RAJAGOPAL KARTHIKEYAN,ERODE V. ITO WARD 2(1), ERODE

ITA 3326/CHNY/2024

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The case involves Shri Rajagopal Karthikeyan, an individual running a proprietorship under the name M/s. Boopathiraja Trading, who appealed against the order of the Commissioner of Income Tax (Appeals), Delhi, which had partly allowed his earlier appeal. The primary contention was regarding the addition of Rs.20,75,500 as unexplained investment due to cash deposits made during the demonetization period. The Assessing Officer (AO) had initially made this addition, which was partly reduced by the CIT(A). The Tribunal, after examining the documents and arguments presented, concluded that the cash deposits were part of the assessee's business activities and thus should not be treated as unexplained investments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 360670 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: Mrs. Umamaheshwari vs ITO, M/s. Mickey Fireworks Industries vs ACIT, Sri Tatiparti Satyanarayana vs ITO
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOUTHAMI MANIVASAGAM
• Assessee Lawyers: S. SRIDHAR; ERODE
• Keywords: Set aside; Corroborative evidences; Unexplained investment
• Section: 142(1); 37

Judgement Text

" आयकर अपीलीय अिधकरण, ‘बी’ \u000fा यपीठ, चे\u0014ई IN THE INCOME TAX APPELLATE TRIBUNAL , ‘B’ BENCH, CHENNAI \u0016ी मनु क ुमा र िग\u001bर ,\u000fा ियक सद एवं \u0016ी जगदीश , लेखा सद क े सम& BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A.No.3326/Chny/2024 (िनधा\u0005रण वष\u0005 / Assessment Year: 2017-18) Shri Rajagopal Karthikeyan, 167, Velappagoundan Valasu, Villarasampatti Post, Erode-638 107. Vs The ITO Ward-2(1) Erode. PAN : ADOPK-5187-D (अपीलाथ\u000f/Appellant) (\u0010\u0011यथ\u000f/Respondent) अपीलाथ\u000fक\u0014ओरसे/ Appellant by : Mr.S.Sridhar, Advocate (Erode) \u0010\u0011यथ\u000fक\u0014ओरसे/Respondent by : Smt.Gouthami Manivasagam, JCIT सुनवाईक\bतारीख/Date of hearing : 19.03.2025 घोषणाक\bतारीख /Date of Pronouncement : 19.05.2025 आदेश आदेश आदेश आदेश / O R D E R PER MANU KUMAR GIRI, JM: The captioned appeal filed by the assessee is directed against the order of the Ld. Ld. Commissioner of Income Tax (Appeals)(NFAC) Delhi [CIT(A)] dated 04.10.2024 for Assessment Year 2017-18. 2. Brief facts are as follows:- The assessee is an individual running proprietorship concern in the name of M/s.Boopathiraja Trading filed his return of income on 27.11.2017 declaring income of Rs.3,29,620/- for AY 2017-18 claiming income from business and house property. The case was selected for complete scrutiny and notices u/s.143(2) and 142(1) were issued to the assessee calling for various details. Though the assessee responded by his reply on 24.12.2019, but has not 2 ITA No. 3326/Chny/2024 provided requisite details called for by the AO. The assessee also made cash deposit of Rs.20,75,000/- in his bank accounts during demonetization period. However, the assessee has neither furnished supporting evidence nor proved source for cash deposits. Therefore, the completed the assessment u/s.143(3) by making addition of Rs.20,75,500/- as unexplained investment u/s.68 r.w.s 115BBE of the Act. 3. Aggrieved, the assessee challenged order of assessment before the CIT(A). The CIT(A) has partly allowed the appeal of the assessee on estimate basis by giving relief of Rs.5,00,000/-, as the assessee failed to prove cash in hand beyond doubt, against which the assessee is in further appeal before us. 4. We have heard both the parties and perused material on record. Before us, the learned AR filed various documents as per index in the paper book containing pages 1 to 122 namely chart showing consistent level of business operation, particulars of cash deposit during demonetization, VAT return, Month wise purchase details, Month wise sales details, cash book/cash flow, sales register, total income statement, profit and loss account, balance sheet, Audit report, nature of business activities, bank account statement, cash withdrawals and cash deposited etc. The ld. counsel referred to a chart showing uniformity in business operations as under: 3 ITA No. 3326/Chny/2024 We find that the AO has not rejected the books of account. The AO never disputed the VAT return, purchase/sales register, factum of audit u/s 44AB and trade results. The business of the assessee is also not disputed by the AO. It is also not alleged by AO that the assessee is doing some other business. The turnover, GP rate, NP rate are also consistent with the earlier years. Therefore, we find that the cash deposits made during demonetization period is a part of trading activities of the assessee, hence making addition u/s 69A is not warranted. Our view is also supported by the orders of the co- ordinate bench in ITA No.1321/Chny/2023 dated 19.01.2024 (for AY 2017-18), ITA No.1128/Chny/2023 dated 28.02.2024 (for AY 2017- 18), ITA No.776/Chny/2024 dated 28.06.2024, ITA Nos.2931 & 2931/Chny/2024 dated 14.03.2025 (for AY 2017-18) and ITA No.527/Chny/2022 dated 14.10.2022. 