2023 (7) TMI 1457 - AT - Income Tax

Addition u/s 68 r.w.s. 115BBE - cash deposits made during demonetization period - HELD THAT - Standard Operating Procedure (SOP) issued by the Department vide CBDT Instruction No.03/2017 dated 21.02.2017 in connection with the assessment of demonetization deposits clearly states that there should not be abnormal jump in cash sales and in the instant case cash is deposited within one or two days from the time of its receipt. On examination of the cash book of the assessee, we find that the assessee had cash balance of Rs. 55,93,580/- as on 08.11.2016, i.e., the date on which demonetization was announced, which sufficiently explains the source of deposit of Rs. 52,60,000/- in specified bank notes. Apart from this, the assessee had duly furnished the month wise details of sales, month wise details of purchase, corresponding freight charges incurred month wise, month wise power and fuel expenses and month wise selling expenses in the form of rebate and discount. The assessee also furnished the quantitative details of goods month wise for rice, sugar, chana dal and wheat flour before the ld. AO. All these facts clearly go to prove the genuineness claim made by the assessee that cash deposits of Rs. 52,60,000/- has been made out of cash balance available with the assessee and, hence, in our considered opinion, there is absolutely no case made out by the Revenue for making addition u/s 68 of the Act We find that none of the parameters mentioned in the SOP dated 21.02.2017 issued by the CBDT for assessment of demonetization cases is applicable. There is no abnormal jump in cash sales during demonetization period as compared to earlier history; there is no abnormal jump in percentage of cash sales; the cash deposit was made only on two dates, i.e., on 10.11.2016 of Rs. 20,60,000/- and on 11.11.2016 in specified bank notes in two different bank accounts; there is sufficient stock available with the assessee; and there was no occasion to inflate the stocks by introducing fictitious purchases by the assessee; there was no transfer of deposited cash to another account or other entity which are not relevant for the assessee. Hence, even as per the SOP dated 21.02.2017 issued by the CBDT which is mandatorily to be followed by the Revenue authorities, no addition could be made in the instant case. Decided in favour of assessee.

Summary

Issues:
Determining the justification of confirming an addition made under section 68 of the Income-tax Act regarding cash deposits during the demonetization period.

Analysis:
The appeal in question pertains to the addition of Rs. 52,60,000/- under section 68 of the Income-tax Act in relation to cash deposits made during the demonetization period. The Assessing Officer (AO) directed the assessee to provide details and sources of the cash deposits. The assessee explained that the cash deposits were from regular cash sales and recovery of trade debts. The AO, however, disbelieved the explanation and made the addition based on incomplete debtor details. The Tribunal noted that the assessee maintained proper books of account, underwent statutory and tax audits, and explained the source of cash deposits through cash sales and debt recoveries.

The Tribunal found that the assessee's business model involved regular cash and credit sales to customers, with cash receipts deposited in the bank. The AO's addition was based on a specific amount out of the total cash sales recovery, which the Tribunal deemed unjustified. The Tribunal highlighted that the cash deposits were supported by sufficient cash balances, and the transactions were reflected in the books of account. It also noted that the business pattern had been accepted in previous assessments. The Tribunal emphasized that the assessee's operations did not exhibit abnormal cash sales patterns during demonetization, as per CBDT instructions.

The Tribunal concluded that the addition of Rs. 52,60,000/- was unwarranted and directed its deletion. The grounds raised by the assessee were allowed, and the appeal was consequently allowed. The judgment was pronounced in open court on 31.07.2023.