2025 (1) TMI 321 - AT - Income Tax

Cash deposits during demonetization period - AO has made the addition u/s 69A r/w section 115BBE - HELD THAT - Addition made by the AO is merely on surmises and conjunctures because the assessee has duly recorded the cash sales in its books and the alleged cash deposit is from the available cash in hand in the regular books of accounts. Assessee is regularly making cash sales from past many years. Books of accounts are not rejected Quantitative details are maintained, because, as being an authorized dealer of TVS Motor Co. Pvt. Ltd., the purchases are duly recorded and the sales if any made in cash are also recorded in the quantitative details and VAT returns. Therefore, in absence of any evidence of any unrecorded sales placed by the Revenue authorities and considering the fact that the assessee is a dealer of a reputed company i.e. TVS Motor Company Ltd., we fail to find any merit in the finding of both the lower authorities and are inclined to hold that the assessee has successively explained the source of cash deposits in the bank account during 9th November, 2016 to 31st December, 2016, which are from regular cash sales and therefore, impugned addition u/s 69A read with section 115BBE is uncalled for. The finding of the ld. CIT (A) is set aside and the impugned addition stands deleted. Effective ground raised by the assessee is allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment include:

Whether the cash deposits made by the assessee during the demonetization period can be treated as unexplained money under Section 69A of the Income-tax Act, 1961, and subjected to tax under Section 115BBE.
Whether the assessment of the cash deposits by the Assessing Officer (AO) and the subsequent partial relief granted by the Commissioner of Income Tax (Appeals) [CIT(A)] was justified based on the evidence and explanations provided by the assessee.
Whether the cash deposits during the demonetization period were adequately explained as proceeds from regular business activities, specifically cash sales of TVS vehicles.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Treatment of Cash Deposits as Unexplained Money

Relevant Legal Framework and Precedents: The case revolves around the interpretation of Section 69A of the Income-tax Act, which deals with unexplained money, and Section 115BBE, which prescribes the tax treatment for such unexplained income. The legal question is whether the cash deposits can be considered unexplained money.
Court's Interpretation and Reasoning: The Tribunal examined whether the cash deposits were supported by legitimate business transactions. It considered the evidence provided by the assessee, including audited books of accounts, VAT returns, and the explanation that the deposits were from cash sales.
Key Evidence and Findings: The assessee provided comparative details of cash deposits and sales for the financial years 2015-16 and 2016-17. The Tribunal noted that the books of accounts were audited and not rejected by the AO, and the cash sales were recorded in the VAT returns.
Application of Law to Facts: The Tribunal found that the cash deposits were consistent with the business activities of the assessee and that the AO had not provided evidence to prove that the deposits were not from recorded sales.
Treatment of Competing Arguments: The Tribunal considered the AO's argument of an abnormal increase in cash deposits but found it insufficient to classify the deposits as unexplained. The CIT(A)'s partial relief was also scrutinized and found to be based on arbitrary assumptions.
Conclusions: The Tribunal concluded that the cash deposits were explained by the regular business cash sales and deleted the addition made by the AO under Section 69A.

Issue 2: Justification of CIT(A)'s Partial Relief

Relevant Legal Framework and Precedents: The CIT(A) had partially allowed the appeal, directing the AO to treat a portion of the cash deposits as explained based on a percentage increase analysis.
Court's Interpretation and Reasoning: The Tribunal found the CIT(A)'s approach to be arbitrary and not based on concrete evidence or legal principles.
Key Evidence and Findings: The Tribunal noted that the CIT(A) did not specifically address the evidence provided by the assessee or the reasons for the AO's assessment.
Application of Law to Facts: The Tribunal emphasized the need for a factual basis for any adjustments or reliefs granted in tax assessments.
Treatment of Competing Arguments: The Tribunal dismissed the CIT(A)'s reliance on a percentage increase without considering the actual business context and records.
Conclusions: The Tribunal set aside the CIT(A)'s decision and fully allowed the assessee's appeal.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The assessee has successively explained the source of cash deposits in the bank account during 9th November, 2016 to 31st December, 2016, which are from regular cash sales and therefore, impugned addition u/s 69A read with section 115BBE of the Act is uncalled for."
Core Principles Established: The judgment reinforces that unexplained money under Section 69A must be substantiated with evidence of non-recorded sales or income, and legitimate business transactions should not be arbitrarily classified as unexplained.
Final Determinations on Each Issue: The Tribunal determined that the cash deposits were adequately explained by the assessee's business activities, and the additions made by the AO were not justified. The appeal was allowed, and the additions were deleted.

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