Shivakumara Swamy Credit Coop Society Limited Vs ITO (ITAT Bangalore)
Conclusion: Cash deposits made by assessee during the demonetization period were properly explained and recorded, therefore, addition made under section 69A of ₹17,16,000 and taxed under section 115BBE was not sustainable.
Held: Assessee was a co-operative society engaged in the business of providing credit facilities to its members. It had deposited ₹17,16,000 in SBNs into his bank account between 9 November 2016 and 31 December 2016. During the scrutiny proceedings, 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. AO added the entire sum to assessee’s income. Assessee approached the CIT(A), contending that the cash deposits were part of his regular income and savings from disclosed sources. It 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. CIT(A) confirmed AO’s addition and held that assessee had failed to satisfactorily prove the source of the SBNs and agreed with AO that demonetised notes ceased to be valid after 8 November 2016. It was held 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. Tribunal also observed that 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. Tribunal recorded that assessee had explained the source of the funds and that Revenue had not brought any material to show that the deposits were from undisclosed income. So, addition under section 69A of ₹17,16,000 was unsustainable.
