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2025 (2) TMI 439 - AT - Income TaxAddition u/s 68 - Specified Bank Notes ( SBN ) deposited during demonetization period - HELD THAT - As from the circular issued by the CBDT it is very clear that while making additions towards cash deposits in demonetized currency AO needs to analyze the business model of the assessee its books of account and analysis of sales etc. In this case we have gone through the analysis furnished by the assessee in respect of total sales cash sales realization from debtors and cash deposits during financial year 2015-16 2016-17 there is no significant change in cash deposits during demonetization period. When there is no significant change in cash deposits during demonetization period then merely for the reason that the assessee has accepted specified bank notes in violation of circulation/notification issued by Government of India and RBI the source explained for cash deposits cannot be countenanced. From the financials filed by the assessee that assessee had enough stock of the fireworks to sale same to the customers on credit during the Diwali Festival i.e. 30.10.2016. Thus we find that the assessee had sufficient stock as on 30.10.2016 (Diwali period) for sale of the goods which generated amount of Rs. 53, 34, 899/- (out of which AO accepted Rs. 1, 08, 763/-) to be deposited during the demonetization period and there are no defects in the stock registers. Every purchase and sale matches with inflow and outflow of the stock and as assessee has placed on record that the purchased goods have already inflicted with VAT/Sales Tax and the AO has not found any infirmity in the books of accounts of the assessee. Appeal filed by the assessee is allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issue considered in this case was whether the addition of Rs. 52,57,601/- under Section 68 of the Income Tax Act, 1961, relating to Specified Bank Notes (SBNs) deposited during the demonetization period, was justified. The Tribunal examined whether the assessee had satisfactorily explained the nature and source of these deposits and whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] had appropriately applied the legal framework in confirming the addition. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents Section 68 of the Income Tax Act, 1961, deals with unexplained cash credits. It allows the AO to add such credits to the income of the assessee if the assessee fails to provide a satisfactory explanation regarding the nature and source of the credits. The Tribunal referred to the precedent set by the Hon'ble Supreme Court in Sreelekha Banerjee & Ors. v. CIT, which establishes that the department cannot unreasonably reject an explanation provided by the assessee. Court's Interpretation and Reasoning The Tribunal emphasized that the AO must provide a factual finding that the credits were unexplained. In this case, the assessee maintained audited books of accounts and regularly filed GST/VAT returns. The Tribunal noted that the assessee had explained the source of the SBNs as cash sales from the Diwali festival, which occurred before the demonetization announcement. The Tribunal found the explanation plausible and supported by evidence. Key Evidence and Findings The assessee provided a detailed explanation of the cash deposits, including the names of twelve customers who deposited cash, along with their PAN details. The Tribunal noted that the AO did not find any adverse material against these customers and failed to conduct further inquiries to verify the assessee's claims. The Tribunal also observed that the assessee's sales and stock records were consistent and showed no significant deviation from previous years. Application of Law to Facts The Tribunal applied the principles of Section 68 and the precedent from Sreelekha Banerjee to conclude that the AO acted unreasonably by rejecting the assessee's explanation without evidence to the contrary. The Tribunal found that the cash deposits were already accounted for as sales in the assessee's books, and the addition under Section 68 amounted to double taxation. Treatment of Competing Arguments The Tribunal considered the AO's argument that the acceptance of SBNs after the demonetization announcement violated government notifications. However, the Tribunal concluded that this did not affect the explanation provided by the assessee, as the sales occurred before the demonetization, and the deposits were merely realizations of those sales. Conclusions The Tribunal concluded that the assessee had satisfactorily explained the nature and source of the cash deposits, and the AO's addition under Section 68 was not justified. The Tribunal directed the deletion of the addition of Rs. 52,57,601/-. SIGNIFICANT HOLDINGS The Tribunal held that the AO's action of adding Rs. 52,57,601/- under Section 68 was not sustainable because the assessee had already accounted for these amounts as sales in its books. The Tribunal emphasized that double taxation of the same income is against fundamental taxation principles. Core Principles Established The Tribunal reaffirmed that an assessee's explanation regarding cash credits must be considered reasonable unless the AO provides evidence to the contrary. The Tribunal also underscored that additions under Section 68 cannot be made if the credits are already accounted for in the assessee's income. Final Determinations on Each Issue The Tribunal set aside the order of the CIT(A) and directed the deletion of the addition of Rs. 52,57,601/-. The appeal filed by the assessee was allowed, and the Tribunal's order was pronounced on February 5, 2025, in Chennai.
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