2023 (10) TMI 15 - AT - Income Tax

Unexplained investment - Poof of source for the specified bank notes being the demonetised currency which has been deposited in the bank provided - HELD THAT - It is an accepted fact that as on the date of demonetisation except for specified persons no other persons were permitted to transact in the demonetised currency. The assessee does not fall within the exempted category of persons to deal with the demonetized currency. With this in mind, if it is seen, the sale alleged to have been made by the assessee between 08.11.2016 and 12.11.2016 though shows availability of funds along with recovery from the debtors, still it cannot be said that this is a source for the specified bank notes being the demonetised currency which has been deposited in the bank on 12.11.2016. We are unable to even consider a position that Rs. 28 lakhs SBNs could have been with the assessee before 08.11.2016 insofar as the cash book only shows cash availability of Rs. 252.40. Admittedly, if the assessee desires to take the stand that the SBNs were the currency received between 08.11.2016 to 12.11.2016, it would be incumbent upon the assessee to prove to the revenue as to from whom he has received the SBNs. In the absence of such prove, the deposit of SBN to the extent of Rs. 28 lakhs will have to be treated as the unexplained investment of the assessee. Appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Validity of cash deposits during demonetization.
2. Alleged failure to apply principles of natural justice.
3. Appropriateness of invoking Section 69A.
4. Legitimacy of accepting demonetized currency.
5. Allegations of money laundering.

Summary:

1. Validity of Cash Deposits During Demonetization:
The assessee, engaged in the business of FMCG goods, deposited Rs. 28,00,000 in demonetized currency on 12.11.2016. The CIT(A) observed that the cash book revealed a balance of only Rs. 252.40 as on 08.11.2016, and the assessee failed to substantiate the source of the deposited amount. The assessee contended that the cash was from sales and debtor collections between 08.11.2016 and 12.11.2016, supported by a computerized cash book and certified documents. However, the Tribunal found no error in CIT(A)'s order, emphasizing that the assessee was not permitted to accept demonetized currency and failed to prove the source of Rs. 28,00,000.

2. Alleged Failure to Apply Principles of Natural Justice:
The assessee argued that the AO failed to issue a specific show cause notice and did not consider the assessee's replies and evidence, violating natural justice principles. The CIT(A) dismissed this ground, stating it was general in nature and did not need separate consideration. The Tribunal upheld this view, finding no merit in the assessee's claims.

3. Appropriateness of Invoking Section 69A:
The assessee challenged the invocation of Section 69A, arguing that the transactions were recorded in regular books of accounts and adequately explained. The CIT(A) and Tribunal found that the assessee failed to provide satisfactory evidence for the source of the cash deposits, justifying the application of Section 69A.

4. Legitimacy of Accepting Demonetized Currency:
The assessee claimed that accepting demonetized currency was lawful up to 30 December 2016. However, the CIT(A) and Tribunal noted that the assessee was not authorized to accept such currency post-demonetization, rendering the deposits unexplained.

5. Allegations of Money Laundering:
The AO alleged money laundering against the assessee. The CIT(A) and Tribunal found no basis for these allegations but focused on the unexplained nature of the cash deposits, affirming the addition of Rs. 28,00,000 as unexplained investment.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s order that the Rs. 28,00,000 deposited in demonetized currency was unexplained and liable to be treated as such under Section 69A. The principles of natural justice were deemed to have been followed, and the assessee's explanations were found insufficient.