2025 (11) TMI 1833 - AT - Income Tax

Cash deposits during demonetization held explained; addition under sections 68 and 115BBE deleted for petrol pump assessee

ITAT allowed the assessee's appeal and deleted the addition made u/s 68 r.w.s. 115BBE on cash deposits during the demonetization period. The Tribunal held ... Addition u/s. 68 - cash deposit during the demonetization period - HELD THAT:- A pragmatic view must be taken by the AO, as during the demonetization period, no doubt public was spending in SBNs as far as possible and railway tickets, petrol pumps and medicine shops were the main destinations as the same are in exempted categories. If the assessee denies accepting the SBNs, certainly he will lose the business, and the customers will go to the neighbouring filing stations. This was not the agenda of demonetization; the agenda was well defined and circulated amongst the public also. The assessee being governed by the strict rules and regulation for dealing with highly inflammable items and duly registered with the State Govt.’s District Supply Officer, it can be reasonable assumed that other than the State VAT Deptt. And Income Tax Deptt., the assessee is subject to verification of stock, purchase, sales etc. by the office of the District Supply Officer also. In addition to this, usually in any district the filing stations are the main source of organised VAT collection and subject to strict scrutiny by the VAT Deptt. It is astonished that wherever we dealt with the matter pertaining to demonetization period, the AO always tried to put results in doubts by virtue of fluctuation in sales, opening cash balance etc. But, here in this matter no such working has been done by the AO, which may justify the addition based on factual working done by him. Here he simply relied on the notification mentioned (supra) and made the additions without pointing out any deficiency or error in the books of accounts maintained by the assessee.Order of the AO is found to be non-sustainable ion the eyes of law, hence ground no. 1 raised by the assessee is allowed and the AO is directed to delete the addition made u/s. 68 r.w.s. 115BBE of the Act. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether cash deposits during the demonetization period, recorded in the regular books of account of an authorised petroleum dealer and relatable to disclosed sales, could be treated as unexplained cash credits under section 68 read with section 115BBE of the Act. 1.2 What approach the Assessing Officer is required to adopt in scrutiny of cash deposits during the demonetization period in the case of petrol pump assessees operating under strict regulatory and stock-verification regimes. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of section 68 read with section 115BBE to cash deposits during demonetization relatable to recorded sales Legal framework (as discussed) 2.1 The assessment was framed treating cash deposits of Rs. 52,78,000/- made during the financial year 2016-17 (demonetization period) as unexplained cash credits under section 68, taxed in terms of section 115BBE of the Act. Interpretation and reasoning 2.2 The Tribunal noted that there were no adverse comments by the Assessing Officer on the books of account maintained by the assessee; the books were not found unreliable and no specific deficiency was pointed out. 2.3 The Tribunal observed that the Assessing Officer did not invoke or make out a case for application of section 145; thus, the regularly maintained books stood accepted in principle. 2.4 The Tribunal recorded that the sales made during the demonetization period were out of the available stock and that there was no dispute or question raised by the Assessing Officer regarding availability of stock or the factum of sales. 2.5 It was reasoned that, if the assessee has already offered for taxation the profit element embedded in such sales as part of regular business income, then treating the very same cash, representing sale proceeds, as unexplained under section 68 would amount to a 'double addition' - once as business profit and again as unexplained cash credit. 2.6 The Tribunal emphasised that the Assessing Officer, instead of undertaking any factual working, fluctuation analysis of sales, or examination of opening cash balance, simply relied on the demonetization notification and the fact of cash deposit to invoke section 68, without identifying any specific error, defect, or inconsistency in the books of account or sale records. Conclusions 2.7 In the absence of any specific defects in the books of account, and in view of the fact that the cash deposits were linked to recorded and undisputed sales out of available stock, the Tribunal held that the addition under section 68 read with section 115BBE was not sustainable in law. 2.8 The Tribunal therefore directed deletion of the addition of Rs. 52,78,000/- made as unexplained cash deposits, and allowed the relevant ground of appeal. Issue 2: Approach to cash deposits during demonetization in the case of petrol pump assessees Interpretation and reasoning 2.9 The Tribunal observed that during the demonetization period, specified bank notes (SBNs) continued to be used by the public at exempted outlets, including railway ticket counters, petrol pumps, and medicine shops, and that these were principal destinations for spending SBNs. 2.10 The Tribunal held that a 'pragmatic view' was required from the Assessing Officer in such cases, noting that if a petrol pump refused to accept SBNs, it would lose business to neighbouring filling stations, which could not have been the intent of the demonetization policy. 2.11 The Tribunal took note that an authorised petroleum dealer deals with highly inflammable goods under strict rules and regulations, is registered with the District Supply Officer, and is subject to verification of stock, purchases, and sales not only by the State VAT Department and Income Tax Department but also by the office of the District Supply Officer; further, petrol pumps are generally principal sources of organised VAT collection and are subject to strict scrutiny. 2.12 The Tribunal commented that, in demonetization-related matters, Assessing Officers frequently attempt to cast doubt on results by raising issues such as fluctuating sales or opening cash balance; however, in the present case, no such analytical or factual exercise was undertaken and the addition was made solely on the basis of the demonetization notification and quantum of cash deposit. Conclusions 2.13 Given the regulated nature of the assessee's business, the undisputed stock and sales position, and the general economic reality of SBN usage at petrol pumps during demonetization, the Tribunal held that the mere fact of substantial cash deposits in that period did not justify treating them as unexplained under section 68 in the absence of concrete defects or inconsistencies in the books. 2.14 On this reasoning, the Tribunal found the assessment order to be unsustainable in law and allowed the appeal, resulting in deletion of the impugned addition.