ITAT deletes additions under section 69A and 115BBE for recorded cash sales during demonetization period

The ITAT Chennai ruled in favor of the assessee who deposited cash during the 2016 demonetization period. The AO had made additions under section 69A read with section 115BBE, claiming undisclosed income as the assessee failed to provide customer identities for cash sales made on November 8, 2016. The Tribunal held that since cash sales were recorded in books and offered for taxation, re-adding them would constitute impermissible double taxation. The AO's allegations lacked concrete evidence and were based on mere suspicion. The Tribunal also deleted interest disallowance on loans to the assessee's son, finding no established nexus between borrowed funds and loans granted.

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Issues:
1. Appeal against the order of Commissioner of Income Tax (Appeals) regarding addition u/s 69A and interest disallowance.

Addition u/s 69A:
The appellant contested the addition of Rs. 1,85,00,000 under section 69A, arguing that the explanation supported by documentary evidence was unreasonably rejected. It was highlighted that the appellant maintained regular books of account and had provided necessary documents during assessment proceedings. The assessing officer's addition under section 69A was criticized for being based on suspicion rather than concrete evidence. The appellant also pointed out that the assessing officer did not adhere to the standard operating procedure in demonetization cases. Moreover, it was argued that the appellant's cash sales did not require identity proof of customers as per the Income Tax Act, and the addition was unjustified.

Interest Disallowance:
Regarding the disallowance of Rs. 9,06,599 under section 37 of the Income Tax Act, the appellant contended that the loan given to her son was from her own funds, supported by ledger entries. The appellant's sufficient capital balance and the lack of evidence linking borrowed funds to the loans granted were emphasized. The disallowance was deemed incorrect both on legal and factual grounds.

The appellate tribunal found that the appellant, engaged in trading of bullion, had adequately explained the source of cash deposits made during demonetization. Documentary evidence, including sales registers and bank statements, supported the cash deposits. The tribunal noted that the cash sales proceeds were already reflected in the books of accounts and had been subjected to tax, thus precluding double taxation. The assessing officer's allegations of abnormal sales post-demonetization lacked concrete evidence and were deemed insufficient to justify the addition under section 69A. As the appellant had established the source of cash deposits, the tribunal ruled in favor of the appellant on this issue.
Regarding interest disallowance, the tribunal observed that the appellant's loan to her son was backed by her own funds, and there was no proven link between borrowed funds and the loans granted. Consequently, the tribunal concluded that the interest disallowance was unwarranted and ruled in favor of the appellant.

In conclusion, the appeal was allowed, and the impugned additions under section 69A and interest disallowance were deleted.

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