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Judgment
Per Renu Jauhri, Accountant Member:
This appeal by the Revenue is directed against the order dated 14.06.2024 of the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘Ld. CIT(A)] arising out of the assessment order dated 19.12.2019 passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by Assessing Officer, (hereinafter referred to as the ‘AO’) pertaining to Assessment Year (A.Y.) 2017-18.
The Revenue has raised the following grounds of appeal:
“1.The CIT(A) has erred in deleting the addition of Rs. 9,73,66,450/- of cash deposited in old Currency by assessee during demonetization, during the period 10.11.2016 to 12.11.2016, without appreciating that the assessee had failed to satisfactorily explain the nature and sources of these deposits.
2.The CIT(A) has erred in deleting the addition of Rs. 9,73,66,450/- of cash deposited in old currency by assessee during demonetization, during the period 10.11.2016 to 12.11.2016, against the facts of director Shri Abhishek Sinha's specific admission of having deposited this amount during statement recorded in the survey proceedings on 20/21 March 2017, the fact, which is part of assessment order.
3.The CITA) has erred in deleting the addition of Rs. 9,73,66,450/- of cash deposited in old currency by assessee during demonetization, during the period 10.11.2016 to 12.11.2016, ignoring the fact that details called for by AO vide 142(1) notice dated 09.12.2019 in paras 5, 6, 7, 8 of his notice were not provided by the assessee and certain details in his own format were submitted, which prevented Assessing Officer to examine the issue at hand.
4.The CIT(A) has erred in deleting the addition of Rs. 9,73,66,450/- of cash deposited in old currency by assessee during demonetization, during the period 10.11.2016 to 12.11.2016, ignoring the fact that details consisting of Name, PAN, Address and Amount filed by assessee, vide letter dated 11.12.2019 in response to notice u/s 142(1) dated 19.12.2019, pertained to customer selling points and no details were filed regarding persons from whom the demonetized amounts were collected by so called distributors. CIT(A) ignored the fact that assessee had therefore failed to discharge its primary onus to explain the source and details of deposits as money received from the impugned distributors and customers.
5.The CIT(A) has erred in deleting the addition of Rs. 9,73,66,450/- of cash deposited in old currency by assessee during demonetization, during the period 10.11.2016 to 12.11.2016, on the basis of his presumption and belief that money deposited did not belong to assessee and he was merely working as a intermediary as per the norms of the RBI instructions, in the face of non- submission of full and complete details required by the AO to examine the genuineness and veracity of assessee's arguments that money belonged to costumers.
6.The CIT(A) has erred in deleting the addition of Rs. 9,73,66,450/- of cash deposited in old currency by assessee during demonetization, during the period 10.11.2016 to 12.11.2016, without examining and linking each and every flow of cash, as a fact finding authority under Income Tax Act.
7.The appellant craves leave to add, alter or amend any/all of the grounds of appeal at any time before or during the hearing of this appeal.”
Brief facts of the case are that the assessee company filed its return for A.Y. 2017-18 on 27.10.2017 declaring loss of Rs. 6,58,10,076/-. The assessee provides banking services to underserved segments and is approved for the same by the RBI under specific regime of Business Correspondent (BC). The assessee has set-up a technology platform that enables banks to connect the customers to banks through intermediaries who collect cash from customers and deposit the same into a settlement account of the assessee. The assessee connects with the banks electronically, so that they are able to transfer/deposit money in the accounts of beneficiaries as identified by the customers. The intermediaries are referred to as Service Providers (SPs) and Super Service Providers (SSPs). The SPs/ SSPs deposit money in the settlement account of the assessee and against such pre-deposited funds, the assessee provides credits in the form of e-money to them. The cash deposited in the settlement account of the assessee belongs to the end customers and the assessee generates revenue through transaction fees charged by it.
A sum of Rs. 14,02,64,100/- was found to be deposited in the bank account of the assessee in old currency notes during the demonetization period and a survey u/s 133A was also conducted on 20.03.2017 on the business premises of the assessee. During the course of survey proceedings, the assessee was asked to explain the th, th th source of cash of Rs. 9.73 crores deposited on 10 11 ,12 November, 2016 immediately after declaring of the demonetization with effect from 08.11.2016. Subsequently, the case was selected for scrutiny. The Assessing Officer (AO) noted that during the course of survey proceedings, one of the Director, Shri Abhishek Sinha, had accepted that the impugned cash was deposited during the period of demonetization. The assessee was asked to provide complete customer-wise details with regard to cash deposits during the demonetization period, comparative details of cash deposited during the corresponding period of earlier assessment years. The Assessing Officer was not satisfied with the details and explanation submitted by the assessee, and, therefore, the assessment was completed after making addition of Rs. 9,73,66,450/- u/s 68 of the Act, on account of being unexplained credit and section 115BBE was also invoked.
Aggrieved, with the assessment order u/s 143(3) dated 19.12.2019, the assessee preferred an appeal before the Ld. CIT(A). During the course of appellate proceedings, the assessee filed detailed submissions along with a paper book in two volumes comprising the written submissions filed by the assessee along with the details and documents furnished before the AO, during the course of assessment proceedings. After considering the submissions of the assessee, the CIT(A) has observed as under:
“7.1.Carefully considered the submission of the appellant in view of the impugned assessment order. Also perused and considered the details and documents uploaded by the appellant on ITBA portal during the appellant proceedings. Perused the case laws referred to and relied upon by the appellant. Virtual hearing was conducted successfully on 02.05.2024 wherein the AR of the appellant company interalia explained the nature of the business.
7.2.At the outset, it is observed that this is an admitted fact that the amount of cash deposit in old currency during the demonetization period was Rs.14,02,64,100/- but the ld. AO had given final show cause notice for Rs. 9,73,66,450/- only being amount of cash deposited in the settlement bank account of the appellant only during 10th November, 2016 to 12th November, 2016. The assessment order is silent about the basis of leaving balance amount of Rs. 4,28,97,650/-.
7.3.In response to the notice dated 09.12.2019, the appellant had submitted the details of cash deposited in the settlement account of the appellant in the prescribed format provided by the ld. AO:-
From the above data, it appears that the amount of cash deposited during the period between 9 th November and 31st December in F.Y. 2014-15, 2015-16 and 2016-17 was Rs. 135.6 crores, Rs. 164.9 cores and Rs. 185.9 crores respectively. It does not show any abnormal hike in cash deposit during the period under reference as compared to the same of immediate preceding and succeeding financial years. It shows that almost similar amount of cash was deposited in immediate previous and subsequent financial years and the gradual increase in cash deposit commensurate with the volume of the business. Secondly, from the data provided by the appellant during the assessment proceedings, it appears that huge cash deposit after collecting the same from numerous end costumers through SPs / SSPs is normal phenomena of the appellant’s business. Therefore, in normal course of business, the source of cash deposit in the settlement account (which works as interface between end customers and the banks) maintained by the appellant is not under question. Only issue is that the appellant deposited demonetized currency (SBN) on 10th, 11th, and 12th November 2016 which was not legal tender. The appellant submission is that the said deposits of SBN were not made by it rather the same was made by its SPs / SSPs out of cash collected already by them from end customers before declaration of demonetization. The Ld. AO did not provide proper comment and rebuttal on the above submission of the appellant.
7.4.The Ld. AO referred the survey operation conducted u/s 133A of the Income Tax Act, 1961 at the business premises of the appellant on 20.03.2016 but nowhere he has discussed the end result of the survey. Entire addition was made on the basis of statement of Sh. Abhishek Sinha, the director of the company, recorded during the survey proceedings.
7.5.Vide reply dated 18.12.2019 submitted by the appellant during the assessment proceedings, the appellant has stated as under:-
“5.As the Assessee Company has already furnished the name, PAN number, Address of the distributors who have deposited cash in its bank accounts, therefore, the Assessee company request to your goodself for issuance of notices u/s 133(6) of the Income tax Act for confirmation of the facts, if found necessary.”
The appellant has suo-moto provided complete name, address, PAN and confirmations of the SPs/SSPs who had deposited the cash in the settlement account of the appellant and requested to issue notice u/s 133(6) of the Income Tax Act, 1961 for further enquiry. But the Ld. AO did not conduct any independent enquiry with the persons who, as per appellant’s version, deposited cash immediately after demonetization in the settlement bank account maintained by the appellant. Therefore, I am of the considered opinion that the Ld. AO did not investigate into the case thoroughly and jumped to make the captioned addition in a hurried manner. … …
7.9.The appellant has strongly contended that the amount of cash deposited in the settlement bank account maintained by the appellant is not the books of the account of the appellant within the meaning of section 68 of the Income Tax Act, 1961. The source of cash is well explained by the appellant. The similar amount is transferred by the appellant to the end beneficiaries as suggested by the end customers through SPs/SSPs. Only transaction fees / charge is the revenue of the appellant company. Therefore, it is not justified treating entire amount of cash deposited in the settlement account as unexplained credit of cash in the books of account of the appellant. Here, this is not a case of unsecured loans, share application money etc. credited in the books of account of the appellant. The source and destination of the amount credited in the settlement account of the appellant stand well explained and the same can be verified by the bank statement of the settlement bank account maintained by the appellant.
