Gynecologist wins case as deposits of demonetized currency notes deemed justified with proper evidence of professional income source

ITAT Jaipur held that addition for deposits of demonetized currency notes was unjustified where assessee, a gynecologist, provided clear evidence that deposited cash originated from professional income. The tribunal found that books of account and patient registers adequately supported the source of funds, with income showing only slight increase from previous year without abnormal trends. Revenue failed to prove alternative income sources. The tribunal emphasized that mere suspicion cannot substitute legal proof, and demonetization compelled cash deposits into bank accounts. Addition made by AO and sustained by CIT(A) was deleted, ruling in favor of assessee.

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Issues Involved:
1. Sustaining addition of Rs. 80,96,000/- out of total addition of Rs. 99,96,000/- for deposits of demonetized currency notes.
2. Justification for allowing only partial relief of Rs. 19,00,000/- out of total addition of Rs. 99,96,000/- under section 68 of the Income Tax Act.
3. Non-disposal of the ground of appeal regarding the levy of special rate of tax under section 115BBE of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Sustaining Addition of Rs. 80,96,000/-:
The assessee, a gynecologist, filed a return of income declaring Rs. 1,74,96,020/- for AY 2017-18. During scrutiny, it was noted that the assessee deposited Rs. 99,96,000/- in demonetized currency notes. The Assessing Officer (AO) found the explanation unsatisfactory, citing the lack of detailed patient records and a sudden spike in cash deposits post-demonetization. The AO added the entire Rs. 99,96,000/- as unexplained income under section 68 of the Income Tax Act. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] sustained Rs. 80,96,000/- of the addition, allowing relief for Rs. 19,00,000/-. The CIT(A) found discrepancies in the cash book and no reasonable justification for the spike in cash deposits. The CIT(A) invoked section 145(3) to reject the books of accounts, which was contested by the assessee.

2. Justification for Allowing Only Partial Relief:
The CIT(A) allowed partial relief of Rs. 19,00,000/- based on the assessee's claim of an opening cash balance and higher taxable income. The assessee argued that the entire deposit was from explained sources, including the opening cash balance and professional income. The CIT(A) considered the cash deposit pattern and concluded that the assessee habitually maintained a cash balance of around Rs. 19 lakhs. The remaining Rs. 80,96,000/- was treated as unexplained income. The assessee contested this, arguing that the income was already reflected in the books and taxed, and thus could not be added again under section 68.

3. Non-disposal of Ground Regarding Levy of Special Rate of Tax:
The assessee raised a ground regarding the levy of a special rate of tax under section 115BBE on the deposits, arguing that the receipts from professional income were accepted as genuine. The CIT(A) did not dispose of this ground, which was contested by the assessee. The assessee argued that the explained currency notes deposited in the bank during the demonetization period could not be treated as unexplained under section 68 when cash deposited in the remaining period was found to be from explained sources.

Judgment Analysis:
The Tribunal noted that the AO accepted the book results and the source of cash deposits as professional income. The AO did not reject the books of accounts, and the CIT(A) invoked section 145(3) without pointing out specific defects or issuing a show-cause notice. The Tribunal found that the assessee's income and cash deposits were consistent with the previous year, and the cash book and patient register were not found defective. The Tribunal held that the cash deposits were explained and could not be treated as unexplained income under section 68. Consequently, the Tribunal allowed the appeal, deleting the addition of Rs. 80,96,000/- and finding the ground regarding the levy of a special rate of tax as infructuous.

Conclusion:
The Tribunal allowed the appeal, holding that the cash deposits were explained and could not be treated as unexplained income under section 68. The addition of Rs. 80,96,000/- was deleted, and the ground regarding the levy of a special rate of tax was found to be infructuous.

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