2023 (10) TMI 1436 - AT - Income Tax

Unexplained cash deposits u/s 69A - SBN deposited in the bank account of the assessee is unexplained only since the same ceased to be a valid legal tender after the demonetization - HELD THAT - On perusal of Circular F.No.225/145/2017-ITA 11 dated 09.08.2019 (enclosed as Annexure 6 to the written submission), it is evident that AO has to examine the cash deposits made during the demonetization period in the case of businesses in accordance with the SOP laid down in the aforesaid circular. Only in cases where the assessee is unable to explain the source of the cash deposits made, can the said sum be treated as unexplained. In the instant case, it was claimed by the assessee that the entire sales made by her are recorded in the books of accounts and offered to tax. The sole reason for both AO and CIT(A) for making / sustaining the addition u/s 69A was that subsequent to 08.11.2016, the SBNs were not legal tender and assessee was not person authorized to collect SBNs. The AO and the CIT(A) has not examined the veracity of source of cash deposits. The Bangalore Bench of the Tribunal in the case of Anantpur Kalpana i 2021 (12) TMI 599 - ITAT BANGALORE held that accepting SBNs subsequent to 08.11.2016 cannot be sole reason for making addition under section 69A Also in the case of ITO Vs. Sri Tatiparti Satyanarayana 2022 (3) TMI 896 - ITAT VISAKHAPATNAM held that dealing in SBNs prior to the appointed day i.e., 31.12.2016 cannot be prohibited and the source of deposit needs to be examined. We hold that both the AO and the CIT(A) have erred in holding that assessee, prior to the appointed day i.e., 31.12.2016, was prohibited from accepting the SBNs and addition of the same u/s 69A of the Act is warranted. AO and the CIT(A) have not examined the source of the aforesaid cash deposits. For the limited purpose of examining the same, the issue is restored to the files of AO -Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of the addition of Rs. 17,28,000/- as unexplained cash deposits under Section 69A of the Income Tax Act, 1961.
2. Applicability of tax under Section 115BBE of the Income Tax Act, 1961.
3. Imposition of interest under Sections 234-B and 234-C of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Validity of the Addition of Rs. 17,28,000/- as Unexplained Cash Deposits under Section 69A:
The primary issue revolves around the addition of Rs. 17,28,000/- to the assessee's income under Section 69A of the Income Tax Act, 1961. The assessee, who runs a poultry farm, had deposited Rs. 34,55,000/- in her bank account during the demonetization period, out of which Rs. 25,41,000/- were in demonetized notes. The Assessing Officer (AO) accepted Rs. 8,13,384/- as the closing cash balance as on 08.11.2016 but treated the remaining Rs. 17,28,000/- as unexplained, citing that the assessee was not authorized to accept demonetized notes post-demonetization as per the Government of India's Notification S.O.3408(E) dated 08.11.2016.

The CIT(A) upheld the AO's decision, stating that the assessee's business (poultry) was not among the specified categories allowed to transact in demonetized currency during the period.

However, the Tribunal noted that the RBI had allowed the deposit of demonetized notes into bank accounts until 31.12.2016, and the prohibition on holding or receiving such notes was effective only from the 'appointed day,' which was 31.12.2016. The Tribunal referenced various judicial precedents, including the Bangalore Bench's decision in the case of Anantpur Kalpana and the Chennai Bench's decision in M/s. Purani Hospital Supplies Pvt. Ltd., which held that accepting demonetized notes up to the appointed day could not be the sole reason for making additions under Section 69A.

The Tribunal concluded that the AO and CIT(A) had erred in treating the deposits as unexplained solely based on the acceptance of demonetized notes. However, the Tribunal remanded the case back to the AO for a detailed examination of the source of the cash deposits, instructing the assessee to produce necessary evidence.

2. Applicability of Tax under Section 115BBE:
The AO had applied the tax rates under Section 115BBE, which imposes a higher tax rate on unexplained income. The CIT(A) upheld this imposition. However, the Tribunal's decision to remand the case for re-examination of the source of deposits implies that the applicability of Section 115BBE depends on the outcome of this re-examination. If the deposits are satisfactorily explained, the higher tax rate under Section 115BBE may not apply.

3. Imposition of Interest under Sections 234-B and 234-C:
The assessee contested the imposition of interest under Sections 234-B and 234-C of the Act. These sections deal with interest for defaults in payment of advance tax and deferment of advance tax, respectively. The Tribunal did not provide a specific ruling on this issue, likely because it is contingent on the final determination of the unexplained income. If the deposits are found to be satisfactorily explained, the imposition of interest under these sections may be reconsidered.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remanding the case back to the AO for a detailed examination of the source of the cash deposits. The Tribunal emphasized that the mere acceptance of demonetized notes before the 'appointed day' could not be the sole basis for additions under Section 69A. The applicability of higher tax rates under Section 115BBE and the imposition of interest under Sections 234-B and 234-C will depend on the outcome of the re-examination by the AO.