Introduction: The Income Tax Appellate Tribunal (ITAT) Chennai’s recent decision in the case of Smt. Saraniyaa Karthick vs. ITO revolves around the estimation of additions to income based on cash deposits made by the assessee during the demonetization period. This article provides a detailed analysis of the ITAT’s decision and its implications.
1. Background: The appeal by the assessee pertains to the Assessment Year (AY) 2017-18 and challenges an assessment framed by the Assessing Officer (AO) under Section 144 of the Income Tax Act. The primary issue in this appeal is the estimation of additions to the assessee’s income concerning cash deposits made during the demonetization period.
2. Condonation of Delay: The Registry noted a delay of 20 days in filing the appeal, which the assessee sought to condone with an affidavit. The delay was considered, and the appeal was admitted for adjudication on merits.
3. Assessment Proceedings: During the assessment proceedings, it was discovered that the assessee had made cash deposits in her bank account between November 10, 2016, and December 30, 2016. The AO framed the assessment on a best judgment basis under Section 144 since the assessee had not maintained books of accounts and had not filed returns in earlier years.
4. AO’s Findings: The AO analyzed the pattern of cash deposits and noted a significant increase during the demonetization period. Out of the total cash deposited (Rs. 224.34 lakhs), Rs. 41.62 lakhs were deposited in Specified Bank Notes (SBN). The assessee explained that clients had approached with demonetized currency to book tour packages, and this cash was deposited. However, the AO held that SBN ceased to be legal tender after November 8, 2016, and could not be used in transactions. Consequently, SBN deposits were considered unaccounted money.
5. Estimation of Profits: For the other deposits (Rs. 182.71 lakhs), the AO estimated profits at 5%, resulting in an addition of Rs. 9.13 lakhs. The deposits in SBN were treated as unexplained money. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision as no new material was presented during the appellate proceedings.
6. Assessee’s Contention: The assessee, engaged in ticketing business, argued that the cash deposits represented business receipts from clients who had used demonetized currency to book tour packages. These receipts, according to the assessee, were legitimate business earnings and should not be considered unaccounted money.
7. ITAT’s Decision: The ITAT Chennai recognized that the assessee’s sole source of income was the ticketing business. It found that the cash deposits, including SBN, were received from clients booking tour packages using demonetized currency. Therefore, these receipts constituted legitimate business earnings and could not be deemed unaccounted money. The ITAT directed the AO to recompute the income by considering 5% of the demonetized currency as the assessee’s income.
Conclusion: The ITAT Chennai’s decision in Smt. Saraniyaa Karthick vs. ITO provides clarity on the treatment of cash deposits made during the demonetization period. In this case, the ITAT recognized that cash deposits were business receipts resulting from clients booking tour packages with demonetized currency. These receipts were deemed legitimate business earnings and not unaccounted money.
This decision emphasizes the importance of considering the nature of receipts and their source in taxation matters. It reaffirms that business receipts, even during special circumstances like demonetization, should generally be treated as part of the legitimate income of the assessee.
Overall, the ITAT’s decision sets a precedent for similar cases and underscores the principle that business receipts, when supported by valid explanations, should not be unjustly estimated as unaccounted income.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 arises out of the order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 17-03-2023 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 144 of the Act on 18-11-2019. The sole substantive issue that arises in the appeal is estimation of addition on account of cash deposited by the assessee during demonetization period.
2. The Registry has noted delay of 20 days in the appeal, the condonation of which has been sought by the assessee on the strength of affidavit of the assessee. Considering the period of delay, the delay is condoned and appeal is admitted for adjudication on merits. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. The assessee being residential individual is stated to be engaged in ticketing business under proprietorship concern namely M/s Juzgo Holidays.
Proceedings before lower authorities
3.1 During assessment proceedings, it transpired that the assessee made cash deposits in her bank account during the period between 1011-2016 to 30-12-2016. The assessee did not file return of income in earlier years. The Ld. AO proceeded to frame the assessment on best judgment basis u/s 144 since no books were maintained by the assessee. The assessee failed to respond to hearing notices.
3.2 The Ld. AO analyzed the pattern of cash deposit which revealed that there was sudden spike in cash deposit during demonetization period. The total cash deposited was Rs.224.34 Lacs out of which an amount of Rs.41.62 Lacs was deposited in Specified Bank Notes (SBN). The assessee, in reply to proceedings u/s 131(1), submitted that during demonetization period, the clients approached with demonetized currency to book tour packages. Such cash was deposited in the bank account. In most cases, the clients opted for travelling at later dates. However, Ld. AO held that old bank notes ceased to be legal tender from midnight of 08-11-2016 and such currencies lost value in money terms and thus could not be used in a transaction. Therefore, the currency deposited in SBN was held to be unaccounted money of the assessee. 3.3 The other deposits in the bank account were Rs.182.71 Lacs on which Ld. AO estimated profits of 5% which worked out to Rs.9.13 Lacs. The deposits of Rs.41.62 Lacs in SBN were treated as unexplained money. The Ld. CIT(A) confirmed the action of Ld. AO since no new material could be placed by the assessee during appellate proceedings. Aggrieved, the assessee is in further appeal before us.
Our findings and Adjudication
4. From the fact, it emerges that the assessee is engaged in ticketing business under proprietorship concern namely M/s Juzgo Holidays. There is no other source of income for the assessee. The assessee has made cash deposits of Rs.224.34 Lacs out of which an amount of Rs.41.62 Lacs was deposited in Specified Bank Notes (SBN). The Ld. AO has estimated income of 5% on normal deposits whereas SBN has been considered to be the unexplained money u/s 69A despite the fact that the only source of income for the assessee is ticketing business only. The assessee had submitted that during demonetization period, the clients approached with demonetized currency to book tour packages. Such cash was deposited in the bank account. In most cases, the clients opted for travelling at later dates. Thus, such receipts constitute business receipts and nothing else and therefore, the same could not be held to be unaccounted money of the assessee. Under such circumstances, making full addition thereof could not be held to be justified. Considering the fact that Ld. AO has estimated income of 5% on other deposits, the same estimation could be made against demonetized currency of Rs.41.62 Lacs. We order so. The Ld. AO is directed to re-compute the income of the assessee by accepting 5% of demonetized currency as the income of the assessee.
5. The appeal stands partly allowed in terms of our above order.
Order pronounced on 09th August, 2023.