2024 (7) TMI 399 - AT - Income Tax

Addition u/s 69A - unexplained income - cash deposits made into bank account during demonetization period - assessee neither furnish the stock summary nor furnished the bill and voucher in support of purchases - as assessee recorded the cash deposits made into bank account in its books of account and the same were audited and tax audit report was also furnished - HELD THAT - In the case on hand, the assessee made cash deposits into the bank account which is reflected in its balance sheet, the books were audited, the assessee has furnished the tax audit report and it was also the explanation of the assessee that out of cash deposit of Rs. 69,25,000/-, Rs. 13 lakhs was from out of the sales made to Zergar Gas and the other cash receipts were out of the cash sales during Diwali which happened to be on 30.10.2016 just a week before the demonetization which happened on 09.11.2016. Therefore, in our opinion this addition is liable to be deleted on this legal ground alone. AO did not reject the books of accounts of the assessee. The contention of the assessee that it had received cash of Rs. 13,95,000/- from Zegar Gas out of sales invoices of Rs. 32,62,011/- raised from 13.06.2016 to 26.10.2016 was not disputed. It is not even the case of the authorities below that the assessee has received cash after the demonetization on 09.11.2016. Whatever released by the assessee through sales was recorded in the cash book and the amount of cash deposited was the collections made till 07.11.2016 which fact was also admitted by the Ld.CIT(A) in his order and there has been no amount of cash collection by the assessee after demonetization period. It is not in dispute that the assessee is into the business of trading in fire crackers. Coordinate bench of the Tribunal in the case of M/s Shivam Industries Pvt. Ltd. 2024 (2) TMI 1399 - ITAT DELHI held that when the audited books of account were not rejected and the sales of the assessee have not been disturbed the Revenue authorities are precluded from making any addition u/s 68 of the Act in respect of the cash deposits made into bank account during demonetization period. .We are of the considered view that there cannot be any addition u/s 69A of the Act in respect of cash deposits made by the assessee into its bank account as unexplained income in the case of the assessee. Therefore, we reverse the findings of the Ld.CIT(A) and direct the AO to delete the addition made u/s 69A of the Act. Grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Applicability of Section 69A of the Income Tax Act to cash deposits recorded in the books of account.
2. Justification for treating cash deposits as unexplained income under Section 69A.
3. Validity of the Assessing Officer's (AO) approach in not rejecting the books of account but still making additions under Section 69A.

Issue-wise Detailed Analysis:

1. Applicability of Section 69A of the Income Tax Act to Cash Deposits Recorded in the Books of Account:

The primary legal issue raised by the assessee was whether the addition can be made under Section 69A of the Act in respect of cash deposits that were recorded in the books of account. The Tribunal referred to the case of ITO Vs. M/s Zee Bangles Pvt. Ltd., where it was held that Section 69A applies when the assessee is found to be the owner of any money not recorded in the books of account. The Tribunal emphasized that the provision is applicable only when the money is not recorded in the books of account, and since the assessee had duly recorded the cash deposits in the audited books of account, Section 69A could not be invoked.

2. Justification for Treating Cash Deposits as Unexplained Income under Section 69A:

The AO treated the cash deposits of Rs. 69,25,000 as unexplained income under Section 69A, observing that the assessee did not disclose the bank account in the return of income and failed to furnish stock summary or bills and vouchers for purchases. However, the Tribunal noted that the assessee had recorded the cash deposits in its books of account, which were audited, and had furnished the tax audit report. The Tribunal also noted that the cash deposits were from sales made during the Diwali festival, which occurred just before the demonetization period. The Tribunal concluded that the addition was unjustified as the cash deposits were duly recorded in the books of account and supported by sales records.

3. Validity of the AO's Approach in Not Rejecting the Books of Account but Still Making Additions under Section 69A:

The Tribunal observed that the AO did not find any discrepancies in the books of account, sales, purchases, or stock records maintained by the assessee. The AO did not reject the books of account but still made the addition under Section 69A based on surmises and conjectures. The Tribunal referred to several judicial pronouncements, including the case of Sobha Devi Dilipkumar Vs. ITO, where it was held that Section 69A cannot be invoked when the investments are disclosed in the books of account. The Tribunal concluded that the AO's approach was flawed as the cash deposits were duly recorded in the books of account, and there was no basis for the addition under Section 69A.

Conclusion:

The Tribunal found that the addition made by the AO under Section 69A was not justified as the cash deposits were recorded in the books of account, which were audited and supported by sales records. The Tribunal reversed the findings of the CIT(A) and directed the AO to delete the addition made under Section 69A. The appeal of the assessee was allowed.