2025 (4) TMI 141 - AT - Income Tax

Addition towards cash deposits to the Bank account u/s 69A and levied tax u/s 115BB - assessee deposited more than 1 crores rupees in the Bank account and only Rs. 19, 70, 600/- deposited during demonetization period and there is no bar to except old currency notes and the assessee has produced the sale register and ledger account of the assessee - HELD THAT - In this case admittedly the assessee has explained the source of its cash deposits and the revenue authorities were not disputing the same. Therefore when the assessee has explained the reasons for accepting these Specified Bank Notes even after 08.11.2016. AO ought to have accepted the explanation furnished by the assessee when he is not disputing the nature of business and source for cash deposits as discussed above. The assessee was engaged in the business of selling liquor therefore sale transactions of liquor should be only by way of cash. Therefore as per the above detailed discussion the AO is not right in making the addition towards cash deposit. AO as well as ld. CIT(A) has erred in sustaining the addition towards cash deposits to the Bank account under section 69A of the Act and levied tax u/s 115BB. Appeal filed by the assessee is allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the delay of 77 days in filing the appeal by the assessee should be condoned.
• Whether the addition of Rs. 19,70,600/- under section 69A of the Income Tax Act, 1961, due to cash deposits made during the demonetization period, was justified.
• Whether the revenue authorities erred in not accepting the assessee's explanation for the source of cash deposits during the demonetization period.

ISSUE-WISE DETAILED ANALYSIS

Condonation of Delay

• Relevant Legal Framework and Precedents: The Tribunal considered whether the delay in filing the appeal was due to negligence or if there was sufficient cause to condone it.
• Court's Interpretation and Reasoning: The Tribunal found that the delay was not due to negligence by the assessee, as the assessee was unaware of the order passed by the CIT(Appeals) and had not received the physical copy.
• Conclusion: The delay was condoned, allowing the appeal to be heard on merits.

Justification of Addition under Section 69A

• Relevant Legal Framework and Precedents: Section 69A of the Income Tax Act deals with unexplained money, where the assessee is unable to provide a satisfactory explanation for the nature and source of the money found in their possession.
• Court's Interpretation and Reasoning: The Tribunal noted that the assessee had deposited cash during the demonetization period, which was initially treated as unexplained by the Assessing Officer. However, the Tribunal emphasized that the Specified Bank Notes (Cessation of Liabilities) Act, 2017, allowed for the holding and receiving of specified bank notes until December 31, 2016.
• Key Evidence and Findings: The assessee provided bank statements and a sales ledger, indicating that the cash deposits were from legitimate business sales. The Tribunal found no dispute over the nature of the business or the source of the cash deposits.
• Application of Law to Facts: The Tribunal applied the provisions of the Specified Bank Notes (Cessation of Liabilities) Act, 2017, which allowed for the receipt of specified bank notes until the appointed day. This legal framework supported the assessee's explanation for the cash deposits.
• Treatment of Competing Arguments: The Tribunal rejected the revenue's argument that the acceptance of old currency notes was illegal, noting that the prohibition only applied after December 31, 2016. The Tribunal also referenced similar decisions by other Coordinate Benches, reinforcing the legal standing.
• Conclusion: The Tribunal concluded that the addition under section 69A was not justified, as the assessee had adequately explained the source of the cash deposits.

SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "From the above Bill, it is clear that up to 'appointed date', i.e., 31.12.2016, there is no restriction in holding or receiving Specified Bank Notes, even though legal tender is banned from 08.11.2016 onwards."
• Core Principles Established: The judgment reinforced the principle that the Specified Bank Notes (Cessation of Liabilities) Act, 2017, allowed for the holding and receipt of specified bank notes until December 31, 2016, and that cash deposits from legitimate business activities during this period should not be automatically deemed unexplained.
• Final Determinations on Each Issue: The Tribunal directed the Assessing Officer to delete the addition made under section 69A, thereby allowing the appeal filed by the assessee.