Acceptance of Demonetized Currency from 08.11.2016 Contrary to RBI Notification:ITAT Directs AO to Accept  50% Cash Deposits as Sale Proceeds received in Cash and Balance as Unexplained Money

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has directed the Assessing Officer (AO) to accept 50% of cash deposits as sale proceeds received in cash and balance as unexplained money as the assessee had accepted the demonitized currency from 8.11.2016 contrary to Reserve Bank of India (RBI) notification.

The assessee,J. Kalappa Naidu Sons was a wholesale distributor of ITC products, mainly cigarettes at Arni, Thiruvannamalai District. The assessee had filed its return of income for the assessment year 2017-18 on 09.01.2018. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee had made cash deposits in specified bank notes during the demonetization period, to its bank account maintained with IDBI Bank, Arni.

The Assessing Officer, verified with bank statements and found that the source for cash deposits was out of sales during the demonetization period and further, there was no abnormal increase in sales during the demonetization period when compared to earlier financial years. The Assessing Officer, further noted that opening cash balance as on 08.11.2016.

Therefore, taking into account the opening cash balance as per books of accounts, made additions to balance cash deposits as unexplained money of the assessee under Section 69A of the Income-tax Act, 1961 on the ground that the assessee should not have accepted demonetized currency from 08.11.2016 onwards, in view of notification issued by Government of India and RBI.

Saroj Kumar Parida,on behalf of theassessee submitted that the Assessing Officer never disputed the fact that source for cash deposits was out of opening cash in hand and sales made during the demonetization period, that too within one week from the date of demonetization. The assessee had explained reasons for accepting old currency notes from customers.

D. Hema Bhupal, on behalf of the revenue submitted that the assessee had accepted old currency after the specified date, contrary to notification issued by Government of India and RBI. Therefore, the Assessing Officer had rightly treated cash deposits in excess of opening balance as unexplained money of the assessee and their order should be upheld.

A Single Bench of Manjunatha. G, (Accountant Member)observed thatthe only reason given by the Assessing Officer to reject explanation offered by the assessee was notification issued by Government of India and RBI, not to deal with specified bank notes during demonetization period and neither the assessee proved its case with necessary evidence nor the Assessing Officer had proved with conclusive evidence that cash deposits during demonetization period is unexplained money of the assessee.

The Bench partly allowed the appeal filed by the assessee directing the Assessing Officer to accept 50% of cash deposits as out of sale proceeds received in cash and balance 50% as unexplained money of the assessee taxable under Section 69A of the Income Tax Act.

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