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2025 (5) TMI 1089 - AT - Income TaxUnexplained money u/s 69A - assessee has deposited cash during demonetization period - assessee has taken new PAN without there being any necessity - HELD THAT - Assessee has declared two bank accounts opened by the firm with three partners and also new bank account in the return of income filed by the assessee with the new PAN. Assessee has continued with the same business and deposited the cash in both the accounts and declared all the transactions involved two bank accounts in its return of income. The above facts were brought to the notice of the lower authorities and they were focused only on the aspect that assessee has taken new PAN without there being any necessity and they doubted the actions of the assessee and rejected the explanation given by the assessee on the basis that assessee has deposited cash during demonetization period. We may have accepted if the assessee has opened new account as well as new PAN after the declaration of demonetization or few months earlier. That is not the case here. We observed that the reconstituted firm was continued with the business w.e.f. 01.04.2016 and all the transactions were properly recorded in its books of account and assessee has also established that there is a source for cash deposits during the demonetization period. It is also brought on record during the period 08.11.2016 to 31.12.2016 the assessee has enough cash balance in its books of account to deposit old denomination of currency as well as new denomination of currency. Therefore the assessee has enough source of cash deposit during the demonetization period. The lower authorities have merely doubted and not brought on record any cogent material to establish that the assessee has any other source of cash to make the deposit during demonetization period and they rejected the plea of the assessee merely on the basis that assessee has acquired new PAN and opened a new bank account without there being any necessity. Therefore we are inclined to allow the grounds raised by the assessee. Applicability of section 115BBE - The issue under consideration is whether the amended provisions are applicable prospectively or not. I observed that in the case of SMILE Microfinance Ltd. 2024 (11) TMI 1444 - MADRAS HIGH COURT has held that the amended provisions are applicable w.e.f. 15.12.2016. Therefore the same is applicable prospectively. Accordingly we are inclined to allow the above additional ground filed by the assessee. Appeal filed by the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are: (a) Whether the assessment order passed by the Assessing Officer is valid and within the limitation period prescribed under section 153 of the Income-tax Act, 1961, given that the order was purportedly passed on 31.12.2019 but dispatched and served in January 2020, and whether the absence of a Date and Identification Number (DIN) on the order affects its validity. (b) Whether the assessment order is legally sustainable when it was passed against a non-existent entity, i.e., the old partnership firm which was reconstituted with a new PAN, and whether the assessment should have been made on the successor firm in accordance with section 187 of the Act. (c) Whether the addition of Rs. 21,88,200/- made under section 69A of the Act on account of cash deposits during the demonetization period is justified, considering the assessee's explanation and accounting records. (d) Whether the application of the amended provisions of section 115BBE of the Act, introduced w.e.f. 15.12.2016, is applicable retrospectively or prospectively to the cash deposits under consideration. 2. ISSUE-WISE DETAILED ANALYSIS (a) Validity of Assessment Order and Limitation under Section 153 Relevant Legal Framework and Precedents: Section 153(1) of the Income-tax Act mandates that assessment orders for the relevant assessment year must be passed within 21 months from the end of the financial year. The requirement of a Date and Identification Number (DIN) on orders is prescribed under the Centralized Processing Centre's circulars to ensure authenticity and timely issuance of orders. Judicial precedents such as Dhanterash Sales Pvt. Ltd. vs. ITO, Pankaj Sharma vs. DCIT, Himanshu Infratech vs. ITO, and Daujee Abhushan Bhandar (P) Ltd. vs. Union of India, have emphasized adherence to limitation periods and procedural requirements. Court's Interpretation and Reasoning: The Tribunal noted that although the assessment order was purportedly passed on 31.12.2019, it was dispatched only on 17.01.2020 and served on 18.01.2020. Additionally, the DIN was generated on 15.01.2020, post-dating the alleged date of passing the order. The Tribunal reasoned that if the order had truly been passed on 31.12.2019, the DIN would have been generated on the same date. This discrepancy undermines the validity of the order as being within the prescribed limitation period. Key Evidence and Findings: The Tribunal examined the postal dispatch envelope and speed post tracking status, along with the letter intimating DIN generation. These documents corroborated the delay in dispatch and DIN generation beyond the limitation period. Application of Law to Facts: The Tribunal applied the principle that the date of passing the order is the date on which the order is communicated to the assessee, not merely the date mentioned on the order. Since the order was dispatched and served beyond the limitation period, it was held to be barred by limitation. Treatment of Competing Arguments: The Revenue contended that the order was passed within time as per the date on the order, but the Tribunal found this argument untenable given the postal and DIN evidence. Conclusion: The assessment order was held to be invalid as it was barred by limitation under section 153 of the Act. (b) Validity of Assessment Order Against Non-Existent Entity and Applicability of Section 187 Relevant Legal Framework and Precedents: Section 187 of the Income-tax Act provides that in the event of change in constitution of a firm, assessment proceedings