Section 69A inapplicable to demonetization cash deposits with proper books of accounts and documented sales transactions

ITAT Jaipur held that Section 69A was not applicable to cash deposits during demonetization period where proper books of accounts existed. The assessee had recorded cash sales transactions with immediate cash memos and delivery, depositing the proceeds in bank accounts. Since sales were properly documented in books without any defects found by lower authorities, and no abnormal increase in cash sales was observed pre-demonetization, the deposits were explained business income. The assessee discharged initial burden of proof by providing books of accounts, invoices, and bank statements. Department failed to prove deposits represented undisclosed income. Section 115BBE was also held inapplicable as it only applies to income taxable under specific sections including 69A. Appeal allowed.

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Issues Involved:
1. Rejection of books of accounts and application of Section 145(3).
2. Addition of Rs. 20,00,000/- as undisclosed income under Section 69A read with Section 115BBE.
3. Failure of the Revenue to discharge the burden of proof.

Comprehensive Issue-Wise Analysis:

1. Rejection of Books of Accounts and Application of Section 145(3):
- Arguments by Assessee:
- The assessee argued that both lower authorities erred in ignoring various papers, documents, details, and information, including the complete books of accounts, which were produced during the assessment proceedings.
- The books of accounts were duly audited by a Chartered Accountant without any adverse observations.
- There was no change in the method of accounting or valuation of closing stock, and every entry was supported by bills and vouchers.
- The assessee maintained regular books of accounts, including cash book, ledger, journal, bank statements, and other relevant records.
- The AO made additions based on a "choose and pickup method" without any tangible material or supporting evidence.
- Judicial consensus is that merely because of differences in the ratio of cash sales between periods, an AO cannot resort to provisions of Section 145 and Section 68/69A/115BBE for making additions.

- Bench's Findings:
- The Bench noted that the assessee produced various documents during the assessment proceedings, including the Tax Audit Report, month-wise details of sales and purchases, VAT returns, and other relevant records.
- The Revenue authorities failed to appreciate that the books of accounts were duly audited and there were no inherent defects pointed out.
- The AO made additions without any tangible material and supporting evidence, and the CIT(A) upheld such additions without any justifiable basis.
- The Bench concluded that the rejection of books of accounts and application of Section 145(3) by the AO was not justified and allowed the ground raised by the assessee.

2. Addition of Rs. 20,00,000/- as Undisclosed Income Under Section 69A read with Section 115BBE:
- Arguments by Assessee:
- Section 69A is not applicable as there were proper entries in the books of accounts regarding cash sales, cash balance, and cash deposits (SBNs).
- Cash sales and deposits in the bank cannot be called unexplained money as cash memos were issued immediately, and sales were recorded properly in the books.
- The lower authorities did not find any defects in the books of accounts or trading account.
- The provisions of Section 115BBE are applicable only on income taxable under Sections 68, 69, 69A, 69B, or 69D. Since the source of cash deposits was income from business, Section 115BBE was not applicable.

- Bench's Findings:
- The Bench noted that the sale transactions in cash cannot be taxed under Section 69A as the sales against cash and deposits in the bank were properly recorded.
- The lower authorities did not find any defects in the books of accounts or trading account.
- The Bench concluded that Section 69A was not applicable, and the addition of Rs. 20,00,000/- as undisclosed income was not justified. The ground raised by the assessee was allowed.

3. Failure of the Revenue to Discharge the Burden of Proof:
- Arguments by Assessee:
- The assessee argued that he had discharged the initial burden of proof by explaining the source of SBNs deposited during the demonetization period as cash sales and duly credited the sales in the regular books of accounts.
- The AO failed to discharge the burden of proof, which lay upon him, and did not provide any evidence to disprove the assessee's claims.
- The assessee provided necessary evidence, including books of accounts, sale/purchase invoices, cash book, journal, ledger, bank statements, and other relevant records.

- Bench's Findings:
- The Bench noted that the assessee had duly discharged the initial burden of proof and provided necessary evidence to support his claims.
- The AO failed to discharge the burden of proof and did not provide any evidence to disprove the assessee's claims.
- The Bench relied on the judgment of the Apex Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. (159 ITR 78) and concluded that the ground raised by the assessee was allowed.

Conclusion:
The appeal filed by the assessee was allowed, and the grounds raised by the assessee were upheld. The rejection of books of accounts and application of Section 145(3) by the AO, the addition of Rs. 20,00,000/- as undisclosed income under Section 69A read with Section 115BBE, and the failure of the Revenue to discharge the burden of proof were all found to be unjustified. The order was pronounced in the open court on 25/04/2024.

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