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TMI Blog2024 (10) TMI 1614X X X X Extracts X X X X X X X X Extracts X X X X ..... re, under those circumstances, some persons continued to accept and transact the specified bank notes and deposited into bank accounts. Therefore, merely for the reason that there is a violation of certain notifications/GO issued by the Government in transacting with specified bank notes, the genuine explanation offered by the assessee towards source for cash deposit cannot be rejected, unless the AO makes out a case that the assessee has deposited unaccounted cash into bank account in specified bank notes. Further noted that the Central Board of Direct Taxes had issued a circular for the guidance of the Revenue Officer to verify cash deposits during demonetization period in various categories of explanation offered by the assessee and as per the circular of the CBDT, examination of business cases, very important points needs to be considered is analysis of bank accounts, analysis of cash receipts and analysis of stock registers. From the circular issued by the CBDT, it is very clear that, in a case where cash deposit found in business cases, the AO needs to verify the explanation offered by the assessee with regard to realization of debtors where said debtors were outstanding in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax, Corporate Circle 3(1), Chennai for the assessment year 2017-18 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the Act ) vide order dated 30.12.2019. 2. The sole issue in this appeal of assessee is as regards to the order of CIT(A)-NFAC confirming the addition made by AO of Rs.57.29 crores as unexplained investment u/s.69 of the Act in respect of cash deposits made in Specified Bank Notes(SBNs) during demonetization period i.e., 09.11.2016 to 31.12.2016. For this, assessee has raised various grounds and the same read as under:- 1. The Order of the National Faceless Appeal Centre ( NFAC ) /CIT(A) is contrary to law, facts and circumstances of the case. 2. The NFAC / CIT(A) erred in confirming the addition of Rs.57.29 crores as unexplained investment u/S.69 of the Act in respect of cash deposit of SBN during demonetization period. 3 The NFAC / CIT(A) ought to have appreciated it is not the case that the amount of cash deposits in SBNs has come out from undisclosed sources or under suspicious circumstances only to change the color of the money. 3.1 The NFAC / CIT(A) ought to have appreciated that the Appellant is a company wholly owned by Government of Tamil Nadu co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts establish that the nature of transaction for cash deposit of Rs.57.29 crores were purely sourced out of the cash collected from the customers on account of sale of our accounted stock. 7. The NFAC / CIT(A) failed to appreciate that the cash collections of the Appellant has been more or less similar in the earlier years and in the year under appeal and hence there is no extra circumstances to deal with the cash deposits assessable u/s.69 of the Act. 8. The NFAC / CIT(A) failed to appreciate that due to the extenuating circumstances the employees of Appellant's retail shops had no other alternative but to accept SBNs. 9. The NFAC / CIT(A) erred in holding that the transactions made in SBN on or after 09.11.2016 as prohibited by law cannot be entered into cash books. 10. The NFAC / CIT(A) failed to appreciate that in the notice issued by the Assessing Officer it has been mentioned that the Appellant has submitted complete details of stock, sales, realization and closing stock. Therefore, there can be no question of presumption that the sales during this demonetization period were for not valid currency and these demonetized notes were received as consideration for sales whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee claimed that the workers/employees of the assessee company were forced to accept demonetized currency in SBNs in 3037 outlets out of total 6200 outlets under the physical threat, which was given by the customers of liquor and beer. Hence, the employees accepted the SBNs and the individual purchases were made by these customers in demonetized currency. The CIT(A) dealt with this issue vide paras 5.3 to 5.7 6 as under:- 5.3 The explanation put forth by the appellant appears to be a bit too convenient for my comfort. It can be assumed that might be in some of the places the workers could be under physical threats but how could be it be possible that threats were given to the workers in 3037 shops out of 6200 shops which is around 50% of the total shops the appellant owns. If so much chaos was created and threats were given by the customers, the appellant being a government entity should have escalated the matter to the other Government Authorities who has the power to impose certain reasonable restriction on the right to assemble of the people. It is also pertinent to mention here that it was also not a spontaneous gathering which gathered at once and beaten the workers. Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Hon'ble Supreme Court of India in the case of Apex Laboratories (P.) Ltd. [2022] 135 taxmann.com 286 (SC) faced an identical matter where the activities carried out were prohibited by law, wherein it was held that since acceptance of freebies by medical practitioners was punishable as per Circular issued by Medical Council of India under MCI regulations, 2002, gifting of such freebies by assessee-pharmaceutical company to medical practitioners would also be prohibited by law and thus, expenditure incurred in distribution of such freebie swould not be allowed as a deduction in terms of Explanation 1 to section 37(1). The relevant portion of the order is reproduced here as under:- . . 