SBN Deposits Not Unexplained Income: ITAT Deletes ₹ 17.16 Lakh Addition u/s 69A, Holds Demonetization Deposits Valid Until 31.12.2016 [Read Order]

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that deposits of Specified Bank Notes (SBNs) made during the demonetisation period cannot be treated as unexplained income under section 69A of the Income-tax Act, 1961, and deleted the addition of ₹17,16,000 made by the Assessing Officer (AO).

The assessee-appellant, Shivakumara Swamy Credit Coop Society Limited co-operative society and engaged in the business of providing credit facilities to its members. The appellant had deposited ₹17,16,000 in SBNs into his bank account between 9 November 2016 and 31 December 2016.

During the scrutiny proceedings, the AO took the view that after the Government of India’s notification dated 8 November 2016 that the specified notes ceased to be legal tender and therefore, the cash deposit was to be treated as unexplained money under section 69A. The AO added the entire sum to the appellant's income.

The appellant approached the Commissioner of Income Tax (Appeals) ( CIT(A) ), contending that the cash deposits were part of his regular income and savings from disclosed sources. The appellant also argued that there was no notification or law that prohibited deposits of SBNs in bank accounts up to 30 December 2016 and also argued that there was no provision in the Income Tax Act, 1961 under which permitted deposits within the period could be classified as unexplained money.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The CIT(A) confirmed the AO’s addition and held that the assessee had failed to satisfactorily prove the source of the SBNs and agreed with the AO that demonetised notes ceased to be valid after 8 November 2016.

The Tribunal Bench comprising Waseem Ahmed (Accountant Member) and Keshav Dubey (Judicial Member) noted that the government notification did not prohibit deposit of SBNs during the window period and, in fact, expressly allowed such deposits up to 30 December 2016.

The Tribunal also observed that the AO had misinterpreted the notification and that there was no legal basis to treat validly deposited SBNs as unexplained merely because they were in demonetised form.

The Tribunal recorded that the assessee had explained the source of the funds and that the revenue had not brought any material to show that the deposits were from undisclosed income. So, the addition under section 69A was unsustainable. Accordingly, the ITAT deleted the addition of ₹17,16,000.

The appellant was represented by Sandeep Chalapathy, while Ganesh R Ghale represented the revenue.

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