2024 (10) TMI 1679 - AT - Income Tax

Cash deposits with proper documentation and accounting records cannot be treated as unexplained money under Section 69A during demonetization period.

Jaykumar Nemichand Jain HUF Jain Silver Palace Versus The ITO Ward-5 (2) (2) Ahmedabad

ITAT Ahmedabad allowed the appeal, deleting additions under Section 69A for cash deposits during demonetization. The tribunal held that cash deposits with ... Unexplained money u/s 69A - addition was originally made u/s.143(3) - large value cash deposits made during the demonetization period - AO further taxed the amount u/s 115BBE and initiated penalty proceedings u/s 271AAC(1) - assessee argued cash deposits during demonetization or otherwise, if duly recorded and substantiated, cannot be taxed u/s 69A unless the revenue demonstrates the unreliability of the books or evidence provided. HELD THAT:- It is pertinent to note that mere cash deposits during the demonetization period do not automatically trigger the provisions of Section 69A if the transactions are supported by proper documentation and the cash has been accounted for in the books. In cases where cash sales or deposits are accounted for and recorded in the regular course of business, the provisions of Section 69A of the Act are not attracted. The revenue must find defects in the assessee’s books of accounts to invoke Section 69A - The existence of stock records, sales invoices, and proper tax filings (VAT returns in this case) are sufficient to substantiate the cash deposits. Demonetization-related cash deposits should not be treated as unexplained merely because they occur during a sensitive period. Where all supporting documents are provided, the burden of proof shifts back to the department to demonstrate that the deposits are unexplained. Assessee maintained regular books of account, recorded all sales, and provided sufficient evidence to substantiate the cash deposits during the demonetization period. AO did not bring any concrete evidence to counter the claims of the assessee, nor did he reject the books of account. The sales were duly reflected in the VAT returns, and no discrepancies were found in stock records. Accordingly, the addition made by the AO u/s 69A is deleted, and the appeal of the assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal question considered by the Tribunal was whether the addition of Rs. 55,00,000 as unexplained money under Section 69A of the Income Tax Act, 1961, was justified on the facts and circumstances of the case. This central issue involved examining the legitimacy of cash deposits made during the demonetization period and whether these deposits were adequately explained by the assessee through business transactions recorded in the regular books of account. The Tribunal also implicitly considered whether invocation of Section 69A was appropriate when the cash deposits were reflected in audited financial statements, sales registers, stock registers, VAT returns, and supported by purchase and sale bills.2. ISSUE-WISE DETAILED ANALYSISIssue: Legitimacy of Cash Deposits and Applicability of Section 69ARelevant legal framework and precedents: Section 69A of the Income Tax Act empowers the Assessing Officer to treat any sum found credited in the books of an assessee as income if the assessee fails to satisfactorily explain the nature and source of such sum. However, judicial precedents cited by the assessee, including Sobha Devi Dilipkumar vs. ITO, ACIT vs. Chandra Surana, ITO vs. J.K. Wood India (P.) Ltd., and ACIT vs. Hirapanna Jewellers, establish that where cash deposits are recorded in regular books of account and supported by credible evidence, Section 69A cannot be invoked without demonstrating the unreliability of such books or evidence.Court's interpretation and reasoning: The Tribunal carefully examined the facts surrounding the cash deposits made during the demonetization period (09.11.2016 to 31.12.2016). The Assessing Officer (AO) had doubted the genuineness of the cash sales, noting an abnormal surge in cash sales from a regular average of Rs. 2.5-3.5 lakhs per month to Rs. 22.88 lakhs in the first eight days of November 2016. The AO also observed that cash sales were structured below Rs. 2 lakhs to avoid reporting customer details, and that the assessee held substantial cash without timely bank deposits or payments to vendors, which was unusual for a bullion and jewellery business.The assessee countered these observations by attributing the spike in cash sales to the festive season (Navratri, Diwali, Dhanteras) and the marriage season, periods known for increased demand for gold and silver. The reduction in precious metal prices during this time further stimulated sales. The assessee submitted extensive documentary evidence, including audited financial statements, tax audit reports, sales and stock registers, VAT returns accepted by the VAT department without queries, purchase and sale bills, and bank statements showing over 90% of payments made through banking channels. Additionally, contra-confirmations from vendors and detailed stock records were submitted to establish the genuineness of purchases and sales.The Tribunal noted that the AO did not dispute the stock records or reject the books of account. The Tribunal emphasized that mere cash deposits during demonetization do not automatically attract Section 69A if supported by proper documentation. The Tribunal reiterated the principle that where transactions are recorded in regular books and offered for tax, invoking Section 69A would amount to double taxation unless the revenue proves the books or evidence unreliable.Key evidence and findings: The Tribunal highlighted the following key points:The cash sales spike coincided with festive and marriage seasons, consistent with business realities.The assessee maintained regular books of account, including cash books, sales registers, and stock registers, which were not disputed.The VAT returns were filed and accepted without queries, reinforcing the authenticity of sales.Purchase bills and vendor confirmations supported the genuineness of purchases.Bank statements showed substantial payments through banking channels.The AO did not produce any concrete evidence to discredit the books or documentary proof.Application of law to facts: Applying the legal principles from the cited precedents, the Tribunal found that the cash deposits were adequately explained by the assessee's business transactions and recorded in regular books of account. Since the AO failed to demonstrate any defect or unreliability in the books or evidence, the invocation of Section 69A was inappropriate.Treatment of competing arguments: The AO and CIT(A) relied on the abnormal increase in cash sales, structuring of sales below Rs. 2 lakhs, delayed bank deposits, and incomplete third-party confirmations to justify the addition. The assessee's arguments, supported by documentary evidence and judicial precedents, effectively countered these points by providing plausible business explanations and comprehensive records. The Tribunal found the assessee's explanation more credible and consistent with the evidentiary material.Conclusions: The Tribunal concluded that the addition of Rs. 55,00,000 as unexplained money under Section 69A was not sustainable. The cash deposits were satisfactorily explained and recorded in the books, and the AO failed to establish any unreliability or concealment.3. SIGNIFICANT HOLDINGS'It is pertinent to note that mere cash deposits during the demonetization period do not automatically trigger the provisions of Section 69A of the Act, if the transactions are supported by proper documentation and the cash has been accounted for in the books. In cases where cash sales or deposits are accounted for and recorded in the regular course of business, the provisions of Section 69A of the Act are not attracted. The revenue must find defects in the assessee's books of accounts to invoke Section 69A of the Act.''Once the sales were recorded in the books and offered for tax, taxing the same under Section 69A of the Act would amount to double taxation.''The AO did not bring any concrete evidence to counter the claims of the assessee, nor did he reject the books of account. The sales were duly reflected in the VAT returns, and no discrepancies were found in stock records. Accordingly, the addition of Rs. 55,00,000 made by the AO under Section 69A is deleted, and the appeal of the assessee is allowed.'Core principles established include the necessity for the revenue to demonstrate unreliability or concealment before invoking Section 69A, especially when cash deposits are recorded in regular books and supported by credible evidence. The judgment reinforces that demonetization-period cash deposits are not inherently suspicious if adequately explained and documented.Final determination: The Tribunal allowed the appeal, deleted the addition of Rs. 55,00,000 under Section 69A, and held that the assessee's cash deposits were satisfactorily explained and recorded in the regular books of account, rendering the invocation of Section 69A inappropriate in the facts of the case.