2024 (9) TMI 1273 - AT - Income Tax

Addition u/s. 69 - Unexplained investments - Specified Bank Notes ( SBNs ) deposited during the demonetization period - assessee replied that the nature of the deposits/SBNs was trade receipts i.e. sale consideration of milk milk products, and source of the same was from customers to whom milk/milk products were sold and expressed his willingness to furnish the names of his distributors/customers - HELD THAT - From the Circular issued by the CBDT, it is very clear that, while making additions towards cash deposits in demonetized currency, the 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 Years 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 Circular/Notification issued by Government of India and RBI, the source explained for cash deposits can t be countenanced . Assessee had filed the books of accounts and relevant documents to prove the nature and source of cash/SBNs deposited during demonetization; and asserted that it was trade receipt and had been part of the turnover, which has been offered to tax. However, the AO without finding any infirmity in the books regularly maintained by the assessee and which has been audited, has added. Amount deposited in bank-account was part of the total turnover of the assessee and has been offered for taxation. Therefore, making a separate addition would tantamount to double addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of addition under Section 69 of the Income Tax Act, 1961.
2. Legality of accepting Specified Bank Notes (SBNs) post-demonetization.
3. Assessment of trade receipts and cash deposits during the demonetization period.
4. Compliance with the Central Board of Direct Taxes (CBDT) guidelines.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 69 of the Income Tax Act, 1961:
The primary grievance of the assessee was the confirmation of the addition of Rs. 25,46,290/- under Section 69 by the Ld. CIT(A). The assessee argued that the deposits were trade receipts from the sale of milk and milk products, duly recorded in the books of accounts. The Tribunal noted that Section 69 applies to investments not recorded in the books of accounts, and where the assessee fails to satisfactorily explain the nature and source of such investments. In this case, the AO did not find that the sum of Rs. 25,46,290/- was unrecorded or unexplained. Therefore, the Tribunal concluded that the conditions for invoking Section 69 were not met, and the addition was legally unsustainable.

2. Legality of Accepting Specified Bank Notes (SBNs) Post-Demonetization:
The AO and Ld. CIT(A) held that the assessee ought not to have accepted SBNs after 08.11.2016. However, the Tribunal highlighted that there was no ordinance or law explicitly prohibiting transactions in SBNs from 08.11.2016 to 31.12.2016. The Tribunal also noted that the Ministry of Finance had issued a notification allowing certain transactions using SBNs, including the purchase of milk at authorized milk booths. The Tribunal found that the assessee's acceptance of SBNs in good faith, believing it was permissible, could not be deemed illegal or discriminatory.

3. Assessment of Trade Receipts and Cash Deposits During the Demonetization Period:
The Tribunal examined the assessee's business model, financial statements, and bank statements. It was noted that the assessee regularly deposited cash collected from customers into the bank accounts of M/s. Creamline Dairy Products Ltd. (CDPL) until 15.11.2016, after which the deposits were made into the assessee's account and cheques issued to CDPL. The total sales of Rs. 3,13,70,274/- included the cash deposits of Rs. 31,47,900/-, and the AO had not disputed the purchases, sales, or audited books of accounts. The Tribunal found no significant change in cash deposits during the demonetization period compared to previous years, supporting the assessee's claim that the deposits were from legitimate trade receipts.

4. Compliance with the Central Board of Direct Taxes (CBDT) Guidelines:
The Tribunal referred to the CBDT Circular, which provided guidance for verifying cash deposits during the demonetization period. The Circular emphasized the need to analyze bank accounts, cash receipts, and stock registers. The Tribunal found that the AO had not properly analyzed the assessee's business model or books of accounts. The assessee had provided sufficient evidence to prove the nature and source of the cash deposits, which were consistent with the business operations and previous years' transactions. The Tribunal concluded that the AO's addition of Rs. 25,46,290/- without rejecting the books of accounts was not justified.

Conclusion:
The Tribunal set aside the order of the Ld. CIT(A) and directed the deletion of the addition of Rs. 25,46,290/- under Section 69 of the Income Tax Act, 1961. The appeal filed by the assessee was allowed, and the judgment emphasized the importance of proper analysis and adherence to legal provisions and guidelines in assessing cash deposits during the demonetization period.