2025 (5) TMI 744 - AT - Income Tax

Addition u/s 68 - unexplained cash deposits during the demonetisation period - Only objection of AO is that the assessee was not authorized to receive specified bank note from his debtor after demonization of high value currency note - HELD THAT - We find that assessee in his reply before AO about Rs. 11, 07, 000/- clearly stated that such amount was collected against the goods supplied. It not the case of assessee that he has a received currency note of 500 or 1000 after declaring demonetization period. Thus we do no find any justification for treating the cash deposits against the regular sale as unaccounted money. However to avoid the possibility of revenue leakage we are of the view that the disallowance of 10% of addition made by AO would be sufficient to avoid the possibility of revenue leakage. Therefore addition is restricted to the extent of Rs. 151200/-. Addition u/s 115BBE at enhanced rate of tax @ 60% under Section 115BBE - As we find that that Division Bench of Surat Tribunal in case of Samir Shantilal Mehta 2023 (5) TMI 1279 - ITAT SURAT Arjunsinh Harisinh Thakor 2023 (6) TMI 770 - ITAT SURAT and in Jitendra Nemichand Gupta 2023 (6) TMI 1338 - ITAT SURAT held that applicability of amended provision of section 115BBE is not retrospective. Thus the Assessing Officer is directed to tax the remaining addition at normal rate of tax and applicable surcharges if any. Thus the assessee is allowed relief against taxing the addition at higher rate under section 115BBE. In the result the ground of appeal raised by the assessee is partly allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are as follows:

(a) Whether the addition of Rs. 15,12,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act on account of unexplained cash deposits during the demonetisation period was justified.

(b) Whether the acceptance of old currency notes (specified bank notes) by the assessee was valid in law and whether such acceptance could form the basis for addition under Section 68.

(c) Whether the AO erred in disregarding the average monthly cash deposits and the pattern of cash sales during the relevant assessment year, particularly in light of the nature of the assessee's business in Fast Moving Consumer Goods (FMCG).

(d) Whether the AO was justified in taxing the addition under Section 115BBE at the enhanced rate of 60%, and whether the amended provisions of Section 115BBE are applicable retrospectively.

(e) Whether the delay of 408 days in filing the appeal before the Tribunal should be condoned in the interest of justice.

2. ISSUE-WISE DETAILED ANALYSIS

Delay in Filing Appeal

Relevant Legal Framework and Precedents: The principle that substantial justice should prevail over technicalities is well-established in tax jurisprudence. Delay in filing appeals can be condoned if the delay is not intentional or deliberate and sufficient cause is shown.

Court's Interpretation and Reasoning: The Tribunal examined the facts that the impugned order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] was not served on the e-mail address provided by the assessee in Form 35 but on a different e-mail ID belonging to the accountant of a related company. The assessee remained unaware of the dismissal of the appeal until receipt of a recovery notice more than a year later. The Tribunal found merit in the assessee's contention that the non-service of the order on the correct e-mail ID resulted in unawareness of the order.

Key Evidence and Findings: The assessee filed an affidavit and produced screenshots from the ITBA portal showing that notices were sent to an incorrect e-mail ID. The recovery notice dated 03.02.2025 was received physically on 06.02.2025, which triggered the assessee's inquiry and discovery of the dismissal.

Application of Law to Facts: Applying the principle that technical lapses should not defeat substantial justice, the Tribunal held that the delay of 408 days in filing the appeal was neither intentional nor deliberate and was caused by non-service of the order on the correct e-mail ID.

Treatment of Competing Arguments: The Revenue argued that since the assessee had responded to notices sent on the alternate e-mail ID, there was no occasion to object to the service of the final order. However, the Tribunal rejected this argument given the absence of physical or proper electronic service of the final order and the resultant prejudice to the assessee.

Conclusions: The delay in filing the appeal was condoned in the interest of justice.

Validity of Addition under Section 68 on Account of Cash Deposits During Demonetisation

Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act empowers the AO to treat unexplained cash credits as income if the assessee fails to satisfactorily explain the nature and source of the cash deposits. The burden lies on the assessee to explain the source of such cash credits. The demonetisation period raised specific issues regarding acceptance of specified bank notes (SBNs) and the legitimacy of cash transactions.

Court's Interpretation and Reasoning: The AO made addition of Rs. 15,12,000/- out of total deposits of Rs. 27,51,000/- on the ground that the assessee failed to satisfactorily explain the source of cash deposited in old currency notes. The AO accepted cash in hand of Rs. 12,33,605/- and allowed Rs. 2,00,000/- as legitimate but rejected the rest. The AO reasoned that the assessee had no valid reason to keep cash in hand while paying bank interest and that no businessman was authorized to collect cash in old notes from customers post demonetisation.

