2025 (7) TMI 1046 - AT - Income Tax

ITAT deletes 50% addition on cash deposits during demonetization after accepting legitimate sales transactions

Bir Babu Pandey Versus ITO, Ward-2 (4), Siwan

The ITAT Patna allowed the assessee's appeal regarding unexplained cash deposits during demonetization. The AO had accepted the assessee's book profit ... Unexplained cash deposit - unverifiable sales and purchases - addition was confirmed on account of failure to furnish the required evidence - HELD THAT:- AO has accepted the book profit of the assessee which also consists of the transactions recorded in the cash book. No evidence of excess stock or any other investment was found during the survey and the sales were duly reflected in the GST return filed by the assessee. CIT(A) on one hand mentions that it can also not be denied that the assessee has been able to fully justify the amount of cash deposited during the demonetization period by furnishing independent corroborative evidence, however, on the other hand he has confirmed 50% of the cash deposited during the demonetization period. Once the CIT(A) had accepted that the assessee had sales of about ₹13.75 Crore during the year and was carrying on cash transactions, the money from which was deposited in the bank account, there was no justification for sustaining 50% of the amount without giving any basis for upholding the addition of 50%. Assessee appeal allowed. Addition on difference of Sundry creditors - This issue is also remanded to the Ld. AO who shall carry out necessary verification with the liquidator of JVL and after considering the submission of the assessee make the addition in case the same is desired, as no verification for the balance was filed before the Ld. AO. Hence this ground of appeal is allowed for statistical purposes. ISSUES: Whether the addition made under section 69A of the Income Tax Act, 1961, on account of unexplained cash deposits during the demonetization period is justified. Whether partial disallowance of 50% of the cash deposits during the demonetization period is legally sustainable when the assessee has furnished independent corroborative evidence including audited books and VAT/GST returns. Whether the addition on account of difference in sundry creditors relating to the JVL Group of Companies is justified without proper verification and independent confirmation, especially when the group was under liquidation. Whether the addition under section 40(a)(ia) of the Income Tax Act, 1961, is maintainable when the ground was not pressed by the assessee. RULINGS / HOLDINGS: The addition of Rs. 17,13,500/- (50% of Rs. 34,27,000/-) under section 69A on account of cash deposits during demonetization is deleted as the assessee has 'fully justify[ied] the amount of cash deposited during demonetization by furnishing independent corroborative evidence' including GST returns and audited books, and the AO accepted the book profit and sales. The partial disallowance of 50% of the cash deposits is found to be arbitrary and unjustified since the sources were explained and accepted; therefore, the entire addition is disallowed. The addition of Rs. 10,94,345/- on account of difference in sundry creditors relating to the JVL Group of Companies is remanded to the AO for verification with the liquidator, as the assessee had furnished audited accounts and ledger details but could not provide creditor confirmations due to liquidation status; no conclusive addition is sustained without proper verification. The addition under section 40(a)(ia) is dismissed as the ground was not pressed by the assessee. RATIONALE: The Court applied the provisions of the Income Tax Act, 1961, specifically sections 69A (unexplained cash credits), 143(3) (assessment), 250 (appeal to Commissioner), and 40(a)(ia) (disallowance for certain payments), considering the evidentiary requirements for additions. The Tribunal relied on the principle that additions under section 69A require the AO to demonstrate that the source of cash deposits is unexplained after considering all corroborative evidence such as audited books, cash books, cash flow statements, and GST returns. The Tribunal emphasized that acceptance of book profits and sales by the AO and corroboration by GST returns and audited accounts negate the presumption of unexplained cash deposits, making partial disallowance arbitrary. Regarding sundry creditors, the Tribunal recognized the necessity of independent confirmation and verification, especially when the creditor entity was under liquidation, and remanded the matter to the AO for appropriate inquiry rather than sustaining addition on mere discrepancy. No dissenting or concurring opinions were recorded; the Tribunal followed established tax assessment principles without doctrinal shifts.