5. This Tribunal in the case of Mrs. Umamaheshwari vs ITO in ITA No: 527/Chny/2022 dated 14.10.2022 and M/s. Mickey Fireworks Industries vs ACIT in ITA No: 264/Chny/2023 dated 26.07.2023, wherein similar addition was made for SBN deposits after 4 ITA No. 3326/Chny/2024 08.11.2016, wherein the Tribunal took note of the Specified Bank Notes (Cessation of Liability), Act 2016 and deleted addition u/s. 69A of the Act made in that case by holding as under: 3. The brief facts of the case are that the assessee is an individual filed her return of income for the AY 2017-18 on 07.03.2018 declaring total income of Rs.4,37,090/- and agricultural income of Rs.7,83,000/-. The case has been selected for limited scrutiny to verify cash deposits during demonetization period. During the course of assessment proceedings, the AO gathered information u/s.133(6) of the Act, regarding cash deposits from Karur Vysya Bank, Kuniamuthur Branch, Coimbatore, and KVB Main Branch, Coimbatore. As per the information submitted by the Bank, the assessee has deposited a sum of Rs.17,25,500/- in Specified Bank Notes of the denomination of Rs.500/- & Rs.1,000/- on various dates. The Assessing Officer called upon the assessee to explain source for cash deposits, for which, the assessee has filed a cash book, as per which, cash balance available as on 08.11.2016 is only Rs.9,58,066/- and for the balance amount, the assessee explained source for cash deposits out of sale proceeds received from one Smt.Vedhavathy amounting to Rs.13 lakhs on 09.11.2016 for sale of property. The AO accepted source for cash deposits to the extent of Rs.9,58,066/- out of cash balance available as on 08.11.2016. However, for balance amount of Rs.7,67,500/-, the AO rejected explanation of the assessee regarding source for cash deposits from 08.11.2016 on the ground that the assessee cannot accept the demonetized currency and thus, opined that the assessee has not proved source for cash deposits to the tune of Rs.7,67,500/- and thus, made addition u/s.69 of the Act. The assessee carried the matter in appeal before the First Appellate Authority, but could not succeeded. The Ld.CIT(A), NFAC for the reasons stated in their appellate order, confirmed the additions made by the AO. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before me. 4. The Ld.AR for the assessee submitted that the Ld.CIT(A), NFAC erred in confirming additions made towards cash deposits of Rs.7,67,500/- by 5 ITA No. 3326/Chny/2024 treating it as unexplained money u/s.69 of the Act, without appreciating the fact that the assessee can transact in Specified Bank Notes up to appointed date as per the Specified Bank Notes (Cessation of Liabilities) Act, 2017, and as per said Act, appointed date for this purpose is 31.12.2016. In this regard, he relied upon the decision of ITAT Visakhapatnam Bench in the case of ITO v. Sri Tatiparti Satyanarayana in ITA No.76/Viz/2021 order dated 16.03.2022. 5. The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), field a detailed Written Submissions dated 21.09.2022 and argued that as per the Specified Bank Notes (Cessation of Liabilities) Act, 2017, which came into effect from 31.12.2016, the assessee is prohibited from dealing with Specified Bank Notes w.e.f.09.11.2016 for all purposes except for the purpose of exchange of such Specified Bank Notes held on or before 08.11.2016. Further, assuming for a moment, the assessee can transact in Specified Bank Notes up to 31.12.2016, but the assessee could not prove the receipt of sale consideration of Rs.13 lakhs in Specified Bank Notes and thus, the benefit of source cannot be given to the assessee. The relevant Written Submissions filed by the Ld.DR is reproduced as under: The counsel of the assessee argued that, section 5 of The Specified Bank Notes (Cessation of Liabilities) Act, 2017 (hereinafter called the 'Act') permits persons to hold, transfer or receive Specified Notes up to the 'appointed date and section 2(a) of the Act, defines 'appointed date' as the 31st December, 2016. Hence, according to him, the amount of specified notes received by the assessee on 9th November, 2016 is a valid note and the transaction is also valid as it is not barred by any law in force. The argument is contrary to the other provisions of The Specified Bank Notes (Cessation of Liabilities) Act, 2017 for the following reasons. a. The Specified Bank Notes (Cessation of Liabilities) Act, 2017 came into being from 31st December, 2016 (section 1(2) of the Act) b. Section 13 of the Act clearly states the provisions of Specified Bank Notes (Cessation of Liabilities) ordinance, 2016 will prevail till 6 ITA No. 3326/Chny/2024 enactment