Addition under Section 68 for unexplained cash deposits vacated where assessing officer failed to form objective opinion

ITAT held that additions under section 68 for unexplained cash deposits were vacated because the AO failed to form an objective opinion based on record and did not reject the assessee's regularly maintained books. Cash sales below statutory limit need not include customer PAN/address, the audited books and submitted details were accepted, and deposits were supported by entries and part of admitted sales. Consequently the addition was unwarranted and the assessee's appeal was allowed.

---

---

Issues Involved:
1. Addition of Rs. 80,00,000 under Section 68 of the Income Tax Act, 1961.
2. Invocation of provisions of Section 115BBE of the Income Tax Act, 1961.

Summary:

Issue 1: Addition of Rs. 80,00,000 under Section 68 of the Income Tax Act, 1961

The assessee, engaged in the wholesale and retail business of gold and silver ornaments, filed a return of income declaring Rs. 45,83,340 for the assessment year 2017-18. The case was selected for scrutiny to examine abnormal cash deposits during the demonetization period. The assessee deposited Rs. 84,00,000 in cash during this period, which was scrutinized by the AO. The AO found discrepancies in the cash deposits and issued a show cause notice. The assessee explained that the cash was from retail sales during the festive and wedding season. However, the AO found the explanation unsatisfactory and added Rs. 80,00,000 under Section 68, treating it as income from undisclosed sources.

The CIT(A) upheld the AO's decision, agreeing that the cash deposits were unlikely to be from sales proceeds. The assessee appealed to the ITAT, arguing that the sales were genuine and supported by regular books of accounts, stock records, and VAT returns. The ITAT noted that the AO had not rejected the books of accounts or found any defects in them. The ITAT also considered various judicial precedents and found that the addition under Section 68 was unwarranted without rejecting the books of accounts. The ITAT vacated the addition of Rs. 80,00,000, stating that the cash deposits were duly supported by entries in the books of accounts.

Issue 2: Invocation of provisions of Section 115BBE of the Income Tax Act, 1961

Since the ITAT decided the first issue in favor of the assessee, the second issue regarding the invocation of Section 115BBE became redundant. The ITAT noted that the amended provisions of Section 115BBE, which increased the tax rate, were not applicable to the transactions in question as they occurred before the amendment was enacted.

Conclusion:

The ITAT allowed the appeal of the assessee, vacating the addition of Rs. 80,00,000 under Section 68 and rendering the invocation of Section 115BBE redundant. The ITAT emphasized that the addition could not be made without rejecting the books of accounts, which were found to be correct and complete.

---