Unexplained Cash Credit During Demonetization Period: ITAT upholds CIT(A) Deletion [Read Order]

The Kolkata Bench of Income Tax Appellate Tribunal(ITAT) upheld the CIT(A)'s decision to delete the addition of unexplained cash credit during the demonetization period, rejecting the Revenue's appeal.

The Revenue-appellant challenged the order passed by CIT(A) dated 23.08.2023, which was issued under section 250 of the Act for the Assessment Year(AY) 2017-18. This order was passed in response to the assessment order under section 143(3) of the Act, dated 15.12.2019.

Expert-Led PF & ESIC Course - Enroll Now & Get Certified

In this case,Bongaon Co Operative Credit Society Limited,respondent-assessee filed a return of income on 27.03.2018, reporting 'Nil' income. The AO made two additions: Rs. 35,63,552/- for interest income and Rs. 1,25,19,600/- for unexplained cash credit related to deposits made during the demonetisation period.

The CIT(A) removed the addition for unexplained cash credit, relying on the judgment in the case of Sri Bhageeratha Pattina Sahakara Sangha Niyamitha, ITA No. 646/Bang/2021, dated 18.02.2022.

The Revenue appealed before the tribunal, raising several points. They claimed the CIT(A) ignored the Reserve Bank of India ( RBI ) notification that banned Specified Bank Notes ( SBN ) deposits in certain banks. They also argued that the higher SBN deposits during demonetisation were unexplained and should be treated as Unexplained Cash Credit. Finally, they stated that the assessee did not clarify if the large deposits from members were owed to the society.

The Departmental Representative ( DR ) defended the AO's order, asserting that under section 68 of the Act, the assessee should not have accepted currency notes that were no longer valid legal tender.

The two member bench comprising Sonjoy Sarma ( Judicial Member ) and Sanjay Awasthi ( Accountant Member ) reviewed the arguments and authorities presented by both sides.

Expert-Led PF & ESIC Course - Enroll Now & Get Certified

Regarding the unexplained cash credit, the tribunal agreed with the case of Sri Bhageeratha Pattina Sahakara Sangha Niyamitha (supra), as the facts were similar. The assessee explained that the deposits were from regular business activities, such as loan repayments and pigmy deposits from members, and these were recorded in the books of account. The  assessee counsel also stated that the demonetized notes collected before 14.11.2016 were not in violation of any rules, based on the RBI notification.

Although the assessee may have accepted demonetized notes after the RBI notification, as long as they provided a valid explanation, section 68 would not apply. Since the assessee had explained the deposits and recorded the transactions properly, the tribunal upheld the  CIT(A)'s decision to delete the addition.

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