ITAT deletes cash deposit additions under sections 69A and 115BBE when books accepted and sales demonstrated

The ITAT Delhi allowed the assessee's appeal against additions made under sections 69A and 115BBE for cash deposits during demonetization period. The AO and CIT(A) rejected the assessee's explanation that deposits were from cash sales, citing absence of cash sales in previous and subsequent years. However, ITAT found that the AO accepted the books of accounts, trading results, purchases, and sales without rejection. The tribunal held that rejecting cash sales explanation solely based on no cash sales in preceding/subsequent years was insufficient when books were accepted and sales demonstrated. Following precedents from Anantpur Kalpana and Mukesh K. Waghasia cases, ITAT directed deletion of the addition to avoid double taxation.

---

---

Issues Involved:
1. Confirmation of the Assessing Officer's order under section 143(3) of the Income-tax Act, 1961.
2. Addition of Rs. 37,50,000/- as unexplained cash deposit under section 68 read with section 115BBE of the Act.

Issue-wise Detailed Analysis:

1. Confirmation of the Assessing Officer's order under section 143(3) of the Income-tax Act, 1961:
The assessee, a HUF engaged in retail cloth trading, filed a return declaring an income of Rs. 3,84,250/-. The Assessing Officer (AO) completed the assessment under section 143(3) on 30.12.2019, determining taxable income at Rs. 41,34,250/-. The AO made an addition of Rs. 37,50,000/- under section 69A read with section 115BBE, treating the cash deposited in the bank during the demonetization period as unexplained. The CIT(A) sustained the addition under section 68, rejecting the assessee's contention that the cash deposits were from cash sales.

2. Addition of Rs. 37,50,000/- as unexplained cash deposit under section 68 read with section 115BBE of the Act:
The assessee argued that the cash deposits were from accumulated cash sales, substantiated by the cash book, bank statement, profit and loss account, balance sheet, and sales account. The AO did not reject the books of account or the trading results but did not accept the cash sales explanation due to the absence of cash sales in preceding and subsequent years. The assessee cited several decisions, including CIT Vs. Vishal Exports Overseas Ltd., M/s Fine Bujranwala Jewellers Vs. ITO, Anantpur Kalpana Vs. ITO, and Mansukh K Waghasia Vs. ITO, to support their case.

Judgment Analysis:
The Tribunal noted that the AO accepted the trading results and did not reject the books of account or doubt the purchases and sales. The AO's rejection of the cash sales explanation solely based on the absence of cash sales in other years was deemed insufficient. The Tribunal referenced the case of M/s Fine Gujaranwala Jewellers Vs. ITO, where it was held that extraordinary incidents like demonetization could justify abnormal cash sales and deposits. The Tribunal also cited other cases, such as Hirapanna Jewellers and Lakshmi Rice Mills, emphasizing that when books of account are accepted, and cash deposits are recorded therein, additions under section 68 are not justified.

The Tribunal concluded that the AO should not have rejected the cash sales explanation without rejecting the books of account or doubting the sales and purchases. Consequently, the addition made under section 69A/68 was directed to be deleted, and the appeal of the assessee was allowed.

Conclusion:
The appeal of the assessee was allowed, and the addition of Rs. 37,50,000/- made under section 69A/68 of the Act was deleted. The Tribunal emphasized the importance of accepting the books of account and the recorded cash deposits when no flaws are found in the trading results and financial statements.

Order Pronounced:
The order was pronounced in the open court on 17/05/2024.

---