Tribunal rules cash deposits explained by pharmaceutical distributor, overturns Assessing Officer's decision

The Tribunal allowed the appeal, holding that the Assessing Officer erred in adding the cash deposits under Section 69 as unexplained income. The appellant, engaged in pharmaceutical distribution, successfully explained the source of cash deposits from sales made before demonetization. The Tribunal found the business model involving cash transactions common in the industry and noted no significant deviation in cash deposits compared to previous years. The additions were directed to be deleted, and the appeal was allowed.

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Issues Involved:
1. Legality of the addition of Rs. 1,82,57,000/- under Section 69 read with Section 115BBE.
2. Consideration of the business model and explanation offered by the appellant regarding cash deposits.
3. Opportunity for personal hearing and adherence to natural justice principles.

Summary:

1. Legality of the Addition under Section 69 r.w.s. 115BBE:
The appellant company, engaged in the distribution of pharmaceutical goods, filed its return for the assessment year 2017-18. The case was selected for scrutiny due to large cash deposits during the demonetization period. The AO noticed deposits of Rs. 1,82,57,000/- in specified bank notes, but the closing cash balance on 09.11.2016 was only Rs. 20,000/-. The AO opined that the appellant could not justify the availability of cash and added the deposits as unexplained investment under Section 69, taxed under Section 115BBE. The CIT(A) upheld this, citing that the appellant was not authorized to accept specified bank notes post-demonetization.

2. Consideration of Business Model and Explanation:
The appellant argued that the cash deposits were from sales made before demonetization and provided detailed evidence, including sales bills and debtor lists. The AO did not dispute the sales but focused on the legality of accepting specified bank notes post-demonetization. The Tribunal noted that the appellant's business model involved cash transactions, common in the pharmaceutical industry. The Tribunal found no significant deviation in cash deposits compared to previous years and concluded that the source of deposits was satisfactorily explained.

3. Opportunity for Personal Hearing:
The appellant contended that the NFAC did not grant an opportunity for a personal hearing, violating principles of natural justice. The Tribunal acknowledged this but focused on the substantive issue of whether the cash deposits could be considered unexplained income.

Conclusion:
The Tribunal held that the AO erred in making additions under Section 69, as the appellant satisfactorily explained the source of cash deposits. The Tribunal directed the deletion of the additions, allowing the appeal.

Order:
The appeal filed by the assessee is allowed. The order was pronounced on 31st May 2023 at Chennai.

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