ITAT directs to Estimate 25% Profit Towards Income from Sale of Milk Products Deposited in Bank During Demonetisation Period [Read Order]

The Income Tax Appellate Tribunal (ITAT) Chennai Bench directed to estimate 25% profit towards income from sale of milk products deposited in banks during the demonetisation period.

Kannan Rajendra Babu is a proprietor of M/s.SNP Dairy Milk. After filing return of income the assessee case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had made cash deposits of Rs.75,54,450/- in Specified Bank Notes (in short “SBNs") during the demonetization period.

Thus called upon the assessee to explain nature and source of cash deposits into bank account. Assessee submitted that he is in the business of sale of milk & milk products. As it is a perishable commodity and during the course of the demonetization period, he has accepted SBNs from the customers and deposited them into bank accounts.

AO rejected the arguments of the assessee and made addition towards cash deposits under section 68 of the Income Tax Act.

Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax Appeal (CIT(A)). Who allowed the appeal. Thereafter the revenue filed the second appeal before the tribunal.

Before the bench, V.Sreenivasan, counsel for the revenue   submitted that the Since legal tender of said notes were withdrawn, the  assessee could not  supposed to accept SBNs if he does not come under  exempted category

S.Sridhar, Counsel for the assessee submitted that the assessee is a milk dealer who had accepted SBNs during the demonetization period to protect his business, because the products sold by him are highly perishable.

Further submits that there was no prevention for the assessee to accept/transact in SBNs during the window period between 08.11.2016 to 30.12.2016 and the same is evident from the Specified Bank Notes (Cessation of Liabilities) Act, 2017.

When the assessee has explained the source for cash deposits, the question of making addition towards cash deposits into bank accounts on the basis of Circular issued by RBI, is incorrect.

It was observed by the tribunal that there is no dispute with regard to the fact that RBI has withdrawn legal tender of SBNs from 09.11.2016 onwards leaving behind certain exemption categories. Although, the assessee does not come under the exempted category. However to protect his business, the assessee has accepted SBNs from customers and deposited into bank account.

After considering the facts and circumstances of the case and also explanation of the assessee two member bench of  Mahavir Singh, (Vice president ) and Manjunatha. G, ( Accountant Member) directed to estimate 25% profit towards cash deposits made during demonetization period and delete balance 75% addition made under Section 68 of the Income Tax Act.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates