Addition under Section 68 read with 115BBE deleted as cash deposits during demonetisation satisfactorily explained by books

ITAT (DELHI - AT) allowed the appeal, holding that additions u/s 68 r.w.s. 115BBE in respect of cash deposits during demonetization were unwarranted. The tribunal found the assessee's cash book showed sufficient opening cash, month-wise sales, purchases, expenses and quantitative stock details that explained deposits of Rs. 52,60,000. None of the CBDT SOP triggers applied: no abnormal jump in cash sales, deposits were on two dates only, adequate inventory existed and no diversion of funds occurred. Accordingly the Revenue failed to establish unexplained cash and the assessment addition was deleted.

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Issues:
Determining the justification of confirming an addition made under section 68 of the Income-tax Act regarding cash deposits during the demonetization period.

Analysis:
The appeal in question pertains to the addition of Rs. 52,60,000/- under section 68 of the Income-tax Act in relation to cash deposits made during the demonetization period. The Assessing Officer (AO) directed the assessee to provide details and sources of the cash deposits. The assessee explained that the cash deposits were from regular cash sales and recovery of trade debts. The AO, however, disbelieved the explanation and made the addition based on incomplete debtor details. The Tribunal noted that the assessee maintained proper books of account, underwent statutory and tax audits, and explained the source of cash deposits through cash sales and debt recoveries.

The Tribunal found that the assessee's business model involved regular cash and credit sales to customers, with cash receipts deposited in the bank. The AO's addition was based on a specific amount out of the total cash sales recovery, which the Tribunal deemed unjustified. The Tribunal highlighted that the cash deposits were supported by sufficient cash balances, and the transactions were reflected in the books of account. It also noted that the business pattern had been accepted in previous assessments. The Tribunal emphasized that the assessee's operations did not exhibit abnormal cash sales patterns during demonetization, as per CBDT instructions.

The Tribunal concluded that the addition of Rs. 52,60,000/- was unwarranted and directed its deletion. The grounds raised by the assessee were allowed, and the appeal was consequently allowed. The judgment was pronounced in open court on 31.07.2023.

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