2024 (8) TMI 416 - AT - Income Tax

Cash deposits made by the assessee during the demonetization period - assessee had collecting the cash from borrowers is supposed to deposit the money in the bank account of FRB - HELD THAT - Merely because certain cash was deposited in the specified bank notes by the assessee during the demonetization period will not make the assessee tainted party when the very same transaction are being made by the assessee in the part as well as in the future. As stated cash deposits made by the assessee during AY 2016-17, during the period 01.04.2016 to 08.11.2016; cash deposit made during 01.01.2017 to 31.03.2017 and the cash deposit in other than SBN during the period 09.11.2016 to 30.12.2016 has been accepted as genuine. It is not the case of the revenue that assessee was in receipt of SBN from the customers of FRB during the period 09.11.2016 to 30.12.2016. With regard to observation made by the AO of his order that PAN and phone no of the borrower furnished by the assessee are incorrect and incomplete. As stated earlier the assessee is merely a loan collection agent. The entire details have been obtained by the assessee from the bank. The assessee had duly explained in this regard that the phone numbers given there are there complete in view of the fact that first two digits are given in previous column and remaining 8 digits in next column thereby making mobile no and land line no complete. Assessee had conducted enquiry on few borrowers on test check basis and found the borrowers to be genuine and had also verified PANs with them. These details are also placed on record before the lower authorities. Hence, the observations made by the AO in this regard in the assessment order is completely devoid of merit. There is absolutely no case for making any addition on account of cash deposit made by the assessee in his bank account and that the entire cash deposit made in his bank account stands thoroughly and properly explained. Hence, we have no hesitation to accept the stand of the assessee herein. Grounds raised by the assessee are allowed.

Issues Involved:
1. Legitimacy of cash deposits made by the assessee during the demonetization period.
2. Applicability of Section 69A of the Income Tax Act.
3. Adherence to RBI guidelines by the assessee.
4. Validity of the Business Correspondent Agreement.
5. Compliance with the Specified Bank Notes (Cessation of Liabilities) Act, 2017.
6. Assessment of the assessee's business activities and income.

Issue-Wise Analysis:

1. Legitimacy of Cash Deposits During Demonetization:
The assessee, engaged in the business of providing security, housekeeping, and manpower supply, acted as a business correspondent for First Rand Bank (FRB). The assessee collected loan installments in cash from borrowers and deposited these amounts into his bank accounts before transferring them to FRB. The Assessing Officer (AO) questioned the legitimacy of cash deposits made during the demonetization period (09.11.2016 to 30.12.2016) and added Rs. 89,41,86,882 to the assessee's income. The CIT(A) partially deleted the addition, accepting cash deposits made during other periods and non-SBN deposits during the demonetization period but upheld the addition for SBN deposits.

2. Applicability of Section 69A of the Income Tax Act:
The assessee argued that Section 69A, which deals with unexplained money, should not be invoked as he provided cogent evidence supporting the cash deposits. The CIT(A) upheld the AO's application of Section 69A for SBN deposits, but the Tribunal found that the assessee had adequately explained the source of all cash deposits, including those made in SBN.

3. Adherence to RBI Guidelines:
The CIT(A) noted that the assessee did not adhere to RBI guidelines during the demonetization period, specifically regarding the collection of cash in SBN. However, the Tribunal observed that FRB, a licensed bank, confirmed that the assessee acted within banking policies and procedures. The Tribunal emphasized that the assessee's role as a custodian of FRB's money was legitimate and in accordance with the Business Correspondent Agreement.

4. Validity of the Business Correspondent Agreement:
The revenue questioned the validity of the Business Correspondent Agreement, noting that it came into existence after the end of the previous year. The Tribunal, however, found that the agreement, dated 08.11.2016, clearly outlined the assessee's responsibilities, including the collection of funds from customers. The Tribunal accepted the agreement as valid and relevant to the assessee's activities during the demonetization period.

5. Compliance with the Specified Bank Notes (Cessation of Liabilities) Act, 2017:
The assessee argued that there was no prohibition on transacting in SBN up to the appointed date as per the Specified Bank Notes (Cessation of Liabilities) Act, 2017. The Tribunal found that the assessee's transactions were in line with the Act and that the cash deposits in SBN were legitimate.

6. Assessment of the Assessee's Business Activities and Income:
The Tribunal noted that the assessee's business activities, including the collection of loan installments, were consistent and had been accepted in previous and subsequent assessment years. The Tribunal emphasized that the assessee's role as a collection agent for FRB was legitimate and that the cash deposits were properly explained. The Tribunal concluded that the assessee had complied with the requirements of the Income Tax Act and that no adverse inference could be drawn.

Conclusion:
The Tribunal allowed the assessee's appeal, dismissing the revenue's appeal. It found that the assessee had adequately explained the source of all cash deposits, including those made in SBN during the demonetization period, and that the Business Correspondent Agreement and compliance with RBI guidelines were valid. The Tribunal emphasized that the assessee's business activities were legitimate and properly accounted for, and no additions to income were warranted.

← Previous Next →