ITAT partially allows appeal on cash deposit during demonetization, dismisses challenge on natural justice.

The ITAT partly allowed the appeal, directing the deletion of the addition related to the cash deposit during the demonetization period. The challenge to the principles of natural justice was dismissed for lack of arguments.

---

---

Issues Involved:
1. Addition of cash deposit during the demonetization period.
2. Challenge to the observation of the principles of natural justice.

Summary:

Issue 1: Addition of Cash Deposit During Demonetization Period

The assessee, engaged in trading gold ornaments under M/s Nirosha Jewels, filed a return of income declaring Rs. 942,610. During scrutiny, the AO found a cash deposit of Rs. 15,990,000 in old currency during the demonetization period in the assessee's bank account. The assessee claimed this was from cash sales on 8/11/2016 due to panic buying post-demonetization. However, the AO found discrepancies, primarily questioning the plausibility of such high sales in a short time and the preparation of sales bills within minutes.

The CIT(A) upheld the AO's addition under Section 68, noting the assessee's failure to prove the identity of customers and the genuineness of transactions, and considered the cash sales an afterthought to justify the deposits.

On appeal, the ITAT found the assessee maintained regular books of accounts and stock registers, showing sufficient stock before demonetization. The sales were supported by invoices, and the cash sales were reflected in the profit and loss account. The ITAT noted that the AO did not conduct further investigations or ask the assessee to produce buyers. It emphasized that the AO should have verified the stock availability before demonetization. Citing judicial precedents, the ITAT concluded that the addition under Section 68 was unsustainable as the nature and source of the cash deposits were explained, and directed the AO to delete the addition of Rs. 15,691,401.

Issue 2: Challenge to the Observation of the Principles of Natural Justice

The assessee challenged the observation of the principles of natural justice, but no arguments were advanced before the ITAT. Consequently, this ground was dismissed.

Conclusion:

The appeal was partly allowed, with the ITAT reversing the lower authorities' order and directing the deletion of the addition related to the cash deposit during the demonetization period. The challenge to the principles of natural justice was dismissed due to a lack of arguments.

---