MOONGILMADUVU DHARMARAJU SAMBATH,HOSUR V. ITO, CIRCLE 1, HOSUR

MA 20/CHNY/2024

AI Insights

The case revolves around the assessee, Moongilmaduvu Dharmaraju Sambath, who contested the addition of \\u20b919,53,500 under Section 69A of the Income Tax Act, 1961, concerning Specified Bank Notes (SBNs) deposited during the demonetization period. The assessee argued that these deposits were business proceeds and included in the total turnover reported. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) rejected this claim, leading to the Tribunal's initial order confirming the addition. The Tribunal's decision was later challenged through a Miscellaneous Application, leading to the recall of the order due to procedural oversights and non-compliance with natural justice principles.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772049 (ITAT-CHENNAI)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 25-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R.ANITA
• Assessee Lawyers: N. ARJUN RAJ
• Keywords: Business income; Corroborative evidences; Principle of natural justice

Judgement Text

"आयकर अपीलीय अिधकरण, ’सी’ \u0001यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI \u0001ी एबी टी. वक , ाियक सद\u0011 क े सम\u0014 BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER Miscellaneous Application No.20/Chny/2024 (in ITA No.511/Chny/2023) िनधा\u000eरणवष\u000e/Assessment Year: 2017-18 Moongilmaduvu Dharmaraju – Sambath, 3/589, 8th Cross Bharathi Nagar, Arasanatty, SIPCOT-1, Hosur-635 126. v. The ITO, Circle-1, Hosur. [PAN: AMUPS 8866 Q] (अपीलाथ\u0016/Appellant) (\u0017\u0018यथ\u0016/Respondent) अपीलाथ\u0016 क\u001a ओर से/ Appellant by : Mr. N. Arjun Raj, Advocate \u0017\u0018यथ\u0016 क\u001a ओर से /Respondent by : Ms. R. Anita, Addl.CIT सुनवाईक\u001aतारीख/Date of Hearing : 18.07.2025 घोषणाक\u001aतारीख /Date of Pronouncement : 25.08.2025 आदेश / O R D E R PER ABY T. VARKEY, JM: This is a Miscellaneous Application preferred by the assessee against the Tribunal order in ITA No.511/Chny/2023 for AY 2017-18 passed on 10.01.2024. 2. At the outset, the Ld.AR of the assessee, Shri N. Arjun Raj, Advocate, drawing our attention to the impugned order of the Tribunal contended that the issue for adjudication before this Tribunal was regarding the nature and source of Specified Bank Notes (SBNs) deposited during demonetization period to the tune of ₹19,53,500/-. The Printed from counselvise.com MA No.20/Chny/2024 (AY 2017-18) Moongilmaduvu Dharmaraju Sambath :: 2 :: assessee’s case, inter alia, was that the SBNs deposited to the tune of ₹19,53,500/- was business proceeds [from lodging/sale proceeds] and pointed out that the turnover shown in the P&L a/c to the tune of ₹1,71,53,452/- included the business receipts in the form of SBNs to the tune of ₹19,53,500/-. According to the assessee, once the AO has accepted the turnover, then his action of making separate addition of SBNs u/s.69A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) tantamounts to double taxation. In order to prove the aforesaid facts, the assessee filed its financials/comparative turnover statement including GP/NP of FY 2016-17 and preceding previous year 2015-16 and pointed out that in the relevant assessment year, there is reduction in turnover and that there was no abnormal increase during the demonetization period. However, the Tribunal didn’t accept the contention of the assessee on the ground that the assessee failed to file any evidence except the return of income (RoI) for AY 2017-18, statement of total income, audited financials statement & Tax Audit Report (TAR). According to the Tribunal, assessee was unable to show the cash deposits/SBNs during demonetization period included total turnover. On this ground, the Tribunal was pleased to confirm the action of the Ld.CIT(A)/AO. 3. According to the Ld.AR, there was mistake apparent on the face of the record because there was no dispute that the nature and source of Printed from counselvise.com MA No.20/Chny/2024 (AY 2017-18) Moongilmaduvu Dharmaraju Sambath :: 3 :: cash deposits was from the business proceeds/receipts which were out of the business of lodging/sale carried out by the assessee. According to him, this fact is discernable from the order of the Ld.CIT(A), wherein, the Ld.CIT(A) has accepted that the SBNs were business proceeds of lodging/sale proceeds which fact is discernable from Para No.7.3 (a) & (b) of his order, which has been reproduced in the impugned Tribunal order at Page Nos.4 & 5. According to the Ld.AR, the case of the AO/Ld.CIT(A) for making an addition u/s.69A of the Act was that the Central Government has withdrawn the status of SBNs as a legal tender and therefore, ₹500 & ₹1000 denominations have lost their value and is only a piece of paper. The main thrust of assessee’s contention is that, in case if the Tribunal had any doubt about the assertion of assessee that SBNs deposited during demonetization period, were included in the total turnover, then in such an event, it ought to have been raised during hearing of the appeal and then assessee would have been able to dispel the same. Without doing so, according to the Ld.AR, recording adverse finding that “assessee was unable to show how this cash deposits of SBNs deposited during demonetization period was included in the total turnover” vitiated such a finding, for non-compliance with the principles of natural justice. Therefore, he prayed for recall of the order. 