5.7 During the Demonetization period, the exchange of SBNs (Except in few eligible businesses) is prohibited by the Government of India. In the present case the appellant company during the demonetization period accepted the SBNs with no legal tender and in exchange supplied to its customers non-essential non-perishable commodity like liquor beer. By doing so, the appellant company had given asset back to well-intended and well thought policy of Government to curb the abovementioned ill elements, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not require any adjudication. Accordingly Ground No. 12 13 are Dismissed. Aggrieved, now assessee is in appeal before the Tribunal. 5. Before us, the ld.counsel for the assessee filed details of opening cash balance as on 09.11.2016, sales made in cash from 09.11.2016 to 30.12.2016, cash deposited in bank account from 10.11.2016 to 30.12.2016 and closing balance as on 30.12.2016 as under:- Cash Balance (Opening Balance) As on 09/11/2016 Cash collection (cash Sales in TASMAC shop) From 09/11/2016 to 30/12/2016 Cash Deposited in Bank from (*) 10/11/2016 to 30/12/2016 Closing Balance as on 30/12/2016 84.23 (#) 3490.21(**) 3506.47 67.97 The ld.counsel explained that out of opening cash balance of Rs.84.23 crores consisting of SBNs amounting to Rs.81.57 crores and other denomination of notes amounting to Rs.2.66 crores. Further, he explained that out of total cash collection of Rs.3490.21 crores, the cash collection in SBNs during demonetization period i.e., 09.11.2016 to 30.12.2016 was Rs.57.29 crores. The ld.counsel explained that it was explained before AO that the demonetization was announced w.e.f. 09.11.2016 vide various notifications (which are mentioned in the above reproduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... narrated the following:- i. District wise / Bank wise / Account No. wise / copies of bank statement from 09.11.2016 to 30.12.2016. ii. District wise, shop wise, opening stock of liquor as on 09.11.2016, Stock transfer from Depot to Shop (Receipt of goods from depot to Shops) from 09.11.2016 to 30.12.2016, Sales effected in the shop from 09.11.2016 to 30.12.2016 and Closing stock as on 30.12.2016. iii. Remittance of sales proceeds from 10.11.2016 (09.11.2016 was bank holiday) to 30.12.2016. iv. Remittance reconciliation district wise for the period from 09.11.2016 to 30.12.2016. v. Comparable figures for corresponding period in the previous year. 5.2 The ld.counsel explained that the AO added the amount received by assessee in demonetized currency of Rs.500/- and Rs.1000/- notes for sale of liquor (amounting to Rs.57.29 crores) u/s.69 of the Act as unexplained investment. Provision of section 69 of the Act states the investment which are not recorded in the books of accounts can be added as unexplained investment. He argued that in the instant case, the amount received were for sale of products at retail outlets and the amounts realized have all been accounted and have not been ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gle iota of verifiable evidence was produced. Since the claimed source of possession of SBNs to the tune of 57 crore was not substantiated with valid and verifiable evidence, this sum of 57 crores was assessed as deemed income within the provisions of section 69 of the Act. The AO was right in not accepting the claim of the assessee that the assessee had indeed sold its goods against the SBNs for the following reasons:- (he narrated the reasons in writing as under) a. As per the provisions of section 101 to 106 of the Indian Evidence Act, 1872, the burden to prove that it had indeed traded its goods against the SBNs given by its customers is on the Appellant. b. The appellant could not produce a single verifiable evidence of sale made by obtaining the SBNs from its customer. c. There is not even any circumstantial evidence to indicate that the customers of the appellant had indeed given the SBNs and not the legal tender while purchase of their goods. d. There is not even any circumstantial evidence to indicate that the workers manning various sale counters of the appellant were indeed directed to accept the SBNs against the sale of goods of the appellant during the period from 9thN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort on whether the disclosures of Cash in hand as on specified dates, handling of specified bank notes(SBN), non- permitted transactions and its treatment in books of accounts (which were reportedly based on banks scrolls and statements) are correct h. Further, the statutory Auditor has reported that there has been no audit trace to indicate that the sale of goods have been made by obtaining the SBNs from its customers. Such reporting has been made in his audit report not in one place but at two places as reproduced under, clearly establishing the fact that the claim made by the appellant that the SBNs of Rs.57 crore is a part and parcel of its business turnover. Page No. 23, Para.4: The Management based on the scrolls and statements received from various banks, in respect of Non-operative collection, has disclosed in the Notes on accounts, Cash on hand as on 08th November 2016 and the acceptance of Specified Bank Notes and other notes between 9th November 2016 to 30th December2016. However, we are unable to obtain sufficient and appropriate audit evidence to report on whether the disclosures of Cash in hand as on specified dates, handling of specified bank notes (SBN), non-permitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that is the assessee covered under the limited notified entities to transact its business in SBN No. The assessee's nature of business is not covered under the Gazette of India dated 08.11.2016. He further posed a question, Has Government treated the SBNs as illegal tender? No. The Government has not declared the SBNs as an illegal tender. However, since there is bar in transacting in SBNs for business purpose (as mentioned at Para-2 above), anybody transacting its business with SBNs for its goods and service, shall have to prove with verifiable evidence that it had indeed transacted its goods and service business against SBNs. Otherwise, any holding of SBNs during the period from 09.11.2016 to 30.12.2016 will be treated as SBNs held by the people/entities as though they have been holding the same as on the midnight of 08.11.2016. 