Cash deposits during demonetisation held explained; addition for wrongly invoking section 69A on recorded sales deleted

ITAT Patna allowed the assessee's appeal, deleting the addition made u/s 69A on cash deposited during the demonetization period. The Tribunal held that the AO erred in recording that the assessee had not produced the cash book, which was in fact filed before both AO and NFAC. As the AO had not rejected the books of account and had not disputed the recorded sales, treating the same cash sales as unexplained money would lead to impermissible double taxation. ITAT further held that section 69A was wrongly invoked, since the cash deposits were duly explained as recorded sales already offered to tax.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cash deposits made during the demonetization period, representing cash sales recorded in the audited books, could be treated as unexplained money under section 69A of the Act.

1.2 Whether sustaining the addition of cash deposits, when corresponding sales are already taxed, would amount to impermissible double taxation of the same income.

1.3 Whether certificates from banks and cash book produced by the assessee in appellate proceedings constituted "additional evidence" under Rule 46A of the Income-tax Rules, 1962, and whether the appellate authority was justified in rejecting them on that ground.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Applicability of section 69A to cash deposits from recorded cash sales and consequence of double taxation

Legal framework (as discussed)

2.1 Section 69A of the Act deals with "unexplained money, bullion, jewellery or other valuable article" which is not recorded in the books of account, if any, maintained by the assessee, and for which the assessee either offers no explanation, or the explanation is found unsatisfactory. In such cases, the amount may be deemed to be the income of the assessee for that financial year.

Interpretation and reasoning

2.2 The Tribunal recorded that the assessee was engaged in wholesale trading of tobacco and pan masala, maintained books of account which were audited, and had declared a turnover of Rs. 25,44,14,568/- for the relevant year. The cash deposits during demonetization (including those in specified bank notes) were reflected as cash sales in these books.

2.3 It was noted that the Assessing Officer did not reject the books of account and did not dispute or doubt the sales recorded therein, including sales during the demonetization period. The income as per the books was accepted for taxation.

2.4 The Tribunal found that the cash deposited in bank represented cash sales already recorded in the books of account, and therefore could not be treated as "unrecorded" money within the meaning of section 69A. Once the transactions are duly accounted for, section 69A does not apply.

2.5 The Tribunal further held that treating the same cash, already arising from recorded sales offered to tax, again as unexplained money under section 69A, would lead to double taxation of the same income-first as sales in the profit and loss account and second as deemed income under section 69A-which is not permissible under the Act.

2.6 Reliance was placed on coordinate bench decisions and judicial precedents holding that where cash deposits are sourced from disclosed business receipts duly recorded in books not rejected by the tax authorities, invoking section 69A and making a separate addition amounts to impermissible double addition.

Conclusions

2.7 The Tribunal held that section 69A had been wrongly invoked, as the money was duly recorded in the books as cash sales and the explanation of the assessee as to source (business turnover) had been accepted in substance by not rejecting the books or disputing sales.

2.8 The Tribunal concluded that sustaining the addition of Rs. 5,63,35,000/- would result in double taxation of the same income, which is contrary to law. The addition under section 69A was therefore unsustainable and liable to be deleted.

Issue 3: Treatment of bank certificates and cash book as "additional evidence" under Rule 46A

Interpretation and reasoning

2.9 The Tribunal noted that the appellate authority dismissed the appeal on the ground that the assessee had furnished "additional evidence" under Rule 46A, allegedly without justification, and further recorded that the assessee had not produced cash book or proof of cash deposits.

2.10 On examination, the Tribunal found that the so-called additional evidence consisted of bank certificates regarding cash deposits in specified bank notes and that the cash book had been produced before the Assessing Officer, which fact was acknowledged in the assessment order itself. The same cash book was also filed before the appellate authority.

2.11 The Tribunal held that such bank certificates were merely clarificatory documents supporting the explanation already given and did not constitute "additional evidence" in the strict sense under Rule 46A. They were only corroborative of facts already on record, particularly where books of account and details of cash deposits had been furnished during assessment.

2.12 It was also held that the finding of the Assessing Officer, affirmed by the appellate authority, that the cash book was not produced or that cash deposits were not proved, was factually incorrect in view of the material on record explicitly showing filing of the cash book.

Conclusions

2.13 The Tribunal held that the appellate authority erred in treating the bank certificates as inadmissible additional evidence under Rule 46A and in sustaining the addition on the premise that the assessee had failed to furnish the cash book or supporting documents.

2.14 In light of the fact that the cash book and corroborative evidence were on record and the books had not been rejected, the Tribunal set aside the appellate order and directed deletion of the addition of Rs. 5,63,35,000/-.

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