2025 (12) TMI 619 - AT - Income Tax

Cash deposits from recorded jewellery sales not taxable as unexplained income u/ss 68 and 115BBE during demonetisation

ITAT held that addition u/s 68 on cash deposited during demonetization was unjustified where the assessee was engaged in regular business and the cash ... Addition u/s 68 - cash deposited in the bank during demonetization period - unexplained income - Onus to prove - unexplained cash credits - whether any addition can be made u/s 68 of the Act when the AO himself rejected the books of accounts or where an order was passed u/s 144? - HELD THAT:- We are of the view that where the assessee is carrying on business regularly, the natural inference is that all the receipts are related to the business and the cash deposits in the banks have emanated from the business activities based on which no addition is sustainable in law and even the assessee had proved beyond doubt that the cash deposited is out of sale proceeds and hence there was no justification in invoking section 115BBE of the Act. Although, AO stated that assessee had not mentioned making charges income. In this case the assessee states that the amount of making charges were already included in the rate of jewellery which were charged to customer. There is no bar in making cash sales and in case the assessee is not able to furnish the address of the buyers, the additions cannot be made under section 68 of the Act on this count. We are of the view that assessee has successfully proved that the cash deposited by him was out of cash sales which have already been reflected in books of accounts and taxes have already been paid therefore no additions are warranted u/s 68 of the Act. Therefore we direct the AO to delete the same. Appeal filed by the assessee stands allowed. Issues: (i) Whether the addition of Rs. 3,49,00,000 made under section 68 by treating cash deposits during the demonetisation period as unexplained income is sustainable where the assessee has recorded the amounts as cash sales in books, produced sales/purchase registers, stock records and paid tax on such sales.Analysis: The Tribunal examined whether section 68 can be invoked to treat bank cash deposits as unexplained cash credits when the assessee had recorded the amounts as sales in its books of account, filed returns including those sales, furnished cash book, sales invoices, stock statements and audited accounts, and shown corresponding purchases. The Tribunal applied the legal principle that where books of account are relied upon and sales are reflected and taxed, the initial onus on the assessee to explain the nature and source of deposits stands discharged and the burden shifts to the revenue to prove that the deposits represent undisclosed income. The Tribunal also considered the effect of rejecting books under section 145(3) and the settled position that additions cannot be made by selectively relying on entries in books after rejecting them; similarly, where the evidence shows sufficient stock and corroborative documentation, deposits during demonetisation need not be treated as unexplained. Relevant precedents on demonetisation-period deposits, rejection of books, requirement to identify cash customers (PAN) and principles against double taxation were applied to the facts, including authorities holding that trade advances or cash sales subsequently recorded as sales are not amenable to section 68 treatment and that cash sales below statutory limits do not mandate PAN collection.Conclusion: The Tribunal concluded that the assessee discharged the onus of proving that the cash deposits represented bona fide sales already recorded and taxed; the addition under section 68 (and consequential invocation of section 115BBE) is not sustainable. The appeal is allowed in favour of the assessee and the AO is directed to delete the addition.