5. Has Government treated possession of the SBNs as an offence? No. Possession of SBNs from 09.11.2016 to 30.12.2016 is not treated as illegal or as an offence. It was only treated as not a legal tender for the purpose of any commercial or personal transaction. During this period, all the public who were deemed to have held the SBNS as on 08.11.2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Supreme Court vide Para.290 to Para, 303 while deciding on the various Writ Petitions filed challenging the constitutional validity of various Gazette of India issued by the Government in connection with the Demonetization in the case of Vivek Narayan Sharma Vs. Union of India dated 02.01.2023. It had clearly held that the interpretation which makes the textual interpretation match the contextual has to be preferred. A statute is best interpreted when the reason and purpose for its enactment is ascertained. The statue must be read first as a whole and then section by section, clause by clause, phrase by phrase and word by word Thus significance of 'appointment date' is with respect to the deadline by which the SBN would seize to be the liability of the RBI (issuer) to even exchange it with valid currency or its worth. In other words, the SBN seized to be a valid tender from the midnight of 08.11.2016 (negotiable instrument) for carrying out any transaction between people or entities but would remain as a liability of the RBI (issuer) till the appointment date (31.12.2016) to exchange the same against a valid tender on deposit into the RBI recognized banks. Thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be encashed for their face value with the Bank without any question being raised. Neither the RBI circulars on demonetization nor any CBDT circular including various CBDT instructions (as to how the Department should examine the cash deposits during the demonetization), require any person to disclose the source of the SBNs. CBDT instructions to IT Authorities on the SOP for examination of deposits during demonetization period do not require the Assessee to disclose the source from whom the SBNs were received. When SBNs are deposited in Banks, RBI Circular does not require the depositor to disclose the particulars of persons from whom SBNs were received (and consequently the source of that person). 7.1 Having not required to obtain the particulars of persons from whom the SBNs were obtained, the Department cannot now seek the source of SBNs as long as TASMAC can explain the transactional source. At the time of receipt of SBNs, they are no different from other currencies in so far as legality is concerned. When out of the total deposit of Rs.2635.35 Crores in cash for the month of November 2016 has been accepted as the value of liquor sold, source of deposit of 2582.56 crores has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r steps to make any further investigation on this matter. A totally fresh stand that sale had been made against legal tender and later the same was substituted by SBNs is without any basis or documents or examination of any person to support the same. This contention made purely on assumption and presumption and cannot be accepted. There is no finding that there was unexplained spike in cash deposits compared to other years.In case, SBNs have no value, how they can be assessed as unexplained income of the assessee. 7.3 In every sale, both, SBNs and other currency would have been received from the same person (as the sale price is not exact multiple of Rs 500/-), one part of sale consideration received in SBNs cannot be considered as unexplained while the balance received in other currency from the same customer is treated as the source being explained. In case of TASMAC, AO has made the addition of unexplained investment under sec 69of the Act. Addition cannot be made under sec 69of the Act, which deal with unexplained investments made in the immediately preceding year, which is not the case of the department here. 8. We have heard rival contentions and gone through facts and circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a simple allegation that the assessee is unable to substantiate its claim with valid verifiable evidence that it had indeed sold its goods to customers in exchange of SBNs during the period between 09.11.2016 to 30.12.2016. The assessee has produced complete evidence giving the branch-wise and date-wise deposit of SBNs, even now before us which are enclosed in assessee s paper-book at pages 19 to 238. 