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August 16, 2022

Deposit of cash in piece meals during demonetisation is not in prohibition of law

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Deposit of cash in piece meals during demonetisation is not in prohibition of law

Facts and Issues of the case

The Assessing officer, during the course of assessment, issued a notice dated  u/s 142(1) of the Act to explain the cash deposit during the demonetisation period in old currency notes and state the closing balance of cash in hand as on 08.11.2016. In response thereto, the assessee has stated that due to security reasons the cash was deposited in two lots. The contention of the assessee was not found acceptable by the Assessing Authority. He treated the sum of Rs. 4,00,000/- as not available in cash in hand and made addition of the same.

Observations by the Court

The Court  has heard rival submissions and perused the material on record. I find that the Assessing Officer issued a show cause to explain the cash deposit of Rs. 9,00,000/- in specified bank notes in the bank account during the demonetisation. The contention of the assessee before the authorities below was that all the relevant documents in the nature of ledger, cash book, sales, purchases, cash flow were filed and no objection was raised by the Assessing Authority. It was further contended that the assessee accepted the source of deposit of Rs. 5,00,000/- on 16.11.2016 but treated Rs. 4,00,000/- deposited on 22.11.2016 as unexplained. The basis of the addition is that it is against the normal understanding that the assessee should have deposited the amount in one day. I find that the Assessing officer has not given any finding regarding the availability of cash with the assessee prior to the demonetisation.

If an assessee has cash available prior to demonetisation and if he opted to deposit the same multiple times, there is no prohibition in law for such deposits. The fundamental question would be whether the assessee was having the explained cash which was deposited in his bank account. The Authorities below have not commented anything adverse on the evidences filed by the assessee regarding availability of cash and correctness of the cash flow statement. No material is brought on record rebutting the contention of the assessee. Therefore, the finding of the authorities below is purely based upon surmises, which is not permissible under law.

In my considered view the Assessing Officer ought to have given a clear finding regarding availability of cash in the specified bank notes, which were banned by the order of the Government. It was stated before the authorities below that the demonetisation of currency was declared by the Reserve Bank of India on 8.11.2016. After demonetisation there was huge crowed to deposit old currency and withdrew new currency by public. As per the assessee it was not safe in view of the banks being over crowded during that period. This plea of the assessee was rejected stating that on earlier occasion the assessee had withdrawn bigger amount of money from the bank account.

I find merit into the contention of the assessee that there were big lines and the banks were over crowded. Therefore, it was open to the assessee for the safety of the money to deposit in piece meals till the period as allowed by the Competent Authority.

Conclusion

If an individual has cash available prior to demonetisation and if they opted to deposit the same in multiple times, this is allowed. There will no prohibition of the law.

Tilak-Raj-Anand-Vs-ITO-ITAT-Delhi

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