ITAT refuses to accept cash book as source of deposit as assessee was not subject to audit

ITAT refuses to accept opening cash as source of cash deposit as assessee was not subject to audit and cash book was just a self-servicing document

In a recent judgment, ITAT Rajkot has declined to accept the opening cash as source of cash deposit holding that assessee was not subject to audit, therefore, cash book submitted by the assessee, was self-servicing document, hence, cannot be relied.

ABCAUS Case Law Citation:
4895 (2025) (11) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A), National Faceless Appeal Centre (NFAC) IN partly confirming addition under section 68 of the Income Tax Act, 1961 (the Act) towards cash deposited in bank account treating as unexplained.

The assessee`s case was selected for scrutiny, keeping in view the instruction issued as SOP dated 21/02/2017 for handling of cases related to substantial cash deposit during demonetization period.

The assessing officer noticed that as per the information available on ITBA, the assessee had deposited large amount of cash during demonetization period in his bank account. The information received under section 133(6) of the Income Tax Act, 1961 from bank matched with the information.

As the assessee had failed to file his return of income for the year under consideration and the assessee did not submit reply before the assessing officer, therefore, assessing officer framed the assessment order under section 144 of the Act, and made addition in the hands of the assessee on account of cash deposited in banks treating as unexplained cash credit u/s 68 of the Act and taxed u/s 115BBE of the Act.

The CIT(A) observed that assessee was engaged in business of selling milk. It was stated by the assessee, that details were filed by the assessee, before earlier assessing officer (AO) but could not file the same before the new assessing officer. The assessing officer failed to gather and take note of replies filed before previous AO. The assessee also produced books of accounts for FY 2014-15, 2015-16 and 2016-17 and filed cash ledger wherein sufficient cash was available.

The CIT(A) observed that various courts have given allowance for past savings and cash in hand. In view of the facts of the case, the CIT(A) deleted the part addition, on account of past savings for Rs.3,00,000/-.

The Tribunal observed that the appellant assessee was not subject to audit, therefore, cash book submitted by the assessee, was a self-servicing document, hence, cannot be relied.

The Tribunal further observed that on the one hand, the assessee submitted that he was a very small businessman, selling Milk only, and did not file the return of income, on the other hand, the assessee was claiming that he is maintaining systematic books of accounts for the previous years and for the subsequent assessment years, therefore, the addition should be deleted, as the assessee had opening cash balance. The Tribunal opined that the above submissions were completely a cooked story and hence benefits should not be given to the assessee on account of opening cash balance in its cashbook, as the assessee, did not file the return of income and assessee, being a Milkwala, does not have necessary set up to run the accounts department, besides, how much Milk was sold by the assessee in the previous year, and in the assessment year under consideration, had not been submitted before the Bench.

The Tribunal noted that on account of past savings, the CIT(A) had already deleted the addition to the tune of Rs.3,00,000/-. However, up to some extent, the assessee had explained the source of the cash deposit, by submitting some documents and evidences and the fact that the assessee was engaged in the business of sale of milk, therefore, such small assessee was not required to maintain the books of accounts.  In view of the peculiar facts and circumstances, the Tribunal estimated 10% profit element in the cash deposited, which was sustained by the CIT(A) during the demonetization period.

Accordingly, the Assessing Officer was directed to make the addition in the hands of the assessee to the tune of 10% profits as above applying normal rate of income tax.

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