Demonetization Cash Deposits with Explained Source Not Taxable under Income Tax Act: ITAT [Read Order]

The Mumbai bench of the  Income Tax Appellate Tribunal (ITAT) has held that when source of the cash deposited to a bank account during the demonetization period is explained,  then it  cannot be treated as unexplained money under the Income Tax Act, 1961.

Shravan Singh Parmar, the assessee has filed the present appeal against the impugned order passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the Commissioner of Income Tax (Appeals), National

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Faceless Appeal Centre, Delhi [“CIT(A)”], for the assessment year 2017-18.

The assessee is an individual and is, inter alia, engaged in providing loans to its customers against the gold ornaments and taking loans from the Federal Bank against the same. In this manner, the assessee also earns interest income from its customers. During the year under consideration, pursuant to a notice issued under section 142(1) of the Act based on the information that the assessee has deposited cash of  Rs.12,24,500/- in his bank account maintained with Federal Bank, Sakinaka Mumbai Branch, during the demonetization period, i.e., from 09.11.2016 to 31.12.2016, the assessee filed his return of income on 13.11.2019, declaring a total income of Rs.95,470/- earned from salary and interest.

During the assessment proceedings, the assessee, inter alia, was asked to furnish the details of cash deposited in all bank accounts and sources thereof with documentary evidence. In response, the assessee submitted that he gives loans to customers against gold ornaments and takes loan from the Federal Bank against these gold ornaments. The assessee submitted that he has taken a gold loan from the bank against gold ornaments and paid interest @ 9% to 11% per annum. Further, on the loan provided to the customers against gold ornaments, the assessee submitted that he received interest @18% per annum.

 Accordingly, the assessee submitted that he earned the differential interest income. The assessee submitted that the cash deposit of Rs.12,24,500/- during the demonetization period is the cash received from his customers as a repayment of the loan provided earlier against the gold ornaments.

The Assessing Officer (“AO”), vide order dated 27.12.2019 passed under section 144 of the Act, disagreed with the submissions of the assessee and held that in view of RBI Circulars, the assessee was not authorized to accept the money in the form of Specified Bank Notes after 08.11.2016, and therefore, the entire cash deposits of Rs.12,24,500/- made during the demonetization period is the income of the assessee which was never disclosed and offered to tax by the assessee. Accordingly, the AO considered the entire cash deposits of Rs.12,24,500/- made during the demonetization period as unexplained money under section 69A of the Act and added the same to the total income of the assessee. The CIT(A) upheld the addition made by the AO under section 69A of the Act.

It was submitted that the cash deposited by the assessee in his bank account in Specified Bank Notes was received from his customers to whom the assessee had earlier granted loans in lieu of gold ornaments. By referring to the cash book and statement of account maintained with the Federal Bank, the learned AR submitted that the assessee apart from being an employee of Laxmi Jewellers was also engaged in the business of providing loan to the customers against the gold ornaments, against which the assessee had taken loan from the Federal Bank.

On the other hand, the Departmental Representative (“ DR”), vehemently relying upon the orders passed by the lower authorities, submitted that as per the RBI Circulars the assessee was not authorized to accept Specified Bank Notes after 08.11.2016, and therefore, all the cash deposited made by the assessee during the demonetization period is nothing but the undisclosed income of the assessee, which was not offered for taxation. 

From the perusal of the bank statement, it is evident that the same pertains to “Fast Track Gold Loan/Gold Loan” availed by the assessee from the Federal Bank and the loan disbursements were made to the assessee from time to time. As per the assessee, the amount received from the Federal Bank against the gold ornaments was given as a loan by him to his customers against the gold ornaments.

The bench found that though the assessee furnished all these documents before the lower authorities, however, none of these documents were rejected, nor despite the availability of the information regarding the customers, any verification was made by the AO from them.

The Central Board of Direct Taxes had issued a circular for the guidance of the Revenue Officer to verify cash deposits during demonetization period in various categories of explanation offered by the assessee and as per the circular of the CBDT, examination of business cases, very important points needs to be considered is analysis of bank accounts, analysis of cash 4cs, receipts and analysis of stock registers.

The two member bench of Sandeep Singh Karhail, Judicial Member Shri Bijayanandapruseth, Accountant Member viewed that the assessee has duly explained the source of cash deposited by him in his bank account during the demonetization period, and same cannot be treated as unexplained money under section 69A of the Act. Accordingly, the impugned addition of Rs.12,24,500/- made by the AO, being the cash deposits in the bank account during the demonetization period under section 69A of the Act, is deleted.

To Read the full text of the Order CLICK HERE

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