2022 (4) TMI 622 - AT - Income Tax

Addition u/s 69A - cash deposited during the demonetization period - cash sales with old currency notes - HELD THAT - As per provisions of section 69A where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not satisfactory in the opinion of the Assessing Officer, the money and the value of the bullion, jewellery or other valuable article will be deemed to be the income of the assessee of such financial year. There is no dispute that the assessee is maintaining books of account and such sales has been recorded in the books of account and from the books of account itself the CIT(A) has observed that the sales recorded by the assessee during the demonetization period was with the illegal currency therefore, section 69A could not have been invoked as section 69A clearly states that such income will be deemed to be income of the assessee where the assessee is found to be owner for a valuable not recorded in the books of account. In view of the above, the additional ground of the assessee is accepted and the assessment order passed by the Assessing Officer is quashed.

Summary

Issues:
1. Addition of cash deposited during demonetization period
2. Applicability of sections 69A and 115BBE
3. Legal ground of additional appeal

Issue 1: Addition of cash deposited during demonetization period

The appeal was filed against the order of the CIT(A) confirming the addition of ?7,68,000 made by the Assessing Officer for cash deposited during the demonetization period. The assessee argued that the provisions of section 69A and section 115BBE, invoked by the Assessing Officer, were not applicable as the cash deposits were not undisclosed or unexplained. The assessee maintained that the deposits were recorded in the books of account and hence, could not be considered unexplained. The counsel highlighted that section 69A applies to unexplained investments outside the books of account, which was not the case here. The CIT(A) upheld the addition by stating that accepting old currency after demonetization could not be considered as part of sales since the old currency was no longer legal tender. The appeal was made on the grounds that the sales were not denied and the addition was unjustified.

Issue 2: Applicability of sections 69A and 115BBE

The additional ground of appeal raised by the assessee challenged the invocation of sections 69A and 115BBE. The assessee argued that section 69A was not applicable as the transactions were duly recorded in the books of account, which is a requirement for invoking this section. The Tribunal examined the provisions of section 69A, which state that unexplained money or assets not recorded in the books of account may be deemed as income. Since the sales were recorded in the books of account, section 69A was deemed inapplicable. Consequently, the assessment order was quashed based on the acceptance of the additional ground of appeal. The regular grounds taken by the assessee were dismissed as infructuous due to the decision on the additional ground.

Issue 3: Legal ground of additional appeal

The Tribunal accepted the additional ground of appeal raised by the assessee, emphasizing that section 69A was not applicable in this case as the transactions were recorded in the books of account. The Tribunal ruled in favor of the assessee, quashing the assessment order passed by the Assessing Officer. As a result, the appeal of the assessee was partly allowed, and the regular grounds were dismissed.

The judgment by the Appellate Tribunal ITAT Lucknow in this case focused on the applicability of sections 69A and 115BBE in the context of cash deposits made during the demonetization period. The Tribunal ruled in favor of the assessee, highlighting that the deposits were recorded in the books of account, rendering section 69A inapplicable. The decision underscores the importance of maintaining proper records to avoid tax implications related to unexplained income or assets.