Tribunal found the explanation credible, considering the appellant's maintained books of accounts and filed cash book detailing receipts. The Tribunal concluded that the AO erred in treating the cash deposits as unexplained income and directed deletion of the addition under Section 69A.

Issue 2: Rejection of explanation for cash deposits post-demonetization:
The appellant explained that the cash deposits were from sundry advances and sales collections, supported by financial statements and ITR filings for previous years. The AO and CIT(A) were unconvinced, highlighting failure to follow guidelines and insufficient explanation for the deposits. The Tribunal, after reviewing the evidence, found the appellant's explanation genuine and bonafide. It emphasized the legality of depositing specified bank notes until 31.12.2016 and criticized the AO and CIT(A) for not considering relevant facts, leading to the decision to delete the additions.

Issue 3: Legal implications of depositing demonetized currencies:
The Tribunal referenced the Specified Bank Notes (Cessation of Liability) Act, 2017, which allowed deposits of demonetized currencies until 31.12.2016. It noted that the appellant's explanation for the cash deposits being from sundry advances appeared genuine, supported by maintained books of accounts and filed cash book detailing receipts. The Tribunal disagreed with the AO's application of Section 69A and tax levied under Section 115BBE, emphasizing the legality of the deposits made by the appellant.

Issue 4: CIT(A)'s decision to sustain additions made by the AO:
The CIT(A) upheld the additions made by the AO towards cash deposits, citing lack of material supporting the realization of sundry advances and sales collections. The Tribunal criticized the CIT(A) for not considering the evidence provided by the appellant, including financial statements and ITR filings. The Tribunal found the appellant's explanation credible and directed the AO to delete the additions made under Section 69A.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing the legality of the cash deposits post-demonetization and directing the deletion of additions made under Section 69A of the Income Tax Act.