Under-reported turnover and demonetisation cash deposits: reconciliation upheld and additions based on third-party data rejected

When departmental data allegedly showing under-reported turnover is confronted, the assessing officer must conduct independent enquiries if the assessee disputes and furnishes contrary evidence; therefore differential reflected in third-party data cannot alone sustain additions, and additions based on such data were disallowed. Advances received treated as taxable services must be recognised as revenue only on consummation of sale; accordingly sale booked on conveyance deed had no service tax impact and was accepted. Payments subject to reverse charge are not part of assessee turnover and were excluded after reconciliation of service returns with books. Large cash deposits during demonetisation were explained by prior withdrawals and cash-book entries, and the explanation was accepted.

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Issues: (i) Whether additions made by the Assessing Officer and upheld by the CIT(A) by treating difference between CBEC data and books of account as under-reported turnover can be sustained where the assessee furnished reconciliations and explanations; (ii) Whether addition of cash deposits treated as unexplained credit under section 68 read with taxation under section 115BBE can be sustained for deposits during the demonetisation period, including the applicability of section 115BBE.

Issue (i): Whether the addition of Rs. 4,21,34,712/- based on CBEC data mismatch with books of account is sustainable.

Analysis: The Assessing Officer relied on CBEC data and made additions despite the assessee furnishing detailed reconciliation charts showing treatment of advances, service-tax-related timing differences, and documentary support. The Tribunal applied the principle that when an assessee disputes third-party departmental data and furnishes contrary evidence, the Assessing Officer must conduct necessary enquiries to verify the departmental information rather than making additions solely on the basis of such data. The Tribunal relied on co-ordinate decisions emphasizing that taxpayers cannot be required to perform impossible tasks to verify data outside their control and that differences may arise from differing accounting policies or incorrect reporting by third parties.

Conclusion: Issue (i) decided in favour of the Assessee; the addition based on CBEC data mismatch is not sustained and Ground No. 2 is allowed.

Issue (ii): Whether the addition of Rs. 56,65,000/- under section 68 read with section 115BBE for cash deposits during demonetisation is sustainable and whether section 115BBE applies for the assessment year.

Analysis: The assessee produced cash books showing withdrawals preceding and deposits during demonetisation and evidence that deposited cash represented demonetised currency already held. The books were not rejected by the Assessing Officer. The Tribunal considered precedents and recent High Court authority holding that section 115BBE has prospective application from 01.04.2018, and that part of the deposits could legitimately be treated as arising from cash in hand on the date of demonetisation. Applying that reasoning to the facts and cash-book evidence, the Tribunal found merit in the assessee's contention.

Conclusion: Issue (ii) decided in favour of the Assessee; additions under section 68 read with section 115BBE are disallowed and Grounds No. 3 and 4 are allowed.

Final Conclusion: The appeal is allowed and the additions contested on the issues decided are deleted, resulting in disposal in favour of the assessee.

Ratio Decidendi: When an assessee disputes departmental third-party data and furnishes reconciliations and supporting books, the Assessing Officer must make independent enquiries to verify such data before making additions; and section 115BBE is prospective from 01.04.2018 and cannot be invoked for deposits arising during the demonetisation period prior to that date.

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