Case Law Details
DCIT Vs Kannan Rajendra Babu (ITAT Chennai)
Introduction: The Income Tax Appellate Tribunal (ITAT) Chennai recently ruled on an appeal involving the Revenue and Kannan Rajendra Babu, a proprietor of a milk business. The case pertained to the assessment year 2017-18 and revolved around the question of accounting for Specified Bank Notes (SBNs) deposited during the 2016 demonetization period. This article provides an in-depth analysis of the case and its implications.
Grounds of Appeal Raised by Revenue: The Revenue initially challenged the Commissioner of Income Tax (Appeals) [CIT(A)] for deleting an addition of Rs. 75,54,450 made towards SBN notes. The Revenue argued that these transactions occurred during the demonetization period, and the assessee failed to identify parties from whom the SBNs were received.
The Decision by CIT(A): The CIT(A) previously considered the business nature of the assessee, dealing with perishable milk products, and deleted the addition made by the Assessing Officer (AO). He argued that the AO didn’t bring any evidence that these sales were extraordinary compared to sales in the preceding year.
Key Arguments by Both Parties: The Department Representative contended that the acceptance of SBNs was illegal from 09.11.2016, according to government and RBI notifications. The counsel for the assessee, however, argued that accepting SBNs was necessary to protect his perishable business and that the Specified Bank Notes (Cessation of Liabilities) Act, 2017 allowed for such transactions during a window period.
ITAT Chennai’s Final Ruling: ITAT Chennai partly allowed the Revenue’s appeal. They acknowledged that both the AO and the assessee couldn’t justify their claims sufficiently. The Tribunal thus directed the AO to estimate a 25% profit on total cash deposits made during the demonetization period and delete the balance 75% addition made under section 68 of the Income Tax Act, 1961.
Conclusion: The case of DCIT Vs Kannan Rajendra Babu highlights the complexities around business transactions during the demonetization period, especially for businesses dealing with perishable goods. While it partly favors the Revenue by estimating a 25% profit on the deposits, it also offers relief to the assessee by acknowledging the challenges of running a perishable business.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals), Income Tax Department, National Faceless Appeal Centre (NFAC), Delhi, dated 17.06.2022, and pertains to assessment year 2017-18.
2. The Revenue has raised the following grounds of appeal:
1, The order of the CIT(A) is opposed to law on the facts and in the circumstances of the case.
2.1 The Commissioner of Income Tax (A) erred in deleted the addition of Rs.75,54,450/-holding that towards SBN notes deposited in bank account were normal sales and which were already declared. The learned CIT(A) ought to have noted that the assessee has failed to identify the parties from whom the SBNs were received and they were purchaser of milk.
2.2. The learned CIT(A) ought to have noted the notification issued by Government of India and as per Notification, the assessee was not allowed to accept the SBN notes after 09.11.2016.
3. For these and such other grounds that may be adduced at the time of hearing it is prayed that the order of the CIT(A) may be reversed and that of the Assessing Officer restored.
3. We find that appeal filed by Revenue is barred by limitation, for which, necessary petition for condonation of delay explaining reasons for delay, has been filed, for which, the ld.Counsel for the assessee did not raise any objection.
4. Having heard both sides and considered petition filed by the Revenue for condonation of delay, we are of the considered view that reasons given by Revenue for not filing the appeal within the time allowed under the Act comes under reasonable cause as provided under the Act for condonation of delay, and hence, delay in filing of above appeal is condoned and appeal filed by the Revenue is admitted for adjudication.
5. The brief facts of the case are that the assessee is a proprietor of M/s.SNP Dairy Milk, filed his return of income for AY 2017-18 on 07.11.2017, admitting total income of Rs.40,24,700/-. The case was selected for scrutiny and during the course of assessment proceedings, the AO noticed that the assessee has made cash deposits of Rs.75,54,450/- in Specified Bank Notes (in short “SBNs”) during demonetization period, and thus, called upon the assessee to explain nature and source of cash deposits into bank account. In response, the assessee vide letter dated 19.12.2019 submits that he is in the business of sale of mil & milk products. As it is a perishable commodity and during the course of demonetization period, he has accepted SBNs from the customers and deposited into bank account. The AO, however, was not convinced with the explanation of the assessee and according to the AO, legal tender of SBNs from 09.11.2016 is withdrawn, and thus, the claim of the assessee for source for cash deposit is out of sale of milk products is devoid of merits, and thus, rejected the arguments of the assessee and made addition towards cash deposits u/s.68 of the Income Tax Act, 1961 (in short “the Act”).
