The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that since there was no legal prohibition in dealing with the demonetized notes till 31st December 2022, the cash deposit of such notes, being the sale consideration received from the property cannot be subject to addition under the Income Tax Act, 1961.
The assessee, Mrs. Umamaheswari was called upon by the AO to explain source for cash deposits during demonetization period. The assesseehas filed a cash book, as per which, cash balance available as on 08.11.2016 is only Rs.9,58,066/- and for the balance amount, the assessee explained source for cash deposits out of sale proceeds received from one Smt.Vedhavathy amounting to Rs.13 lakhs on 09.11.2016 for sale of property.
The AO rejected explanation of the assessee regarding source for cash on theground that the assessee cannot accept the demonetized currency and thus, opined that the assessee has not proved source for cash deposits to the tune of Rs.7,67,500/- and thus, made addition under section 69 of the Income Tax Act.
Regarding the first objection of the AO on legal tender of Specified Bank Notes on or after 08.11.2016, Shri G. Manjunatha, Accountant Member observed thatas per the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016, which came into effect from 31.12.2016 appointed date for this purpose means 31.12.2016.
Rejecting the contentions of the Assessing Officer, the Tribunal held that “Further, as per Sec.5 of said Ordinance, from the appointed date, no person shall, knowingly or voluntarily, hold or transfer or receive any Specified Bank Notes. From the above what is clear is that up to the appointed date i.e.31.12.2016, there is no prohibition for dealing with Specified Bank Notes. Therefore, in my considered view, the objection of the AO on this regard in light of said Act is devoid of merits. Further, a similar issue had been considered by the Tribunal, Visakhapatnam Bench, in the case of Sri Tatiparti Satyanarayana in ITA No.76/Viz/2021, where the Tribunal after considering relevant provision of Specified Bank Notes (Cessation of Liabilities) Act, 2017, held that there is no prohibition under the Act to deal with Specified Bank Notes up to 31.12.2016.”
Noting that the assessee explained before the AO that she had received a sum of Rs.13 lakhs from Smt. Vedhavathy for sale of property on 09.11.2016, the Tribunal observed that “In fact, the AO accepted, the assessee has received consideration for sale of property from Smt. Vedhavathy and the purchaser has also filed a confirmation letter stating that she had paid consideration in cash. Therefore, once the AO is accepted the fact that the assessee has received consideration in cash, then the source for cash deposits during demonetization period should have been accepted out of sale consideration received for property.”
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