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2025 (4) TMI 1023 - AT - Income TaxAddition u/s 69A - cash deposited in the bank account during the demonetisation period - HELD THAT - The case of the assessee is that he is engaged in the business of purchase and sale of Electronic Voucher Distribution (EVD) for Tata Sky TV Setup Box Recharge and has been making cash sales. This fact is not rebutted by the Revenue that the cash receipts had also made cash sales. From the record it is transpired that the lower authorities have proceeded on the basis of mere suspicion which should not be the basis for addition in dispute. It is also pointed out that no discrepancy was found by the AO related to books of account. Under these facts the impugned addition cannot be sustained. Thus hold accordingly. The AO is directed to delete the addition. Appeal of the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this appeal are: (a) Whether the addition of Rs. 10,00,000/- under section 69A of the Income-tax Act, 1961, representing cash deposited during the demonetisation period, was justified when the assessee's books of accounts were audited and accepted by the Assessing Officer (AO). (b) Whether the cash deposits during the demonetisation period, alleged to be unexplained money, were in fact proceeds from the business of Electronic Voucher Distribution (EVD) sales and thus should not be added again as unexplained cash. (c) Whether the addition under section 69A results in double taxation since the cash deposits were already accounted for as sales receipts and accepted by the AO. (d) Whether the application of the tax rate of 60% under section 115BBE on the addition was appropriate, considering the nature of the business income. (e) Whether the AO and CIT(A) erred in rejecting the assessee's explanation regarding the source of cash deposits and in confirming the addition without sufficient evidence. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a) & (b): Legitimacy of Addition under Section 69A on Cash Deposits During Demonetisation Period Relevant Legal Framework and Precedents: Section 69A of the Income-tax Act empowers the AO to treat unexplained cash credits or deposits as income if the assessee fails to satisfactorily explain the nature and source of such cash. The principle underlying this provision is that unexplained money found with the assessee is presumed to be taxable income unless satisfactorily explained. Precedents such as the decisions in ACIT vs. Hirapanna Jewellers and Anantpur Kalpana vs. ITO emphasize that additions under section 68 or 69A are not justified where the cash deposits represent genuine business receipts already offered to tax. Court's Interpretation and Reasoning: The Court examined the facts that the assessee was engaged in the business of purchasing and selling EVDs, predominantly on a cash basis. The assessee maintained audited books of accounts, which were accepted by the AO without discrepancy. The cash deposited during the demonetisation period was part of the regular business receipts from local shopkeepers, consistent with the business model followed in previous and subsequent years. The AO accepted 90% of the cash deposits during pre- and post-demonetisation periods as genuine business receipts but arbitrarily disallowed 10% of the cash deposited during demonetisation as unexplained money. The Court found this approach to be based on mere suspicion without any corroborative evidence to disbelieve the assessee's explanation. Key Evidence and Findings: The assessee submitted detailed bank statements, audited financials, and sales records showing substantial cash sales and corresponding deposits. The business model mandated cash collection from customers and immediate transfer to the EVD dealer, a pattern consistently followed over multiple years. The AO did not find any discrepancy in the books or transactions. Application of Law to Facts: Given the acceptance of the books and the nature of the business involving cash transactions, the Court held that the cash deposits during the demonetisation period were genuine business receipts. Therefore, addition under section 69A was unwarranted. Treatment of Competing Arguments: The Revenue argued that the assessee failed to satisfactorily explain the source of cash deposits and that the addition was justified. The Court rejected this contention, emphasizing that suspicion alone cannot justify addition when credible evidence and audited accounts exist. Conclusion: The addition of Rs. 10,00,000/- under section 69A was not sustainable and was ordered to be deleted. Issue (c): Double Taxation Resulting from Addition of Cash Receipts Already Accounted as Sales Relevant Legal Framework and Precedents: The principle against double taxation is well established. The Court referred to the Gujarat High Court decision in Vishal Exports Overseas Ltd. which held that addition of amounts already offered to tax as sales under section 68 or 69A would amount to double taxation. Court's Interpretation and Reasoning: Since the cash deposits represented sale proceeds already accounted for and accepted as income, the addition under section 69A would lead to taxing the same income twice. The Court underscored that the AO and CIT(A) failed to appreciate this principle. Key Evidence and Findings: The assessee's books, audit reports, and bank statements showed that the cash deposits were reflected as sales, and no discrepancy was found in the accounting of these receipts. Application of Law to Facts: The Court applied the principle from the precedent to hold that the addition was impermissible double taxation. Treatment of Competing Arguments: The Revenue did not dispute the accounting of sales but contended the cash deposits during demonetisation required separate scrutiny. The Court found this argument insufficient to override the principle against double taxation. Conclusion: The addition under section 69A was liable to be deleted to avoid double taxation. Issue (d): Applicability of Tax Rate under Section 115BBE on the Addition Relevant Legal Framework: Section 115BBE imposes a higher tax rate of 60% on income deemed to be unexplained cash credits or investments. This is applicable when income is assessed under sections 68, 69, 69A, or 69B. Court's Interpretation and Reasoning: Since the Court held that the addition under section 69A was not justified, the question of applying the higher tax rate did not arise. The assessee's income was business income subject to normal tax rates. Conclusion: The AO and CIT(A) erred in applying the higher tax rate under section 115BBE on the addition which was not sustainable. Issue (e): Adequacy of Explanation and Evidence Regarding Source of Cash Deposits Relevant Legal Framework and Precedents: The burden lies on the assessee to explain the source of cash deposits satisfactorily. However, mere suspicion or failure to produce additional evidence is not sufficient to reject a plausible explanation, especially when books are audited and accepted. The Kerala High Court in K.S. Kannan Kunhi vs. CIT emphasized that inference of income from undisclosed sources must be drawn only when explanation is unsatisfactory and facts justify such inference. Court's Interpretation and Reasoning: The Court found that the assessee provided a consistent and credible explanation supported by audited accounts, bank statements, and business records. The AO did not find any discrepancy or defect in the books. Therefore, the addition based on suspicion was not justified. Conclusion: The explanation was accepted, and the addition was deleted accordingly. 3. SIGNIFICANT HOLDINGS "The case of the assessee is that he is engaged in the business of purchase and sale of Electronic Voucher Distribution (EVD) for Tata Sky TV Setup Box Recharge and has been making cash sales. This fact is not rebutted by the Revenue that the cash receipts had also made cash sales. From the record it is transpired that the lower authorities have proceeded on the basis of mere suspicion which should not be the basis for addition in dispute. It is also pointed out that no discrepancy was found by the AO related to books of account. Under these facts the impugned addition cannot be sustained." "Assessee's business model mandates receipt of cash from customers and this practice is followed regularly over multiple years. The cash deposits during demonetisation period are part of these business receipts and have been accounted for as sales. Addition of the same amount under section 69A would result in double taxation which is impermissible under the Income-tax Act." "Suspicion alone cannot justify addition under section 69A when the assessee maintains audited books of account accepted by the AO and provides consistent explanation supported by evidence." Final determinations:
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