2026 (2) TMI 256 - AT - Income Tax

Unexplained cash deposits during demonetisation treated as business cash sales, tribunal allows source but estimates income at 8%

Unexplained cash deposits during the demonetisation period were treated as alleged cash sales where the assessee's regular business and books of account ... Unexplained cash deposits - Estimation of alleged cash sale - AO has not rejected the book results and has only questioned the cash sales which took place during the demonetization period - HELD THAT:- It is well evident that declaration of demonetization scheme was never known to the public at large and at that point of time panic is inevitable. Such period of panic certainly cannot be equated to the normal period of carrying on business activities. In the instant case since the assessee’s regular business has not been disputed and that the assessee is a partnership firm maintaining proper books of account, which has been accepted by the Ld.AO and necessary details of cash sales have been filed. In absence of any contrary material, find that the source of cash deposits is from the cash sales of business activity carried out by the assessee. However, since no proper details filed before this Tribunal inspite of providing sufficient opportunities and also other necessary details are not emerging from the available records, therefore, deem it appropriate to estimate income @8% of the alleged cash sales - Decided partly in favour of assessee. Issues: Whether the addition of Rs. 38,57,530 as unexplained cash deposit can be sustained where books of account are accepted but detailed evidence of cash sales during the demonetisation period is not furnished to the Tribunal.Analysis: The Tribunal examined (i) the acceptance of the assessee's books of account by the Assessing Officer, (ii) the nature of the business (regular scrap trading with declared quarterly sales), and (iii) the specific factual context of the demonetisation period which affected cash transactions. The Tribunal noted that the return was selected for scrutiny and that cash sales records had been filed but that the assessee failed to provide adequate details despite opportunities and was absent at hearings resulting in ex parte adjudication. Applying the principle that accepted books support the source of receipts but recognising the lack of specific corroborative details, the Tribunal exercised the power to estimate income from the alleged cash sales. The estimation method applied was 8% of the disputed cash deposits to determine taxable income.Conclusion: The addition sustained in part; the Tribunal reduced the addition by allowing part relief and confirmed an assessed addition of Rs. 3,08,600 (being 8% of Rs. 38,57,530).