2024 (12) TMI 146 - HC - Income Tax

Cash deposits u/s 69A - additions made during demonetization period - objection of the department that the account of the assessee was contrary to the Agreement wherein he was supposed to deposit the money in the account of the FRB instead he deposited the cash in his bank account and thereafter transferred the money to the account of FRB which brings the deposit within the mischief of Section 69A - HELD THAT - CIT(A) and the Tribunal were justified in coming to the conclusion that only on account of purported infraction of the Agreement between the FRB and the assessee, without there being any dispute regarding the amount collected by the assessee which, in turn, has been deposited with the FRB, the deposits in the bank account of assessee cannot be termed as unexplained cash deposits by the assessee. Both the authorities have concurrently found that the amount indeed has been collected from the micro borrowers of the FRB and after deposit in the bank account has been transferred to the FRB. The said finding of fact recorded by the two authorities, cannot and does not give rise to any substantial question of law as projected. So far as the fact regarding the period of demonetisation is concerned, the CIT(A) only on assumption, that the deposit was in infraction of the Agreement that the appellant was not authorised to collect money in Specified Bank Notes, rejected the appeal, the Tribunal came to the conclusion that merely because certain cash deposits in the Specified Bank Notes by the assessee during the demonetization period, the same did not make the deposit as tainted when the very same transactions were being made by the assessee in the past and have been accepted by the CIT(A). Tribunal was also of the opinion that it was not the case of the revenue that assessee was not in receipt of Specified Bank Notes from the customers of the FRB during the period 09.11.2016 to 30.12.2016. The findings recorded by the Tribunal, are in consonance with the material available before it and by no stretch of imagination the deposits received by the respondent assessee from the micro borrowers of the FRB can be termed as unexplained cash deposits in his bank account. No substantial question of law.

Summary

Issues:
1. Interpretation of Section 260A of the Income Tax Act, 1961.
2. Assessment of income based on cash deposits under Section 69A of the Act.
3. Validity of additions made during demonetization period.
4. Compliance with Agreement terms between the assessee and a foreign company.
5. Justification of Tribunal's decision regarding cash deposits and demonetization period.

Analysis:
1. The judgment pertains to an appeal under Section 260A of the Income Tax Act, challenging the order of the Income Tax Appellate Tribunal (ITAT) which allowed the assessee's appeal and dismissed the revenue's appeal against the assessment order passed by the National Faceless Appeal Centre. The case involved the interpretation of Section 260A and the validity of the Tribunal's decision.

2. The assessee, engaged in providing security and banking services, faced an assessment where the Assessing Officer determined the total income based on cash deposits, invoking Section 69A of the Act. The Commissioner of Income Tax (Appeals) partially deleted the addition, and both the assessee and the department filed appeals. The Tribunal found that the cash deposits were ultimately transferred to the foreign company's account, ruling that the deposits were not unexplained cash deposits. The Tribunal's decision was based on the modus operandi adopted by the assessee.

3. The Tribunal also addressed the additions made during the demonetization period, disagreeing with the CIT(A)'s assumption that the deposits were in violation of the Agreement. The Tribunal concluded that the cash deposits in Specified Bank Notes did not make the deposits tainted, as they were part of regular transactions accepted in the past. The Tribunal found no justification for considering the deposits as unexplained cash deposits during the demonetization period.

4. The Tribunal's decision was based on the compliance of the assessee with the Agreement terms with the foreign company. The Tribunal emphasized that the money collected from borrowers was deposited into the foreign company's account, fulfilling the contractual obligations. The Tribunal rejected the department's argument that the cash deposits were contrary to the Agreement, as the ultimate transfer to the foreign company's account was undisputed.

5. The Tribunal's decision was upheld by the High Court, which dismissed the appeal, stating that the findings regarding cash deposits and demonetization period did not give rise to any substantial question of law. The High Court concurred with the Tribunal's reasoning that the deposits were not unexplained cash deposits, as the funds were collected from borrowers and transferred to the foreign company's account as per the Agreement terms. The appeal was deemed to lack substance, and therefore, was dismissed.