In a significant ruling, the Income Tax Appellate Tribunal (ITAT) has deleted an addition of Rs. 35.22 lakh made on account of cash deposits during the demonetisation period. The Tribunal accepted the assessee’s explanation that the deposits were backed by genuine cash sales and sufficient cash available in the audited books of account.
Background of the Case
The Assessing Officer (AO) treated cash deposits amounting to Rs. 35,22,000 made in December 2016 as unexplained. The amount was added as unexplained cash credit under Section 68, and taxed at a higher rate under Section 115BBE.
Further, the first appellate authority dismissed the assessee’s appeal ex parte for non-prosecution, confirming the addition without properly examining the evidence already submitted during assessment proceedings.
Key Issue Before the Tribunal
The central question before the ITAT was:
Whether cash deposits made during the demonetisation period could be treated as unexplained under Section 68, despite the assessee having sufficient recorded cash sales and an adequate cash balance in the audited books.
Findings of the ITAT
After reviewing the records, the Tribunal noted that the assessee had provided substantial documentary evidence, including:
- Detailed cash deposit statements
- Bank confirmations
- VAT returns
- Sales registers and business records
The Tribunal observed that on the date of demonetisation, the assessee had a closing cash balance of approximately Rs. 1.48 crore, which was duly reflected in the audited accounts.
It was also highlighted that the assessee had recorded substantial cash sales during November and December 2016, and the deposits made were well within the cash generated from regular business operations.
Tribunal’s Conclusion
The ITAT held that the Assessing Officer had merely raised suspicion regarding the timing of deposits but failed to bring any concrete evidence to prove that:
- the cash was not available, or
- the deposits were outside the recorded sales transactions
In the absence of any contrary material, the Tribunal ruled that the addition was unjustified.
Final Decision
Accordingly, the ITAT deleted the addition of Rs. 35.22 lakh made under Section 68 read with Section 115BBE, allowing the assessee’s appeal.