2024 (10) TMI 1638 - AT - Income Tax

Addition of cash deposits - unexplained money u/s.69A - cash deposited in bank during demonetization period in Specified Bank Notes (SBNs) - HELD THAT - When demonetization was announced there was a scarcity of Quid cash in non-demonetised currencies. Smaller traders had to accept payments from their customers in demonetised and non-demonetised currencies as well because of the fact that non acceptance will lead to fall in sales and put their customers into hardship. The traders in turn started making payments in demonetised currencies to assessee which forced them to accept in order to maintain a smooth working capital cycle. Assessee also enquired with their bankers regarding the same who in turn advised that they will be accepting payments up to 30th December 2016. Based on this assessee was under the bonafide belief that acceptance of cash in demonetised form from identifiable customers is permitted and therefore assessee were accepting from such customers for a few days. As soon as assessee came to know that only specified persons can accept demonetised currency they stopped receiving the same. The amount received during the initial few days were remitted to the bank account. This was the reason for acceptance of the demonetized currency from their customers which were remitted in to account then and there. Going by the explanation of the assessee that the cash deposited in SBNs during demonetization period is out of sale proceeds and this issue stands covered in favour of the assessee by the decision of Tamil Nadu State Marketing Corporation Ltd. 2024 (10) TMI 1614 - ITAT CHENNAI as held to bring any amount u/s. 69 or 69A of the Act the nature and source of investment needs to be examined. In case the assessee explains the nature and source of investment then the question of making addition towards unexplained investment u/s. 69 of the Act does not arise. In this case the source of deposits has not been disputed and has been created out of ordinary business sales which has been credited into books of accounts and profits has also been duly included in the return of income filed in relevant assessment year. Therefore we are of the considered view that additions cannot be made u/s. 69 - Decided in favour of assessee.

Summary

The judgment by the Appellate Tribunal in ITAT Chennai dealt with the issue of whether cash deposits made during the demonetization period in Specified Bank Notes (SBNs) amounting to Rs. 70,68,500 should be treated as unexplained money under section 69A of the Income Tax Act, 1961. The key points of the judgment are as follows:1. **Issues Presented and Considered**: - The core legal question was whether the cash deposits made during demonetization in SBNs were adequately explained by the assessee.2. **Issue-Wise Detailed Analysis**: - The relevant legal framework and precedents included the Income Tax Act, 1961 and notifications issued by the Government of India and RBI regarding demonetization. - The Court interpreted that the acceptance of demonetized currency from identifiable customers during the demonetization period was permitted. - The key evidence included the explanation provided by the assessee regarding the source of cash deposits. - The application of law to facts was based on the Tribunal's decision in a similar case where it was held that violations of notifications issued by the RBI did not automatically lead to additions under sections 69 or 69A of the Act. - Competing arguments revolved around the legality of accepting demonetized currency and the genuineness of the assessee's explanation. - The conclusion was that the Tribunal allowed the appeal, deleting the addition made by the lower authorities based on the precedent set by a Co-ordinate Bench.3. **Significant Holdings**: - The Tribunal quoted a crucial legal reasoning from a previous case to support its decision: "Simpliciter violation of certain notification issued by RBI or demonetization scheme announced by Government of India on 08.11.2016 will not entitle the Revenue to make addition u/s.69 or 69A of the Act." - The core principle established was that the nature and source of investment needed to be examined before making additions under sections 69 or 69A of the Act. - The final determination was that the appeal filed by the assessee was allowed, and the addition made by the lower authorities was deleted.In conclusion, the Tribunal's decision in this case emphasized the importance of considering the source and nature of cash deposits made during demonetization before treating them as unexplained money under the Income Tax Act. The judgment highlighted the need for a thorough analysis of the business model and financial records of the assessee before making such additions.