The Tribunal carefully examined the monthly cash deposits and turnover details furnished by the assessee. It was found that the assessee had a turnover exceeding Rs. 32 crore with approximately 50% cash sales. The pattern of cash deposits before, during, and after demonetisation was consistent and not abnormal. The assessee had shown cash collections from debtors against goods supplied prior to 8th November 2016, and the AO did not dispute the cash sales figures or the books of account.

Key Evidence and Findings: The assessee submitted detailed month-wise cash deposit statements showing substantial cash deposits in October 2016 (Rs. 1.46 crore), November 2016 (Rs. 85 lakhs), December 2016 (Rs. 1.42 crore), and January 2017 (Rs. 1.40 crore). Cash received from debtors was also consistently documented. The AO did not challenge the authenticity of these cash sales or the books of account.

Application of Law to Facts: Given the acceptance of cash sales and the consistent pattern of cash deposits, the Tribunal held that the addition under Section 68 was not justified in full. The mere fact that the cash was deposited in old currency notes during demonetisation did not render the cash unexplained or unaccounted, especially when the cash was linked to genuine business transactions.

Treatment of Competing Arguments: The Revenue contended that acceptance of old currency notes was against government policy and that the assessee failed to substantiate the source of cash deposits. The Tribunal rejected this, noting that the assessee did not claim receipt of demonetised notes after the cut-off date but rather cash collected from debtors against prior sales. The AO's reasoning that no businessman was authorized to collect cash in old notes was not supported by any statutory prohibition affecting the assessee's case.

Conclusions: The Tribunal restricted the addition to 10% of the amount added by the AO (i.e., Rs. 1,51,200/-) to safeguard against any revenue leakage but deleted the balance addition of Rs. 13,60,800/-.

Taxation of Addition under Section 115BBE at Enhanced Rate

Relevant Legal Framework and Precedents: Section 115BBE prescribes a higher tax rate of 60% on income from unexplained cash credits, unexplained investments, etc. The applicability of the amended provisions of Section 115BBE and whether they apply retrospectively was under consideration.

Court's Interpretation and Reasoning: The Tribunal referred to decisions of various Benches of the Income Tax Appellate Tribunal, including the Division Bench of Surat and Benches at Indore and Jabalpur, which held that the amended provisions of Section 115BBE are not retrospective.

Key Evidence and Findings: The impugned assessment year was 2017-18, and the amendment to Section 115BBE was not applicable retrospectively to this year.

Application of Law to Facts: The Tribunal directed the AO to tax the addition at the normal rate of tax and applicable surcharges rather than the enhanced 60% rate under Section 115BBE.

Treatment of Competing Arguments: The Revenue sought to apply the enhanced rate, but the Tribunal relied on binding precedents to deny retrospective application.

Conclusions: The assessee was granted relief against the enhanced tax rate under Section 115BBE.

Other Ancillary Grounds

The Tribunal considered other grounds raised by the assessee, including the nature of the business (FMCG distribution), the absence of abnormal jump in cash sales or deposits, and the correctness of the books of account. These were found to support the assessee's case that the cash deposits were legitimate business receipts and not unexplained credits.

3. SIGNIFICANT HOLDINGS

"Considering the principle of law that when technical considerations are kept against the cause of substantial justice, cause of substantial justice may be preferred."

"The pattern of cash deposit in bank during demonetisation was not abnormal. All details were provided to the lower authorities. The lower authorities have not disputed the cash sales."

"The assessee is having turnover of Rs. 32.00 crore. The assessee has shown gross total income of Rs. 21,21,066/- and after claiming deduction under Chapter VIA, the assessee has declared total income of Rs. 19,62,150/-."

"The assessee did not receive currency note of Rs. 500 or Rs. 1000 after declaring demonetisation period. Thus, we do not find any justification for treating the cash deposits against the regular sale as unaccounted money."

"The disallowance of 10% of addition made by AO would be sufficient to avoid the possibility of revenue leakage. Therefore, addition is restricted to the extent of Rs. 151200/-."

"Applicability of amended provision of section 115BBE is not retrospective. Thus, the Assessing Officer is directed to tax the remaining addition at normal rate of tax and applicable surcharges if any."

Final determinations:

(a) Delay in filing appeal of 408 days is condoned in the interest of justice.

(b) Addition of Rs. 15,12,000/- under Section 68 is largely deleted except Rs. 1,51,200/- retained to safeguard revenue.

(c) The addition shall not be taxed at the enhanced rate of 60% under Section 115BBE but at normal rates.