2024 (11) TMI 1584 - AT - Income Tax

Demonetization cash sales treatment: accounting entries accepted in tax appeal; unexplained cash addition rejected and deletion ordered.

Addition treating bank deposits during demonetization as unexplained cash credits was rejected because sales and purchases were recorded in books of ... Addition u/s 68 - assessee had deposited a sum in the bank accounts during the demonetization period - treatment of cash receipts recorded as sales vis-à-vis unexplained cash credits HELD THAT:- The bar on holding and transferring or receiving SBNs is only after the 'appointed day' which is 31.12.2016. In view of the above, it is our view that there is no violation by the assessee of any law in accepting SBNs against sales made in cash and in receiving cash from debtors. First Appellate Authority have not only accepted the quantum of sales and purchases, but they have also not pointed out any defect in the books of account maintained by the assessee. It is also undisputed that the sales and purchases have been recorded in the books of account and, therefore, not accepting the bank deposits out of such sales and realization from debtors, cannot be held to be invalid in the eyes of law, especially because the assessee has already been charged to tax on the profit earned from such sales reflected in the books of account. In our considered view, the lower authorities have proceeded on mere surmises and conjectures by holding that the cash realization from debtors was sham, inasmuch as, the assessee, as per the records, has provided the required details along with books of account during the course of assessment proceedings. AO could not have made impugned addition only on the ground that the assessee had dealt in old SBNs during the demonetization period. Secondly, once the sales have been accepted by the AO, he could not have legally brought to tax the cash deposited in bank being the balance of sale proceeds (after deduction of expenses), as this would tantamount to double taxation. Accordingly, we set aside the order of the Ld. First Appellate Authority and direct the AO to delete the impugned addition. Issues: Whether the addition of Rs.1,18,82,000/- to the assessee's income under section 68 of the Income-tax Act, 1961 on account of cash deposits of Specified Bank Notes during the demonetization period is sustainable.Analysis: The Tribunal examined (i) the statutory position under the Specified Bank Notes (Cessation of Liabilities) Act, 2017 regarding the appointed day; (ii) CBDT SOPs and circulars governing verification of cash deposits made during the demonetization period; (iii) the factual finding that books of account, sales and purchases were accepted and not rejected by the AO; and (iv) whether the deposits represented sales/realisations already recorded and offered to tax or were unexplained credits requiring addition under section 68. The Tribunal noted that the bar on holding, transferring or receiving SBNs operated only from the appointed day (31.12.2016) and that SBNs were legally acceptable until that date. The Tribunal also observed that the AO and the first appellate authority proceeded on surmise and conjecture without requiring or recording what cogent evidence was missing or striking the books of account; further, treating deposited amounts as income when the underlying sales were already admitted would result in double taxation. The Tribunal relied on applicable SOPs and precedents addressing treatment of demonetization-period cash deposits and concluded that mere acceptance of SBNs or deviation in cash ratios, without cogent evidence of bogus entries, does not justify addition under section 68.Conclusion: The addition of Rs.1,18,82,000/- sustained by the CIT(A) under section 68 is not sustainable and is deleted; the assessee's appeal is allowed.