2023 (8) TMI 1499 - AT - Income Tax

Addition u/s 68 - SBN notes deposited in bank account -assessee being a dealer in milk has accepted SBNs during demonetization period and deposited into his bank account - assessee has explained source for cash deposits out of sales - HELD THAT - Although the assessee does not come under exempted category but fact remains that the assessee was engaged in the business of sale of milk which a highly perishable product. Unless the assessee sells his products by whatever means there is every possibility to lose his capital. Therefore to protect his business the assessee has accepted SBNs from customers and deposited into bank account. To this extent we find that the explanation offered by the assessee for accepting SBNs during window period cannot be doubted. But fact remains that although the assessee claims to have filed necessary evidences including relevant sales details when compared to previous Financial Year but no such evidence has been rightly apprised by the Ld.CIT(A) while deleting the additions made towards cash deposits during demonetization period. As both the AO and the assessee could not justify their case with relevant reasons we are of the considered view that only possible way out to settle the issue is to estimate income from cash deposit during demonetization period - thus we direct the AO to estimate 25% profit towards cash deposits made during demonetization period and delete balance 75% addition made u/s.68 of the Act. Decided partly in favour of revenue.

Summary

Issues:
1. Condonation of delay in filing appeal by Revenue.
2. Addition of cash deposits during demonetization period.
3. Acceptance of Specified Bank Notes (SBNs) by the assessee.
4. Justification for cash deposits from sale of milk products.
5. Dispute regarding legal tender withdrawal of SBNs by RBI.
6. Assessment of income from cash deposits during demonetization period.

Analysis:
1. The judgment addresses the issue of condonation of delay in filing the appeal by the Revenue. The appeal was found to be barred by limitation, and a petition for condonation of delay was filed. The Tribunal accepted the reasons provided by the Revenue as a reasonable cause for the delay and granted condonation, admitting the appeal for adjudication.

2. The main issue revolves around the addition of cash deposits made by the assessee during the demonetization period. The Assessing Officer (AO) questioned the nature and source of the cash deposits in Specified Bank Notes (SBNs) totaling Rs. 75,54,450. The AO rejected the explanation provided by the assessee, considering the withdrawal of legal tender for SBNs from 09.11.2016. The AO made additions under section 68 of the Income Tax Act, which led to an appeal by the assessee before the Commissioner of Income Tax (Appeals) [CIT(A)].

3. The assessee, a milk dealer, explained that the cash deposits were from the sale of milk products during the demonetization period. The CIT(A) accepted the explanation, citing the lack of evidence from the AO to prove abnormal sales compared to previous periods. The Revenue challenged this decision, arguing that the acceptance of SBNs post-withdrawal was incorrect. The Tribunal noted the necessity for the assessee to accept SBNs to protect the perishable nature of the products sold.

4. The dispute also involves the justification for the cash deposits arising from the sale of milk products. The Tribunal acknowledged the necessity for the assessee to accept SBNs during the demonetization window period to prevent losses in the perishable goods business. The Tribunal emphasized the importance of protecting the business capital by accepting SBNs from customers, especially when no prevention existed for such transactions during the specified period.

5. The judgment delves into the legal implications of the withdrawal of legal tender for SBNs by the Reserve Bank of India (RBI) post 09.11.2016. While the assessee did not fall under exempted categories for accepting SBNs, the Tribunal recognized the unique circumstances of the milk business, where the acceptance of SBNs was crucial to prevent capital loss. The Tribunal highlighted the necessity for the assessee to transact in SBNs during the specified window period for business continuity.

6. Lastly, the Tribunal assessed the income from the cash deposits made during the demonetization period. Due to the lack of substantial evidence from both the AO and the assessee, the Tribunal decided to estimate 25% profit on the total cash deposits and directed the AO to delete the remaining 75% addition made under section 68 of the Act. The appeal by the Revenue was partly allowed based on this assessment.