2024 (7) TMI 723 - AT - Income Tax

Addition u/s 69 - cash deposits made during demonetization period - HELD THAT - Once the assessee claims that the source for cash deposits is out of realization of sale proceeds from sundry debtors, then the same cannot be brought to tax under the provisions of section 69 for the simple reason that the provisions of section 69 is applicable in a situation where the assessee has made investment which are not recorded in the books of account, if any maintained by him for any source of income and the assessee offers no explanation of the nature and source of investment or the explanation offered by the assessee is not up to the satisfaction of the AO. In the present case, the cash received from sundry debtors has been recorded in the books of account of the assessee and further the assessee has explained the nature and source of investment by filing necessary evidences including corresponding sale invoice, e-way bill and ledger account copies of the parties. From the details furnished by the assessee, it is undoubtedly clear that the source for cash deposits into the bank account during demonetization period is explained out of known source of income. CIT (A) had recorded a categorical finding that similar cash deposits were made even before the demonetization period and after demonetization period. From the analysis of the cash deposits during and after demonetization period, there is no abnormal increase or deviation in cash deposits during the demonetization period. Therefore, we are of the considered view that when the assessee has recorded cash receipts in the books of account out of realization from sundry debtors before the date of demonetization, then the AO ought not to have made the addition towards cash deposits u/s 69 only based on the theory of human probabilities, because when the evidences filed by the assessee are glaring at us, the theory of human probabilities alone will not be sufficient to take an adverse view on the assessee. Since the assessee has justified the source for cash deposits during the demonetization period with necessary evidences, in our considered view, there is no error in the reasons given by CIT (A) to delete the addition made u/s 69. Decided in favour of assessee.

Summary

Issues Involved:
- Addition made under section 69 of the Income Tax Act, 1961 for cash deposits during demonetization period.
- Rejection of explanation by the Assessing Officer regarding source of cash deposits.
- Appeal by the Revenue and Cross Objection by the assessee against the order of the CIT (A).

Analysis:

Issue 1: Addition under Section 69 of the Income Tax Act
The case involved the assessee, a building materials supplier, who deposited cash during demonetization period. The Assessing Officer questioned the source of these deposits despite the assessee providing ledger extracts and explanations. The CIT (A) noted that the nature of the business involved cash transactions due to dealing with unorganized sectors. The CIT (A) found that the assessee had submitted necessary evidence including invoice copies, e-way bills, and ledger copies to support the claim that cash was received from debtors before demonetization. The CIT (A) directed the Assessing Officer to delete the addition made under section 69 of the Income Tax Act, 1961, as the cash deposits were adequately explained with evidence.

Issue 2: Rejection of Explanation by Assessing Officer
The Assessing Officer rejected the assessee's explanation for cash deposits during demonetization, stating that the cash received from debtors did not align with sales timelines. However, the CIT (A) found that the assessee had maintained regular books of account and recorded cash receipts from debtors before demonetization. The CIT (A) emphasized that the source of cash deposits was explained with proper documentation, including sales invoices and ledger copies. The CIT (A) concluded that the Assessing Officer erred in making the addition solely based on the timing of cash deposits during demonetization.

Issue 3: Appeal and Cross Objection
Both the Revenue and the assessee filed appeals against the CIT (A) order. The Revenue contended that the addition under section 69A should not have been deleted based on the details provided by the assessee. The assessee, supported by the Counsel, argued that the nature of the business justified cash transactions and all relevant evidence was submitted. The Tribunal upheld the CIT (A) decision, dismissing the Revenue's appeal. Additionally, the assessee's cross objection was dismissed due to a delay of 200 days, with insufficient reasons provided for the delay.

In conclusion, the Tribunal upheld the CIT (A) decision to delete the addition under section 69 of the Income Tax Act, 1961, emphasizing that the source of cash deposits was adequately explained by the assessee with supporting documentation. The appeals by the Revenue and the cross objection by the assessee were dismissed, with the Tribunal finding in favor of the assessee based on the evidence presented.