6. The assessee carried the matter in appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee reiterated his arguments taken before the AO and submits that being in the business retail sale of milk, he was forced to accept SBNs to avoid possible loss from the customers, because the products dealt with by him was perishable items. The Ld.CIT(A) after considering relevant submissions of the assessee and also by following the decision of ITAT Bangalore Bench in the case of Anantpur Kalpana v. ITO, reported in [2022] 138 com 141 (Bangalore-Trib.), deleted the additions made by the AO by holding that the explanation of the assessee that source for cash deposits is out of sale of milk is acceptable, because, the AO has not brought out any fact that the sales were out of ordinary as compared to the sales of preceding year or even month to month sales for the same Financial Year. Aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before us.
7. The Ld.DR, Mr. AR.V.Sreenivasan, Addl.CIT, submitted that the Ld.CIT(A) erred in deleting the addition of Rs.75,54,450/- towards SBNs deposited into bank account without appreciating the fact that the acceptance of SBNs from 09.11.2016 onwards is withdrawn by the Government and RBI. Since legal tender of said notes were withdrawn, the assessee cannot supposed to accept SBNs if he does not come under exempted category. Therefore, the AO after considering relevant facts has rightly made addition towards cash deposits, but the Ld.CIT(A) without appreciating the relevant facts deleted the additions made by the AO.
8. The Ld.Counsel for the assessee Mr.S.Sridhar, Advocate, supporting the order of the Ld.CIT(A) submits that there is no dispute with regard to the fact that the assessee is a milk dealer had accepted SBNs during demonetization period to protect his business, because, the products sold by him is highly perishable. He further submits that there was no prevention for the assessee to accept/transact in SBNs during the window period between 08.11.2016 to 30.12.2016 and the same is evident from the Specified Bank Notes (Cessation of Liabilities) Act, 2017. This fact has been rightly apprised by various benches of Tribunal, including ITAT Chennai Bench in number of cases, and held that when the assessee has explained source for cash deposits, the question of making addition towards cash deposits into bank account on the basis of Circular issued by RBI, is incorrect. Therefore, he submits that the Ld.CIT(A) after considering relevant facts has rightly deleted the additions made by the AO, and their orders should be upheld.
9. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts with regard to the impugned dispute are that the assessee being a dealer in milk, has accepted SBNs during demonetization period between 08.11.2016 to 30.12.2016 and deposited into his bank account. The assessee has explained source for cash deposits out of sales. The AO never disputed the fact that the assessee has filed necessary evidences to prove his claim of source for cash deposits, including relevant evidences for sales made during the period, but rejected arguments of the assessee and made additions only on the basis of Circular issued by RBI on SBNs. We find that there is no dispute with regard to the fact that RBI has withdrawn legal tender of SBNs from 09.11.2016 onwards leaving behind certain exemption categories. Although, the assessee does not come under exempted category, but fact remains that the assessee was engaged in the business of sale of milk which a highly perishable product. Unless, the assessee sells his products by whatever means, there is every possibility to lose his capital. Therefore, to protect his business, the assessee has accepted SBNs from customers and deposited into bank account. To this extent, we find that the explanation offered by the assessee for accepting SBNs during window period cannot be doubted.
10. Be that as it may. But, fact remains that although, the assessee claims to have filed necessary evidences, including relevant sales details when compared to previous Financial Year, but no such evidence has been rightly apprised by the Ld.CIT(A) while deleting the additions made towards cash deposits during demonetization period. Since, both the AO and the assessee could not justify their case with relevant reasons, we are of the considered view that only possible way out to settle the issue is to estimate income from cash deposit during demonetization period. Therefore, considering the facts and circumstances of the case and also explanation of the assessee, we are of the considered view that a reasonable amount of profit needs to be estimated on total cash deposits, and thus, we direct the AO to estimate 25% profit towards cash deposits made during demonetization period and delete balance 75% addition made u/s.68 of the Act.
11. In the result, appeal filed by the Revenue is partly allowed.
Order pronounced on the 2nd day of August, 2023, in Chennai.
