J K TRADERS,THIRUCHENDUR V. ITO, WARD-2, TUTICORIN

ITA 566/CHNY/2025

AI Insights

The case revolves around the appeal by M/s. J.K. Traders against the order of the Commissioner of Income Tax (Appeals), which confirmed the addition of Rs.22,68,557 to the assessee's income under section 69A of the Income Tax Act, 1961. This addition was based on cash deposits amounting to Rs.26,82,000 made during the demonetization period, which the Assessing Officer considered unexplained. The Tribunal, referencing a similar case (TamilNadu State Marketing Corporation Ltd. vs. ACIT), held that the cash deposits were legitimate trade receipts and not subject to addition under section 69A, as the specified bank notes (SBNs) were not illegal tender until December 31, 2016, and the assessee had provided sufficient evidence to substantiate the source of the deposits.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 669118 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Other Referred Cases: TamilNadu State Marketing Corporation Ltd. vs. ACIT
• Laws Referred To: Income Tax Act, 1961, Specified Bank Notes (Cessation of Liabilities) Act, 2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C.P. SOLOMON
• Assessee Lawyers: VEERABATHRAN PRASANTH
• Keywords: Unexplained expenditure; Unexplained investment; Rejection of books of accounts; Income from undisclosed sources; Principle of natural justice
• Section: 68; 69

Judgement Text

"आयकर अपीलीय अिधकरण, ‘ए’ (एस एम सी), ᭠यायपीठ,चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ (SMC) BENCH, CHENNAI ᮰ी जॉजᭅ जॉजᭅ के समᭃ BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT आयकर अपील सं./ITA No.: 566/CHNY/2025 िनधाᭅरण वषᭅ/Assessment Year: 2017-18 M/s. J.K. Traders, 34, Kalyanasundara Vinayagar Koil Street, Pattarkulam Street, Thiruchendur – 628 215. PAN: AAEFJ 0627J Vs. The Income Tax Officer, Ward 2, Tuticorin (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri Veerabathran Prasanth, Advocate ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri C.P. Solomon, JCIT सुनवाई कᳱ तारीख/Date of Hearing : 23.06.2025 घोषणा कᳱ तारीख/Date of Pronouncement : 24.06.2025 आदेश/ O R D E R This appeal filed at the instance of the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 10.02.2025, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017-18. ITA No.566/Chny/2025 :- 2 -: 2. The grounds raised by the assessee read as follows:- 1. The impugned order is illegal, opposed to the facts, contrary to law, without jurisdiction and against the principles of natural justice and therefore liable to be quashed, 2. The learned CIT (Appeals) erred in confirming the addition without referring to the documents already filed before the assessing officer and without demanding any particular documents from the assessee. 3. The learned CIT (Appeals) ought to have seen that the assessing officer did not find any defects in the books of accounts and did not dispute the sales recorded by the assessee in the sales register and the assessee had filed the details of the identity of the persons from whom the SBN notes were received. 4. The learned CIT (Appeals) ought to have seen that as per section 2(1)(a) of The Specified Bank Notes (Cessation of Liabilities) Act, 2017, \"appointed day\" means the 31st Day of December 2016 and as per Section 5 of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 which deals with prohibition on holding, transferring or receiving specified bank notes, \"On and from the appointed day, no person shall knowingly or voluntarily, hold, transfer or receive any specified bank note\". 5. The learned CIT (Appeals) ought to have known that the sale amount already recorded in the books of accounts cannot be added under section 69A as could be seen from the plain language of the section. 6. The learned CIT (Appeals) ought to have seen that addition of the sales amount already admitted as sales again under section 69A would amount to double taxation of the same amount. 7. The learned CIT (Appeals) ought to have seen that no addition under section 69A could be made without rejecting the books of accounts as defective and no such defects were pointed out in the assessment order. 8. The appellant prays for leave to add, alter, amend or modify any or all the grounds at any time before or at the time of the hearing. 