Demonetization bank deposits treated as business income, addition reduced from 8% to 5% under section 69A

The ITAT Chennai allowed the assessee's appeal partly in a case involving additions under section 69A based on bank deposits during demonetization. The assessee claimed deposits in four bank accounts, including demonetized currency, were from business income. The ITAT accepted this explanation and reduced the AO's income estimation from 8% to 5% of Rs. 7,79,23,921 after considering subsequent years' business returns and absence of comparable cases. The tribunal directed deletion of separate addition of Rs. 1,01,26,500 as the total credits were already taxed as business income, avoiding double taxation.

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Issues:
Assessment of additions under various sections including u/s. 69A of the Income Tax Act, 1961 for assessment year 2017-18.

Detailed Analysis:

Issue 1: Addition u/s. 69A of the Income Tax Act, 1961
The assessee appealed against the action of the Ld.CIT(A) confirming the AO's additions of Rs. 1,01,26,500/- u/s. 69A, Rs. 39,53,815/- as business income, and unproved 80C deduction of Rs. 1,19,408/-. The AO made these additions based on cash deposits during demonetization, survey findings, and alleged unproved business income. The assessee contended that the SBNs deposited were trade receipts, part of business income, and consistently maintained this stance. The Tribunal noted the absence of incriminating evidence during survey, the regular filing of returns by the assessee, and the explanation regarding the source of deposits. The Tribunal found the AO's separate addition u/s. 69A unsustainable, accepted the assessee's explanation, and directed income to be estimated at 5% of total cash credits in bank accounts, deleting the Rs. 1,01,26,500/- addition.

Issue 2: Estimation of Business Income
The AO estimated income at 8% of total credits in bank accounts, resulting in an additional income of Rs. 39,53,815/-. The assessee argued that only profit embedded in the turnover should be taxed, not the entire SBNs deposited separately. The Tribunal agreed with the assessee, considering the lack of incriminating evidence, the regular filing of returns, and the explanation provided. The Tribunal directed income to be estimated at 5% of total cash credits, rejecting the 8% estimation by the AO, as it lacked comparables and was not based on any comparable cases.

Conclusion:
The Tribunal partly allowed the appeal, deleting the addition made u/s. 69A and directing the computation of taxable income at 5% of total cash credits in bank accounts. The Tribunal emphasized the importance of considering the nature and source of deposits, rejecting the separate addition of SBNs as unwarranted and unsustainable. The decision was pronounced in Chennai on December 6th, 2024.

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