2025 (5) TMI 604 - AT - Income Tax

Unexplained money u/s. 69A - cash deposit during demonetization period in SBN in denomination of Rs. 500/- and Rs. 1000/- - HELD THAT - Revenue authorities have accepted the business of the assessee and there is no dispute with regard to the purchase/sales reported by the assessee. Department has not brought on record any evidence suggesting any alternative source of income of the assessee other than the disclosed sources of income. The only contention of the department regarding addition is that such cash deposits were made in SBNs currency during demonetization period. The department has failed to bring out that such cash deposits are unexplained since the fact remains that the department has not disputed the business source income of the assessee. Therefore in effect addition cannot be made in this case u/s. 69A - Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the appeal are:

(a) Whether the cash deposits of Rs. 2,29,500/- made during the demonetization period in Specified Bank Notes (SBNs) of Rs. 500 and Rs. 1000 denominations can be treated as unexplained money under section 69A of the Income Tax Act, 1961, despite the assessee explaining the source of such deposits.

(b) Whether the source of cash deposits, being receipts from the sale of mobile recharge coupons properly recorded in books of accounts, was adequately explained and accepted by the Assessing Officer and the CIT(Appeals), or whether such deposits could be disbelieved merely because they were in SBNs during demonetization.

(c) Whether the addition made under section 69A of the Act on the basis of cash deposits in SBNs during demonetization, without any evidence of undisclosed sources or suspicious circumstances, is justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Treatment of cash deposits in SBNs during demonetization under section 69A of the Income Tax Act

The legal framework relevant to these issues is section 69A of the Income Tax Act, which deals with unexplained money. Under this provision, if any money is found credited in the books of an assessee and the assessee fails to explain the source thereof, the amount can be deemed as income of the assessee and taxed accordingly.

The department's contention was that cash deposits of Rs. 2,29,500/- made in SBNs during demonetization were unexplained and hence liable to be added as income under section 69A. The department relied on the fact that these deposits were in demonetized currency notes, implying suspicion and lack of explanation.

The assessee's counsel argued that the deposits represented genuine business receipts from the sale of mobile recharge coupons, properly recorded in the books of accounts, which were never rejected by the Assessing Officer or the CIT(Appeals). The acceptance of the business and the books of accounts by the department was not disputed.

The Court noted that the department did not dispute the nature of the assessee's business or the turnover reported. There was no evidence brought on record to suggest any alternative source of income or that the deposits were unexplained. The department's sole basis for addition was the fact that deposits were made in SBNs during demonetization.

The Court relied on a precedent from the ITAT Raipur in a similar matter involving cash deposits in SBNs during demonetization, where it was held that if the business and books of accounts are accepted and no alternative source is shown, addition under section 69A cannot be made solely due to deposits in demonetized currency. The Court observed that the department had failed to demonstrate any suspicious circumstances or undisclosed sources.

The Court reasoned that the demonetization notification and the legal framework did not prohibit acceptance of SBNs until 31.12.2016, and mere deposit of such notes, when explained by business receipts, cannot be treated as unexplained money. The department's approach was thus contrary to law and facts.

Issue (c): Justification for addition under section 69A without evidence of undisclosed sources

The Court emphasized that additions under section 69A require failure on part of the assessee to explain the source of money. Here, the source was explained and accepted. The department did not produce any evidence to contradict the explanation or to show that the deposits were from undisclosed or illegal sources.

The Court rejected the department's argument that deposits in SBNs during demonetization are inherently suspicious. It held that such a presumption cannot override the accepted business records and undisputed facts.

The Court applied the law to facts and concluded that the addition was not sustainable. The competing argument of the department was treated as insufficient to justify addition in absence of any evidence or rejection of books.

3. SIGNIFICANT HOLDINGS

The Court held:

"When all these parameters have been fulfilled by the assessee, there cannot be any addition u/s.69A of the Act treating the cash deposits in the bank account as unexplained money of the assessee."

This principle was applied to the facts, leading to the deletion of the addition of Rs. 2,29,500/- made on account of cash deposits in SBNs during demonetization.

The Court established that mere deposit of demonetized currency notes during the demonetization period, if adequately explained by business receipts and accepted by the revenue, does not warrant addition under section 69A.

Final determination: The appeal was allowed, and the addition under section 69A was deleted.