2024 (7) TMI 1579 - AT - Income Tax

Unexplained money u/s 69A - assessee accepted SBNs from customers / agents for sale of ITC products and from debtors despite the fact that the same ceased to be legal tender - HELD THAT - AO has made addition only for those deposits which are in SBNs. However, the fact would remain the same that those cash has been generated out of business activities only since the assessee do not have any other source of income. Such cash collections form part of books of account of the assessee. No defect has been pointed in the same. The assessee has furnished cash books which would show that the aforesaid deposits have been sourced out of business receipts only. It could also be seen that the deposits so made by the assessee has been remitted to the principal supplier only. AR has placed on record month-wise cash book break-up which would show that major sales are in cash which are regularly deposited in the bank account and no abnormality could be noted in this pattern post demonetization announcement. On these facts, impugned additions could not be sustained. AO has not followed the prescribed standard operating procedure. AO has reduced merely the profit margins on sales while making impugned additions. The said working would assume that the purchases were also not genuine which was never the case of AO. Therefore, we would hold that impugned addition is liable to be deleted. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question in this case is whether the addition of Rs.90.49 Lacs as unexplained money under Section 69A of the Income Tax Act, 1961, was justified. The Tribunal needed to consider if the cash deposits made by the assessee during the demonetization period were adequately explained as business receipts and whether the lower authorities correctly applied the legal provisions.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

The primary legal provision under consideration is Section 69A of the Income Tax Act, which deals with unexplained money. The provision allows for the addition of unexplained money to the income of the assessee if the assessee cannot satisfactorily explain the source of such money. The Tribunal also considered the Standard Operating Procedure (SOP) issued by the Central Board of Direct Taxes (CBDT) for handling cases related to demonetization.

Court's interpretation and reasoning:

The Tribunal analyzed the nature of the assessee's business activities and the cash transactions recorded in the books of account. It noted that the assessee was a wholesale dealer of products, and cash transactions were a regular part of its business operations. The Tribunal found that the cash deposits during the demonetization period were consistent with the business pattern and were recorded in the books of account.

Key evidence and findings:

The Tribunal considered the cash book and other supporting documents provided by the assessee, which showed that the cash deposits were sourced from business receipts. It was noted that the cash collections were deposited in the bank and then remitted to the principal supplier. The Tribunal found no defects in the books of account and observed that the Assessing Officer (AO) did not follow the prescribed SOP for comparative analysis of cash sales and deposits.

Application of law to facts:

The Tribunal applied Section 69A to the facts and concluded that the cash deposits were adequately explained as business receipts. It found that the AO's approach of reducing only the profit margins on sales while making the addition was flawed, as it assumed the purchases were not genuine, which was not the case.

Treatment of competing arguments:

The Tribunal distinguished the present case from the decision in Vidhiyasekaran Pradeep Malliraj, where the source of cash deposits was not fully substantiated. In contrast, the assessee in the current case provided sufficient documentary evidence to support the source of cash deposits. The Tribunal found the arguments of the assessee more convincing and noted the AO's failure to adhere to the SOP.

Conclusions:

The Tribunal concluded that the addition of Rs.90.49 Lacs as unexplained money under Section 69A was not justified. It ordered the deletion of the impugned addition, allowing the appeal in favor of the assessee.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

"The fact would remain the same that those cash has been generated out of business activities only since the assessee do not have any other source of income."

Core principles established:

The Tribunal emphasized the importance of adhering to established procedures and the necessity of a thorough examination of the assessee's records before making additions under Section 69A. It highlighted the requirement for the AO to conduct a comparative analysis of cash sales and deposits, as outlined in the CBDT's SOP.

Final determinations on each issue:

The Tribunal determined that the cash deposits during the demonetization period were adequately explained as business receipts, and the addition of Rs.90.49 Lacs as unexplained money was not warranted. The appeal was allowed, and the impugned addition was ordered to be deleted.