Islampur C.S. Shop 2 Vs ITO (ITAT Kolkata)
The case of Islampur C.S. Shop 2 vs ITO was heard by the ITAT Kolkata, focusing on the assessment year 2017-18. The dispute arose when the assessee, a liquor business, deposited ₹19,70,600 in old currency notes during the demonetization period (November 9, 2016 – December 31, 2016). The Assessing Officer (AO) initiated proceedings under Section 147, citing insufficient evidence supporting the legitimacy of these deposits. The assessee contended that the cash was generated from legitimate liquor sales, backed by a sales ledger and bank statements. However, the AO and Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition under Section 69A, treating the deposits as unexplained income. The assessee appealed to the tribunal, arguing that RBI guidelines permitted the acceptance of specified banknotes until December 31, 2016.
The ITAT Kolkata ruled in favor of the assessee, emphasizing that up to the “appointed date” (December 31, 2016), there was no legal prohibition on receiving or holding specified banknotes. The tribunal observed that the revenue authorities did not dispute the nature of the business or the source of cash deposits but solely focused on the validity of old currency acceptance. Citing a similar ruling by the ITAT Visakhapatnam Bench, the tribunal concluded that the addition under Section 69A was not justified. It directed the AO to delete the addition, allowing the assessee’s appeal. The ruling underscores that businesses with a valid source of income during demonetization cannot be penalized merely for depositing old currency notes.
