KAVERI DEVARAJ,SALEM V. ITO, WARD-1(3), SALEM

ITA 347/CHNY/2025

AI Insights

The case involves Kaveri Devaraj, an individual engaged in the business of manufacturing silver leg chains, who appealed against the order of the Commissioner of Income Tax (Appeals) confirming the addition of Rs.5,18,000 as unexplained money under Section 69A of the Income Tax Act. The addition was based on cash deposits in SBNs during the demonetization period, which the Assessing Officer (AO) deemed prohibited under the demonetization notification effective from November 9, 2016. The Tribunal, referencing several precedents, concluded that the assessee had adequately explained the source of the cash deposits from business transactions and that the prohibition on accepting SBNs applied only after December 31, 2016, as per the Specified Bank Notes (Cessation of Liabilities) Act, 2017.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314276 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Other Referred Cases: Aasife Biryani Private Limited vs. ITO, Shri Raju Dinesh Kumar Vs. DCIT, M/s.Micky Fireworks Industries Vs. ACIT, Mrs.Umamaheshwari Vs. ITO, Amar Sparklers Factory vs ITO, Rahul Cold Storage Vs. ITO
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KEERTHI NARAYANAN
• Assessee Lawyers: T.S. LAKSHMI VENKATRAMAN; F
• Keywords: Set aside; Business income; Unexplained cash credit; Rejection of books of accounts; Bogus
• Section: 142(1); 68

Judgement Text

"आयकर अपीलीय अिधकरण, ‘ए’ Ɋायपीठ, चेɄई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI ŵी एबी टी वकŎ, Ɋाियक सद˟ एवं ŵी एस. आर. रघुनाथा, लेखा सद˟ क े समƗ BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 347/Chny/2025 िनधाŊरण वषŊ / Assessment Year: 2017-18 Kaveri Devaraj, No.157, Prop.: Kavin Silvers, Solampallam Line, Sooramangalam, Salem - 636 005. vs. Income Tax Officer, Ward 1(3), Salem. [PAN: BJNPD-3441-H] (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent) अपीलाथŎ की ओर से/Appellant by : Shri. T.S.Lakshmi Venkatraman, F.C.A. ŮȑथŎ की ओर से/Respondent by : Shri. Keerthi Narayanan, JCIT सुनवाई की तारीख/Date of Hearing : 22.04.2025 घोषणा की तारीख/Date of Pronouncement : 05.05.2025 आदेश /O R D E R PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER: This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals), ADDL/JCIT (A), Gwalior dated 14.01.2025 for the assessment year 2017-18. 2. The assessee has raised the following grounds of appeal:- 1. On the facts and circumstances of the case the order of first appellate authority dated 14.01.2025 in dismissing the appeal of the appellant is bad in law and is not legally justified. 2. On the facts and circumstances of the case the first appellate authority is not justified in sustaining the addition of Rs.5,18,000/- which represents entire cash deposits made in SBNs during the demonetization period. The assessee has got accountable sources to explain the total deposits in his bank account. - 2 - ITA. No.:347/Chny/2025 3. On the facts and circumstances of the case the lower authorities are not justified in invoking the provisions of Section 68 read with Section 115BBE of the Act when it has been judicially settled that SBN’s are legal tender till 31.12.2016. 4. First appeal is dismissed for non-compliance to notices. In view of the above facts appeal filing fee of Rs.500 is paid. In connection with the payment of the above filing fee, reliance is placed on the order of ITAT Chennai ‘B’ Bench, in the case of AasifeBiryani Private Limited vs. ITO in ITA No.2460/Chny/2024 by order dated 10.12.2024. 5. In view of the above grounds and other submissions to be made at the time of appeal hearing, the order U/S 250 passed by DCIT (A), Gwalior may be cancelled and justice rendered. 3. The brief facts of the case are that the assessee is an individual carrying on business of manufacturing of silver leg chains and filed his return of income on 07.10.2017 for the A.Y.2017-18 admitting a total income of Rs.4,04,100/-. The case was selected for scrutiny under CASS for verifying the abnormal cash deposit during demonetization period and statutory notices were issued to the assessee. During the A.Y. 2017-18 the assessee had deposited SBNs to the tune of Rs.42,83,000/- and Rs.2,00,000/- in two City Union bank accounts, and Rs.2,45,500/- and Rs.35,000/- in two Indian bank account in the months of November 2016. The assessee has submitted the details of cash deposits in SBN along with bank statement. The assessee had closing cash balance of Rs.42,38,479/- as on 08.11.2016. Further, the assessee submitted that the turnover has been increased from Rs.41,30,470/- during the A.Y.2016-17 to Rs.1,36,31,865/- during 2017-18 and to Rs.3,60,52,542/- during the A.Y. 2018-19. The assessee explained the source of cash deposit from cash balance as on 08.11.2016 along with cash in SBN was received from customers. However, the AO was not convinced and made an addition of Rs.5,18,000/- as unexplained money u/s.69A of the Act stating that the assessee was prohibited to transact in SBN as per the demonetisation notification of w.e.f 09.11.2016 and - 3 - ITA. No.:347/Chny/2025 passed an order u/s.143(3) of the Act on 30.12.2019. Aggrieved by the order of the AO the assessee preferred an appeal before the ld.CIT(A), NFAC. 4. The ld.CIT(A) issued notices to the assessee by providing opportunity to file the written submissions and details on 3 occasions. Since, the assessee did not respond to any of the notices the ld.CIT(A), NFAC dismissed the assessee’s appeal by confirming the order of the AO by passing an order dated 14.01.2025. Aggrieved by the order of the ld.CIT(A), the assessee is before us. 5. The ld.AR for the assessee submitted that the ld.CIT(A) has erred by confirming the action of the AO in making addition of cash deposit in SBNs without rejecting the books of accounts. Further, the ld.AR submitted that the AO has not doubted the transactions or the source of the cash deposit in the bank account made but only stated that the assessee was prohibited to transact in SBN as per the demonetization notification w.e.f 09.11.2016. 6. Further, the ld.AR also submitted that there is no prohibition to accept SBNs during the demonetization period by the assessee, as per the Specified Bank Notes (Cessation of Liabilities) Act, 2017, no person shall accept or transact any SBNs from the appointed date. As per said Act, appointed date is 31.12.2016. From the above, it is very clear that up to appointed date, persons can transact in SBNs. However, the only requirement is, they should be able to establish source for said cash deposits. The ld.AR stated that the assessee has proved that the source of cash deposit was from the business. To buttress his argument the Ld.AR relied on the following decisions of this Tribunal held in favour of the assessee. a) Shri Raju Dinesh Kumar Vs. DCIT – ITA No.1321/2023 dated 19/01/2024 - 4 - ITA. No.:347/Chny/2025 b) M/s.Micky Fireworks Industries Vs. ACIT – ITA No.264/2023 dated 26/07/2023 c) Mrs.Umamaheshwari Vs. ITO - ITA No. 527/Chny/2022 dated 14/10/2022 d) Amar Sparklers Factory vs ITO - ITA No. 808/Chny/2023 dated 11/10/2023 7. Therefore, the ld.AR submitted that both the AO has erred in treating the cash deposit made in SBN by the customers of assessee to its bank account as unexplained money inspite of furnishing the complete details for source of cash deposited in SBN without rejecting the books of accounts. Hence prayed for setting aside the order of the ld.CIT(A) and delete the addition made by the AO. 8. Per contra, the ld.DR supported the orders of the lower authorities. 9. We have heard both the parties, perused materials available on record, all the paper books and gone through orders of the authorities below. Admittedly the assessee is carrying on the business of manufacturing silver leg chains filed his return of income for the A.Y. 2017-18. In the scrutiny assessment the AO has made an addition of Rs.5,18,000/- as unexplained money on account of cash deposit in SBN during the demonetization period. The same has been confirmed by the Ld.CIT(A) for non-participation of assessee in appellate proceedings. We note that the assessee has submitted the entire details of source for cash deposit before the AO. Further, we note the AO has made an addition for the only reason that the assessee was prohibited to collect the SBN during the demonetization period as per the notification. We find that the assessee’s turnover has been increasing on year on year and has explained the source of cash deposited. We also note that the assessee has not rejected the books of accounts. Therefore, we cannot countenance action of the AO in rejecting assessee’s explanation of source for cash deposit made in SBNs by the business transactions. - 5 - ITA. No.:347/Chny/2025 10. As argued by the ld.AR even the cash deposited in SBN had been collected during the demonetization, which was not prohibited as per the Specified Bank Notes (Cessation of Liabilities) Act, 2017. We find force in the argument of the ld.AR, since this issue is covered in favour of the assessee by the decisions of this Tribunal in the following case Shri. Raju Dinesh Kumar vs. DCIT (Supra), where the Tribunal under the identical set of facts deleted the additions made by the Assessing Officer, after considering this tribunal’s following decisions: a) M/s.Micky Fireworks Industries Vs. ACIT – ITA No.264/2023 dated 26/07/2023 b) Mrs.Umamaheshwari Vs. ITO - ITA No. 527/Chny/2022 dated 14/10/2022 c) Amar Sparklers Factory vs ITO - ITA No. 808/Chny/2023 dated 11/10/2023, by holding as under: “9. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts borne out from the record clearly indicate that the assessee is running a dhall mill and manufacturing various kinds of dhalls. The facts brought on record by the AO further indicated that the assessee procures various kinds of pulses from local market and manufacturing into various kinds of dhalls and sells to unregistered dealers in cash. The assessee has filed comparative cash sales and cash deposits into bank account for FY 2015-16 & FY 2016-17 and also cash sales and cash deposits for the month of October & November, 2015 and October & November, 2016. On perusal of details filed by the assessee, which has been reproduced by the AO in the assessment order, we find that there is no abnormal variation in cash sales and cash deposits into bank account for FY 2015-16 & FY 2016-17. Further, the cash sales achieved by the assessee for FY 2015-16 is higher than the cash sales reported for FY 2016-17. From the details filed by the assessee, it is abundantly clear that there is no sudden increase in cash sales during demonetization period when compared to earlier Financial Years. Further, the assessee has filed cash book and other details to prove availability of cash in hand as on 08.11.2016 at Rs.71,76,208/-. In fact, the AO is not disputed the fact that the assessee has filed cash book and as per said cash book, cash in hand as on 08.11.2016 was at Rs.71,76,208/-. If you go by the nature of business of the assessee and sales trend, it is undoubtedly clear that the assessee’s sales - 6 - ITA. No.:347/Chny/2025 predominantly in cash, and thus, the cash in hand shown by the assessee as on 08.11.2016 appears to be genuine and bona fide. To this extent, in our considered view, the reasons given by the AO to reject explanation of the assessee for source for cash deposits into bank account is devoid of merits. 10. Having said so, let us come back to the explanation of the assessee with regard to source for remaining cash deposits. The assessee claims that he is into manufacturing of various kinds of dhalls and sells to unregistered dealers in cash. The assessee claims that he has collected cash in demonetized currency from customers even after 09.11.2016 and said cash receipts is not violation of Specified Bank Notes (Cessation of Liabilities) Act, 2017. We find that although, the Government of India & RBI issued various notifications and circulars barring people transacting in SBNs, but, as per Specified Bank Notes (Cessation of Liabilities) Act, 2017, no person shall accept or transact any SBNs from the appointed date. As per said Act, appointed date is 31.12.2016. From the above, it is very clear that up to appointed date, persons can transact in SBNs. However, the only requirement is, they should be able to establish source for said cash deposits. This principle is further fortified by the decision of the ITAT Chennai Bench in the case of Amar Sparklers Factory v. ITO in ITA No.808/Chny/2023 order dated 11.10.2023, where the Tribunal after considering relevant facts has held as under: 7. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. In so far as addition of Rs. 6,62,783/-, we find that the assessee itself has admitted shortage of source in their cash flow statement filed before the AO. Therefore, from the above, it is undoubtedly clear that the assessee could not explain source for cash deposits to the extent of Rs. 6,62,783/- and thus, we are of the considered view that, there is no error in the reasons given by the CIT(A) to sustain additions made towards cash deposits to the tune of Rs. 6,62,783/-. In so far as addition of Rs. 20,40,000/- towards advance received from group concerns, it was an argument of the appellant that group concerns have paid advance in cash during demonetization period and deposited into IDBI bank account. In this regard, the appellant has filed necessary details including PAN nos. and confirmation letters from the group concerns to prove receipt of trade advance. The Assessing Officer has not disputed these facts, however made additions only on the ground that the assessee should not have accepted cash in specified bank notes after 08.11.2016. We find that this issue is covered in favour of the assessee by the decision of ITAT, Chennai Benches in the case of M/s. Micky Fireworks Industries vs ACIT in ITA No. 264/Chny/2023, dated 26.07.2023, where the Tribunal under identical set of facts deleted additions made by the Assessing Officer, and the findings of the Tribunal is reproduced as under: - 7 - ITA. No.:347/Chny/2025 “4. From the facts, the undisputed position that emerges is that the assessee has made sale of fireworks during festival season. The sales are duly accounted for by the assessee in the books of accounts. The accounts have duly been audited. The assessee has realized debtors out of such sale in SBN which have been deposited in the bank account of the assessee. The cash deposited by the assessee has duly been accounted for in the books of accounts. The Ld. AO has not alleged any bogus sales or back dated sales made by the assessee. No defect has been pointed in the books of accounts as maintained by the assessee. 