Demonetized Notes Received from Disclosed Debtors Cannot Be Treated as Unexplained Cash: ITAT [Read Order]
The Tribunal ruled that demonetized notes received from disclosed debtors and deposited in banks cannot be treated as unexplained cash under Section 69A and so deleted the addition as the source was explained from regular books of accounts
Demonetized Notes Received from Disclosed Debtors
Demonetized Notes Received from Disclosed Debtors
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) held that cash deposits in Specified Bank Notes (SBNs) received from disclosed debtors during the demonetization period cannot be treated as unexplained receipts when supported by books of accounts and debtor details.
Goldman Tapes Private Limited (assessee), a company, filed its return of income in response to a notice under Section 142(1) which was based on AIMS data regarding cash deposits of SBNs in its bank accounts with Bassein Catholic Co-op. Bank Ltd. and ICICI Bank Ltd. during the demonetization period.
During assessment proceedings, the assessee explained that the deposits of Rs. 51.70 lakhs were realizations from existing debtors, providing names, addresses, and supporting evidence from audited books of accounts.
The Assessing Officer (AO) acknowledged the details but added the amount under Section 69A, reasoning that SBNs were not legal tender after November 8, 2016, except for specified transactions.
Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (appeals)[CIT(A)]. The CIT(A) upheld the addition. Aggrieved by the CIT(A)’s order, the assessee appealed to the ITAT.
The assessee’s counsel argued that the source was fully explained with documentary evidence, and the sole basis for addition was the legal tender status by ignoring that banks accepted the deposits.
The counsel placed reliance on the Chennai ITAT’s decision in TamilNadu State Marketing Corporation Ltd. vs. ACIT, which held that SBN receipts prior to December 31, 2016, were not illegal if explained from business operations.
The two-member bench comprising Saktijit Dey (Vice President) and Narendra Kumar Billaiya (Accountant Member) observed that the assessee had furnished complete debtor details and evidence reflected in regular books.
The bench observed that if SBNs were not legal tender, banks should not have accepted them, rendering the AO’s reasoning meritless.
The bench relied on the precedent in TamilNadu State Marketing Corporation Ltd., a Division Bench decision which held that violations of demonetization notifications do not justify additions under Section 69A if the source is explained and not disputed.
The Tribunal directed the AO to delete the impugned addition. The appeal of the assessee was allowed.
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