Addition of Rs.41 Lakh in Demonetized Notes Treated as Unexplained Income Due to Deposits After 03.12.2016: ITAT Sets Aside CIT(A) Order [Read Order]

The Pune Bench of Income Tax Appellate Tribunal (ITAT) sets aside theCommissioner of Income Tax (Appeals)[CIT(A)] order confirming addition of Rs.41 lakh as unexplained income for deposits of demonetized notes after 03.12.2016.

Dashrath Kisanrao Choudhary,appellant-assessee, ran a petrol pump business as a sole proprietor under the names Tirth Petroleum and Tirth Tractors. For AY 2017-18, he filed his income tax return on 29/11/2017, declaring income of Rs. 17,58,480. The case was selected for detailed scrutiny, and notices under sections 143(2) and 142(1) were issued. The appellant responded electronically.

During assessment, the Assessing Officer (AO) found that the appellant deposited Rs. 37,96,500 in SBI and Rs. 12,03,000 in IDBI in demonetized currency (Specified Bank Notes) after 5th December 2016. This violated the government rule that petrol pumps could not accept such notes after 3rd December 2016. The AO asked why Rs. 40,99,500 should not be treated as unexplained cash credit under section 68 of the Act.

The assessee explained that customers from nearby villages insisted on paying with demonetized notes because of rumors that the deadline was extended till 15th December 2016. Trusting these rumors, the assessee accepted the notes till 13th December 2016 without any benefit other than the commission on sales.

The AO did not accept this explanation and added Rs. 40,99,500 to the appellant’s income as unexplained cash credit, taxing it under section 115BBE(1)(b), since the appellant violated the government notification.

The assessee appealed, but the CIT(A) agreed with the AO’s decision. The assessee ran a petrol pump and filed a return showing income of Rs. 17,58,480 for AY 2017-18. During the check, it was found that the assessee deposited Rs. 40,99,500 in demonetized notes after 3rd December 2016, which was against the government’s rule.

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

The AO said this amount was unexplained cash because the cash balance on 3rd December was too low to explain the deposits. The assessee said the money came from sales and was accepted because of rumors about extending the deadline, and the money was paid to Hindustan Petroleum without any personal gain.

The AO did not accept this and said there was no proof. The CIT(A) agreed that the deposits were unexplained as they broke the rule and did not match the cash balance. So, the CIT(A) confirmed adding Rs. 40,99,500 as unexplained income and rejected the appeal.

The assessee then appealed before the tribunal.

The two member bench comprising Astha Chandra(Judicial Member) and Manish Borad (Accountant Member) heard both parties and looked at the records. It found that the AO added Rs. 40,99,500 as unexplained cash deposits in two SBI bank accounts in demonetized notes after 03/12/2016, saying it broke the government’s rule. The CIT(A) had agreed with this.

The assessee’s counsel told the tribunal that the AO wrongly mentioned deposits in an IDBI bank account, but deposits were only in SBI accounts. The counsel said the assessee did not deposit demonetized notes after 03/12/2016 and gave SBI certificates and deposit slips as proof. These were given to the CIT(A) but not considered.

The appellate tribunal noted that these proofs were not given to the AO because they were dated after the AO’s order, so the AO could not check them.

Considering this, the tribunal set aside the CIT(A)’s order and sent the case back to the AO to review again with the new and existing evidence. The AO was asked to hear the assessee fairly and the assessee was told to provide all needed documents on time, or the AO could pass the order based on available information.

In short,the appeal was allowed for statistical purposes.

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