ITAT Overturns 58.5L Cash Deposit Addition Made During Demonetization
In a notable judgment providing relief to businesses scrutinized during the demonetization period, the Income Tax Appellate Tribunal (ITAT) has deleted an addition of Rs. 58.5 lakh made under Section 69A of the Income Tax Act, 1961.
Background of the Case
The assessee, a partnership firm engaged in the jewellery business, had deposited cash in its bank account in November 2016, coinciding with the demonetization period. The firm explained that the cash represented genuine sales made in October 2016, duly recorded in its audited books of accounts, cash books, stock registers, and VAT returns.
Despite providing complete documentation, including invoices and VAT orders, the Assessing Officer (AO) rejected the explanation, alleging that the amount was not deposited before demonetization and treated the cash as unexplained income under Section 69A.
Appeal Proceedings
Dissatisfied with the assessment order, the assessee approached the Commissioner of Income Tax (Appeals) [CIT(A)], who unfortunately upheld the AO’s decision and sustained the addition.
Key Issue
The primary issue was whether cash deposits, already recorded in the books and supported by verified sales data, could still be classified as unexplained money under Section 69A of the Act during the demonetization period.
ITAT’s Observations & Verdict
After careful consideration, the ITAT ruled in favour of the assessee, making the following critical observations:
✅ Section 69A applies only to unaccounted assets or money that are not recorded in the books of accounts.
✅ In this case, the cash deposits were properly reflected in the assessee’s audited financial statements, stock records, and sales invoices, leaving no room to label the amount as unexplained.
✅ The assessee’s profit margins were already examined and accepted by the AO, and the sales figures were corroborated by third-party VAT records, further strengthening the assessee’s position.
✅ The Tribunal highlighted that no discrepancies were found in the audit reports or stock registers, making the invocation of Section 69A unjustified.
Citing consistent precedents from other ITAT Benches and High Courts, the Tribunal concluded that the additions were unwarranted and deleted the Rs. 58.5 lakh addition made by the tax authorities.
Conclusion
The ITAT’s ruling reiterates that genuine, documented business transactions cannot be arbitrarily treated as unexplained income, even during periods like demonetization. This verdict provides much-needed clarity and relief to taxpayers facing similar scrutiny, particularly in sectors like jewellery where high-volume cash transactions are common.