VASANTH & CO,TIRUPUR V. ITO, WARD-1(2), TIRUPUR

ITA 351/CHNY/2024

AI Insights

The case revolves around the appeal by Vasanth & Co against the order of the Commissioner of Income Tax (Appeals), which confirmed the addition of Rs.70,68,500 as unexplained money by the Income Tax Officer. The addition was based on cash deposits in Specified Bank Notes (SBNs) during the demonetization period. Vasanth & Co, engaged in the distribution of FMCG products, argued that these deposits were from legitimate sales and collections. The Tribunal, referencing a similar case (Tamil Nadu State Marketing Corporation Ltd vs. Assistant Commissioner of Income Tax), ruled in favor of the assessee, emphasizing that mere violation of notifications regarding SBNs does not automatically imply the deposits are unexplained.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 107318 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-10-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 09-02-2024
• Other Referred Cases: Tamil Nadu State Marketing Corporation Ltd vs. Assistant Commissioner of Income Tax, Chennai
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPTHA; IRS
• Assessee Lawyers: YESHWANTH KUMAR
• Keywords: Unexplained expenditure; Unexplained investment; Bonafide belief
• Section: 69; 69A

Judgement Text

"आयकर अपीलीय अिधकरण, ‘’ए’’, ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI ᮰ी महावीर ᳲसह,उपा᭟यᭃ एवं ᮰ी मनोज कुमार अᮕवाल,लेखा सद᭭य के समᭃ BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.351/CHNY/2024 िनधाᭅरण वषᭅ /Assessment Year:2017-2018 Vasanth & Co SF No.1308, Anna Nagar, K P N Colony Extn, Tirupur 641 601. PAN: AABFV 6669F v. The Income Tax Officer, Ward 1(2) Tirupur 641 601. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri Yeshwanth Kumar, C.A., ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Ms. Deeptha, IRS, JCIT सुनवाई कᳱ तारीख/Date of Hearing : 01.10.2024 घोषणा कᳱ तारीख/Date of Pronouncement : 09.10.2024 आदेश /O R D E R PER MAHAVIR SINGH, VP: This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in order No.ITBA/NFAC/S/250/2023-24/1058720698(1) dated 13.122023. The assessment was framed by the Income Tax Officer, Ward 1(2), Tirupur, for the assessment year 2017-18 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order dated 28.12.2019. 2 ITA No.351/2024 2. The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of ld. Assessing Officer in making addition of cash deposits of Rs.70,68,500/- as unexplained money u/s.69A of the Act being cash deposited in bank during demonetization period in Specified Bank Notes (SBNs). 3. Brief facts of the case are that assessee is engaged in selling of fast moving consumer goods by taking distribution of M/s. Hindustan Unilever Limited, M/s Britannia Industries Ltd, M/s. Kalleesuwari Refinery Private Limited etc. Assessee case was selected for scrutiny under CASS to verify large cash deposits made during demonetization period in Specified Bank Notes (SBNs). The ld. Assessing Officer during the course of assessment proceedings enquired the assessee to explain the source of cash deposits made in SBNs. The assessee explained that the cash deposits is made out of sale proceeds and realization of debtor during demonetization period. The ld. Assessing Officer rejected the assessee’s explanation by observing in para 3 & 4 as under:- ‘’3. The Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O.3408(E) dated 8th November, 2016 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii) dated the 8th November, 2016 declares that the legal tender character of denominations of Rs.500 and Rs.1000 stands withdrawn with effect from the midnight of November 8, 2016 called as SBN (specified Bank Notes). The Government of India on its further notification allowed certain services for accepting the SBN of Rs.500 till specific period. The assessee's business does not fall under exempted category for the extended specific period, The assessee, in his reply filed through e-proceedings, explained that the collections made from customers towards sale proceeds and realisation of debtors as the source for the cash deposits made in the bank account during the demonetisation period. The acceptances of old SBN from customers after demonetisation cannot be explained as source for the cash deposits in the bank account during demonetisation period since the old SBN are no longer a legal tender w.e.f. 09.11.2016. 