Addition u/s 68 for cash deposited in bank during demonetization period deleted

Addition u/s 68 for cash deposited in bank during demonetization period deleted as cash was deposited by trade debtors

ABCAUS Case Law Citation
ABCAUS 3465 (2021) (03) ITAT

Important case law relied referred:
Malpani House of Stones Vs CIT (88 taxmaann.com 546) (Raj HC)
CIT vs Aggarwal Engg Co. (302 ITR 246) (P&H HC)
New Pooja Jewellers Vs. ITO
CIT vs Bahubali N Muttin (72 taxmann.com 139)

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition towards unexplained cash credit u/s 68 of the Income Tax Act, 1961 (the Act).

The return of income (ITR) filed by the appellant assessee was selected for scrutiny through CASS and the reasons for scrutiny selection was “cash deposited during the demonetization period“.

The Assessing Officer (AO) observed that the assessee after demonetization, deposited the invalid currency notes of Rs.500/-.

In response, the assessee filed audited accounts and produced copy of the ledger of the sales and purchases along with copy of the books related to the purchase and sales made.

The assessee stated that the cash deposit in the bank account was made out of sale.

The AO noted the cash as per the books of the assessee as on demonetisation date i.e. 08.11.2016 and therefore, he accepted the genuinity of the cash deposit to the tune of cash in hand and the remaining amount was brought to tax u/s 68 of the Act rejecting the books of account.

Before the Tribunal, the assessee submitted that since the AO had accepted the amount of net-profit shown in its return of income out of the aggregate sale, it was implied that the profit embedded in sales had also been accepted by the AO and, therefore, separate addition of this amount u/s. 68 of the Act would amount to double addition.

The assessee submitted that the cash deposited was out of the sale on credit in pre-demonetization period and the realisation included currencies which were no longer valid. According to the assessee, he had no control over the sundry debtors depositing the trade debts in his bank account and so such sale consideration could not be separately taxed as unexplained cash credit, particularly when it was credited by way of sales in the books which was duly audited and accepted by the AO.

Further, it was contended that the AO erred in making addition u/s. 68 of the Act after having rejected the audited books of account u/s 145(3) of the Act.

It was argued that the when the AO rejected the books of accounts he was required to estimate the income for the relevant year by passing the best judgment assessment. He could not rely on the same books [which he has rejected for making separate additions on account of unexplained cash credit u/s 68 of the Act.

The assessee placed his reliance on the several decisions wherein the Hon’ble Courts had held that where the assessee’s books of accounts were rejected and its income were assessed on estimation, then it would not be appropriate to simultaneously rely on the same books for making addition by way of ‘undisclosed income’

The Tribunal stated that the AO was making a ‘guess’ about the  source of demonetized currency and the assessee was assailing the  ‘guess work’ with an explanation which should be tested;  and if the  explanation was a plausible/probable from a traders/business man’s/prudent man’s angle/view, then that cannot be brushed aside  by the AO, without disproving the explanation / facts or by giving  cogent reasons.  

It was further observed that the AO had not disturbed the returned income. However, he had not accepted the cash deposited in bank in invalid currency.

The Tribunal from the list of trade debtors furnished by the assessee, was satisfied that assessee’s explanation the cash had been deposited by the sundry debtors as on 08.11.2016.

The Tribunal stated that on the same reasoning as adopted by the AO to have accepted part of invalid currency notes as genuine trade receipt there was no reason not to accept the explanation of the assessee that the amount was deposited by the sundry debtors reflected in the books as on 08.11.2016.

The Tribunal stated that since the AO accepted the sales/turnover of the assessee which were reflected in the audited books of accounts, as well as the explanation of assessee was supported by material on record, the AO/CIT(A)’s action of addition cannot be countenanced.  Whereas on the factual finding the assessee’s explanation was plausible.

The Tribunal held that the assessee depositing invalid currency notes could not be dis-believed as from undisclosed source or termed as black money.

Accordingly, the Tribunal allowed the appeal in the favour of the assessee.

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