Difference of cash deposit between two Assessment Years cannot be added on illogical rationale that there cannot be any increase in cash deposit between two years – ITAT
In a recent judgment, ITAT Chennai has held that difference of cash deposit between two Assessment Years cannot be added. Merely because there is an incremental difference in cash deposits it cannot lead to a presumption that there is an unexplained money.
ABCAUS Case Law Citation:
4843 (2025) (11) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming an addition as unexplained cash credit u/s. 68 r.w.s 115BBE of the Act on account of incremental difference of cash deposit between two Assessment years.
The assessee was engaged in the business trading. During the A.Y. 2017-18, the assessee deposited cash in its bank account during the entire year including the demonetization period. As per Sales account 95% of the sales during the subject A.Y. was out of cash and the balance 5% was in credit card and banking channel.
The sole criterion for the AO to make the addition was that there was difference of cash deposit between A.Y.2016-17 and A.Y.2017-18 and therefore the absolute difference had been added as unexplained cash credit.
The AO accepted the source of part of cash which was in line with the deposits in preceding AY (2016-17) but rejected the source of balance cash deposits which was deposited in excess of cash deposits made in A.Y. 2016-17. Hence, the amount was added u/s 68 r.w.s.115BBE of the Act.
The Tribunal observed that it was undisputed that the assessee was holding significant cash balance before incurring cash expenses which was duly evidenced by its cash book. The books of the assessee had duly been audited u/s.44AB of the Act and the lower authorities did find any defect in the same.
The Tribunal observed that the AO, in an arbitrary manner, accepted part of the source and rejected the other part whereas all the deposits had the same source. The only reasoning of the AO was that there was difference in the quantum of deposit between two AY’s and therefore the absolute difference is sought to be added as unexplained.
The Tribunal opined that the absolute difference of cash deposit between two AYs cannot be added. Merely because there is an incremental difference cannot lead to a presumption that there is an unexplained money.
Th Tribunal further noted that the sales turnover declared for GST and Income Tax purposes was accepted, however, some portion of the cash deposit made out of the sales cannot be treated as unexplained on presumptive basis unless the lower authorities had brought on any concrete evidence.
Accordingly, the Tribunal held that there was no unexplained cash deposit and as such there was no income escaping assessment.
As a result the Tribunal deleted the addition and the appeal was allowed.
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