8.1 Now the question arises whether the demonetized currency received by assessee on account of sale of IMFS and beer to the customers and accepted demonetized currency in return is to be assessed u/s.69 of the Act or not as unexplained investment. The ld.Senior DR has raised a question on this that when there was an express bar by Government on transacting business from 09.11.2016 in SBNs in view of Question No.2 of FAQ issued by RBI on 08.11.2016 vide Circular No.DCM(Plg) No.1226/10.27.00/2016-17. The ld.Senior DR has argued that vide this very circular, the Government of India has declared the SBNs as not a legal currency w.e.f. 09.11.2016 except only from few notified business transactions were permitted to transact in SBNs and that too for a limited period upto 24.11.2016 as far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty for contravention of section 5 7. Whoever contravenes the provisions of section 5, shall be punishable with fine which may extend to ten thousand rupees or five times the amount of the face value of the specified bank notes involved in the contravention, whichever is higher. Offences by companies 8. (1) Where a person committing a contravention or default referred to in section 6 or section 7 is a company, every person who, at the time the contravention or default was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the contravention or default and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention or default was committed without his knowledge or that he had exercised all due diligence to prevent the contravention or default. (2) Notwithstanding anything contained in sub-section (l), where an offence under this Ordinance has been committed by a company and it is proved that the same was committed with the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essation of Liabilities) Act 2017? On February 27, 2017 Government of India notified the Specified Banknotes (Cessation of liabilities) Act 2017. The Act repealed the Specified Banknotes (Cessation of liabilities) Ordinance 2016 providing for cessation of liabilities for the Specified Banknotes (SBNs) and for matters connected therewith and incidental thereto, with effect from December 31, 2016. The SBNs cease to be the liabilities of the Reserve Bank under Section 34 of the RBI Act and cease to have the guarantee of the Central Government. 8.2 The ld.counsel explained that till 31.12.2016, these notes i.e., SBNs in demonetized currency was not held to be illegal tender and there is no provision that holding these notes or transacting the same will amount to violation of any law. Before us, the ld.counsel compared the earlier demonetization scheme of 1978, i.e., The High Denomination Bank Notes (Demonetization) Act, 1978 with the present Demonetization Scheme, whereby the scheme was announced on 16.01.1978 wherein the high demonetization notes of value Rs.500/-, Rs.1000/- or Rs.10000/- was withdrawn from circulation and there was a clear bar in the Act for transfer or receipt of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs therefrom in high denomination notes. In other words, the assessee was asked to prove as to when and from whom he received the amount in high denomination notes. The assessee gave reasonable explanation for his inability to give detailed account of receipts and disbursements of amounts from time to time in currencies of various denominations including high denomination notes. He could, however, satisfy the authorities about the fact that he was often in possession of Rs. 1,000 denomination notes and the probability of high denomination notes of the value of Rs. two lakhs being included therein. In fact, the Revenue itself was satisfied about the inclusion of 96 notes of Rs . 1,000 each therein. The amount of Rs. 1,04,000 was added as income from undisclosed sources only because, according to the Revenue, the assessee failed to discharge the onus cast on him to prove the acquisition of each and every high denomination note encashed by him. This approach, as earlier indicated, is not correct. The assessee having proved the source and shown satisfactorily the possibility of the inclusion of Rs. 1,000 high denomination notes of the value of Rs. 2 lakhs therein, the addition of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by assessee is not illegal or barred by any legal provisions the receipt of SBNs cannot be put on a different footing for the purpose of Section 68 or Section 69 of the Act from other currency as the source of SBNs are same as the source of other currency. The SBNs though are not legal tender, is of no consequence for determination of source, because the SBNs can be encashed for the face value with the bank without any question being raised. We further noted from the RBI circulars or CBDT circulars that neither the RBI circulars nor any CBDT circulars including any instructions on demonetization requires any person to disclose the source of SBNs. We noted from the facts of the case placed before us that out of total deposits of Rs.2635.35 Crores were in cash for the month of November 2016, which has been accepted as the value of liquor sold for a sum of Rs.2582.56 Crores, hence it can be easy presumed, unless disproved by Revenue, that the balance sum of Rs.52.79 Crores is out of sale of liquor. There is no basis or evidences or examination of any person for reaching a conclusion that this sum of Rs.52.79 Crores received by assessee has been substituted in demonetized currency. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... points needs to be considered is analysis of bank accounts, analysis of cash receipts and analysis of stock registers. From the circular issued by the CBDT, it is very clear that, in a case where cash deposit found in business cases, the AO needs to verify the explanation offered by the assessee with regard to realization of debtors where said debtors were outstanding in the previous year or credited during the year etc. Therefore, 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, if we go by analysis furnished by the assessee in respect of total sales, cash sales including the cash received in demonetized currency and cash deposits, there is negligible amount in demonetized currency. Therefore, we are of the considered view that 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 explai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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