2024 (8) TMI 1501 - AT - Income Tax

Cash deposited during demonetization not allowed as sales of the appellant by the CIT(A) - HELD THAT - We are of the considered view that there is no abnormality in deposit of cash in the bank account during the relevant year particularly in view of the finding of the CIT (A) that cash deposits partly prior to demonetization and partly post demonetization are nothing but sales consideration deposited in the bank account. Hence, following the reasoning given in Ramesh Kochar 2022 (4) TMI 1277 - ITAT DELHI we hereby hold that the addition u/s 69A of the Act is uncalled for and the CIT (A) is not justified in upholding the same. Consequentially, we delete the addition sustained by the Ld. CIT(A). Appeal of the assessee is allowed.

Summary

Issues:
1. Tax treatment of cash deposits during demonetization period.
2. Conversion of limited scrutiny to full scrutiny without PCIT approval.

Analysis:

Issue 1: Tax treatment of cash deposits during demonetization period
The appellant, engaged in the trading of fabrics, filed her Income Tax Return (ITR) for AY 2017-18 declaring income of Rs. 3,95,190/-. The case was selected for scrutiny due to substantial cash deposits during demonetization. The AO taxed the entire cash deposits of Rs. 52,30,500/- under section 69A of the Income Tax Act, 1961. The CIT (A) restricted the addition to Rs. 14,93,000/- citing lack of documentary evidence to substantiate the sources of cash deposits during demonetization. The appellant argued that the cash deposits were sales consideration deposited in the bank account and challenged the addition under section 69A. The ITAT held that the addition of Rs. 14,93,000/- was unjustified, relying on findings that the cash deposits were sales consideration. The ITAT deleted the addition, disagreeing with the CIT (A)'s decision.

Issue 2: Conversion of limited scrutiny to full scrutiny without PCIT approval
The appellant raised a second issue regarding the conversion of the case from limited scrutiny to full scrutiny without PCIT approval. Citing a decision, it was argued that the assessment order should be considered void ab initio due to this conversion. However, the ITAT did not address this issue in its judgment, as it focused solely on the tax treatment of cash deposits during demonetization.

In conclusion, the ITAT allowed the appeal of the assessee, deleting the addition of Rs. 14,93,000/- made by the CIT (A) regarding cash deposits during demonetization. The judgment emphasized the nature of the cash deposits as sales consideration and disagreed with the CIT (A)'s decision. The issue regarding the conversion of scrutiny type was not addressed in the judgment.