Cash deposits during demonetization held explained as petrol pump sales; addition under Section 69A deleted for assessee

ITAT Ahmedabad held that cash deposits made during the demonetization period could not be treated as unexplained income u/s 69A. The assessee, operating a petrol pump, produced relevant records evidencing sales, including cash sales during the demonetization window. The Tribunal noted that petrol pumps were permitted to accept demonetized currency and that the slight increase in cash sales during this period was normal and commensurate with overall annual sales. Since the assessee established that the bank deposits were sourced from recorded cash sales, the additions made and confirmed by the lower authorities were unjustified. The additions were deleted and the assessee's appeal was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cash deposits made during the demonetization period, corresponding to recorded cash sales of a petrol pump, could be treated as unexplained money under section 69A by characterizing the sales as bogus.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Treatment of cash deposits during demonetization as unexplained money under section 69A by disbelieving recorded cash sales

Interpretation and reasoning

2.1 The Tribunal noted that the lower authorities had proceeded on the premise that the assessee did not file relevant details and evidences to substantiate that the cash deposits during demonetization were out of sales; however, the record showed that the assessee had in fact produced purchase register, sales register, stock statement and other material in support of its sales, including those during the demonetization period.

2.2 The business of the assessee was that of a petrol pump, and under Central Government Notification No. S.O. 3544(E) dated 24/11/2016, petrol pumps were specifically permitted to accept demonetized currency up to 15/12/2016; this factual and regulatory context was treated by the Tribunal as a "determining factor" in assessing the genuineness of increased cash sales during the relevant period.

2.3 The data on record showed that total sales were about Rs. 9.40 crores, of which Rs. 7.65 crores were cash sales, and cash sales of Rs. 1.53 crores were made during the demonetization period; the Tribunal found these figures to be commensurate with the overall sales pattern and cash sales of the year, and not disproportionate.

2.4 The Tribunal accepted the explanation that, since demonetized currency was legally accepted at petrol pumps during the notified period, it was normal for the public to use such notes for fuel purchases, naturally resulting in some increase in cash sales; the increase observed was characterized as a "normal increase" under the special circumstances and not of such magnitude as to justify an inference of bogus sales.

2.5 The existence of supporting records (including VAT returns) and the linkage between recorded cash sales and bank deposits led the Tribunal to hold that the assessee had duly proved that the cash deposited in the bank account was sourced from genuine cash sales, and that mere increase in cash sales during demonetization, without cogent contrary material, could not warrant invocation of section 69A.

Conclusions

2.6 The Tribunal held that the characterization of recorded cash sales during demonetization as bogus, and consequent treatment of the corresponding cash deposits as unexplained money under section 69A, was unjustified.

2.7 The addition made by the Assessing Officer under section 69A and confirmed by the appellate authority was deleted, and the appeal of the assessee was allowed.

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