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2024 (1) TMI 1269 - AT - Income TaxAddition u/s 68 - unexplained cash deposit - assessee company had deposited cash during demonetization period in bank account(s) out of cash in hand - CIT(A) deleted addition as examined the cash balance, ITR , audit report filed before the demonetization and held that there were no scope for manipulation as the audit report has been filed much before - HELD THAT - CIT(A) logically came to a conclusion that the cash deposited post demonetization is duly explained by the available cash balance as on 08.11 .2016, which was in turn built up by cash withdrawals from bank accounts , which are undisputed, and the opening cash balance a t the beginning of the year , which is also undisputed since the same tallies with the cash balance as on 31.03 .2016 as per the ITR for A .Y. 2016-17 filed on 12.10 .2016 i.e . prior to demonetization. Hence, we decline to inter fere with the order of the ld. CIT(A). Appeal of the Revenue is dismissed.
Issues:
The issues involved in the judgment are: 1. Whether deletion of addition made u/s 68 of the Income Tax Act by the Ld. CIT(A) is justified? 2. Whether the Ld. CIT(A) erred in appreciating the facts regarding cash withdrawals and deposits by the assessee company? 3. Whether the Ld. CIT(A) correctly considered the reasons for hoarding cash by the assessee company? 4. Whether the Ld. CIT(A) appropriately analyzed the cash deposits in relation to the preceding year? Issue 1: The Revenue filed an appeal against the order of the Ld. CIT(A) deleting the addition of Rs. 75,30,137/- made u/s 68 of the Income Tax Act. The assessee company had deposited Rs. 77,96,000/- during demonetization period out of the cash in hand as on 08.11.2016. The Assessing Officer added back the sum of Rs. 75,30,137/- u/s 68, assessing the income at Rs. 2,12,36,610/-. The Ld. CIT(A) deleted the addition based on the explanation provided by the assessee regarding the source of the excess cash deposited post-demonetization. The ITAT upheld the decision of the Ld. CIT(A) stating that the cash deposited post-demonetization was explained by the available cash balance as on 08.11.2016, built up through cash withdrawals from bank accounts. Issue 2: The Ld. CIT(A) considered the arguments presented by the assessee company that the cash deposits were made from the cash available as per the cash book balance on 08.11.2016. The company furnished details of cash withdrawals in previous financial years to demonstrate the routine nature of such transactions even before demonetization. The Ld. CIT(A) analyzed the financials for the relevant years and concluded that there was no scope for manipulation, as evidenced by the audit report filed before demonetization. The Ld. CIT(A) also highlighted substantial cash withdrawals made by the assessee in the past, indicating a consistent practice of maintaining high levels of cash. Issue 3: The Ld. CIT(A) examined the reasons for hoarding cash by the assessee company, considering the nature of the real estate business and the need to maintain sufficient cash balances for various exigencies. The AO's reasoning for making the addition was based on the lack of correlation between cash withdrawals and deposits, as well as the absence of expenses corresponding to the cash withdrawals. However, the Ld. CIT(A) found that the cash balance as on 08.11.2016 was supported by cash withdrawals and opening cash balances from previous years, leading to a logical explanation for the cash deposits post-demonetization. Issue 4: The Ld. CIT(A) compared the cash deposits during demonetization with the corresponding period of the previous financial year and found no unusual trend. The analysis of cash sales, withdrawals, and expenditure for the relevant years indicated a consistent pattern of cash flow for the assessee company. The Ld. CIT(A) emphasized the importance of considering the main cash book of the assessee, which the AO had ignored in arriving at the cash balance as on 08.11.2016. This comprehensive analysis led to the dismissal of the Revenue's appeal by the ITAT. In conclusion, the ITAT upheld the decision of the Ld. CIT(A) to delete the addition made u/s 68 of the Income Tax Act, considering the explanations provided by the assessee and the consistent cash flow patterns demonstrated over the relevant years.
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