Addition of unexplained investment upheld when assessee was not in the category of the persons permitted to accept the demonetised currency.
In a recent judgment Hon’ble Supreme Court dismissed the Petition challenging addition as unexplained investment towards deposit of demonetised currency in bank as after demonetisation, the assessee was not in the category of the persons permitted to accept the demonetised currency.
ABCAUS Case Law Citation:
4566 (2025) (05) abcaus.in SC
In the instant case, the assessee had challenged the order passed by the High Court in confirming the addition under section 69A of the Income Tax Act, 1961 (the Act) towards demonetised currency deposited in bank account.
The appellant assessee was an individual carrying on business of FMCG goods on wholesale and retail trading. The assessee had deposited demonetized currency amounting to Rs. 28,00,000 in the bank on a lumpsum basis.
When enquired by the Assessing Officer (AO), the assessee submitted that the source of cash was daily sales and realisation from sundry debtors who are small vendors, or weekly market hawkers etc. and they make up 90% of the assessee’s turnover. It was not possible for the assessee to obtain any identification of the debtors, as they form a part of the unorganised sector and are not very well informed of maintaining identity proof and maintaining books of accounts of their business. Furthermore, they do not have access to banking facilities of their own and reside in remote village areas with inadequate banking services available, that too at a time when there was immense rush to get old notes exchanged for new ones.
However, the AO observed that the on the date of demonetisation, there was a negligible cash in hand with the assessee and the assessee was not authorized to receive old currency of Rs. 500 & Rs. 1000 during the demonetization without specifying any source of law which prohibited the use and acceptance of SBNs.
As a result, AO treated the amount of SBNs deposited in bank as unexplained investment under section 69A of the Act and added it to the income of the assessee.
The addition was upheld by the CIT(A).
The Tribunal observed that it was an admitted fact that the assessee’s cash balance as on 08.11.2016 was negligible. It was also an accepted fact that as on the date of demonetisation except for specified persons no other persons were permitted to transact in the demonetised currency. The assessee did not fall within the exempted category of persons to deal with the demonetized currency.
The Tribunal opined that the sale alleged to have been made by the assessee between 08.11.2016 and 12.11.2016 though shows availability of funds along with recovery from the debtors, still it cannot be said that this is a source for the specified bank notes being the demonetised currency which has been deposited in the bank.
The Tribunal further held that it could not considered that such amount of SBNs could have been with the assessee before 08.11.2016 insofar as the cash book only shows negligible cash availability. Admittedly, if the assessee desired to take the stand that the SBNs were the currency received between 08.11.2016 to 12.11.2016, it would be incumbent upon the assessee to prove to the revenue as to from whom he has received the SBNs. In the absence of such prove, the deposit of SBN to the extent of Rs.28 lakhs will have to be treated as the unexplained investment of the assessee.
Consequently, the appeal filed by the assessee was dismissed by the Tribunal.
Before the Hon’ble High Court the assessee contended that as per the demonetisation notification dated 8th November, 2016. there was no limit prescribed on the quantity or value of the Specified Bank Notes (SBN) to be credited to the account maintained with the bank by a person, except that if the account holder had not complied with Know Your Customer (KYC) norms, the limit would be ₹ 50,000/.
It was further submitted by the assessee pleaded for admission of the appeal on the substantial questions of law as to whether a deposit made after said demonetization notification on 8th November, 2016, in terms of it, can be said to be a bad deposit and therefore unexplained money? Furthermore, could the deposit be treated as an investment?
However, in the facts found by the AO, confirmed by the First Appellate Authority and thereafter the Tribunal, the Hon’ble High Court opined that there does not arise any substantial question of law for admission of the appeal. The explanation offered by assessee was no explanation at all. Nature or source of acquisition of the money not explained could only invite opinion of the AO of unexplained money.
As a result, the appeal of the assessee was dismissed by the High Court also.
Not satisfied, the assessee approached the Hon’ble Supreme Court by way of filing a Special Leave Petition (SLP) against the order of the High Court.
However, the Hon’ble Supreme Court dismissed the SLP with following observations,
“Having heard the learned counsel appearing for the petitioner and having gone through the materials on record, we see no reason to interfere with the impugned order passed by the High Court.”
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