3. Brief facts of the case are as follows: The assessee is a partnership firm engaged in the business of dealership of various ITC products. It is also a franchise for various telecom service providers. For the assessment year 2017-18, the return of ITA No.566/Chny/2025 :- 3 -: income was filed on 01.11.2017 declaring total income of Rs.2,07,690/-. The case was selected for complete scrutiny for the reason that there was cash deposits, for a sum of Rs.26,82,000/- into the assessee’s bank account in Specified Bank Notes (SBNs) during the demonetization period i.e., 09.11.2016 to 31.12.2016. During the course of assessment proceedings, it was explained that cash deposits during the demonetization period are out of trading receipts. The reply submitted during the course of assessment proceedings was extracted at page 4 of the impugned assessment order. The AO however rejected the explanation of source of cash deposits and added a sum of Rs.22,68,557/- u/s.69A of the Act after reducing the cash balance available as on 08.11.2016 as per the cash book vide order dated 27.12.2019 passed u/s.143(3) of the Act. 3. Aggrieved by the assessment completed u/s.143(3) of the Act, the assessee preferred an appeal before the First Appellate Authority (FAA). The FAA dismissed the appeal of the assessee by the impugned order dated 10.02.2025 by observing as under:- “The appellant has not filed the details regarding the cash book, the ledger of purchases and sales before me. The turnover of the appellant is also not known. The appellant has not filed the competitive chart of the cash deposits of earlier years. Monthly deposit in the bank account of cash has also not been submitted before me.” ITA No.566/Chny/2025 :- 4 -: 4. Aggrieved by the order of the FAA, the assessee has filed the present appeal before the Tribunal. The assessee has filed a paper-book enclosing therein the details of return filed for the assessment years 2016-17 & 2017-18 along with balance sheet, profit & loss account and audit report in Form 3CB & 3CD, cash book for the period 01.11.2016 to 31.12.2016, comparison of sales for the assessment year 2017-18 and 2016-17, sales as per VAT returns for the relevant assessment year and the amount of sales viz-a-viz cash deposits in the bank account, etc. 5. The Ld.AR submitted that the AO has not questioned the source of cash deposit but merely added the amount of Rs.22,68,557/- as unexplained money u/s.69A of the Act solely for the reason that SBN notes were not legal tender but only a piece of paper. It was submitted by the Ld.AR that the specified date being 31.12.2016, the assessee was entitled to accept the amount in SBNs provided it was able to explain the source of cash deposit that are made in its bank account. It was submitted that the reason stated by the AO that SBN notes are not legal tender but only a piece of paper and necessarily addition has to be made u/s.69A of the Act is against the principle laid down by the Chennai Bench of the Tribunal in the case of TamilNadu State ITA No.566/Chny/2025 :- 5 -: Marketing Corporation Ltd., vs. ACIT in ITA No.431/CHNY/2023 (order dated 07.10.2024). It was further submitted by the Ld.AR that the FAA has erred in dismissing the appeal of the assessee stating that assessee had not given the details regarding cash book, ledger of purchases and sales, etc. It was submitted by the Ld.AR, all the requisite details regarding the source of cash deposits viz-a-viz trading receipts were furnished before the AO and during the course of hearing before the FAA, the FAA never called for the same. 6. The Ld.DR supported the orders of the AO and the FAA. 7. I have heard rival submissions and perused the material on record. The sole reason for the AO to make addition u/s.69A of the Act was that cash deposits in SBN notes were not legal tender but only a piece of paper. The above reasoning given by the AO has been specifically rejected by the order of the Chennai Bench the Tribunal in the case of TamilNadu State Marketing Corporation Ltd., (supra). The relevant finding of the Chennai Bench of the Tribunal read as follows:- 8. We have heard rival contentions and gone through facts and circumstances of the case. The admitted facts are that the assessee is a company wholly owned by Government of Tamil Nadu and is conducting its retail business of IMFS and Beer through 6200 retail vending shops ITA No.566/Chny/2025 :- 6 -: located all over Tamil Nadu (till November, 2016). These shops functioned under the control of 38 district managers. Admittedly, sale per day was ranging from Rs.80 crores to Rs.110 crores approximately and these shops are located across Tamil Nadu from remote villages to corporate areas. The shop personnel of the retail vending shops located in other areas are depositing the previous day sale proceeds on the following day into non operative collection accounts of designated bank branches. The assessee before AO and before CIT(A) and even now before us in its paper-book consisting of 238 pages filed complete details giving the branch-wise cash deposits, date-wise deposits of SBNs. Admittedly, during demonetization period from 09.11.2016 to 30.12.2016, all retail vending shops throughout the state have deposited a sum of Rs.3506 crores including closing balance as on 08.11.2016. These deposits are consideration received for sale of IMFS and beer sold to the ultimate customers as contended by assessee but contested by revenue. During the period 09.11.2016 to 30.12.2016, the assessee found to have exchanged for value by deposit of Specified Bank Notes or demonetized currency notes totaling to Rs.145.21 crores in its bank account during the permitted window period for such exchange commencing from 10.11.2016 to 30.12.2016. The assessee found to have been in possession of cash