of this Act. c. As per the Para of the Ordinance (copy enclosed), the Specified notes ceases to be legal tender with effect from 9th November, 2016 for all purpose except for the purpose of exchange of such specified notes held on or before 8th November, 2016 as specified u/s section 4 of the Ordinance. d. In the present case, the assessee has claimed to have obtained Rs.13,00,000/- on 9th November, 2016 as sale consideration in specified notes. Since as per the Ordinance, the specified notes ceases to be legal tender for all transaction other than for the purpose of exchange of the same under section 4 of the Ordinance and the assessee being not one of the notified persons permitted to receive the specified notes, the amount so claimed to have been received is not legally recognizable as a legally acceptable source. Further most importantly, the assessee has not proved with documentary evidence that the consideration received of Rs.13,00,000/- comprised of 'Specified notes' in full. The assessee is just attempting to telescope the so stated receipt as an explanation of source for its accumulated Specified notes in procession as on the midnight of 8th November, 2016 and exchanged with the banking authorities on 10th November, 2016. Even if the assessee produces such specific evidence of having received the full consideration in only specified notes, the benefit of violation of provisions of Ordinance cannot be extended under the Income Tax Act in line with the principle as laid out in the explanation to u/s 37 of the Income Tax Act-1961. 6. I have heard both the parties, perused the materials available on record and gone through orders of the authorities below. As regards, the first objection of the AO on legal tender of Specified Bank Notes on or after 08.11.2016, I find that as per the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016, which came into effect from 31.12.2016 appointed date for this purpose means 31.12.2016. Further, as per Sec.5 of said Ordinance, from the appointed date, no person shall, knowingly or 7 ITA No. 3326/Chny/2024 voluntarily, hold or transfer or receive any Specified Bank Notes. From the above what is clear is that up to the appointed date i.e.31.12.2016, there is no prohibition for dealing with Specified Bank Notes. Therefore, in my considered view, the objection of the AO on this regard in light of said Act is devoid of merits. Further, a similar issue had been considered by the Tribunal, Visakhapatnam Bench, in the case of Sri Tatiparti Satyanarayana in ITA No.76/Viz/2021, where the Tribunal after considering relevant provision of Specified Bank Notes (Cessation of Liabilities) Act, 2017, held that there is no prohibition under the Act to deal with Specified Bank Notes up to 31.12.2016. Therefore, in my considered view, the observation of the AO on this regard totally incorrect and liable to be rejected. 7. Having said so, let us come back to explanation of the assessee with regard to source for cash deposits. The assessee explained before the Assessing Officer that she had received a sum of Rs.13 lakhs from Smt.Vedhavathy for sale of property on 09.11.2016. In fact, the AO accepted, the assessee has received consideration for sale of property from Smt.Vedhavathy and the purchaser has also filed a confirmation letter stating that she had paid consideration in cash. Therefore, once the AO is accepted the fact that the assessee has received consideration in cash, then the source for cash deposits during demonetization period should have been accepted out of sale consideration received for property. In my considered view, the Assessing Officer grossly erred in not accepting the source for balance cash deposits of Rs.7,67,500/-, even though, the assessee has filed necessary evidences to prove the availability of source for cash deposits. The Ld.CIT(A) without appreciating the fact simply confirmed the additions made by the AO. Hence, I set aside the order of the Ld.CIT(A) and direct the AO to delete the addition made towards cash deposits of Rs.7,67,500/- u/s.69A of the Act. 8. In the result, appeal filed by the assessee is allowed.” 8 ITA No. 3326/Chny/2024 6. In light of the aforesaid discussions, and respectfully following the various decisions of the Tribunal (Supra), we do not countenance the action of the Assessing Officer and delete the addition. 7. In result, appeal of the assessee is allowed. Order pronounced in the open court on 19th May, 2025. Sd/- Sd/- (जगदीश ) ( मनु क ुमार िग\u001bर ) ( Jagadish ) ( Manu Kumar Giri) लेखा लेखा लेखा लेखा सद\u0003य सद\u0003य सद\u0003य सद\u0003य / Accountant Member \u000fाियक सद / Judicial Member चे\u0019ई/Chennai, \u001bदनांक/Date:19.05.2025 DS आदेश क\u0007 \bितिलिप अ\u000eेिषत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु\u0012/CIT Chennai/Coimbatore 4. िवभागीय \bितिनिध/DR 5. गाड\u001b फाईल/GF. "