2025 (11) TMI 1751 - AT - Income Tax

Section 68 addition on demonetization cash deposits deleted as cash withdrawals and business records support genuine receipts

ITAT Pune set aside the order of CIT(A) sustaining addition under s.68 for alleged unexplained cash deposits made during the demonetization period. It ... Addition u/s 68 - unexplained cash deposit as found to be deposited during the demonetization period - HELD THAT:- Total cash withdrawals were Rs. 56,63,500/- and cash deposits prior to the demonetization period are Rs. 44,65,000/-. So even as per the cash withdrawals and cash deposits for the year under consideration itself, there is surplus of cash of Rs. 11,98,500/- available with the assessee and the same is much more than the alleged cash deposit. AO has also failed to consider that assessee has filed income-tax return and declared turnover of Rs. 1,27,06,029/- and the sale consideration is majorly received in cash and has been deposited in the bank account and the alleged cash deposit is also part of the total sale consideration. Assessee has offered the net profit approximately 8.06% from the total sales. VAT returns have also been filed. Assessee is also registered with the GST. All these facts collectively indicate that the alleged sum of Rs. 7.40 lakh is on account of cash sales from the business regularly carried out by the assessee during the year and cannot be treated as unexplained money. Even the total cash withdrawals minus cash deposits prior to the demonetization period are also sufficient to explain the alleged cash deposit. Therefore, finding of ld.CIT(A) is set aside and impugned addition of Rs. 7.40 lakh is deleted. Effective grounds of appeal raised by the assessee are allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the addition for unexplained cash deposit of Rs. 7.40 lakh, made on account of cash deposited during the demonetization period, was justified in light of the assessee's business turnover, pattern of cash deposits and withdrawals, and declared income. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Justification of addition for unexplained cash deposit of Rs. 7.40 lakh during demonetization period Interpretation and reasoning 2.1 The Court noted that the assessee is engaged in regular business, having valid VAT registration, filing VAT returns for the relevant financial year, and declaring gross turnover of Rs. 1,27,06,029/-, with major sales in cash. Income was declared under section 44AD at approximately 8.06% of gross sales, and the return had been accepted except for the impugned cash deposit. 2.2 The pattern of cash deposits and withdrawals in the relevant bank account was examined in detail. Total cash deposits during the year amounted to Rs. 52,05,000/-, which included the disputed deposit of Rs. 7.40 lakh. The addition was confined only to the amount of Rs. 7.40 lakh, implying that the remaining cash deposits of Rs. 44,65,000/- were accepted as explained, being related to the assessee's business receipts. 2.3 Total cash withdrawals during the relevant period were recorded at Rs. 61,91,500/-, out of which cash withdrawals of Rs. 56,63,500/- and cash deposits prior to the demonetization period of Rs. 44,65,000/- indicated that there was a surplus cash availability of Rs. 11,98,500/-, which exceeded the disputed deposit of Rs. 7.40 lakh. The Court held that this surplus, arising within the same year, adequately explained the availability of cash for the deposit. 2.4 The Court observed that the Assessing Officer rejected the explanation mainly on the ground of no immediate cash withdrawal prior to the demonetization-period deposit, but failed to consider the overall cash flow, including cumulative deposits and withdrawals over the year, and the nature of the assessee's cash-based business operations. 2.5 The Court further emphasized that the assessee's turnover, predominantly received in cash, was already subjected to presumptive taxation under section 44AD, that VAT returns were filed, and that the impugned cash deposit was part of the total sales consideration already offered to tax. These factors collectively supported the assessee's contention that the cash deposit emanated from regular business activities and not from unexplained sources. Conclusions 2.6 The Court held that, in view of the accepted turnover, cash-based nature of business, filing of VAT returns, declared income under section 44AD, and demonstrated surplus of cash from withdrawals over deposits prior to demonetization, the cash deposit of Rs. 7.40 lakh was satisfactorily explained as arising from regular business cash sales. 2.7 The addition for unexplained cash deposit of Rs. 7.40 lakh was found unsustainable and was deleted, and the findings of the appellate authority confirming such addition were set aside.