balance of Rs.81.57 crores (including demonetized currency and regular currency) at close of 08.11.2016. The balance sum of Rs.57.29 crores, the assessee claimed that such SBNs have been obtained from its customers in exchange of liquor sold to them during demonetization period i.e., 09.11.2016 to 30.12.2016. Admittedly, the Revenue has not rejected the books of accounts produced before the AO and CIT(A) and accepted the sales made by assessee including the sales made in demonetized currency from 09.11.2016 to 30.12.2016 and received demonetized currency of Rs.57.29 crores, which was added by AO u/s.69 of the Act as unexplained investment. Admittedly, the amount of Rs.57.29 crores is received by assessee on account of sale of liquor as no contrary evidence was produced by Revenue except 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. ITA No.566/Chny/2025 :- 7 -: 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 as demonetized currency of Rs.1000/- and Rs.500/- and then it was extended upto 15.12.2016. The ld.Senior DR has also argued that the assessee’s nature of business is not covered under the notification of the Government of India exempting certain categories. We noted that the ld.counsel for the assessee in reply to the same referred to Ordinance issued by the Ministry of Law & Justice, Government of India in the Gazette of India, wherein the SBNs were declared or ceased to be liability of RBI or Central Government and penal provisions were incorporated in the same for holding the demonetized currency as well as transacting in the same. The relevant Ordinance No.10 of 2016, The Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 was brought in on 30.12.2016. We noted that vide this Ordinance dated 30.12.2016 i.e., Specified Bank Notes (Cessation of liabilities) Ordinance, 2016, No.10 of 2016 dated 30.12.2016, has clearly held the demonetized currency to have ceased to be legal tender as pointed out by ld.counsel, the provision of Section 5 very categorically states that no person shall knowingly or voluntarily hold or transfer any Specified Bank notes on or from the appointed day of 31.12.2016. The relevant provisions of section 5, 6, 7 & 8 reads as under:- 5. On and from the appointed day, no person shall, knowingly or voluntarily, hold, transfer or receive any specified bank note: Provided that nothing contained in this section shall prohibit the holding of specified bank notes. (a) by any person- (i) up to the expiry of the grace period; or (ii) after the expiry of the grace period, (A) not more than ten notes in total, irrespective of the denomination; or ITA No.566/Chny/2025 :- 8 -: (B) not more than twenty-five notes for the purposes of study, research or numismatics; (b) by the Reserve Bank or its agencies, or any other person authorised by the Reserve Bank; (c) by any person on the direction of a court in relation to any case pending in that court. 6. Whoever knowingly and wilfully makes any declaration or statement specified under sub-section (1) of section 4, which is false in material particulars, or omits to make a material statement, or makes a statement which he does not believe to be true, shall be punishable with fine which may extend to fifty thousand rupees or five times the amount of the face value of the specified bank notes tendered, whichever is higher. Penalty 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 consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary, or other officer or employee of the company, such director, manager, secretary, other officer or ITA No.566/Chny/2025 :- 9 -: employee shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Explanation.-For the purpose of this section,- (a) “a company” means anybody corporate and includes a firm, trust, a co-operative society and other association of individuals; (b) “director”, in relation to a firm or trust, means a partner in the firm or a beneficiary in the trust. This was further explained by the Central Government i.e., RBI vide Circular dated 26.05.2017 and the relevant reads as under:- Why was the Scheme of Withdrawal of Legal Tender Character of the old Bank Notes in the denominations of ₹ 500 and ₹ 1000 introduced? The incidence of fake Indian currency notes in higher denomination has increased. For ordinary persons, the fake notes look similar to genuine notes, even though no security feature has been copied. The fake notes are used for antinational and illegal activities. High denomination notes have been misused by terrorists and for hoarding black money. India remains a cash based economy hence the circulation of Fake Indian Currency Notes continues to be a menace. In order to contain the rising incidence of fake notes and black money, the scheme to withdraw legal tender character of the old Bank Notes in the denominations of ₹ 500 and ₹ 1000 was introduced. 