2024 (9) TMI 202 - AT - Income Tax

Addition u/s 68 - cash deposits during the demonetization period - AO has made additions towards cash deposit in specified bank notes after demonetization period only for the reason that the assessee is not eligible to transact or receive any specified bank notes after demonetization as per notification/GO issued by RBI and Government of India - HELD THAT - AO never disputed fact that the assessee has made sales in cash before demonetization period and also realized cash from debtors against cash sales made before demonetization period. AO erred in making additions towards cash deposits during demonetization period u/s 68 - CIT(A) also failed to look into the consistent transaction as in past, cash sales and source of cash deposits etc. Thus, we set aside the impugned order of the ld.CIT(A) and direct the AO to delete addition made towards cash deposits u/s 68 of the Act. Appeal filed by the assessee is allowed.

Issues Involved:
1. Legitimacy of cash deposits during the demonetization period.
2. Applicability of Section 68 of the Income Tax Act, 1961.
3. Eligibility to transact in Specified Bank Notes (SBNs) post-demonetization.
4. Evaluation of evidence supporting the source of cash deposits.
5. Legal precedents and judicial decisions relevant to the case.

Detailed Analysis:

1. Legitimacy of Cash Deposits During the Demonetization Period:
The appellant, a hospital, deposited Rs. 38,54,885/- in cash during the demonetization period, including Rs. 23,49,500/- in Specified Bank Notes (SBNs). The Assessing Officer (AO) added Rs. 20,54,610/- to the appellant's income under Section 68 of the Income Tax Act, 1961, questioning the legitimacy of these deposits. The appellant argued that the cash deposits were from routine hospital collections, which were already declared as income.

2. Applicability of Section 68 of the Income Tax Act, 1961:
The appellant contended that Section 68 should not apply as the source of income was satisfactorily explained through audited books of accounts and hospital cash books. The AO, however, rejected this explanation, citing that the appellant was not permitted to transact in SBNs post-demonetization, thus questioning the legality of the cash deposits.

3. Eligibility to Transact in Specified Bank Notes (SBNs) Post-Demonetization:
The AO and CIT(A) argued that the appellant, a private nursing home, was not among the categories allowed to transact in SBNs post-demonetization as per RBI and Government of India notifications. The appellant presented newspaper cuttings suggesting that private hospitals were exempted, but CIT(A) found no specific reference to private nursing homes in the official notifications.

4. Evaluation of Evidence Supporting the Source of Cash Deposits:
The appellant provided detailed evidence, including lists of patients and cash collections, to support the source of cash deposits. The Tribunal noted that the AO did not dispute the appellant's claims about cash sales and collections but focused on the violation of the notification barring transactions in SBNs. The Tribunal emphasized that the appellant's business model and trade practices supported the explanation for cash deposits, and there was no significant deviation in cash deposits during the demonetization period compared to previous periods.

5. Legal Precedents and Judicial Decisions Relevant to the Case:
The Tribunal referred to several judicial decisions, including:
- Purani Hospital Supplies Pvt. Ltd. vs. DCIT: Similar circumstances where the Tribunal held that the source of cash deposits was satisfactorily explained through business receipts.
- Raju Dinesh Kumar vs. DCIT: The Tribunal held that the explanation for cash deposits during demonetization was bona fide and acceptable, considering the nature of the business and consistent transactions.
- Agson Global Pvt Ltd vs. ACIT: The Delhi High Court ruled that additions based on deviation in cash sales and deposits during demonetization were improper.
- Dewas Soya Ltd, Ujjain vs. ITO: The Tribunal held that taxing the same income twice was unacceptable when the sales were already declared and taxed.

Conclusion:
The Tribunal concluded that the AO erred in making additions under Section 68, as the source of cash deposits was satisfactorily explained through regular business transactions. The CIT(A) also failed to consider the consistent pattern of cash sales and deposits. Therefore, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the additions made towards cash deposits under Section 68 of the Act. The appeal filed by the assessee was allowed.

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