Partial Relief Granted on Cash Deposits During Demonetisation: ITAT Restricts Addition to ₹6,000 under Income Tax [Read Order]

The bench of the Income Tax Appellate Tribunal (ITAT), Amritsar granted partial relief to the assessee by restricting the addition of cash deposits during the demonetisation period to ₹6,000, observing that only those deposits made after December 15, 2016, were beyond the scope of permissible transactions as defined under the Government’s Gazette Notifications and therefore not covered under the exemption.

The appeal was filed by Abdul Farooq, proprietor of Chowdhary Communications, who was engaged in the business of SIM card distribution and mobile recharge vouchers. The case arose from an assessment framed by the Income Tax Officer, Ward, Katra, under Section 144 of the Income Tax Act, 1961, for the Assessment Year (A.Y.) 2017-18.

During the demonetisation period between November 8, 2016, and December 31, 2016, the assessee deposited ₹15.59 lakh in two bank accounts maintained with Jammu & Kashmir Bank. Out of this, ₹4.94 lakh were in specified bank notes (SBNs) in the assessment order.

The Assessing Officer (AO), after verifying the books of account, allowed the benefit of available cash balance as on November 8, 2016, but made an addition of ₹3.88 lakh as unexplained money under Section 69A of the Income Tax Act, 1961.

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On appeal, the Commissioner of Income Tax (Appeals), upheld the AO’s findings, sustaining the addition of ₹3.88 lakh.

Aggrieved by this, the assessee filed a second appeal before the ITAT challenging the addition.

The appellant relied on Gazette Notification No. 2653 dated November 8, 2016, and Notification No. 2774 SO 3544(E) dated November 24, 2016, issued under Section 26(2) of the Reserve Bank of India Act, 1934. These notifications had allowed the limited use of specified bank notes until December 15, 2016, for specific purposes, such as mobile prepaid top-ups up to ₹500 per transaction.

The assessee also furnished a certificate from the Branch Manager of Jammu & Kashmir Bank confirming that a total cash deposit of ₹4,10,000 was made during November 2016, which, according to him, fell within the permissible period under the law.

The revenue represented by Charan Dass, contended that the assessee had failed to justify the source of the specified bank note deposits, particularly those made after the permissible period.

The Bench comprising of Manoj Kumar Aggarwal, Accountant Member and Udayan Dasgupta, Judicial Member noted that Gazette Notification No. 2774 SO 3544(E) dated November 24, 2016, had permitted the use of specified bank notes as legal tender only up to December 15, 2016, and only for certain specified transactions, including mobile top-ups.

Relying upon the documentary evidence, the tribunal observed that the deposits verified were only up to November 13, 2016, whereas the assessee had also deposited ₹6,000 between December 17 and December 21, 2016. Thus, the deposits falling outside the validity period of the specified bank notes, were categorized as unexplained.

Accordingly, the ITAT restricted the addition to ₹6,000 instead of ₹3.88 lakh and granted consequential relief to the assessee.

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