2. What is this scheme? The legal tender character of the bank notes in denominations of ₹ 500 and ₹ 1000 issued by the Reserve Bank of India till November 8, 2016 (hereinafter referred to as Specified Bank Notes) stands withdrawn. In consequence thereof these Bank Notes cannot be used for transacting business and/or store of value for future usage. The Specified Bank Notes (SBNs) were allowed to be exchanged for value at RBI Offices till December 30, 2016 and till November 25, 2016 at bank branches/Post Offices and deposited at any of the bank branches of commercial banks/Regional Rural Banks/Co- operative banks (only Urban Co-operative Banks and State Co- ITA No.566/Chny/2025 :- 10 -: operative Banks) or at any Head Post Office or Sub-Post Office during the period from November 10, 2016 to December 30, 2016. 3. What is the Specified Bank Notes (Cessation 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 high denomination notes and that demonetized bank notes was ceased to be legal tender vide section 3 & 4 from 16.01.1978 only, which reads as under:- “3. High denomination bank notes to cease to be legal tender.—On the expiry of the 16th day of January, 1978, all high denomination bank notes shall, notwithstanding anything contained in section 26of the Reserve Bank of India Act, 1934 (2 of 1934), cease to be legal tender in payment or on account at any place. 4. Prohibition of transfer and receipt of high denomination bank notes.—Save as provided by or under this Act, no person shall, after the 16th day of January, 1978, transfer to the possession of another person or receive into his possession from another person any high denomination banknote.” ITA No.566/Chny/2025 :- 11 -: The ld.counsel for the assessee also relied on one decision of Hon’ble Bombay High Court in the case of Narendra G. Goradia (HUF) vs. CIT reported in (1998) 234 ITR 571 and stated that the Hon’ble Bombay High Court has categorically held that where the assessee is required to prove source of money, in such case and once, he is successful in proving that source, he could not be asked to produce proof of acquisition of such amount in currency notes of particular denominations. The ld.counsel for the assessee relied on para 9 of the decision, which reads as under:- “10. We have also perused the decision of A. Govindarajulu Mudaliar v. CIT, on which reliance is placed by learned counsel for the Revenue. We, however, fail to understand how the above decision helps the Revenue in the instant case. In that case, certain amounts appeared in the account books of a firm of which the assessee was a partner as credits for him. The assessee was asked for an explanation as to how he came to possess this amount. His explanation in regard to the source of this amount in part was not accepted. It was in that context that the Supreme Court observed that where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature. That is not the position in the case before us. In this case, the assessee could prove satisfactorily the source and nature of the amounts. Addition was made not for that reason. The assessee was further required to prove the receipt of the amount of Rs. 2 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 ITA No.566/Chny/2025 :- 12 -: 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 Rs. 1,04,000 to his income for his failure to furnish detailed particulars of the receipt of such notes each of the 200 notes of Rs. 1,000 denomination tendered by him for encashment, is not in accordance with law.” This judgment was referred by the ld.counsel for meeting the argument made by ld. Senior DR that the demonetized currency received by assessee in the present case is not out of sale proceeds of liquor. We have gone through the scheme and noted that the Specified Bank Notes (cessation of liabilities) Ordinance 2016 (subsequently this was passed as an Act), was towards cessation of liability of RBI in respect of SBNs with effect from 31.12.2016. The Government of India vide Gazette of India Notification dated 8.11.2016 notified that the SBNs of Rs.500 and Rs.1,000 notes is not a legal tender w.e.f. 9.11.2016. We noted that even the Revenue admitted that the Government has not declared the SBNs as an illegal tender and even possessing of SBNs was not an offence till 31.12.2016. Between the period from 9.11.2016 to 31.12.2016,all the public, who were holding such SBNs were permitted to exchange such holdings against valid currency notes but the scheme itself does not render the SBN as illegal or declaration does not bar in receiving or paying through the SBNs in the course of business like other documents i.e., through cheques, promissory notes, Government securities, which are not legal tender can be freely exchanged so can the SBNs. The Ordinance of December 2016 clearly specifies that on or from 31.12.2016, it is illegal for any person to hold, transfer or receive SBNs. This would mean that prior to 31.12.2016 there is no bar on any person holding, transferring or receiving SBNSs prior to 31.12.2016 was not illegal. If a currency is not a legal tender, only the recipient may refuse or cannot force to receive currency which is not legal tender. When both parties to the transaction agrees, there is no prohibition for