ITAT Ahmedabad Removes Addition of SBN (Specified Bank Note) Deposits During Demonetization Period
ITAT Ahmedabad in Its Order Dated. 18 October 2023 Removed the Addition of SBN Deposits During Demonetization Period under section 68 of Income Tax Act. Once cash deposits in bank account are explained to have originated from sales, applicability of provisions u/s. 68 is unjustified. This appeal before ITAT was filed by the Revenue against the Appellate order dated 21.09.2020 passed by the CIT (Appeals)-1, Ahmedabad arising out of the assessment order passed by the A.O u/s. 143(3) of the Income Tax Act, 1961 relating to the AY 2017-18.
Facts of the Case
The assessee is a Company engaged in the business of Trading in Petroleum Products and dealer of Reliance Industries Ltd. During demonetization period i.e., 09.11.2016 to 31.12.2016, the assessee deposited Specified Bank Notes (SBN) of (Denomination of Rs.500 & Rs.1000) in the Co-operative Bank of Rajkot Ltd. of Rs.1,24,59,500/-. The Assessing Officer issued notice u/s. 133(6) to the Co-operative Bank of Rajkot Ltd. and collected the cash deposits in SBN details during the demonetization period.
Manager of the assessee company was summoned and, in his affidavit, stating that the cash deposit as SNB to the tune of Rs.1.24 crores were against cash sales made during the period. The A.O. noticed that the cash deposit made during the demonetization period was much higher than during the normal period.
The A.O. relied on Notification dated 08.11.2016 issued by Department of Economic Affairs, Ministry of Finance, Government of India that the petrol pump was operated by the assessee (namely Reliance Industries Ltd.) was not an authorized Public Sector Oil Marketing Company. During the demonetization period, the assessee ought not to have collected SBN, therefore the same was added as unexplained cash credit u/s. 68 of the Act and also initiated Penalty proceedings u/s. 271AAC of the Act.
Aggrieved against the same, the assessee filed an appeal before Commissioner (Appeals) who deleted the addition made by the Assessing Officer.
Order of the CIT(Appeals)
As the sales have been accepted by the A.O. and the books of account have not been rejected u/s. 145(3), only profit on turnover can be assessed;
The real income only to be assessed, is logical and reasonable in this case as the purchases have been found to be genuine as per details in assessment folder.
Public was using SBN for petrol and diesel and was allowed and would have created law of order situation by restricting.
By restricting SBN, the operations would have resulted in Business losses which would have to be allowed to be carried forward for set off against taxable income in subsequent years.
Once cash deposits in bank account are explained to have originated from sales, applicability of provisions u/s. 68 is unjustified.
Aggrieved against the same, the Revenue is in appeal before ITAT.
Submission by the Counsel representing revenue
The CIT(A) is not correct in deleting the addition made by the Assessing Officer and further Notification dated 08.11.2016 which is applicable only to Public Sector Oil Marketing Companies not to Private Dealers;
Submission by the Counsel of the assessee
The notification dated 08-11-2016 will not be applicable, since in Para (e) it is clearly mentioned.
The provisions of section 68 cannot be invoked, since the source of cash deposit is undisputed by the A.O.
The ITAT Bangalore in case of Sri Bhageeratha Pattina Sahakara Sangha Niyamitha Vs. ITO held that the contraventions of the notification issued by RBI would not attract the provisions of section 68 of the Act.
Order of the ITAT Ahmedabad
It is an admitted fact that the cash deposit is on account of sale of petrol, diesel and other petroleum products. These sales have been duly recorded in the books of accounts and appropriate taxes also collected by the assessee. The Manager of the assessee company also filed a Notarized Affidavit accepting the above facts during the course of assessment proceedings.
Thus, it is clearly established that the Ld. A.O. on one side accepting the source of SBN deposit and on the other side making the SBN deposit as unexplained cash credit which is self-contradictory. The A.O following the Circular dated 08-11-2016, which is not applicable since Para (e) of the Circular deals with the cases of purchase of petrol, diesel etc., and not sale of petrol, diesel by accepting Specified Bank Notes. Thus, the invocation of Section 68 is invalid in law.
Case Title: ITO Vs Ashapura Petrochem Marketing Pvt Ltd; Citation: ITA No. 511/Ahd/2020; Date of Order: 18.10.23
Note on Section 68 of Income Tax
As per section 68, any sum found credited in the books of a taxpayer, for which he offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, may be charged to income-tax as the income of the taxpayer of that year.
All the below mentioned conditions to be satisfied for applicability of section 68:
(i) The assessee has maintained books of Account;
(ii) There has to be credit of amounts in the books maintained by the taxpayer of a
sum during the year;
(iii) The taxpayer offers no explanation about the nature and source of such credit
found in the books of account, or the explanation offered by the taxpayer in the opinion of the Assessing Officer is not satisfactory.
To Access the provisions of Section 68 of I-T Act CLICK HERE
To Access the RBI Notification Dated.08.11.2016 CLICK HERE
To Read & Download the CBDT Circular No. 18/2023 CLICK HERE
Faceless Appeal under Income Tax Act 1961: A Comprehensive Guide