Cash Deposited during Demonitization allowed by Pune ITAT

Shri. N.H. Panhalkar & Co. Vs ITO (ITAT Pune)

This appeal by the assessee is directed against the order dated 29-10-2021 passed by the ld. Commissioner of Income Tax (Appeals) in NFAC Delhi, in relation to the A.Y. 2017-18.

2. The only issue raised in this appeal is against confirmation of addition of Rs. 63,00,215/- made by the A.O u/s 69A of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).

3. Briefly stated the facts of the case are that the assessee is a commission agent, who filed its return declaring total income of Rs. 1,66,830/-. The case was selected for scrutiny for verification of cash deposits during demonetization period. The A.O observed that the assessee made cash deposits in the bank account from 9-11-2016 to 31-12-2016 totalling to Rs. 74,30,550/-. On being called upon to explain the source of such cash deposits, the assessee submitted that a sum of Rs. 20,50,000/- represented advances received back from farmers; Rs. 34,50,000/- received from five partners; and Rs.19,00,000/-as Commission income on sales. The A.O did not accept the genuineness of cash deposits received from farmers and commission income but accepted the genuineness of Rs.3.75 lakh from one of the partners, Shri C.N. Kazi. This is how, an addition of Rs. 63,00,215/- was made u/s 69A of the Act towards unexplained deposits in bank account during demonetization period. The ld. CIT(A) sustained the addition.

4. We have heard the rival contentions and gone through the material on record. It is seen that the assessee is maintaining regular books of accounts. The first item is of Rs. 20,50,000/- claimed to have been received from farmers out of advances made in the preceding year. The assessee has filed balance sheet for the immediately preceding year showing advances receivable from such farmers tabulated at pages 9 and 10 of the assessment order. This shows that the amount received back during the current year was given to these very farmers in earlier year, which was also depicted in the balance sheet and the return of income filed before the announcement of demonization. Thus the source of deposit in the bank as well as genuineness of the receipt of advances from the farmers, stand proved. The addition to this extent is directed to be deleted.

5. Coming to the amount received by the assessee from five partners, the assessee showed that a sum of Rs. 19.50 lakh was received from Shri U.N. Kazi who passed away in 2014. The assessee claimed that at the time of demonetization in 2016 the house was searched by his wife who found cash to this extent lying in the locker, which was not in her knowledge earlier. We are unconvinced with the submission tendered on behalf of the assessee in this regard. Shri U.N Kazi passed way in June 2014 and the assessee is explaining the source of cash deposited in the bank between 9-11-2016 to 31-12-2016.. It is highly unbelievable that the person who passed away almost two and half years ago, left such a huge cash at home, which all of a sudden came to be unearthed by his wife during demonetization period. It is noticed that the substance of the addition made by the AO is not explaining the source of deposit. Strictly speaking, it is an addition u/s 68 towards unexplained source of credit shown in the books of accounts and not u/s 69A of the Act. The addition is confirmed to this extent u/s 68 of the Act.

6. The second amount claimed to have been received is Rs. 12.00 lakh from partner Shri C.N. Kazi. For the source of this amount, the assessee submitted that certain property was sold by Sh. C.N. Kazi and also availability of certain agricultural income. The A.O accepted the genuineness of the transaction to the tune of Rs. 3,75,000/-, towards cash deposits during the demonetization period. The remaining amount was added back. The ld. CIT(A) confirmed the action of the A.O.

7. We find that Sh.C.N Kazi sold certain property for a sum of Rs.15.00 lakh. A copy of sale deed has been placed on record, which shows that Sh. C.N. Kazi sold certain land for Rs. 15.00 lakh on 29-12-2015. A sum of Rs 7.50 lakh was received by means of cheque on 23-12-2015 and remaining amount in cash. Sh.C.N. Kazi deposited the said amount in his bank account. On 22­09-2016, a cheque for Rs. 10.00 lakh was issued by him in favour of the assessee firm, which was cleared on the same day and the proceeds got credited to the assessee firm. Copy of account of Sh. C.N. Kazi in the books of the assessee and a copy of account of the assessee‟s account in the books of bank show such transactions. This amount was thereafter utilised for deposit in the bank account during demonetization period. Definitely, the source of the amount received by Sh.C.N. Kazi and the cheque issued to the assessee firm for Rs. 10.00 lakhs, stand explained. The A.O did not accept the source of this transaction to the extent of Rs. 8.25 lakh (Rs. 12.00 lakh minus Rs. 3.75 lakh). Such amount, being, less than the amount received by the assessee from the partner, cannot be treated as unexplained. We therefore, delete addition to this extent.

8. The assessee explained that a sum of Rs.1.00 lakh each was received from three partners, namely, S/Shri J.C. Kazi, R.U. Kazi and S.C. Kazi. The A.O added these amounts in view of the fact that the assessee agreed to treat it as unexplained. Such an addition was not contested by the ld. AR before the Tribunal. We therefore, uphold the sustenance of the addition to this extent.

9. The last amount is a sum of Rs. 19.00 lakh which was earned by the assessee as a commission and deposited in the bank account. The A.O refused to accept the source of deposit in the bank account. In fact, the assessee received the gross commission in its business during the year to the tune of Rs. 63.28 lakh and after claiming deduction towards commission and discount amounting to Rs. 18.30 lakhs, offered net commission of Rs.44.75 lakh to tax. These figures are highlighted in the P & L account of the assessee. It is also an accepted position that the assessee deposited Rs. 19.00 lakh in its bank account during demonetization period. Since commission income of Rs. 19.00 lakh deposited in the bank account, which is a component of total net commission income of Rs.44.75 lakh, has already been offered for taxation, we hold that the same cannot be treated as unexplained. We therefore, delete the addition on this score.

10. In the result, appeal of the assessee is partly allowed.

Order pronounced in the open Court on this 10^th day of March 2023