5. It could also be seen that during the course of assessment proceedings, various notices were issued u/s 142(1) from time to time calling numerous details from the assessee. The assessee was required to file numerous details including monthly cash flow statement, inventory of closing stock, copy of sales tax assessment order, monthly cash deposits and credits for various periods, ledger account for purchase and other expenditure, monthly sales gross receipts, monthly purchases, details of old notes and new notes deposited during demonetization period, the day book, Cash book, ledger maintained for business, cash balance as per cash book etc. All these details were duly submitted by assessee vide reply dated 12-12-2019. The assessee also submitted month-wise cash deposits in all bank accounts, details of old notes deposited at the time of demonetization period. Pertinently, the assessee also furnished details of name, address and PAN of cash depositors who deposited cash during demonetization period. The same has been detailed on pages 24 to 35 of the paper book. Apparently, the same could not be faulted with by Ld. AO. There is no allegation of any irregularity in the books of accounts. 6. We find that the only reasoning to treat the said deposits as unexplained cash credit u/s 68 is that the assessee was debarred from dealing in SBN after 08-11-2016. However, in the present case, the cash so received by the assessee is backed by sales carried out by the assessee as recorded in the books of accounts. Therefore, the source of cash is duly explained. The provisions of Sec.68 could be invoked only in cases when there was unexplained cash credit in the books of accounts maintained by the assessee. However, the assessee has duly identified the debtors from whom the cash was received and the same could not be disputed by lower authorities. The PAN of respective debtors as well as quantum of cash realized from each of them has duly been detailed by the assessee before Ld. AO during assessment proceedings. No defect has been pointed out in the books of accounts. In such a case, the credit could not be held to be unexplained cash credit and the impugned additions are not sustainable in law. - 8 - ITA. No.:347/Chny/2025 7. The SMC bench of this Tribunal in Mrs. Umamaheswari Vs. ITO (supra), on identical facts, deleted similar additions on the ground that the assessee had duly evidenced the source of cash deposit and therefore, addition could not be made u/s 68. Similar is another decision of SMC Raipur Bench in Rahul Cold Storage Vs. ITO (supra) wherein it has similarly been held that when the deposits were sourced out of business receipts duly recorded in the books of accounts, no such addition could be made u/s 68. The other cited decision of Bangalore Tribunal is also on similar lines. 8. Considering the facts and circumstances of the case, we find force in assessee’s case and therefore, delete the impugned addition as made u/s 68. We order so. The Ld. AO is directed to re-compute the income of the assessee.” 8. In this view of the matter and by following the decision of ITAT, Chennai Benches, we direct the AO to delete additions made towards source for cash deposits at Rs. 20,40,000/- u/s. 69A of the Act. 11. In the given facts of the present case, there is no dispute with regard to the fact that the assessee’s sales predominantly in cash. It is also an undisputed fact that there is no abnormal variation in total sales, cash sales and cash deposits for two Financial Years. The assessee is also able to file various evidences, including month- wise purchase and sales and cash book to prove availability of cash in hand as on 08.11.2016. Therefore, we are of the considered view that going by the nature of business of the assessee and also details submitted for two Financial Years, the explanation offered by the assessee towards source for cash deposits into bank account during demonetization period, is bona fide and acceptable. The AO and the Ld.CIT(A) without considering the relevant submissions of the assessee simply made addition towards cash deposits u/s.69A r.w.s.115BBE of the Act. Thus, we set aside the order of the Ld.CIT(A) and direct the AO to delete the addition made towards cash deposits u/s.69A r.w.s.115BBE of the Act.” 11. In the given facts and circumstances of the present case, in our view the cash receipts in SBN collected by the assessee of Rs.5,18,000/- during the demonetization period and the source for the same is explained as received from the business transactions. Therefore, we are of the considered view that the AO without considering the relevant submissions of the assessee made an addition of cash deposits as unexplained money U/s.68 of the Act r.w.s.115BBE of the Act, which has - 9 - ITA. No.:347/Chny/2025 been confirmed by the ld.CIT(A) exparte. Thus, by considering the facts of the case and respectfully following the precedents laid down by the Tribunal, we find merit in the contentions of the assessee. Accordingly, the order of the learned CIT(A) is set aside, and the AO is directed to delete the addition made under Section 68 read with Section 115BBE of the Act. Consequently, the grounds raised by the assessee in this regard are allowed. 12. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 05th May, 2025. Sd/- Sd/- (एबी टी वकŎ ) (ABY T VARKEY) Ɋाियक सद˟/Judicial Member (एस. आर. रघुनाथा) (S. R. RAGHUNATHA) लेखासद˟/Accountant Member चेɄई/Chennai, िदनांक/Dated, the 05th May, 2025 sp आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3.आयकर आयुƅ/CIT– Chennai/Coimbatore/Madurai/Salem 4. िवभागीय Ůितिनिध/DR 5. गाडŊ फाईल/GF "