2024 (5) TMI 1239 - AT - Income Tax

Addition u/s 69A r.w.s. 115BBE - cash deposited in its bank account during the demonetization period treating the same as unexplained - Non rejection of books of accounts - deposits from sales - AO as well as the CIT(A) did not accept the explanation of the assessee that these cash deposits were made out of cash sales observing that the assessee did not file any explanation or evidences - HELD THAT -On perusal of the assessment order it is observed that though the assessee has furnished cash book bank book balance sheet profit and loss account details of cash deposited sales account etc. the AO did not reject the information filed by the assessee. AO did not reject the books of account of the assessee. As observed that the trading results of the assessee were accepted and the purchases sales were not doubted at all. The AO accepted the credit purchases and credit sales and the explanation of the assessee that the cash deposits were made out of cash sales was rejected on the ground that assessee did not have any cash sales in earlier and subsequent years. On the sole reason that there are no cash sales in the immediately preceding year and also subsequent year cannot be the basis for rejecting the explanation of the assessee that the cash deposits were made out of cash sales especially when the assessee produced cash book sales purchases etc. to demonstrate that the cash deposited were made out of cash sales not rejected the books of account not doubted the purchases sales and further accepted the book results without rejecting the books of account. In the case of Anantpur Kalpana 2021 (12) TMI 599 - ITAT BANGALORE held that where AO made addition u/s 68 of the Act on account of cash deposited by assessee in its bank account post demonetization since such cash deposit was towards assessee sale proceeds which was already offered to tax by the assessee and admitted by Revenue as revenue receipt impugned addition made u/s 68 would result in double taxation and therefore is liable to be deleted. In the case of Mukesh K. Waghasia 2022 (4) TMI 848 - ITAT SURAT held that where assessee having explained that cash deposited in bank account was out of cash turnover as declared under 44AD and the assessee also having submitted memorandum of trading and profit and loss account and balance sheet impugned additions of such cash deposit were to be deleted. Thus AO is directed to delete the addition made u/s 69A/68 - Decided in favour of assessee.

Issues Involved:
1. Confirmation of the Assessing Officer's order under section 143(3) of the Income-tax Act, 1961.
2. Addition of Rs. 37,50,000/- as unexplained cash deposit under section 68 read with section 115BBE of the Act.

Issue-wise Detailed Analysis:

1. Confirmation of the Assessing Officer's order under section 143(3) of the Income-tax Act, 1961:
The assessee, a HUF engaged in retail cloth trading, filed a return declaring an income of Rs. 3,84,250/-. The Assessing Officer (AO) completed the assessment under section 143(3) on 30.12.2019, determining taxable income at Rs. 41,34,250/-. The AO made an addition of Rs. 37,50,000/- under section 69A read with section 115BBE, treating the cash deposited in the bank during the demonetization period as unexplained. The CIT(A) sustained the addition under section 68, rejecting the assessee's contention that the cash deposits were from cash sales.

2. Addition of Rs. 37,50,000/- as unexplained cash deposit under section 68 read with section 115BBE of the Act:
The assessee argued that the cash deposits were from accumulated cash sales, substantiated by the cash book, bank statement, profit and loss account, balance sheet, and sales account. The AO did not reject the books of account or the trading results but did not accept the cash sales explanation due to the absence of cash sales in preceding and subsequent years. The assessee cited several decisions, including CIT Vs. Vishal Exports Overseas Ltd., M/s Fine Bujranwala Jewellers Vs. ITO, Anantpur Kalpana Vs. ITO, and Mansukh K Waghasia Vs. ITO, to support their case.

Judgment Analysis:
The Tribunal noted that the AO accepted the trading results and did not reject the books of account or doubt the purchases and sales. The AO's rejection of the cash sales explanation solely based on the absence of cash sales in other years was deemed insufficient. The Tribunal referenced the case of M/s Fine Gujaranwala Jewellers Vs. ITO, where it was held that extraordinary incidents like demonetization could justify abnormal cash sales and deposits. The Tribunal also cited other cases, such as Hirapanna Jewellers and Lakshmi Rice Mills, emphasizing that when books of account are accepted, and cash deposits are recorded therein, additions under section 68 are not justified.

The Tribunal concluded that the AO should not have rejected the cash sales explanation without rejecting the books of account or doubting the sales and purchases. Consequently, the addition made under section 69A/68 was directed to be deleted, and the appeal of the assessee was allowed.

Conclusion:
The appeal of the assessee was allowed, and the addition of Rs. 37,50,000/- made under section 69A/68 of the Act was deleted. The Tribunal emphasized the importance of accepting the books of account and the recorded cash deposits when no flaws are found in the trading results and financial statements.

Order Pronounced:
The order was pronounced in the open court on 17/05/2024.

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