RAUNAK DISTRIBUTORS PVT. LTD., MUMBAI V. DCIT, CENTRAL CIRCLE-3(1), MUMBAI

ITA 888/MUM/2023

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Raunak Distributors Pvt. Ltd. appealed against the order of the CIT(A)-51, Mumbai, which confirmed the addition of Rs.49,58,500 to the assessee's income under section 68 of the Income Tax Act. This addition was related to cash deposits made during the demonetisation period. The Assessing Officer (AO) had initially added this amount as unexplained income, suspecting the source of the cash deposits. However, the Tribunal, referencing decisions from other ITAT benches, concluded that since the books of account were not rejected and the entries therein were not found faulty, the deposits could be considered explained by the cash balances and collections from debtors.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 136560 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 16-08-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 20-03-2023
• Other Referred Cases: ITO Vs. Mansa Medical, M/s. Murani Hospital Supplies Pvt.Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDRA
• Assessee Lawyers: MANISH TIWARI
• Keywords: Set aside
• Section: 68; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL Mumbai “SMC” Bench, Mumbai. Before Shri B.R. Baskaran (AM) & Shri Narender Kumar Choudhry (JM) I.T.A. No. 888/Mum/2023 (A.Y. 2017-18) Raunak Distributors Pvt. Ltd. 2 nd Floor, 22 Kenderdine Lane West Bengal-700 012. PAN : AAECR0728F Vs. DCIT, CC-3(1) Room No. 1924 19 th Floor, Air India Building, Nariman Point, Mumbai-21. (Appellant) (Respondent) Assessee by Shri Manish Tiwari Department by Shri Surendra Kumar Meena Date of Hearing 17.08.2023 Date of Pronouncement 28.08.2023 O R D E R Per B.R.Baskaran (AM) :- The assessee has filed this appeal challenging the order dated 01-03- 2023 passed by Ld CIT(A)-51, Mumbai, wherein the Ld CIT(A) has confirmed the addition of Rs.49,58,500/- made u/s 68 of the Act relating to cash deposited by the assessee during demonetisation period. 2. The facts relating to the above said issue are discussed in brief. The assessee company is engaged in wholesale PVC flooring business. It filed its return of income declaring NIL income. During the course of assessment proceedings, the AO noticed that the assessee has deposited specified bank notes (SBN) aggregating to Rs.48,50,500/- into its bank accounts on various dates between 10-11-2016 and 05-12-2016. The AO noticed that the assessee has received cash by way of SBN even after demonetisation period from unidentified persons. Accordingly, he took the view that the assessee failed to explain the sources of such cash or nature of transactions and Raunak Distributors Pvt. Ltd. 2 accordingly assessed the same as income of the assessee. The Ld CIT(A) also confirmed the same. 3. We heard the parties and perused the record. The Learned AR submitted that the assessee has maintained proper cash book and impugned deposits have been made out of cash balances available with the assessee. In this regard he invited our attention to page No. 9 of the paper book, wherein copy of cash book is placed. A perusal of the same would show that the assessee was having cash balance of Rs. 33.65 lakhs on 8.11.2016, i.e., on the date when demonetization was announced. Thereafter the assessee has received collections from its debtors and all those cash have been used to make deposits into the bank account. We further noticed that the Assessing Officer has not rejected the books of account, meaning thereby he did not find fault with the entries made in the books of account. 4. We noticed that the Bangalore Bench of the ITAT in the case of ITO Vs. Mansa Medical (ITA No. 5521/Bang/2022 dated 31.10.2022) has held that the deposits made during demonetization period from out of book balance should be accepted, if the books of accounts have not been rejected. The relevant observations made by the Tribunal are extracted below:- “Further, the Assessing Officer did not reject the books of account of the assessee and has not brought anything contrary on record to show that the cash sale is not source of cash deposits during demonetisation period. We are therefore of the opinion that there is no case here for making the addition as unexplained under section 68 of the Act.” In the instant case, it is the submission of the assessee that it has received collections from the debtors and the same along with cash balances available on 8.11.2016, has been deposited during demonetisation period into the bank accounts of the assessee. Accordingly, when the books of account have not been rejected, then the AO cannot suspect the entries made therein without bringing any other material on record. In this view of the matter, the deposits made out of book balance are required to be considered as duly Raunak Distributors Pvt. Ltd. 3 explained. Hence the same will not call for making addition under any of the provisions of the Act. 5. The Assessing Officer has also taken the view that the assessee has received cash in SBN even after demonetisation period. He also expressed the view that the assessee has received cash from unexplained sources. However, we noticed earlier that the assessee has maintained regular books of accounts and submitted that it has received cash from its debtors. Hence it cannot be the case that the assessee has received cash from unknown sources. The question that boils down is whether the receipt of cash in the form of SBNs would call for an addition. We notice that this question has been examined by the Chennai Bench of the Tribunal in the case of M/s. Murani Hospital Supplies Pvt.Ltd. (ITA No. 489/Chny/2022 dated 31.5.2023), wherein it was observed as under :- 10. Coming back to the observations of the Assessing Officer with regard to GO/notification issued by the RBI and Government of India, to deal with specified bank notes. The Assessing Officer is mainly on the issue of notification issued by the RBI to deal with the specified bank notes and argued that the assessee is not one of the eligible person to accept or to deal with specified bank notes and thus, even if assessee furnish necessary evidence, the assessee cannot accept specified bank notes after demonetization and the explanation offered by the assessee cannot be accepted. No doubt specified bank notes of Rs. 500 & Rs. 1000 has been withdrawn from circulation from 09 th November, 2016 onwards. The Government of India and RBI has issued various notifications and SOP to deal with specified bank notes. Further, the RBI allowed certain category of persons to accept and to deal with specified bank notes up to 31 st December, 2016. Further, the specified bank notes (cessation of liability) Act, 2017, also stated that from the appointed date no person can receive or accept and transact specified bank notes, and appointed date has been stated as 31 st December, 2016. Therefore, there is no clarity on how to deal with demonetized currency from the date of demonetization and up to 31 st December, 2016. Therefore; under those circumstances, some persons continued to accept and transact the specified bank notes and deposited into bank account's. I 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 Assessing Raunak Distributors Pvt. Ltd. 4 Officer makes out a case that the assessee has deposited unaccounted cash into bank account in specified bank notes. In view of the decision so rendered by the co-ordinate Chennai bench of Tribunal, the reasoning given by the AO would fail. 6. Accordingly, in the facts and circumstances of the case, we are of the view that there is no scope for making any addition in respect of deposits made during demonetisation period from out of cash balance available in the books of accounts. Accordingly, we set aside the order passed by the learned CIT(A) and direct the Assessing Officer to delete the addition of Rs. 49,58,500/- made by him. 7. In the result, appeal filed by the assessee is allowed. Order pronounced in on 28.8.2023. Sd/- Sd/- (Narender Kumar Choudhry) (B.R. Baskaran) Judicial Member Accountant Member Mumbai.; Dated : 28/08/2023 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai. 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai