Milk business cash deposits: deletion of additions allowed where demonetised currency acceptance justified and documentary proof produced

Addition of differential sums in relation to a milk business was contested on the basis that documentary evidence supported legitimate business receipts; authorities made additions under unexplained income provisions but the tribunal accepted that milk vending was an essential commodity activity permitted to accept demonetised currency and therefore such deposits could not be treated as taxable unexplained income, resulting in deletion of additions.

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Issues: Whether the additions of Rs. 7,34,234 under Section 69 and Rs. 5,870 under Section 69C read with Section 115BBE of the Income-tax Act, 1961, made on account of demonetised currency deposits and differential purchases in assessment year 2017-2018, are sustainable where the assessee is engaged in milk business covered by the Essential Commodities Act.

Analysis: The matter concerns deposits and purchase differentials arising from the assessee's milk business and whether those amounts constitute unexplained investment or unexplained income attractable to Section 115BBE. The assessee produced documentary records relating to the milk business; the authorities made additions treating excess cash deposits and purchase differentials as unexplained. Governmental relaxation permitting persons engaged in businesses under the Essential Commodities Act to accept demonetised currency is relevant to the treatment of such deposits. Given the nature of the business (daily supply of milk) and the documentary material presented, the statutory provisions imposing tax on unexplained investments and special tax treatment under Section 115BBE require that the deposits and purchase differentials be examined in light of the permitted acceptance of demonetised currency by essential commodities vendors.

Conclusion: The addition of Rs. 7,34,234 under Section 69 is deleted. The addition of Rs. 5,870 under Section 69C read with Section 115BBE is deleted. Grounds relating to interest under Sections 234A, 234B and 234C are dismissed. Decision is in favour of the Assessee.

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