3 ITA No.351/2024 4 The assessee has also referred The Gazette of India, Extraordinary PART-II- Section 1 issued by Ministry of Law and Justice under The Specified Bank Notes (Cessation of Liabilities) Act, 2017 dt.28th February, 2017 which states that the prohibition on holding, transferring or receiving specified bank notes shall be prohibited with effect from appointed day i.e 31.12.2016 as per para 5 of the Gazette. By quoting this Gazette, the assessee firm claimed that the acceptance of old currency i.e SBN during demonetisation was not prohibited till 30.12.2016’’. Aggrieved assessee preferred an appeal before the ld. CIT(A). 4 The ld. CIT(A) also confirmed the action of the Ld. Assessing Officer. Aggrieved the assessee is in appeal before us. 5. We have heard the rival contentions and perused the material on record. The assessee before us explained that they are in the business of distribution of FMCG products and are the authorised distributor for M/s. Hindustan Unilever Limited, M/s. Britannia Industries Ltd and M/s. Kalleesuwari Refinery Private Limited etc. They purchase in wholesale from the manufacturers and sell them to retail outlets spread over their area of operation. Payments are collected from them either on the same day of sales are in due course. Irrespective of their collection, assessee has to make payments to our suppliers. The Turnover of the assessee for the last three years are as under: Financial Year 2014-15 43.44 crores. Financial Year 2015-16 48.17 crores Financial Year 2016-17 57.93 crores 4 ITA No.351/2024 Assessee is constantly maintaining an average sale of 4 to 5 crores per month and there gross profit ratio is very low and there from they will not be able to extend much of credit to their customers as the same will eat out on our Return on Investments. Assessee’s customers range from departmental store to small petty shops and assessee is supposed to cater to all the shops within the area as their principles want the penetration of their product fully in the market. Amounts were received by Cheques/Bank transfers from big customers and in cash from smaller shops. When demonetization was announced there was a scarcity of Quid cash in non- demonetised currencies. Smaller traders had to accept payments from their customers in demonetised and non-demonetised currencies as well because of the fact that non acceptance will lead to fall in sales and put their customers into hardship. The traders in turn started making payments in demonetised currencies to assessee which forced them to accept in order to maintain a smooth working capital cycle. Assessee also enquired with their bankers regarding the same, who in turn advised that they will be accepting payments up to 30th December, 2016. Based on this, assessee was under the bonafide belief that acceptance of cash in demonetised form from identifiable customers is permitted and therefore assessee were accepting from such customers for a few days. As soon as assessee came to know that only specified persons can accept demonetised currency they stopped 5 ITA No.351/2024 receiving the same. The amount received during the initial few days were remitted to the bank account. This was the reason for acceptance of the demonetized currency to the tune of Rs.51,05,940/- from their customers, which were remitted in to account then and there. Going by the explanation of the assessee that the cash deposited in SBNs during demonetization period is out of sale proceeds and this issue stands covered in favour of the assessee by the decision of the Co-ordinate of the Tribunal in the case of Tamil Nadu State Marketing Corporation Ltd vs. Assistant Commissioner of Income Tax, Chennai in ITA No.431/Chny/2023 for assessment year 2017- 2018 dated 07.10.2024 and wherein it was held as under:- ‘’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 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 6 ITA No.351/2024 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 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 7 ITA No.351/2024 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’’. Since the issue is squarely covered by the decision of the Co-ordinate Bench of the Tribunal in the case of Tamil Nadu State Marketing Corporation Ltd (supra), we allow the ground raised by the assessee and delete the addition made by the lower authorities. 6. In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 9th day of October, 2024 at Chennai. Sd/- (मनोज कुमार अᮕवाल) (MANOJ KUMAR AGGARWAL) लेखा सद᭭य /ACCOUNTANT MEMBER Sd/- (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 9th October, 2024. KV आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकर आयुᲦ /CIT 4. िवभागीय ᮧितिनिध/DR 5. गाडᭅ फाईल/GF. 8 ITA No.351/2024 "