Veterinary dealer wins appeal against Rs 23 lacs addition under Section 68 and 115BBE for demonetization deposits

The ITAT Chandigarh allowed the assessee's appeal and deleted the addition of Rs 23 lacs made under Section 68 read with Section 115BBE. The assessee, a veterinary medicine dealer operating under Section 44AD, had deposited cash during demonetization period. The ITAT held that since the assessee was not required to maintain books under Section 44AD and had established nexus between cash deposits and disclosed sales receipts, the addition constituted double taxation. The cash deposits were adequately explained through sales vouchers and cash book, with sales duly reported in VAT filings.

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Issues Involved:
1. Addition of Rs. 23,00,000 as unexplained cash credit under Section 68.
2. Invocation of Section 115BBE for taxation.
3. Alleged failure to maintain books of accounts under Section 44AD.
4. Discrepancy in cash sales during the demonetization period.
5. Lack of a reasoned order by CIT(A).
6. Denial of opportunity to produce sales invoices.

Detailed Analysis:

1. Addition of Rs. 23,00,000 as Unexplained Cash Credit under Section 68:
The Assessee, a proprietor of M/s. Sansarwal Pharmaceuticals, filed a return declaring total income of Rs. 5,71,290 and agricultural income of Rs. 15,50,360. During scrutiny, the AO found cash deposits totaling Rs. 33,00,000 in the Assessee's bank accounts during the demonetization period. The Assessee claimed these deposits were from business sales and agricultural income. However, the AO found the sales figures unusually high during the demonetization period and treated Rs. 23,00,000 as unexplained cash credit under Section 68, after accepting Rs. 10,00,000 as genuine sales.

2. Invocation of Section 115BBE for Taxation:
The AO invoked Section 115BBE to tax the unexplained cash credit at a higher rate. The CIT(A) upheld this decision but noted that the AO should have invoked Section 69A instead of Section 68, as the Assessee did not maintain regular books of accounts.

3. Alleged Failure to Maintain Books of Accounts under Section 44AD:
The Assessee argued that under Section 44AD, he was not required to maintain books of accounts. The CIT(A) found that the Assessee's explanations and evidence for the cash deposits were insufficient and upheld the AO's decision, albeit under Section 69A.

4. Discrepancy in Cash Sales during the Demonetization Period:
The AO noted a significant increase in cash sales during October and November 2016, which the Assessee attributed to an epidemic among cattle. However, the AO found this explanation unconvincing due to the lack of supporting evidence and the abnormal sales pattern. The CIT(A) agreed, stating that the Assessee's sales invoices appeared to be created retrospectively to justify the cash deposits.

5. Lack of a Reasoned Order by CIT(A):
The Assessee contended that the CIT(A) did not pass a reasoned order, violating the principles established in Kranti Associates Pvt Ltd vs. Masood Ahmed Khan. The Tribunal did not find merit in this argument, as the CIT(A) had provided detailed reasoning for upholding the AO's decision.

6. Denial of Opportunity to Produce Sales Invoices:
The Assessee argued that he was not given an opportunity to produce sales invoices, which were available and could be presented before the Tribunal. The Tribunal found that the Assessee had already submitted sales vouchers and other evidence during the assessment and appellate proceedings, which were duly considered.

Tribunal's Conclusion:
The Tribunal concluded that the Assessee had established a nexus between the cash deposits and business sales. It noted that the Assessee had filed returns under Section 44AD, declaring gross receipts of Rs. 72,01,093, which included the disputed cash sales. The Tribunal found that the AO and CIT(A) had not provided sufficient grounds to dispute the Assessee's sales figures, especially given the supporting evidence from VAT filings and certificates from relevant authorities. Consequently, the Tribunal directed the deletion of the Rs. 23,00,000 addition, resulting in the Assessee's appeal being allowed.

Order Pronounced:
The appeal of the Assessee was allowed, and the order was pronounced in the open Court on 03/07/2024.

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