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2025 (5) TMI 93 - AT - Income TaxUnexplained money added to the total income of the assessee u/s 69A r.w.s. 115BBE - Assessee has accepted Specified Bank Notes which he was not allowed for the reason that the assessee cannot accept the demonetized currency i.e. SBN of Rs. 1000 Rs. 500 denomination from 09.11.2016 onwards as the same were not a legal tender - HELD THAT - As decided in Sri Tatiparti Satyanarayana 2022 (3) TMI 896 - ITAT VISAKHAPATNAM Specified Bank Notes (Cessation of Liabilities) Act 2017 defines appointed day vide Section 2(1)(a). As per Section 2(1)(a) appointed day means the 31st Day of December 2016. Section 5 of the Specified Bank Notes (Cessation of Liabilities) Act 2017 also deals with prohibition on holding transferring or receiving specified bank notes. Section 5 states that On and from the appointed day no person shall knowingly or voluntarily hold transfer or receive any specified bank note . We therefore find that the specified bank notes can be measured in monetary terms since the guarantee of the Central Government and the liability of Reserve Bank of India does not cease to exist till 31.12.2016. In view of the above the contention of the Ld. DR treating the receipt of SBNs from cash sales as illegal and thereby invoking the provisions of section 69A is not valid in law. Therefore we dismiss this ground of the Revenue. Tribunal in the case of M/s Bhagur Urban Credit Co-op Soc. Ltd. 2023 (1) TMI 1384 - ITAT PUNE also deleted the addition which was made on the basis of accepting the old currency i.e. SBN between 09.11.2016 to 11.11.2016 which were deposited in the bank account. Decided in favour of assessee.
The core legal questions considered in this appeal revolve around the validity and correctness of the addition of Rs. 4,74,000/- to the assessee's income under the Income Tax Act, specifically:
Regarding the condonation of delay, the Tribunal considered the extension of limitation periods by the Hon'ble Supreme Court due to the Covid-19 pandemic. The appeal was filed with a delay of 99 days beyond the prescribed period. Given the exceptional circumstances, the appeal was treated as timely filed and admitted for adjudication. The principal issue concerns the addition of Rs. 4,74,000/- on account of acceptance of Specified Bank Notes (SBN) of Rs. 500 and Rs. 1000 denominations after demonetization notification dated 8th November 2016. The Assessing Officer found that the assessee had deposited Rs. 4,74,000/- in SBNs into bank accounts on 9th and 10th November 2016, which was not permitted as these notes ceased to be legal tender from 9th November 2016. Consequently, the amount was treated as unexplained money and added to the income under section 69A read with section 115BBE, which was introduced via the Finance Act, 2016 effective 15th December 2016. The assessee challenged this addition on multiple grounds: that the addition under section 69A was not sustainable, that the CIT(A) erred in confirming the addition under section 68 without granting opportunity for explanation, and that the addition was made without fulfilling the necessary ingredients of section 68. The assessee also contended that the SBNs were legal tender until 31st December 2016 as per the Specified Bank Notes (Cessation of Liabilities) Act, 2017, and thus acceptance of SBNs before this date could not be treated as unexplained or illegal. The Tribunal examined the relevant statutory provisions and judicial precedents. Section 69A provides for addition of unexplained money, and section 115BBE imposes a special tax on unexplained cash credits or money found during search or survey operations. However, the Finance Act, 2016 introducing section 115BBE was effective from 15th December 2016, after the dates on which the SBNs were accepted by the assessee. The Specified Bank Notes (Cessation of Liabilities) Act, 2017 defines the "appointed day" as 31st December 2016, and section 5 prohibits holding, transferring, or receiving specified bank notes on or after this date. This implies that until 31st December 2016, the liability of the Reserve Bank of India on these notes continued, and they retained legal tender status. The Tribunal relied heavily on several coordinate bench decisions which dealt with identical facts and legal issues, notably:
The Tribunal noted that the Assessing Officer and CIT(A) failed to appreciate that the legal tender status of SBNs continued until the appointed day under the Cessation of Liabilities Act, 2017, and that section 115BBE could not be applied retrospectively to transactions occurring before its effective date of 15th December 2016. On the issue of breach of principles of natural justice due to non-grant of opportunity before invoking section 68, the Tribunal did not find it necessary to adjudicate separately since the main addition itself was set aside. In applying the law to the facts, the Tribunal concluded that the addition of Rs. 4,74,000/- as unexplained money was not justified since the SBNs accepted by the assessee before 31st December 2016 were legal tender and could not be treated as unexplained or illegal. The invocation of section 115BBE was also misplaced as it was not in force at the time of the alleged transaction. Competing arguments from the Revenue, which sought to uphold the addition, were not supported by any contrary material or authoritative precedent. The Tribunal found the Revenue's reliance on the subordinate authorities' orders insufficient to counter the well-reasoned coordinate bench decisions. Consequently, the Tribunal set aside the order of the CIT(A)/NFAC and directed deletion of the addition of Rs. 4,74,000/-. Given the allowance of the principal ground, other grounds raised by the assessee were held to be academic and were not adjudicated. The significant holding of the Tribunal is encapsulated in the following verbatim extract from the decision in ITO vs. Sri Tatiparti Satyanarayana: "We find that the specified bank notes can be measured in monetary terms since the guarantee of the Central Government and the liability of Reserve Bank of India does not cease to exist till 31.12.2016. In view of the above, the contention of the Ld. DR, treating the receipt of SBNs from cash sales as illegal and thereby invoking the provisions of section 69A is not valid in law. Therefore, we dismiss this ground of the Revenue." Core principles established include:
Final determinations:
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