Demonetized Money Deposit Not Unexplained Cash when SBNs have been collected prior to appointed date

Prathamika Krushi Pattina Vs. The Income Tax Officer

(Order pronounced in the open Court on 1st June 2022)

The assessee is a primary agricultural credit cooperative society providing credit facilities to its members. The AO noticed that the assessee has deposited a sum of Rs. 36,36,000 in the form of Specified Bank Notes (SBN), i.e Prathamika Krushi Pattina Sahakari Sangha demonetized notes of Rs.1000 and Rs. 500 during the period from 09- 11-2016 to 31-12-2016. The assessee explained the sources of these SBN as the deposits made by the members of the assessee society, whose identity is proved. The AO took the view that the assessee was not permitted by RBI to accept demonetized currency during the demonetization period. Since the demonetized currencies are not legal tender, the AO did not accept the claim that the sources of deposits made by the assessee into its bank account are out of the currency received from its members. Hence, the AO assessed the amount of Rs. 36,16,262 as unexplained cash deposit u/s 68 of the Act.

Appeal before CIT(A): The ld CIT(A) also confirmed the said addition as unexplained cash. the Ld A.R submitted that the provisions of sec. 5 of Specified Bank Notes (Cessation of liability) Act, 2017 specifies that “on and from the appointed day, no person shall knowingly or voluntarily hold, transfer or receive any specified bank note”. He submitted that the appointed day was fixed as 31.12.2016 and the assessee has received the SBN prior to 31.12.2016.

Appeal before the Tribunal: It was noticed that an identical issue has been decided in favour of the assessee in the case of Bhageeratha Pattina Sahakara Sangha Niyamitha where it was held that, “the deposit of demonetized notes collected by the assessee from its members would not be hit by the provisions of section 68 of the Act in the facts and circumstances of the case. the assessee has also explained as to why it has collected demonetized notes after the prescribed date of 8.11.2016. The assessee has explained that it has stopped collection after the receipt of notification dated 14.11.2016 issued by RBI, which has clearly clarified that the assessee society should not collect the demonetized notes.”

As per the above decision, it was held that  addition made u/s 68 of the Act is not justified. In this view of the matter, the reasoning relating to contravention of rules of RBI fails.

The order passed by CIT(A) is set aside on this issue and the AO is directed  to delete the impugned disallowance. Therefore the appeal filed by the assessee is allowed.

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