Sales & collection from debtors in SBN during demonetization held assessee’s own money

Sales & collection of sundry debtors in SBN during demonetization period held to be assessee’s own money 

ABCAUS Case Law Citation:
ABCAUS 3665 (2023) (02) ITAT

Important Case Laws covered:
Apex Laboratories (P) Ltd. vs. DCIT (135 Taxmann.com 286)
Pr.  CIT vs. Agson Global Pvt. Ltd.  (134 Taxmann.com 256)
Madheswara Agencies vs. ITO  
Mr. Ganapathy Palaniyappan vs. DCIT

In the instant case, the appellant assessee had challenged the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) confirming the addition towards unexplained money u/s 69A of the Income Tax Act, 1961 (the Act) for cash deposited during demonetization period.

The assessee had deposited large amount of cash during the period from 09-11-2016 to 31-12-2016 in Bank account. 

Accordingly, the assessee was asked to explain the source of the same. The assessee submitted that the amount of cash deposits was represented by cash sales during the demonetization period and cash collection from sundry debtors. 

However, the AO found that out of said deposit 2/3^rd cash was deposited in Specified Bank Notes (SBN) currency  i.e.,  Rs. 500/- and Rs. 1000/- notes which ceased to be legal tender after 08-11-2016. 

The AO accepted the SBN to the amount that stood as closing cash balance as on 08.11.2016. However for the balance amount stated to be out of cash sales and collection from sundry debtors post  08.11.2016  was not accepted by the AO.

According to the AO since the assessee gave accommodation entry in the books of accounts for currency which was totally banned by the Government from the midnight of 08.11.2016.

According to the AO the assessee ought not to have accepted Specified Bank Notes (SBN) from its sundry debtors and customers during the period of demonetization.

Therefore, the AO concluded that the balance amount deposited during demonetization period was nothing but assessee’s own money which was given colour of sales  and collection of sundry debtors.

Accordingly, the said sum was added as unexplained money u/s 69A.

The Tribunal observed that the assessee, despite being aware of the fact that the SBNs ceased to be valid legal tender, stated to have accepted the same and squared-off the stock and debtors in the books of accounts.

The Tribunal observed that the Hon’ble Supreme Court has held that one arm of the law cannot be utilized to defeat the other arm of law and doing so would be opposed to public policy and bring the law into ridicule. It was further held that no court will lend its aid to a party that roots its cause of action in an immoral or illegal act meaning that none should be allowed to profit from any wrongdoing coupled with the fact that statutory regimes should be coherent and not self-defeating.

The Tribunal opined that once the SBNs ceased to be a legal tender, the assessee was not expected to violate the same and later on allowed to come up with an explanation that the cash receipts were evidenced by entries in the books of accounts maintained by the  assessee. 

The Tribunal opined that on the given facts of the case, a presumption would go against the assessee that it has routed its own unaccounted money in  the  garb  of cash  sales  and  receipts  from  sundry debtors.  No common man would be accepted to accept the prohibited currency and credit the same in its books of accounts which had otherwise lost its value.   

The Tribunal opined that the conclusion drawn by the AO that the  impugned amount  was nothing but assessee’s  own money which was given colour of sales and  collection of sundry debtors could not be faulted with. 

Accordingly, the Tribunal dismissed the ground of appeal raised by the assessee.

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