ITAT allows appeal against section 68 addition for unexplained cash deposits lacking adverse findings

The ITAT Delhi allowed the assessee's appeal against addition under section 68 read with section 115BBE for unexplained cash deposits. The AO rejected cash deposits from October-November 2016 lacking historical basis, while accepting the assessee's accounts and book results. The CIT(A) confirmed the addition without disturbing book results. ITAT held that since the AO accepted sales, purchases, and stock without adverse findings, treating cash sales as bogus while accepting book results was illogical. The authorities erred in making the addition without adverse material regarding purchases and stock, making section 68 invocation unjustified.

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Issues involved:
The issues involved in the judgment are the determination of income, jurisdiction of the Income Tax Officer, addition of unexplained cash deposits, treatment of cash sales, and initiation of penalty under section 270A of the Income Tax Act.

Determination of Income:
The appeal was against the order upholding the determination of income by the Assistant Commissioner of Income Tax, which was significantly higher than the income declared by the appellant. The appellant contested the legality and factual basis of the determination.

Jurisdiction of the Income Tax Officer:
The appellant challenged the jurisdiction of the Income Tax Officer to issue a notice under section 143(2) of the Act for the assessment year, claiming it was illegal and void-ab-initio, thus questioning the validity of the assessment order.

Addition of Unexplained Cash Deposits:
The main ground raised by the assessee was against the addition of INR 39,27,414 made by the Assessing Officer under section 68 of the Income Tax Act, related to alleged unexplained cash deposits during the demonetization period. The appellant argued that the source of cash deposits was from legitimate sales and should not be treated as unexplained income.

Treatment of Cash Sales:
The appellant contended that the Assessing Authority failed to consider the legitimate source of cash deposits, as the accounts were not rejected and sales were accepted. The appellant provided details of cash deposits preceding the demonetization period to support the legitimacy of the transactions.

Initiation of Penalty under Section 270A:
The issue of penalty under section 270A of the Act was raised, but the Tribunal deemed it premature as it was only initiated and not levied. Therefore, this ground was dismissed as premature.

The Tribunal found that the Assessing Officer did not provide a historical basis for rejecting the source of cash deposits, and the accounts of the assessee were accepted by the lower authorities. The Tribunal noted that if sales and purchases were accepted as genuine, treating the sales as bogus was illogical. The Tribunal set aside the addition of unexplained cash deposits, directing the Assessing Officer to delete the impugned addition, as no adverse material was presented regarding purchases and stock. Consequently, the appeal of the assessee was allowed, and the impugned order was overturned.

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