2025 (5) TMI 1850 - AT - Income Tax

Fruit Trader Wins Tax Battle: Cash Deposits Validated as Legitimate Business Income Under Section 69B

Tribunal allowed assessee's appeal challenging tax addition of Rs. 11,83,000/- during demonetization period. The Tribunal found that cash deposits in ... Addition u/s.69B - assessee failed to explain the source of cash deposited during the demonetization period - assessee is a fruit seller who has been depositing and withdrawing cash at regular intervals - As disputed assessee has not proved to be a fruit seller on the grounds that no printed bills have been made available HELD THAT:- In the business of trading of vegetables & fruits, the assessee cannot be expected to maintain impeccable records as that of a corporate. As per the records before the Revenue, the assessee has submitted financial statements in the submission which show that assessee has made sales and purchases. CIT(A) has not doubted the deposits but only doubted the deposits made during the demonetization period of Rs. 11.83 lakhs which, based on the evidences before us, could be treated as part of the regular business. Hence, the decision of the Ld. CIT(A) holding that the withdrawals are not arising from cash deposits made and hence, the cash withdrawals do not represent the actual cash available or otherwise cannot be affirmed.Appeal of the assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal are:(a) Whether the addition of Rs. 11,83,000/- made under Section 69B of the Income-tax Act, 1961, on account of unexplained cash deposits during the demonetization period, was justified.(b) Whether the invocation of Section 115BBE of the Act by the Assessing Officer without specific direction or satisfaction in the assessment order was legally valid.(c) Whether the assessee's books of accounts and documentary evidence, including cash book, purchase and sales invoices, and audit report, were reliable and sufficient to explain the source of cash deposits and substantiate the business transactions.(d) Whether the rejection of the books of accounts under Section 145(3) of the Act was warranted in the facts and circumstances of the case.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Validity of addition of Rs. 11,83,000/- under Section 69B of the ActThe legal framework under Section 69B of the Income-tax Act empowers the Assessing Officer to make additions to income where cash credits or deposits are unexplained or inadequately explained by the assessee. The burden lies on the assessee to satisfactorily explain the source of such cash deposits.The Assessing Officer made the addition on the ground that the assessee failed to explain the source of cash deposits made during the demonetization period. The CIT(A) upheld this addition, relying on the absence of supporting sale and purchase bills, lack of opening or closing stock, and the unusual nature of other expenses claimed. The CIT(A) further found that the bank account did not reflect payments for purchases through banking channels and that the cash withdrawals and deposits appeared circular and lacked substance.The assessee contended that the cash deposits in question formed part of the regular business turnover of fruit trading, which was fully accounted for in the books and reflected in the audited financial statements. The assessee submitted cash books, sample purchase and sales invoices, and an audit report confirming no discrepancies in sales or cash balances. It was also pointed out that only Rs. 11,83,000/- out of total sales of Rs. 1,58,30,380/- was questioned, while other cash deposits before and after demonetization were accepted.The Tribunal noted that the CIT(A) had ignored the cash withdrawals during the year and selectively doubted only the deposits during the demonetization period. It recognized that in the business of fruit trading, perfect documentary evidence akin to corporate entities may not be available. The Tribunal observed that the total sales and purchases as per financial statements were substantial and not disputed, and that the questioned amount could be treated as part of the regular business.Applying the law to facts, the Tribunal concluded that the assessee had sufficiently explained the source of the cash deposits under Section 69B and that the addition was not justified. The Tribunal also rejected the CIT(A)'s finding that withdrawals did not arise from cash deposits or that the cash withdrawals did not represent actual cash available.Issue (b): Invocation of Section 115BBE without specific directionThe assessee argued that the demand was raised invoking Section 115BBE of the Act without any specific direction or satisfaction recorded by the Assessing Officer in the assessment order, and thus the demand was not legally sustainable.The Tribunal's order does not explicitly address this issue in detail, suggesting that this contention was either not pressed strongly or was subsumed within the broader examination of the validity of the addition and the procedure followed. Since the Tribunal allowed the appeal on the primary issue, the procedural infirmity regarding Section 115BBE invocation was not separately adjudicated.Issue (c): Reliability of books of accounts and documentary evidenceThe CIT(A) rejected the books of accounts under Section 145(3) on the grounds that the claimed cash sales and purchases were not supported by proper documentation, and the bank transactions did not inspire confidence. The CIT(A) found the cash book unreliable and held that withdrawals could not be correlated with deposits.The assessee submitted cash books, sample invoices, and audit reports to substantiate the business transactions and cash flows. The Tribunal observed that the nature of the business (fruit trading) may not warrant the same level of documentation as corporate entities and that the financial statements showed substantial sales and purchases.The Tribunal found that the CIT(A) erred in rejecting the books of accounts solely on the basis of missing printed bills and lack of bank payments for purchases, especially when the overall cash flow was consistent with the business operations. The Tribunal held that the books and documentary evidence were reliable enough to explain the cash deposits and withdrawals.Issue (d): Rejection of books of accounts under Section 145(3)Section 145(3) allows the Assessing Officer to reject books of accounts if they are not properly maintained or do not disclose the true income. The CIT(A) relied on this provision to reject the assessee's books due to lack of supporting documents and suspicious banking transactions.The Tribunal, however, found that the rejection was not justified in the facts of the case. The Tribunal emphasized that the totality of evidence, including financial statements and audit reports, supported the genuineness of the business and cash flows. The Tribunal also noted that the CIT(A) selectively doubted only the demonetization period deposits without questioning the entire cash flow, which was inconsistent.Accordingly, the Tribunal held that the books of accounts could not be rejected under Section 145(3) merely because of absence of printed bills or because some transactions were in cash, especially in a small-scale trading business.3. SIGNIFICANT HOLDINGSThe Tribunal held:'In the business of trading of vegetables & fruits, the assessee cannot be expected to maintain impeccable records as that of a corporate.''The Ld. CIT(A) has not doubted the deposits of Rs. 1.58 crores but only doubted the deposits made during the demonetization period of Rs. 11.83 lakhs which, based on the evidences before us, could be treated as part of the regular business.''The decision of the Ld. CIT(A) holding that the withdrawals are not arising from cash deposits made and hence, the cash withdrawals do not represent the actual cash available or otherwise cannot be affirmed.'Core principles established include:- The burden to explain cash deposits under Section 69B lies on the assessee, but explanations supported by financial statements, audit reports, and reasonable documentary evidence in the context of the nature of business must be accepted.- Rejection of books of accounts under Section 145(3) requires cogent reasons and cannot be based solely on absence of printed bills or reliance on cash transactions, especially in small trading businesses.- Selective questioning of certain cash deposits without doubting the overall cash flow and business turnover is inconsistent and cannot sustain additions under Section 69B.Final determination was that the addition of Rs. 11,83,000/- under Section 69B was unwarranted and the appeal was allowed in favor of the assessee.