TaxTMI 
TaxTMI 
2025 (1) TMI 1054
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.... scrutiny assessment for the reason of abnormal increase in cash deposited during demonetization period as compared to pre-demonetisation period. The AO issued statutory notices u/s 143(2)/142(1) from time to time which were complied by assessee. During scrutiny, the AO found that the assessee had made a total deposit of Rs. 42,52,500/- in bank accounts on different dates during demonetization period, the AO has extracted datewise details of such deposits in assessment-order. When the AO show-caused assessee to explain the sources of these deposits, the assessee made submissions. The AO considered assessee's submissions and accepted only a deposit of Rs. 985,000/- being the first deposit made by assessee on 10.11.2016 immediately after declaration of demonetization as explained and treated the rest of deposits of Rs. 32,67,500/- as unexplained cash credit u/s 68 and accordingly made addition. Aggrieved, the assessee carried matter in first-appeal but did not get any relief. Now, the assessee has come in next appeal before us. 3. Ld. AR for assessee firstly drew us to the relevant para of assessment-order passed by AO reading as under: "5. Given the above, the explanatio....
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....it during demonetization Period compared to Pre demonetization Period". * While framing the Assessment order the Ld. AO from the total cash deposit of Rs. 42.52 Lakhs during the demonetization gave allowance of Rs. 9.85 Lakhs as average cash balance and has made addition of Rs. 32,67,500/- by treating the balance amount as unexplained cash credit U/s 68 r.w.s 115BBE. Our Contentions in brief in respect of addition of Rs. 32,67,500/- made u/s 68 of the Act: 1.1. During the Assessment proceedings, it was explained that the source of the cash deposit was closing cash balance of Rs. 44.33 Lakhs as on 08.11.2016 (Page 185 of the PB). This was accumulated majorly from cash withdrawals from the bank account and a very minor receipt from sale/debtor realization. During the pre-demonetization period, there was total net cash withdrawals of Rs. 1.24 Crores and receipts from debtor of Rs. 1.21 Lakhs. Kindly Refer Page no. 44 of the PB. 1.2. In support of its contentions, the appellant had submitted various documentary evidences as tabulated below: - S.No. Nature of Document Page no. of the PB 1. Bank Statement and Bank Book 45 to 141 2.....
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....contention of the appellant is genuine and not afterthought and can be substantiated from the response filed for inquiry conducted online named as "Cash Transaction 2016" (before initiation of Scrutiny proceedings) where it was also clarified that the source of cash deposit pertained from cash withdrawal from the Bank account. (Kindly refer page no. 142 to 145 of the PB). 1.9. The Ld. AO resorted to reject the books of accounts of the appellant u/s 145(3) and invoked section 68 of the act for which it is submitted that - * That the Ld. AO failed to take cognizance of the submission of the appellant that the cash balance as on 08.11.2016 amounting to Rs. 44.33 lakhs was substantially covered by opening balance and cash withdrawals made to the tune of Rs. 43.12 lakhs (approx. 98% of the cash balance as on 08.11.2016). * Kindly refer to the Page no. 44 of the PB - Particulars (Pre-demonetization Period from 01.04.2016 to 08.11.2016) Amount (Rs.) Opening Balance 7.13 Lakhs Add: Cash withdrawals 154.49 lakhs Less: Cash Deposit (30.14 lakhs) Less: Cash payments (88.35 lakhs) Balance forming part of cash balance as on 08.11.2016 ....
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....ditors. The Bank Statements in support of such Cash Summaries were also filed as Annexure-D to assessee's same reply dated 16.05.2019 (Paper-Book Page 45-141). Subsequently, the assessee also filed complete Cash-Book of financial year 2016-17 as Annexure-A-1 & A-2 to reply dated 03.07.2019 (Paper-Book Page 167 to 213) in response to AO's notice dated 26.06.2019. The entries in Cash-Book are in conformity with the Cash Summaries filed earlier to AO. Ld. AR submitted that the AO has wrongly disapproved assessee's submission by making an incorrect observation that the assessee introduced unaccounted cash in the guise of cash sales and proceeds from debtors' realization whereas the collection from debtors was just Rs. 1.21 lakhs. He submitted that the AO has not made any observation qua the Cash Withdrawals made by assessee from bank a/cs which was in fact a major source of Opening Balance on 09.11.2016 and utilized for deposit in demonetization period; the AO has wrongly attempted to link the deposits with cash sales/recovery from debtors which is not correct. (ii) That, prior to initiation of scrutiny by AO, the assessee also filed an online response to Income-tax Department again....
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....and on other hand made addition u/s 68. This is legally not permissible. Ld. AR referred following decisions in which it has been vehemently held that once the AO has rejected books of assessee u/s 145, section 68 has not application and consequently no addition can be made u/s 68: (a) CIT Vs. Dulla Ram (2014) 42 taxmann.com 349 (Punjab & Haryana HC) (b) CIT Vs. K.M.N. Naidu (1996) 221 ITR 451 (Mad HC) (c) ACIT Vs. Shri S. Moorthy, ITA No. 3091/CHNY/2019 (ITAT, Chennai) (d) Sh. Collector Ram Sharma Vs. Deputy Commissioner of Income-tax 2016 (12) TMI 448 - ITAT, Jaipur 6. With these submissions, Ld. AR requested that the addition made by AO is neither sustainable on merit nor on legal provision of section 68. Therefore, the action of AO must be reversed and the impugned addition be deleted. 7. Per contra, Ld. DR for revenue made following submissions and claimed that the addition made by AO is very much correct, hence the same must be upheld: (i) The AO and CIT(A) both have mentioned that the assessee did not produce books of account. The assessee has not filed even "Cash Flow Statement", only Cash Summaries have been filed. ....