2025 (3) TMI 45 - AT - Income Tax

Addition u/s 68 - cash deposited in banks during the demonetization period - specific case of the Assessee that the cash deposited during the demonization was out of the cash withdrawal from the bank and the entirety of the cash withdrawals were from the regular bank account maintained in the usual course of business - HELD THAT - AO has accepted the books of accounts of the Assessee and no defects or discrepancies of any source in the purchase and sales and stocks have been pointed out by the AO further the A.O. has also not doubted the fact that the source cash as enduring to the Assessee from its business activities further it is not the case of the A.O. that the inflow of cash from any activity other than business of the Assessee. A.O. failed to look into the history of the Assessee wherein it is found that the Assessee used to deposit the cash in the bank in the months preceding demonization. CIT(A) has committed error in upholding the addition made by the A.O. accordingly we delete the addition - Appeal filed by the Assessee is allowed.

Summary

The present appeal before the Appellate Tribunal concerns the order of the Commissioner of Income Tax Appeals/National Faceless Appeal Centre-Delhi (NFAC) for the Assessment Year 2017-18. The core issue revolves around the addition of Rs. 52,35,000 by the Assessing Officer under section 68 of the Income Tax Act, 1961, on account of cash deposited during the demonetization period. The Assessee challenged this addition, arguing that the cash deposits were from regular bank withdrawals and part of the usual business operations. The Tribunal considered the arguments presented by both parties and analyzed the evidence and legal framework to reach its decision.The Assessee contended that the cash deposits during demonetization were from withdrawals made from the regular bank account maintained in the course of business. The Assessee's accounts had been audited, and the Assessee had a history of retaining higher cash amounts over the years. The Assessee also highlighted the cash withdrawals during various months leading up to demonetization to support their claim.On the other hand, the Departmental Representative argued that excessive cash retention and high cash balances, especially when coupled with borrowed funds, were not prudent commercial practices. The Representative questioned the Assessee's failure to demonstrate the specific use of the cash deposited during demonetization, especially considering the loans taken by the Assessee and the interest payments thereon.The Tribunal examined the Assessee's business activities, particularly in the manufacture and sale of static energy meters. It noted that the Assessing Officer had raised concerns about the purpose of retaining excessive cash and deemed it against prudent commercial considerations. However, the Tribunal found that the Assessing Officer and the Commissioner of Income Tax Appeals had overlooked crucial aspects, such as the Assessee's audited accounts, the regularity of cash withdrawals, and the absence of defects in purchase, sales, and stock records. The Tribunal also considered the historical cash deposit patterns of the Assessee before demonetization.Ultimately, the Tribunal concluded that the Commissioner of Income Tax Appeals had erred in upholding the addition made by the Assessing Officer. It found that the Assessee's explanations and evidence regarding the cash deposits during demonetization were credible and in line with business practices. Therefore, the Tribunal allowed the Assessee's appeal and deleted the addition made by the Assessing Officer.In summary, the Tribunal's decision centered on the Assessee's ability to substantiate the source and purpose of the cash deposits during demonetization, highlighting the importance of maintaining proper records and demonstrating business practices in such circumstances.