2022 (4) TMI 451 - AT - Income Tax

Addition u/s 68 - assessee was selected for scrutiny for abnormal increase in cash deposit during the demonetization period as compared to pre-demonetization period - Allegation of the A.O. that assessee has not submitted any documents/details to establish the source of cash deposits made in the bank account - HELD THAT - when the nature and source of old currency notes is fully supported and substantiated, no addition under section 68 of the I.T. Act, 1961 can be made. In this view of the matter, NFAC was not justified in sustaining the addition made by the A.O. on account of cash deposit in the bank account - Appeal of assessee allowed.

Issues Involved:
1. Addition of ?39,60,000 under Section 68 of the I.T. Act, 1961.
2. Validity of cash deposits during the demonetization period.
3. Justification and documentation of cash deposits by the assessee.
4. Applicability of presumptive taxation under Section 44AD.

Detailed Analysis:

1. Addition of ?39,60,000 under Section 68 of the I.T. Act, 1961:
The primary issue revolves around the addition of ?39,60,000 made by the Assessing Officer (A.O.) under Section 68 of the Income Tax Act, 1961. The A.O. made this addition on the grounds that the assessee could not satisfactorily explain the source of cash deposits made in the bank account during the demonetization period. The Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), upheld this addition, citing discrepancies in the documentation provided by the assessee. The Tribunal, however, found merit in the assessee's argument that the cash deposits represented sale proceeds and realization from debtors, substantiated by various documents and ledger accounts.

2. Validity of Cash Deposits During the Demonetization Period:
The case was selected for scrutiny due to abnormal increases in cash deposits during the demonetization period compared to the pre-demonetization period. The A.O. questioned the source of these deposits, and the assessee explained that the cash was received from debtors between 01.04.2016 to 08.11.2016. The A.O. rejected this explanation, noting that there was no trend of such deposits in previous or subsequent years. The CIT(A) also noted that the pattern of cash deposits during the demonetization quarter was substantially higher than in other periods, leading to the conclusion that the deposits were not regular business transactions.

3. Justification and Documentation of Cash Deposits by the Assessee:
The assessee provided a list of debtors, bank account statements, and a cash book to justify the cash deposits. However, the CIT(A) found several discrepancies, such as the lack of a cash book showing day-to-day receipts and expenditures, mismatches between bank statements and the summary of cash deposits, and the absence of confirmations from debtors. Despite these discrepancies, the Tribunal found that the assessee had provided sufficient documentation, including ledger accounts and confirmations from debtors, to substantiate the cash deposits. The Tribunal emphasized that the A.O. did not bring any material evidence to rebut the assessee's claims.

4. Applicability of Presumptive Taxation Under Section 44AD:
The assessee filed the return of income under presumptive taxation by applying the provisions of Section 44AD of the I.T. Act, 1961, computing an 8% profit on gross sales of ?90,66,440. The Tribunal noted that the gross sales were not in dispute and that the assessee had realized an amount of ?38,32,509 from debtors. The Tribunal cited several judicial precedents, including the Supreme Court and various High Courts, to support the view that once the sales are accepted, the corresponding cash deposits should not be treated as unexplained under Section 68. The Tribunal concluded that the A.O. should not have made the addition without bringing any material evidence to rebut the details furnished by the assessee.

Conclusion:
The Tribunal set aside the order of the CIT(A), NFAC, and directed the A.O. to delete the addition of ?39,60,000. The Tribunal found that the assessee had provided sufficient documentation to substantiate the cash deposits and that the addition made by the A.O. was not justified. The appeal of the assessee was allowed.

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