ITAT deletes Rs. 69.25 lakh addition under section 69A for demonetization cash deposits with proper book entries

ITAT Delhi ruled in favor of assessee regarding cash deposits totaling Rs. 69,25,000 made during demonetization period. The tribunal held that addition under section 69A for unexplained income was unjustified since deposits were recorded in audited books, tax audit report was furnished, and AO did not reject books of accounts. Assessee explained deposits originated from sales to specific customer and Diwali cash sales occurring before demonetization. Following precedent in Shivam Industries case, tribunal determined that when audited books are not rejected and sales undisturbed, revenue authorities cannot treat demonetization-period deposits as unexplained income. Addition deleted.

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Issues Involved:
1. Applicability of Section 69A of the Income Tax Act to cash deposits recorded in the books of account.
2. Justification for treating cash deposits as unexplained income under Section 69A.
3. Validity of the Assessing Officer's (AO) approach in not rejecting the books of account but still making additions under Section 69A.

Issue-wise Detailed Analysis:

1. Applicability of Section 69A of the Income Tax Act to Cash Deposits Recorded in the Books of Account:

The primary legal issue raised by the assessee was whether the addition can be made under Section 69A of the Act in respect of cash deposits that were recorded in the books of account. The Tribunal referred to the case of ITO Vs. M/s Zee Bangles Pvt. Ltd., where it was held that Section 69A applies when the assessee is found to be the owner of any money not recorded in the books of account. The Tribunal emphasized that the provision is applicable only when the money is not recorded in the books of account, and since the assessee had duly recorded the cash deposits in the audited books of account, Section 69A could not be invoked.

2. Justification for Treating Cash Deposits as Unexplained Income under Section 69A:

The AO treated the cash deposits of Rs. 69,25,000 as unexplained income under Section 69A, observing that the assessee did not disclose the bank account in the return of income and failed to furnish stock summary or bills and vouchers for purchases. However, the Tribunal noted that the assessee had recorded the cash deposits in its books of account, which were audited, and had furnished the tax audit report. The Tribunal also noted that the cash deposits were from sales made during the Diwali festival, which occurred just before the demonetization period. The Tribunal concluded that the addition was unjustified as the cash deposits were duly recorded in the books of account and supported by sales records.

3. Validity of the AO's Approach in Not Rejecting the Books of Account but Still Making Additions under Section 69A:

The Tribunal observed that the AO did not find any discrepancies in the books of account, sales, purchases, or stock records maintained by the assessee. The AO did not reject the books of account but still made the addition under Section 69A based on surmises and conjectures. The Tribunal referred to several judicial pronouncements, including the case of Sobha Devi Dilipkumar Vs. ITO, where it was held that Section 69A cannot be invoked when the investments are disclosed in the books of account. The Tribunal concluded that the AO's approach was flawed as the cash deposits were duly recorded in the books of account, and there was no basis for the addition under Section 69A.

Conclusion:

The Tribunal found that the addition made by the AO under Section 69A was not justified as the cash deposits were recorded in the books of account, which were audited and supported by sales records. The Tribunal reversed the findings of the CIT(A) and directed the AO to delete the addition made under Section 69A. The appeal of the assessee was allowed.

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