Tribunal Rules Cash Deposits by Assessee Not Unexplained Income

The Tribunal found that the cash deposits made by the assessee during the demonetization period were from the recorded cash balance in the books of account, supported by advance money received from customers for jewelry sales. As the transactions were below Rs. 2 lakhs and the books of account were not rejected, the Tribunal concluded that there was no justification for treating the deposits as unexplained income under section 68 of the Act. Citing relevant case laws, the Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to delete the addition of Rs. 45 lakhs, allowing the appeal filed by the assessee.

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Issues:
Challenge to addition of cash deposit during demonetization period.

Analysis:
The appeal was filed by the assessee against the order confirming the addition of Rs. 45 lakhs related to a cash deposit made during the demonetization period. The assessee, engaged in diamond trading, declared a loss of Rs. 2.59 crores for the relevant assessment year. The Assessing Officer noted the cash deposit and sought details of customers who had given advances. The assessee explained that the amount represented cash balance from advance received from customers, with each transaction being less than Rs. 2 lakhs, hence complete customer details were not collected. The Assessing Officer treated the cash deposits as unexplained income under section 68 of the Act, a decision upheld by the CIT(A).

The Tribunal considered that the deposits were made from the cash balance recorded in the books of account, which was not disputed. The assessee had received advance money from customers for jewelry sales, duly recorded in the books. The deposits were made post-demonetization announcement, with sale bills raised against the advances. As the transactions were below Rs. 2 lakhs, complete customer details were not collected. Since the cash deposits were made from the recorded cash balance, and the books of account were not rejected, the Tribunal found no justification for treating the deposits as unexplained income.

Reference was made to case laws supporting the assessee's position. In the Lakshmi Rice Mills case, it was held that if the cash balance in the books covered the high denomination notes held by the assessee, no further proof of source was required. In the Hirapanna Jewellers case, it was established that if cash receipts represented sales duly offered for taxation, no addition under section 68 was warranted for bank deposits.

Considering the precedents and the circumstances of the case, the Tribunal concluded that the addition of Rs. 45 lakhs was unwarranted. Therefore, the order of the CIT(A) was set aside, directing the Assessing Officer to delete the addition. Consequently, the appeal filed by the assessee was allowed, with the order pronounced on 26.07.2022.

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