Addition u/s 68 deleted as time gap in cash withdrawal & deposit was normal in business

Addition u/s 68 deleted as time gap between cash withdrawal and cash deposit into bank account was similar to the preceding year, establishing it was a normal feature of the assessee’s business.

In a recent judgment, Hon’ble Delhi High Court upheld deletion of addition u/s 68 towards cash deposit during demonetisation period observing that time gap between cash withdrawal and cash deposit into the bank account was similar to the preceding year, establishing that such time gap was a normal feature of the assessee’s business.

ABCAUS Case Law Citation:
4718 (2025) (08) abcaus.in HC

In the instant case, the Principal Commissioner of Income Tax had challenged the order passed by the ITAT in confirming deletion u/s 68 of Income Tax Act, 1961 (the Act) for cash deposited during demonetisation period.

The respondent assessee company was engaged in the business of real estate. For the relevant Assessment Year its case was picked up for complete scrutiny under CASS.

The Assessing Officer (AO) noticed that in the post-demonetization period, the police intercepted two vehicles carrying large amount of cash which belonged to the holding company of the assessee. The said cash was requisitioned under Section 132A of the Income Tax Act, 1961 (the Act) by the Income Tax Authority and a survey under Section 133A was also conducted at the office premises of the holding company wherein certain documents were impounded which contained noting of cash balances as on 8.11.2016, of various group companies belonging to the business group to which the assessee also belonged. 

The AO noticed that there was a large difference in the cash balance available on 08.11.2016 with the assessee company and the cash deposited in the bank account post demonetization.

The assessee explained that the excess cash balance had been built up through cash withdrawals from bank accounts of the assessee. The assessee also furnished comparative charts for preceding two years showing month-wise cash balances, withdrawals and deposits in order to demonstrate that such withdrawals and the deposits made as a routine exercises even in the period prior to demonetization.  

However, the AO rejected the explanation offered by the assessee and held that the assessee failed to furnish satisfactory explanation of the source of cash deposited during the demonetization period and treated the same as unexplained cash credit under section 68 of the Act and added it to the income of the assessee.

However, the CIT(A) allowed the appeal of the assessee observing from the comparative charts for complete two preceding financial years, it was seen the assessee usually maintained a high cash balance in the books of accounts which was much before the demonetization. The cash balance had been maintained at further higher levels for the remaining financial year up to the date of demonetization. The substantial cash withdrawals as well as deposits into the bank accounts were very much a regular feature of the business of the assessee. The assessee had low or negligible level of cash receipts through sales and also a relatively high level of cash expenses. 

The CIT(A) opined that the observation made by the AO was in a generalised manner that the cash was normally withdrawn for immediate expenses was not well founded. The time gap of a few months between cash withdrawal and cash deposit into the bank account, similar trend was observed in the preceding year also, thereby, establishing that such time gap was a normal feature of the assessee’s business. The AO has ignored the main cashbook of the assessee and considered only the site cashbooks in arriving at the figure of cash balance as on 08.11.2016.

Aggrieved, with the order of the CIT(A), the Revenue appealed to ITAT which dismissed the appeal of the Revenue primarily relying upon the order passed by the CIT(A).

The Hon’ble High Court expressed disagreement with the Revenue. Firstly, the issue involved was a pure question of fact, which cannot be considered in an appeal under 260A of the Act. Secondly, it cannot be said that the findings of the CIT(A) or the ITAT were perverse findings. There was some basis for the CIT(A) with which the ITAT has concurred to come, the conclusion.

Accordingly, the appeal of the Revenue was dismissed.

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