Addition on demonetization cash deposits deleted; recorded sales accepted, no unexplained income under sections 69A and 115BBE

ITAT allowed the assessee's appeal and deleted the addition made u/s 69A r.w.s. 115BBE on cash deposits of specified bank notes during demonetization. The Tribunal held that once sales and turnover recorded in the books are accepted, the same cash receipts cannot be treated as unexplained merely because they were deposited in SBN; doing so would result in impermissible double taxation. The cash deposits were found to be duly supported by recorded cash sales and existing cash balance. Consequently, as no income under ss. 68/69/69A etc. survived, the enhanced rate of tax and interest u/s 115BBE was held inapplicable and the related levy was quashed.

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1. ISSUES PRESENTED AND CONSIDERED

- Whether cash deposits in specified bank notes during the demonetization period, recorded in the audited books and claimed as business receipts, could be treated as unexplained cash credit under section 68 and brought to tax under section 115BBE.

- Whether the appellate authority was justified in dismissing the appeal for non-prosecution without adjudicating the merits when evidences and submissions were already on record.

- Whether, upon deletion of the addition under section 68, the consequential tax at the enhanced rate under section 115BBE survives.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Treatment of cash deposits in specified bank notes as unexplained cash credit under section 68

Interpretation and reasoning

- The assessee was a wholesale trader with total turnover of Rs. 5,01,70,254/-, regularly depositing monthly cash collections of about Rs. 40-45 lakhs into its bank account and making RTGS payments to suppliers out of such deposits.

- During the demonetization period, total cash deposits were Rs. 34,43,760/-, out of which Rs. 12,29,000/- comprised specified bank notes. Only this SBN component was added under section 68 by the Assessing Officer.

- The books of account were regularly maintained, supported by vouchers and records, and duly audited under section 44AB. The Assessing Officer did not invoke section 145(3) to reject the books, nor did he dispute the turnover or general pattern of cash deposits.

- The Court held that once the turnover and cash deposits for the whole year as recorded in the books are accepted, it is not permissible to bifurcate cash deposits into regular currency and specified bank notes and treat only the latter as unexplained without any positive material indicating a source other than regular business.

- Specified bank notes were legal tender prior to demonetization, and the assessee's case was that the SBN deposits represented cash sales realized prior to demonetization and held in cash balance; this explanation was supported by the regularity and quantum of monthly sales and past cash deposits (including a higher cash deposit in November of the preceding year).

- Relying on the principle recognized by the jurisdictional High Court that once sales realization forming part of declared turnover has been offered and accepted as income, the same amount cannot again be brought to tax under section 68, as that would result in double taxation of the same income, the Court found the separate addition on SBN deposits unsustainable.

- The Mumbai Tribunal decision was also noted for the proposition that where cash deposits during demonetization are out of cash balance as per books, such deposits cannot be treated as unexplained cash credit.

Conclusions

- The assessee satisfactorily explained the source of the cash deposit of Rs. 12,29,000/- in specified bank notes as arising from recorded business receipts and cash balance.

- The separate addition under section 68 in respect of these deposits, while accepting the books and turnover, amounted to impermissible double taxation and was deleted.

- The order of the appellate authority upholding the addition was set aside, and the Assessing Officer was directed to delete the impugned addition.

Issue 2: Dismissal of appeal for non-prosecution by the appellate authority

Interpretation and reasoning

- The appellate authority had dismissed the appeal for non-prosecution, observing non-compliance with notices and absence of ground-wise submissions with supporting evidence.

- Before the Tribunal, the assessee explained that earlier compliance had been made, that change of consultant led to non-receipt of subsequent notices, and that relevant documents (including audited books and supporting records) were already on the assessment record and produced in the paper book.

- The Court considered the material placed on record and proceeded to adjudicate the merits of the addition, implicitly disapproving the disposal of the appeal merely for non-prosecution when evidence was available and the matter could be decided substantively.

Conclusions

- The dismissal of the appeal by the appellate authority for non-prosecution, without effective adjudication on merits in the presence of available records, was not sustained.

- The appellate order was set aside and replaced by the Tribunal's decision on merits deleting the addition.

Issue 3: Applicability of section 115BBE after deletion of the addition under section 68

Legal framework

- The Court noted that section 115BBE applies where the total income includes income referred to in sections 68, 69, 69A, 69B, 69C, or 69D.

Interpretation and reasoning

- Since the foundational addition under section 68 on account of alleged unexplained cash credit was deleted, there remained no income of the nature contemplated by section 68 or the connected provisions to attract section 115BBE.

Conclusions

- With the deletion of the section 68 addition, the consequential levy of tax at the enhanced rate under section 115BBE did not survive.

- The ground challenging the application of section 115BBE was allowed as a consequence of the deletion of the underlying addition.

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