Tribunal overturns cash addition due to lack of verification. Assessee's evidence deemed credible.

The Tribunal allowed the appeal, overturning the addition of Rs. 11,22,090 as unexplained cash in hand. The Tribunal criticized the authorities for not verifying sales and purchases directly and concluded that the evidence presented by the assessee was credible, leading to the deletion of the entire addition.

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Issues:
Challenge against addition of cash in hand under limited scrutiny for demonetization period.

Analysis:
The appeal was filed against the Order of the Ld. CIT(A)-1, Gurgaon, challenging the addition of Rs. 11,22,090/- on account of cash in hand for the A.Y. 2015-2016. The case was selected for limited scrutiny due to cash deposits during the demonetization period. The assessee explained the source of cash deposits, attributing some to earlier years' income and the rest to retail sales during the year.

The Assessing Officer (A.O.) raised concerns about the lack of proof for business activities, as the assessee did not maintain bills of purchase and all transactions were conducted in cash. The A.O. considered the cloth business of the assessee as bogus and non-existent, leading to the addition of Rs. 15 lakhs as unexplained cash credit under section 68 of the I.T. Act. The A.O. treated the cash credit as unexplained and made the addition accordingly.

The addition was contested before the Ld. CIT(A), who held that the A.O. was not justified in adopting receipts of Rs. 15 lakhs to estimate the income under section 68 of the I.T. Act. The Ld. CIT(A) restricted the addition to Rs. 11,22,090/-, representing the cash in hand considered unaccounted for.

During the proceedings, the counsel for the Assessee argued that the business was small-scale, operated under section 44AD of the I.T. Act, and did not require formal bookkeeping. The counsel cited a High Court decision to support the contention that without rejecting the firm's explanation, invoking section 68 was unwarranted. The balance-sheet showed cash in hand of Rs. 11,22,090/-, prepared without maintaining books of account.

The Tribunal noted that the assessee had declared income under section 44AD for multiple years without dispute. The A.O. was criticized for not verifying sales and purchases directly with the parties mentioned by the assessee. The Tribunal found no justification for treating the sales as bogus, especially since the balance-sheet indicated the cash in hand as part of the capital account. The Tribunal concluded that the authorities erred in making the addition without sufficient evidence to prove the cash in hand was unexplained.

Ultimately, the Tribunal allowed the appeal, setting aside the Orders of the authorities below and deleting the entire addition of Rs. 11,22,090/-, as the explanation provided by the assessee was deemed credible.

In conclusion, the Tribunal found no basis for the addition made against the assessee, as the evidence presented did not substantiate the claim of unexplained cash credit.

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