shall be continued or initiated against the successor firm. Supreme Court decisions in DCIT vs. Sterlite Technologies Ltd. and PCIT vs. Maruti Suzuki India Ltd. emphasize that assessments must be made against the correct legal entity. Court's Interpretation and Reasoning: The Tribunal observed that the original firm with PAN AASFR3224K was reconstituted on 01.04.2016 with the induction of a new partner, and a new PAN AATFR8392R was obtained. The old PAN was cancelled only in March 2018. The assessment order, however, was passed on the old PAN, which ceased to exist from 01.04.2016. Key Evidence and Findings: Partnership deeds dated 01.04.2015 and 01.04.2016, PAN cards, and letters notifying the change to the Assessing Officer and the bank were examined. These demonstrated the existence of a successor firm and discontinuation of the old firm. Application of Law to Facts: The Tribunal applied section 187 to conclude that the assessment should have been made on the successor firm with the new PAN. Passing the order against the old PAN constituted assessment against a non-existent entity. Treatment of Competing Arguments: The Revenue relied on the continuation of business and cash deposits in accounts linked to the old PAN, but the Tribunal emphasized legal identity over business continuity. Conclusion: The assessment order passed against the old PAN was illegal and liable to be quashed on this ground alone. (c) Justification of Addition Under Section 69A on Cash Deposits During Demonetization Period Relevant Legal Framework and Precedents: Section 69A of the Act deals with unexplained cash credits. The burden lies on the assessee to explain the nature and source of cash deposits. The demonetization period (November-December 2016) was a sensitive period for cash transactions, and courts have scrutinized cash deposits during this time. Court's Interpretation and Reasoning: The Tribunal noted that the assessee maintained two bank accounts-one under the old PAN and one under the new PAN-and that cash deposits during the demonetization period were duly recorded in the books of the successor firm. The assessee had disclosed the bank accounts in the return of income, and the accounts were audited under section 44AB. Key Evidence and Findings: Cash books, audited balance sheets, bank statements, and deposit slips were examined. The assessee demonstrated that cash deposits, including old and new currency notes, were consistent with the cash balance available in books during the demonetization period. The assessee also showed that the bank was notified about the change in PAN, but the PAN was updated only in one account, leading to confusion. Application of Law to Facts: The Tribunal found that the addition was primarily based on the fact that the assessee had taken a new PAN and opened a new bank account without necessity, and discrepancies in the ITR due to clerical errors. However, the Tribunal held that the assessee had adequately explained the source of cash deposits and that the lower authorities had not produced any cogent material to disprove the explanation. Treatment of Competing Arguments: The Revenue relied on the fact that cash deposits during demonetization were not disclosed correctly and that old currency notes were deposited during the demonetization period. The Tribunal rejected these arguments, noting that the assessee had sufficient cash balance and had disclosed transactions properly. Conclusion: The addition of Rs. 21,88,200/- under section 69A was held to be unjustified and was deleted. (d) Applicability of Section 115BBE and Rate of Tax on Added Income Relevant Legal Framework and Precedents: Section 115BBE imposes a special tax rate of 60% on income from undisclosed sources, introduced w.e.f. 15.12.2016. The question is whether this provision applies retrospectively to transactions before this date. The Madras High Court decision in SMILE Microfinance Ltd. held that the amendment applies prospectively from the date of enactment. Court's Interpretation and Reasoning: The Tribunal accepted the Madras High Court ruling and held that the provisions of section 115BBE are applicable only prospectively from 15.12.2016 and not retrospectively to transactions prior to that date. Key Evidence and Findings: The Tribunal relied on the judicial pronouncement and the date of introduction of the amendment. Application of Law to Facts: Since part of the cash deposits predated 15.12.2016, the special tax rate under section 115BBE could not be applied to those amounts. Treatment of Competing Arguments: The Revenue argued for the applicability of section 115BBE on the entire amount, but the Tribunal rejected this based on the authoritative judicial pronouncement. Conclusion: The special tax rate under section 115BBE applies prospectively and not to transactions prior to 15.12.2016. 3. SIGNIFICANT HOLDINGS The Tribunal made the following crucial legal determinations: On limitation, the Tribunal held: "Had the order been passed on 31.12.2019, the DIN of the same would have been generated on the same date itself." This discrepancy renders the order barred by limitation under section 153. On assessment against the correct entity, the Tribunal stated: "In terms of the provisions of sec. 187 of the Act, in the case of change in constitution of partnership firm, any assessment made after the date of change, has to be made on the newly constituted firm." Consequently, the order against the old PAN was illegal. On addition under section 69A, the Tribunal concluded: "The assessee has enough source of cash deposit during the demonetization period... The lower authorities have merely doubted and not brought on record any cogent material to establish that the assessee has any other source of cash." Hence, the addition was deleted. On the applicability of section 115BBE, the Tribunal held: "The amended provisions are applicable w.e.f. 15.12.2016. Therefore, the same is applicable prospectively." These holdings collectively resulted in the allowance of the appeal filed by the assessee.
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