4. Per contra, the Ld.DR, Ms. R. Anita, Addl.CIT, submitted that there was no mistake apparent on the face of the record. According to her, the Printed from counselvise.com MA No.20/Chny/2024 (AY 2017-18) Moongilmaduvu Dharmaraju Sambath :: 4 :: Ld.CIT(A) has clearly made a finding at Para No.7.2 (a) that even though the assessee filed copy of cash book during demonetization period but failed to file any supporting evidence to justify the cash book entries. The Ld.DR supported the findings of the Tribunal that assessee failed to show that SBNs deposited during demonetization period was included in the total turnover. Therefore, she doesn’t want us to interfere with the impugned action of the Tribunal. 5. I have heard both the parties and perused the records. The issue before the Tribunal was whether the Ld.CIT(A) erred in confirming the action of the AO while making addition of ₹19,53,500/- u/s.69A of the Act in respect of SBNs deposited during demonetization period. The assessee’s case was that he was a Contractor carrying business of running hotels/lodges. During demonetization period, assessee had made cash deposits of SBNs to the tune of ₹28,15,500/- and when asked the assessee to explain the nature and source of deposits, assessee showed that he had closing balance as on 08.11.2016 an amount of ₹8,61,554/-. Therefore, the AO gave credit to him to the tune of ₹8,61,554/- and asked the assessee to explain the balance amount of ₹19,53,500/- which according to the assessee was collection from lodging and sale proceeds received from his customers in his activity of business. And in support of his claim, he produced cash book statement and asserted that SBNs collected was regular cash from the business run by him and explained Printed from counselvise.com MA No.20/Chny/2024 (AY 2017-18) Moongilmaduvu Dharmaraju Sambath :: 5 :: that cash collected from the business of earlier days used to be deposited in the bank account on the next day even during the demonetization period. However, the AO didn’t accept the contention on the ground that after 09.11.2016, the SBNs of ₹500 & ₹1000 lost its status as legal tenders and they were only a piece of paper. And therefore, the AO made the addition u/s.69A of the Act to the tune of ₹19,53,500/-. On appeal, the Ld.CIT(A) was of the view that the business proceeds received in the form of SBNs after 09.11.2016 were invalid and not qualified to be recorded in cash book as receipts from hotel/lodge business. According to him, sales/receipts of SBNs after 09.11.2016 are void and non-est in the eyes of law as Central Government has withdrawn the legal tender status of SBNs and hence, the Ld.CIT(A) confirmed the action of the AO making addition of ₹19,53,500/- u/s.69A of the Act. 6. The Tribunal while adjudicating the issue has held as under: 7. Before me, Id. Counsel for the assessee filed comparative turnover statement including gross profit and net profit of previous year i.e. 2016-17 and preceding previous year i.e. 2015-2016. He drew my attention to form 3CD filed along with return of income and the details are as under:- No. Particulars Previous year Preceding previous year a Total turnover of the 17153452 23250020 b Gross Profit/Turnvoer 7248866 1715345 42.26% 7672948 23250020 33% c Net Profit 6978834 17153452 40.68% 1385304 23250020 5.96% d Stock-in-trade /Turnover - 17153452 % - 23250020 % He argued that the turnover has actually reduced in this year and the turnover is merely ₹1,71,53,452/- and there is no increase as in Printed from counselvise.com MA No.20/Chny/2024 (AY 2017-18) Moongilmaduvu Dharmaraju Sambath :: 6 :: demonetization period. However, Id. Counsel for the assessee fairly agreed that estimation can be made because he has already included this cash deposits made in specified bank notes in its turnover. I note that this argument cannot be accepted because assessee failed to file any evidence except the return of income for the assessment year 2017-2018, statement of total income, audited financial statement and tax audited report. Assessee is unable to show how this cash deposits of specified bank notes deposited during demonetization period is included in the total turnover. As the assessee failed to produce any evidence, I uphold the order of the Id. CIT(A) and that of the Id. Assessing Officer and dismiss the appeal of the assessee. 