one party to transfer and the other party to receive SBNs in the course of a legal transactions prior to 31.12.2016. We noted that with the notification of ‘’The Specified Bank Notes (Cessation of Liabilities) Act, 2017”, even this liability to honour such exchange, transact, transfer or hold SBNs ceased to be operative from 31.12.2016, the appointed date. ITA No.566/Chny/2025 :- 13 -: 8.3 In view of the above provisions, as in the present case, once the receipt of SBNs 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 noted from the evidences placed before us that the observation of the AO that branch wise details of deposits made in SBNs was not available is not correct for the reason that the complete details of deposits of SBNs account-wise, branch-wise was submitted before the AO as well as before the CIT and also before us. 8.4 We have gone through the notifications issued by the RBI and Government of India, to deal with specified bank notes. The only premise of the Revenue is mainly on the issue of notification issued by the RBI to deal with the specified bank notes and argument is 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 have been withdrawn from circulation from 09.11.2016 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 31.12.2016. 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 31.12.2016. Therefore, there is no clarity on how to deal with demonetized currency ITA No.566/Chny/2025 :- 14 -: from the date of demonetization and up to 31.12.2016. Therefore, 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. 8.5 We 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 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 explained for cash deposits cannot be rejected. Simpliciter violation of certain notification issued by RBI or demonetization scheme announced by Government of India on 08.11.2016 will not entitle the Revenue to make addition u/s.69 or 69A of the Act. Because, the mandate of the provisions of Section 69 & 69A of the Act, i.e., unexplained investments and unexplained money etc., may be deemed to be the income of the assessee for the financial year relevant to assessment year concerned, in which the assessee is found to be the owner of such money, bullion, jewellery or valuable article or unexplained expenditure, if, the such expenditure or such money etc., are not recorded in the books of accounts, if any, maintained by assessee for ITA No.566/Chny/2025 :- 15 -: any source of income and the assessee offers no explanation about the nature and source of such expenditure or acquisition of such money, etc., or the explanation offered by him, in the opinion of AO is not satisfactory. For violation of any RBI notification, etc., can have any civil or criminal liability and can be dealt with under any other provision of law by the concerned authority but for the purpose of bringing the amount under Income-tax, the provisions are very clear i.e., 69 & 69A of the Act. In our considered view, to bring any amount u/s. 69 or 69A of the Act, the nature and source of investment, needs to be examined. In case the assessee explains the nature and source of investment, then the question of making addition towards unexplained investment u/s. 69 of the Act does not arise. In this case, the source of deposits has not been disputed and has been created out of ordinary business sales which has been credited into books of accounts and profits has also been duly included in the return of income filed in relevant assessment year. Therefore, we are of the considered view that, additions cannot be made u/s. 69 of the Act and taxed u/s. 115BBE of the Act towards cash deposits made to bank account of demonetized cash in SBNs. 8. The FAA has dismissed the appeal of the assessee by stating that details regarding cash book, ledger of purchases and sales, comparative chart of cash deposits of the earlier years, etc., were not submitted before him. From the material on record, I find the relevant details such as audit report, balance sheet, P&L account for the assessment years 2016-17 & 2017-18 were filed before the AO. The comparative chart of cash deposit for the earlier assessment year viz-a-viz the relevant assessment year was also furnished. The details of sales as per relevant VAT return was also furnished. On perusal of the material, it is clear that cash deposits are out of the trade receipts. The books of ITA No.566/Chny/2025 :- 16 -: accounts of the assessee has been audited and same has not been rejected by the AO while completing the impugned assessment. Therefore, the addition made by the AO and sustained by the FAA is not called for and I delete the same. It is ordered accordingly. 9. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 24th June, 2025 at Chennai. Sd/- ((जॉज[ जॉज[ क े) (GEORGE GEORGE K) उपाÚय¢ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 24th June, 2025 RSR आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy to: 1. अपीलाथȸ/Appellant 2. Ĥ×यथȸ/Respondent 3. आयकर आयुÈत /CIT, Madurai 4. ͪवभागीय ĤǓतǓनͬध/DR 5. गाड[ फाईल/GF. "