7.10.The three elements are required u/s 68 of the Act, to explain the cash credit in the books of account i.e. identity of the creditors, genuineness of the transactions and creditworthiness of the creditors. In this case, as claimed by the appellant, cash was deposited in the settlement bank account of the appellant by SPs/SSPs who are appointed by the appellant itself. SPs/SSPs are intermediaries between end customers and the Business Correspondent (the appellant), so they cannot be termed as ‘creditors’ of the appellant. However, the appellant has provided basic information of all SPs/SSPs such as their Name, Complete Address and PAN. The appellant has also submitted confirmations of transaction of cash deposit made by SPs/SSPs, though the ld. AO did not asked the appellant to do so. Moreover, the appellant requested the ld. AO to issue notice u/s 133(6) to the SPs/SSPs to cross verify the submission and confirmation furnished by the appellant during the assessment proceedings. But the ld. AO chose to not issue notice u/s 133(6) to the SPs/SSPs for further investigation. Therefore, I am of the considered opinion that the appellant has discharged its primary burden of proof by furnishing basic details of the persons (SPs/SSPs) who had deposited the cash in the settlement bank account maintained by the appellant. Thereafter, onus was shifted to the ld. AO who could make further investigation but he did do so and proceeded straight ahead to make addition u/s 68 of the Income Tax Act, 1961.”
The CIT(A) further considered the following decisions relied upon by the assessee, wherein the issue was decided in favour of the assessee, under similar facts and circumstances:-
“(a)CIT Vs. Gangeshwari Metal Pvt. Ltd. [2014] 361 ITR 10 (Delhi)
(b)Sreelekha Banerjee Vs. CIT [1963] 49 ITR 112 (SC)
(c)ITO Vs. Lakshman Dass Makhija [2009] 116 ITD 47 (Agra Tribunal) (d) CIT Vs. Lovely Export Pvt. Ltd. [2008] 216 CTR 195 (SC)
(e)S.K. Bothra & Sons (HUF) Vs. ITO [2012] 347 ITR 347 (Calcutta)
(f)CIT Vs. Divine Leasing & Finance Ltd. [2008] 299 ITR 268 (Delhi)
(g)Mehul V. Vyas Vs. ITO [2017] 164 ITD 296 (Mumbai Tribuna
Finally, accepting the assessee’s contentions, the addition made by the AO was deleted by CIT(A) and the appeal of the assessee was allowed.
Aggrieved with the order of CIT(A), the Revenue is in appeal before the Tribunal.
Before us the Ld. DR has contested that the decision of the CIT(A) was not justified as the cash was deposited in old currency notes during demonetization period specifically in a short period of three days. He has further argued that onus to prove the identity of the depositors, their creditworthiness and the genuineness of the transactions was on the assessee, and he had failed to discharge the same to the satisfaction of the AO. He has therefore, argued that the Ld. CIT(A) was not justified in deleting the addition on the basis of the presumption that the assessee was merely working as intermediary approved by the Reserve Bank of India and that the money in question did not belong to it.
On the other hand, ld. AR has vehemently argued that the business model of the assessee was not appreciated by the AO and the same was explained in detail before the CIT(A), who accepted the assessee’s contention and has rightly allowed the relief.
We have heard the rival submissions and perused the material available on records. Admittedly, the assessee has been authorized by the Reserve Bank of India to set up and operate a payment system as a Business Correspondent to multiple banks including SBI. The assessee has been rendering, services for the last mile connectivity to the public with regard to the banking services. A copy of the certificate number 80/2015 dated 25.03.2015 issued by the RBI (Department of Payment and Settlement System), has also been placed on record.
It is further seen that during the assessment proceedings as well as during the appellate proceedings before the CIT(A), the assessee has furnished the requisite details, along with sample customer-wise details, to establish the nature of its activities and genuineness of the transactions. We note that the CIT(A) has duly appreciated the entire factual matrix and has passed a well-reasoned and speaking order, discussing the facts as reproduced hereinbefore before allowing relief to the assessee. After careful consideration of the facts and circumstances of the case, as well as decisions relied upon by the assessee in similar cases, we are of the considered view that the CIT(A) has rightly deleted the addition of Rs. 9,73,66,450/-, and hence no interference is called for in his order.
In the result, appeal of the Revenue is hereby dismissed.