Cash deposits from legitimate sales cannot be questioned under Section 69A when AO accepts declared transactions

The ITAT Jodhpur ruled in favor of the assessee regarding cash deposits during demonetization period. The tribunal held that when the AO did not doubt the sales, purchases, stock, and gross profit declared by the assessee, the cash deposits from such sales cannot be questioned under Section 69A. The court found direct nexus between cash deposits and sales realization. Additionally, non-maintenance of stock register alone cannot justify rejection of books under Section 145(3). The tribunal also accepted the assessee's explanation for stock valuation discrepancies during survey, noting goods sold on approval were not entered in stock. All additions were quashed and the appeal was allowed.

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Issues Involved:
1. Rejection of books of accounts under Section 145(3) of the Income Tax Act.
2. Treatment of cash deposits during the demonetization period as unexplained money under Section 69A.
3. Discrepancy in stock valuation during the survey.

Summary:

Issue 1: Rejection of Books of Accounts Under Section 145(3)
The assessee argued that the rejection of books of accounts by the AO and upheld by the CIT(A) was arbitrary and lacked specific defects in the trading account or books of accounts. The assessee maintained day-to-day purchase and sales registers, cash book, bank book, and other documentary evidence. The AO's rejection was based on non-maintenance of a stock register, which the assessee contended was impractical due to the nature of the business. The Tribunal cited various cases, including *Paramount Impex v. ACIT* and *Chirag Nareshbhai Soni v. ITO*, stating that non-maintenance of a stock register alone cannot justify the rejection of books of accounts. The Tribunal concluded that the AO had no corroborative material to reject the books of accounts and allowed the appeal.

Issue 2: Treatment of Cash Deposits During Demonetization as Unexplained Money
The assessee deposited Rs. 76,00,000 in the bank during the demonetization period, claiming it was from cash sales. The AO treated Rs. 64,49,220 as unexplained money under Section 69A. The assessee provided documentary evidence, including cash book, sales invoices, and VAT orders, to substantiate the cash deposits. The Tribunal noted that the Sales Tax Department accepted the turnover and purchases as genuine. The Tribunal emphasized that cash deposits from genuine sales cannot be doubted if the sales, purchases, and stock are not questioned. The Tribunal relied on the *Anand Metal Corporation* case and quashed the addition under Section 69A, allowing the appeal.

Issue 3: Discrepancy in Stock Valuation During Survey
During a survey on 21.03.2018, a discrepancy in stock valuation was found. The assessee retracted the statement made during the survey, providing evidence that certain stocks were on approval and not part of the inventory. The assessee submitted affidavits from the concerned parties, which were not refuted by the revenue authorities. The Tribunal found that the assessee's reconciliation of stock was proper and quashed the addition of Rs. 94,27,696, allowing the appeal.

Conclusion:
Both appeals, ITA Nos. 353/Jodh/2023 and 354/Jodh/2023, were allowed by the Tribunal, quashing the additions made by the AO and upholding the assessee's contentions regarding the rejection of books of accounts, treatment of cash deposits, and stock valuation discrepancies.

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