2025 (1) TMI 159 - AT - Income Tax

Cash deposits made during the demonetization period - unexplained income u/s 69A - HELD THAT - Assessee is engaged in wholesale and retail trade of grocery items and allied products which regularly generate cash inflows for the assessee. The only source of income for the assessee is trading activity. In support of its claim, the assessee had furnished bank account statement and cash book for this financial year. The cash receipts as earned out of sale proceeds have duly been accounted for in the books of accounts and the cash balance as available in the cash book has been sourced to make impugned deposits in the banks. Assessee has maintained purchase ledger, sales ledgers, stock ledger etc. The sales proceeds have duly been reflected in the VAT returns as filed by the assessee which is duly supported by the copies of VAT returns as placed on record. The sales turnover has been offered to tax and making impugned addition again would amount to double taxation. The cash sales summary for all the years as placed on record would show that that assessee regularly conduct sales in cash and there is no abnormal cash inflow in this year. No defect has been pointed in the books of accounts. Thus as the deposits were sourced out of business receipts, the impugned addition could not be sustained. See M/s RR Foods Pvt. Ltd 2024 (7) TMI 1579 - ITAT CHENNAI . As in Tamilnadu State Marketing Corporation Ltd. 2024 (10) TMI 1614 - ITAT CHENNAI holding that simplicitor violation of certain notification issued by RBI would not entitle the revenue to make addition u/s 69 or 69A since the requirement of these sections should be fulfilled independently. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment are:

Whether the cash deposits made by the assessee during the demonetization period could be considered unexplained income under Section 69A of the Income Tax Act.
Whether the provisions of Section 115BBE of the Income Tax Act were correctly applied to determine the tax liability of the assessee.
Whether the procedural guidelines and instructions issued by the Central Board of Direct Taxes (CBDT) were followed by the lower authorities during the assessment and appeal proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition under Section 69A for Cash Deposits

Relevant Legal Framework and Precedents: Section 69A of the Income Tax Act pertains to unexplained money, where any money found to be unexplained is deemed to be the income of the assessee. Precedents include decisions in similar cases where business receipts were considered as explained income.
Court's Interpretation and Reasoning: The Tribunal considered the nature of the assessee's business, which regularly generated cash inflows from the sale of grocery items. It noted that the assessee had accounted for these cash inflows in its books and reflected them in VAT returns.
Key Evidence and Findings: The assessee provided bank statements, cash books, purchase and sales ledgers, and VAT returns to substantiate the claim that the cash deposits were from business receipts.
Application of Law to Facts: The Tribunal found that the cash deposits were sourced from the business receipts, and since these were already accounted for in the books, the addition under Section 69A would result in double taxation.
Treatment of Competing Arguments: The Tribunal dismissed the revenue's argument that the deposits were unexplained, citing the lack of defects in the assessee's accounts and the consistent pattern of cash sales.
Conclusions: The Tribunal concluded that the addition under Section 69A was unsustainable and directed the deletion of the impugned additions.

Issue 2: Application of Section 115BBE

Relevant Legal Framework and Precedents: Section 115BBE deals with the tax rate applicable to income deemed under certain sections, including Section 69A.
Court's Interpretation and Reasoning: Since the Tribunal found that the cash deposits were not unexplained income under Section 69A, the application of Section 115BBE was deemed inappropriate.
Conclusions: The Tribunal held that the provisions of Section 115BBE could not be invoked as the primary condition of unexplained income under Section 69A was not met.

Issue 3: Compliance with CBDT Instructions

Relevant Legal Framework: The CBDT issued instructions regarding the handling of cash deposits during the demonetization period, including Instruction No.03/2017.
Court's Interpretation and Reasoning: The Tribunal observed that the lower authorities failed to adequately consider the nature of the assessee's business and the evidence provided, which was contrary to the spirit of the CBDT instructions.
Conclusions: The Tribunal found procedural lapses in the assessment and appeal process, supporting the assessee's contention of non-compliance with CBDT guidelines.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Considering the facts and circumstances of the case, we delete the impugned additions. The Ld. AO is directed to re-compute the income of the assessee."
Core Principles Established: The decision reinforced that business receipts duly accounted for in the books cannot be treated as unexplained income under Section 69A, and procedural compliance with CBDT instructions is essential.
Final Determinations on Each Issue: The Tribunal allowed the appeal, directing the deletion of additions under Section 69A and negating the application of Section 115BBE, while also highlighting the need for adherence to procedural guidelines.

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