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Issues: (i) Whether the rejection of books of account under section 145(3) was justified on account of abnormal cash sales, cash in hand, and cash deposits during the demonetization period; (ii) Whether the addition under section 68 for unexplained cash deposits was sustainable in full; (iii) Whether the addition confirmed was chargeable to tax at the rate prescribed under section 115BBE.
Issue (i): Whether the rejection of books of account under section 145(3) was justified on account of abnormal cash sales, cash in hand, and cash deposits during the demonetization period.
Analysis: The cash sales, cash in hand, and cash deposits showed a steep and abnormal increase during the relevant period as compared with the preceding year. The explanation that the cash deposits represented genuine sales receipts was found unsubstantiated because the invoices and supporting records lacked proper particulars and did not establish a reliable business pattern. The surrounding circumstances supported the view that the books did not reflect a true and correct picture of the business.
Conclusion: The rejection of the books of account was upheld and the issue was decided against the assessee.
Issue (ii): Whether the addition under section 68 for unexplained cash deposits was sustainable in full.
Analysis: The explanation relating to cash sales was rejected, but the record showed opening cash balance and cash withdrawals from bank during the relevant period which were not found to be tainted by any specific anomaly. Those amounts were treated as available sources for part of the deposits. Only the balance amount, after giving credit for the opening cash and withdrawals, remained unexplained.
Conclusion: The addition was sustained only to the extent of the unexplained balance and was deleted pro tanto; the issue was partly in favour of the assessee.
Issue (iii): Whether the addition confirmed was chargeable to tax at the rate prescribed under section 115BBE.
Analysis: The enhanced rate under section 115BBE applied to the assessment year in question, and the addition sustained under section 68 attracted that special rate.
Conclusion: The applicability of section 115BBE was upheld against the assessee.
Final Conclusion: The appeal succeeded only in part, with partial relief granted on the quantum of addition while the rejection of books and the special rate of tax were sustained.
Ratio Decidendi: Abnormal and unsupported cash sales, coupled with unexplained spikes in cash holding and deposits, justify rejection of books of account; however, where part of the deposited cash is traceable to opening balance or proved withdrawals, only the unexplained balance can be brought to tax, and the sustained addition attracts the applicable special rate of tax.
Rejection of books and partial relief on unexplained cash deposits upheld, with section 115BBE applying to the sustained addition.
ITAT Ahmedabad upheld rejection of books under section 145(3) where cash sales, cash on hand and cash deposits rose abnormally during demonetisation and the supporting invoices and records did not establish a reliable business pattern. On section 68, the tribunal accepted that opening cash balance and bank cash withdrawals provided available s for part of the deposits, so only the unexplained balance remained taxable and the addition was reduced pro tanto. It also upheld application of the special tax rate under section 115BBE to the addition sustained. The appeal therefore succeeded only in part, with partial relief confined to the quantum of unexplained deposits.
Rejection of books of account - Addition u/s 68 - cash found deposited in his bank account during demonetization period the source of which remained unexplained - applicability of tax rate as prescribed under Section 115BBE Rejection of books of account - Abnormal cash sales - Unverifiable invoices - HELD THAT: - The Tribunal found that the material facts showing an abnormal rise in cash sales, cash in hand and cash deposits in the pre-demonetization period, as compared with the corresponding period of the preceding year, remained uncontroverted. It further noted that the explanation of cash sales was not supported by genuine and authenticated evidence, and the invoices contained incomplete particulars and general narration. On these facts, the books were rightly held not to reflect a true and correct picture of the business, warranting rejection of the accounts. [Paras 12, 13, 14] The rejection of the books of account was upheld. Unexplained cash deposits during demonetization - Source of cash deposits - Benefit of opening cash and bank withdrawals - HELD THAT: - While agreeing that the deposits could not be linked to the assessee's claimed cash sales, the Tribunal separately examined the other disclosed sources of cash. Since no discrepancy had been recorded in relation to the opening cash in hand as on 01.10.2016 and the cash withdrawn from bank between 01.10.2016 and 08.11.2016, the assessee was held entitled to credit for those amounts as available source for the deposits. Only the balance amount of cash deposited in the bank remained unexplained and was liable to be sustained as addition. [Paras 15] The addition was sustained only to the extent of the cash deposits remaining after allowing set-off for the accepted opening cash balance and bank withdrawals. Applicability of section 115BBE - Tax rate for Assessment Year 2017-18 - HELD THAT: - The Tribunal followed Maruthi Babu Rao Jadav [2021 (1) TMI 481 - KERALA HIGH COURT] as noticed by it, for the proposition that the enhanced rate under section 115BBE applies from the commencement of AY 2017-18 and governs assessments for the relevant previous year. On that basis, it held that the addition sustained under section 68 was chargeable at the special rate prescribed u/s 115BBE. [Paras 16, 17] The levy of tax under section 115BBE on the addition confirmed was upheld. Final Conclusion: The appeal was partly allowed. The rejection of the books of account and the applicability of section 115BBE were upheld, but the addition for cash deposits was restricted by granting credit for the accepted opening cash balance and bank withdrawals.