2024 (5) TMI 641 - AT - Income Tax

Demonetization cash deposits cannot be taxed under section 68 if supported by proper documentation and sales records

Fashion Zone Versus The JCIT Ward III (2), Ludhiana

The ITAT Chandigarh allowed the assessee's appeal regarding cash deposits made during demonetization. The AO had added these deposits to taxable income ... Addition on account of ‘cash deposits’ during the demonetization period - books of accounts have been accepted and not rejected u/s 145(3) - source of such cash deposits as explained by the assessee as out of its cash sales so undertaken and such cash sales are subject to VAT where VAT has been collected and deposited with the government treasury - HELD THAT:- Assessee has furnished the cash book containing the entries towards the cash sales, bank statement for the relevant period, VAT returns, copy of trading and profit/loss account and balance sheet which are duly audited. No defect has been pointed out by the AO in terms of availability of stock or in any of the documentation so submitted by the assessee or in the books of accounts Merely the fact that certain cash deposits have been made by the assessee during the period of demonization and such deposits are on a higher side considering the past year figures cannot be basis to hold the explanation so made by the assessee as unsustainable and treat the cash sales as bogus and bringing the cash deposits to tax u/s 68 of the Act. The comparative figures for past years can no doubt provides a starting point for further examination and verification but basis such comparative analysis alone and without any further examination which points out any defect or manipulation in the documentation so submitted or in terms of availability of requisite stock in the books of accounts, the sales so undertaken by the assessee which is duly recorded in the books of accounts cannot be rejected and treated as bogus. We agree with the contention of the AR that where the cash sales duly offered to tax have been accepted, bringing the realization of sale proceeds in cash to tax will amount to double taxation and the same is clearly unsustainable in law and cannot be upheld. Appeal of the assessee is allowed. Issues Involved:1. Condonation of delay in filing the appeal.2. Addition of Rs. 19,13,078 on account of 'cash deposits' in the bank account.3. Application of section 68 r.w.s 115BBE of the Income Tax Act.Summary:Condonation of Delay:At the outset, it is noted that there is a delay in filing the present appeal by 8 days as pointed out by the Registry. The Assessee, through its partner, moved a condonation delay application along with an Affidavit citing viral fever and office shifting as reasons for the delay. The Ld. DR did not raise any serious objection to the condonation of delay. After hearing both parties and considering the material on record, the delay in filing the present appeal is condoned, and the appeal is admitted for adjudication.Addition of Rs. 19,13,078 on Account of 'Cash Deposits':The Assessee firm, engaged in manufacturing and trading Hosiery goods and readymade Garments, filed its return for AY 2017-18 declaring an income of Rs. 1,33,650/-. During scrutiny, the AO noted cash deposits of Rs. 50,00,000/- during the demonetization period, with Rs. 48,00,000/- deposited on 13/11/2016. The Assessee explained that Rs. 17,13,078/- were cash receipts from identifiable persons with PAN, and Rs. 30,86,922/- were from cash sales to unidentifiable persons without PAN. The AO found abnormalities in the cash book and deemed the cash deposits as unexplained, thus adding Rs. 19,13,078/- as undisclosed cash credit u/s 68 r.w.s 115BBE.The Ld. CIT(A) confirmed the AO's addition, noting that the Assessee's cash sales and deposits during the demonetization period were significantly higher than usual, and no similar sales were reported in prior years. The CIT(A) held that the AO was liberal in accepting the opening cash balance and sales to persons with PAN, confirming the addition of Rs. 19,13,078/-.Application of Section 68 r.w.s 115BBE:During the hearing, the Assessee argued that the cash deposits were from regular business sales, duly recorded in audited books, and VAT returns were filed. The Assessee cited various judicial precedents to argue that cash sales do not require customer addresses and that treating such deposits as undisclosed income would result in double taxation. The Assessee also highlighted that the total sales had increased by 35% compared to the previous year, and the increased sales were not doubted by the department.The Tribunal noted that the Assessee provided sufficient documentation, including cash book entries, bank statements, VAT returns, and audited financial statements. No defects were pointed out by the AO in the stock or documentation. The Tribunal held that merely higher cash deposits during demonetization, without any defects in the records, cannot justify treating the cash sales as bogus. The Tribunal agreed that accepting cash sales and taxing the realization of sale proceeds would amount to double taxation. Therefore, the addition made by the AO and confirmed by the CIT(A) was directed to be deleted.In the result, the appeal of the Assessee is allowed.Order pronounced in the open Court on 20/03/2024.