7. The aforesaid action of the Tribunal was mainly because it doubted the assessee’s assertion that the SBNs deposited in the bank was part of the total turnover. According to the Ld.AR, the assessee’s stand throughout the income-tax proceedings before AO/CIT(A)/Tribunal was that his business turnover included SBNs. And on this aspect there was no dispute even during the hearing before this Tribunal. In such a scenario, according to Ld AR, if the Tribunal had any doubt about the veracity of the claim of the assessee i.e. the total turnover shown by the assessee to the tune of ₹1,71,53,452/- included ₹19,53,500/- [SBNs], then in all fairness, it ought to have been clarified during hearing. Without doing so, impugned adverse finding against the consistent stand of assessee, that too when he had filed all the relevant documents to substantiate the nature and source of SBNs, tantamounts to violation of natural justice, which in turn amounts to mistake apparent on the face of the record. I find force in the submissions of the Ld.AR on this short point because it is noted that the Ld.CIT(A) has made a finding of fact at Para No.7.3 (a) & (b) at Page No.4 & 5 of his order [which has been reproduced by this Printed from counselvise.com MA No.20/Chny/2024 (AY 2017-18) Moongilmaduvu Dharmaraju Sambath :: 7 :: Tribunal in the impugned Tribunal order at Page Nos.4-5], which is reproduced as under: 7.3 a) The contention of the Appellant is not acceptable due to following reasons: • After 09.11.2016 the Central Govt. withdrew the legal tender status of SBN's of Rs.500 and Rs.1000 and they were mere pieces of paper. • These SBN's could only be re-deposited in the bank or they will continue to be legal tender only for limited purposes payments at Petrol Pumps, gas agencies etc. For all other purposes these SBN's of Rs.500 and Rs.1000 were no longer a legal tender w.e.f. 09.11.2016 as per Central Government's Notification in SO No. 3407(E) dated 08.11.2016. Appellant is not one of the entities authorized by Central Govt. to accept these SBN's during the demonetization period in exchange of goods/services. • The above facts show that Appellant was not supposed to accept these SBN's as they had lost their value and were not qualified for public transactions. • Business proceeds received in such SBN's are invalid and are not qualified to be called/recorded as receipts from hotel/lodge business. Such sales/receipts are void and non-est in eyes of law as the Central Govt. had withdrawn the legal tender status of SBN's w.e.f. 09.11.2016. b) The two limbs of Section 69A are attracted in the present case /because of the following reasons:- • Appellant was not able to explain the nature and source of cash deposits in his bank account. • Sale proceeds received in such SBN's during demonetization period and recorded in books are invalid and are not qualified to be called/recorded as sales in books of accounts. Such sales recorded are void and non-est in the eyes of law as Central Govt. had withdrawn the legal tender of status of such SBN's w.e.f. 09.11.2016. Appellant is not one of the entities authorized by the Central Govt. to accept such SBN's during demonetization period in exchange of goods/services and to record them as sale proceeds in the books of accounts. 8. It is noted that even though the Ld.CIT(A) at Para No.7.2 states that no documentary evidence was filed to substantiate the cash book entries, he observes that assessee has shown it to be business proceeds as under: • Business proceeds received in such SBN's are invalid and are not qualified to be called/recorded as receipts from hotel/lodge business. Such sales/receipts are void and non-est in eyes of law as the Central Printed from counselvise.com MA No.20/Chny/2024 (AY 2017-18) Moongilmaduvu Dharmaraju Sambath :: 8 :: Govt. had withdrawn the legal tender status of SBN's w.e.f. 09.11.2016. 9. And also the Ld.CIT(A) has observed as under: • Sale proceeds received in such SBN's during demonetization period and recorded in books are invalid and are not qualified to be called/recorded as sales in books of accounts. Such sales recorded are void and non-est in the eyes of law as Central Govt. had withdrawn the legal tender of status of such SBN's w.e.f. 09.11.2016. Appellant is not one of the entities authorized by the Central Govt. to accept such SBN's during demonetization period in exchange of goods/services and to record them as sale proceeds in the books of accounts. 10. In the light of the discussion I am of the considered view that Tribunal before making a finding that the assessee was unable to show that the SBNs deposited during demonetization period was included in the total turnover, should have confronted the assessee before recording an adverse finding, which omission is noted to be in violation of natural justice. In the peculiar facts and circumstances of the case, I am of the view that there is mistake apparent on the face of the record and therefore, I am inclined to recall the impugned order of the Tribunal dated 10.01.2024. And direct the registry to fix the appeal to due course after giving notice to both parties. 11. In the result, Miscellaneous Application filed by the assessee is allowed. Order pronounced on the 25th day of August, 2025, in Chennai. Sd/- (एबी टी. वक ) (ABY T. VARKEY) \u0001याियक सद\bय/JUDICIAL MEMBER Printed from counselvise.com MA No.20/Chny/2024 (AY 2017-18) Moongilmaduvu Dharmaraju Sambath :: 9 :: चे ई/Chennai, !दनांक/Dated: 25th August, 2025. TLN आदेश क\u001a \u0017ितिलिप अ$ेिषत/Copy to: 1. अपीलाथ\u0007/Appellant 2. \b थ\u0007/Respondent 3. आयकरआयु\u000f/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय\bितिनिध/DR 5. गाड\u0018फाईल/GF Printed from counselvise.com "