2025 (7) TMI 1794 - AT - Income Tax

Assessee's Cash Deposits During Demonetization Upheld Under Section 68 with Evidence and Records

Arvind Kumar, Prop. M/s. Shree Balaji Trading Co. Versus Addl. /ACIT, NFAC, Delhi.

The ITAT Delhi upheld the assessee's explanation for cash deposits made during the demonetization period under section 68. The assessee, engaged in ... Addition u/s 68 - assessee has deposited his unaccounted cash during demonetization period - HELD THAT:- Assessee is a wholesaler in handloom products and sells his goods to small dealers i.e. Pheriwalas, Numiaswalas and Hawkers who sells the material after purchasing the same from assessee by selling them on roads, streets, weekly bazaars and door to door. It is a fact on record that assessee’s business is heavily dependent on cash transactions and collects the cash from the debtors. During the demonetization period, assessee has submitted a detailed chart indicating the collections from its debtors in old currency as well as new currency and the same was deposited by the assessee in his bank account maintained at Allahabad Bank, HDFC Bank and Indusind Bank. Considering the nature of business and assessee has declared gross sales of Rs. 2.47 crores, assessee has deposited during the year Rs. 1.49 crores in Allahabad Bank Rs. 19.65 lakhs in HDFC Bank and Rs. 5,74,800/- in Indusind Bank. Therefore, from the information available on record, as observed that assessee has source of cash and also the nature of business is habitually transacts on cash basis. Therefore, assessee has already proved the presence of sources of cash deposited during the demonetization period and further it is a fact on record that assessee deals with small traders and hawkers who sells their goods in Karnataka and Kerala. Assessee has already submitted the details of sales to his debtors giving complete details like address and the details of staff who collected the cash from different debtors. Considering the nature of business and turnover recorded by the assessee, the source of cash was already brought on record. Assessee has submitted additional evidences under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 in the form of paper book giving details of sundry debtors and various further details - remit this issue back to the file of AO with the limited purpose to verify the additional evidences. ISSUES: Whether cash deposits of Rs. 43 lakhs made during the demonetization period can be treated as unexplained cash credit under section 68 of the Income-tax Act, 1961.Whether the addition made under section 115BBE of the Act on such cash deposits is justified.Whether the reopening of assessment under sections 147/148 of the Act was valid and in accordance with law.Whether the assessee's explanation regarding the source of cash deposits from sundry debtors (small traders/hawkers) is sufficient to discharge the burden of proof under section 68.Whether the absence of documentary evidence such as PAN details, confirmations, or signatures from debtors affects the genuineness of the cash credits.Whether the books of account being audited and accepted by the VAT department impacts the application of section 68 and section 115BBE.Whether additional evidences filed before the Tribunal under Rule 29 can be admitted and the matter remitted for verification. RULINGS / HOLDINGS: The cash deposits of Rs. 43 lakhs during demonetization period were treated as unexplained cash credit under section 68 due to failure to provide complete documentary evidence and verification of debtors, and the addition was sustained by the lower authorities.The addition under section 115BBE was upheld on the basis that the cash deposits were unexplained and not reflected as genuine income in the books.The reopening of assessment under sections 147/148 was contested but additional grounds challenging jurisdiction and sanction under section 151 were not admitted due to non-submission of arguments; thus, reopening was not quashed.The assessee's explanation that the cash deposits were from sales to small traders and hawkers was found prima facie credible given the nature of business and habitual cash transactions; however, the lack of complete documentary evidence led to adverse findings.The absence of PAN and confirmations from debtors was noted, but the Tribunal recognized that such small traders may not have PAN or file returns, and no denial of transactions was reported from enquiries.The fact that the books of account were audited and accepted by the VAT department was acknowledged, and it was observed that the sales were recorded in the books, but the AO still invoked section 68 and 115BBE due to lack of satisfactory proof of source for the cash deposits.The Tribunal admitted additional evidence filed under Rule 29 and remitted the issue back to the AO for verification of the additional evidence and proper opportunity to the assessee, thereby partly allowing the appeal for statistical purposes. RATIONALE: The Court applied the provisions of sections 68, 115BBE, 147, 148, and 151 of the Income-tax Act, 1961, focusing on the requirement that cash credits must be satisfactorily explained by the assessee with credible evidence.The legal framework requires that when unexplained cash credits are detected, the burden lies on the assessee to prove the source and genuineness of such credits with documentary evidence and verifiable details of creditors/debtors.The Court recognized the practical difficulties in obtaining PAN and formal confirmations from small traders and hawkers, who are often not assessed to tax, and accepted the assessee's explanation regarding the nature of business and cash dealings.The Court noted that audited books and acceptance by the VAT department lend credibility to the sales transactions, but the absence of complete documentary evidence and failure to verify the creditors/debtors justified the initial addition.The Tribunal exercised discretion under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 to admit additional evidence and remand the matter for fresh verification, reflecting a procedural safeguard and adherence to principles of natural justice.No dissent or doctrinal shift was recorded; the decision aligns with established precedents emphasizing the need for proper verification of unexplained credits and the procedural correctness in reopening assessments.