Shree Bhagwati Farms Vs DCIT (ITAT Jaipur)
Income Tax Appellate Tribunal (ITAT), Jaipur Bench, has provided relief to Shree Bhagwati Farms, by deleting an addition of Rs. 12,25,000/- made by the Assessing Officer (AO) and partially sustained by the Commissioner of Income-Tax (Appeals) [CIT(A)] for the assessment year 2017-18. The dispute centered on cash deposits made during the demonetization period, which the revenue authorities had treated as unexplained money under Section 69A read with Section 115BBE of the Income Tax Act, 1961.
The core of the appeal challenged the lower authorities’ finding that partners could not introduce Specified Bank Notes (SBNs) into the firm’s capital account during demonetization because SBNs were no longer legal tender. The assessee contended that the capital was introduced on November 8, 2016, prior to the announcement of demonetization that evening, thus making the premise for disallowance erroneous.
Background of the Case: Bhagwati Farms, a partnership firm, had declared ‘Nil’ income and agricultural income of Rs. 16,25,700/- in its return. On November 8, 2016, five partners introduced capital totaling Rs. 12,25,000/-. This introduction significantly increased the firm’s cash in hand, from which Rs. 13,25,000/- was subsequently deposited into a bank account on November 18, 2016.
The AO, however, treated the entire Rs. 13,25,000/- deposited during the demonetization period as unexplained money, asserting that SBNs were not legal tender, and therefore, partners could not have introduced them as capital. This addition was then taxed under the stringent provisions of Section 115BBE.
