Mere higher cash deposits during demonization period does not make cash sales bogus – ITAT

Mere higher cash deposits during demonization period does not make explanation of cash sales as bogus and unsustainable – ITAT

In a recent judgment, ITAT has deleted additions holding that merely that certain cash deposits were made by assessee during demonization period and such deposits were on a higher side considering the past year figures cannot be basis to hold the explanation so made by the assessee as unsustainable.

ABCAUS Case Law Citation:
ABCAUS 3925 (2024) (03) ITAT

Important Case Laws relied upon:
Smt. Charu Aggarwal & Others Vs. DCIT reported in 140 588
ACIT Vs. Ramlal Jewellers P. Ltd. reported in 154 584
ACIT Vs. Hirapanna Jewellers 189 ITD 608
ACIT Vs. Himachal Fibres Limited
DCIT Vs. Bawa Jewellers Pvt. Ltd.
Raj Kumar Vs. ITO
Jet Freight Logistics Ltd. Vs. CIT(A) NFAC 146 349 
Pr. CIT Vs. Agson Global P Ltd. 134 256 
Pr. CIT Vs. Akshit Kumar 197 DTR 121
Balwinder Kumar Vs. ITO in 151 338
Mahesh Kumar Gupta Vs. ACIT in 151 339

cash deposit during demonetisation

ACIT Vs. Chandra Surana (2023) 104 ITR 503
ACIT Vs. Mahendra Kumar Agarwal (2023) 104 ITR 455
DCIT Vs. Roop Fashion 145 216
Commissioner of Income Tax Vs. Ram Narain 224 ITR 180 (P&H)
JCIT Vs. Gramophone Company of India Ltd. 265 ITR 
DCIT Vs. D.N. Kamani (HUF) 70 ITD 
Elite Developers Vs.. Dy. Commissioner of Income Tax 73 ITD 379
Monga Metals Pvt. Ltd. Vs. ACIT 67 TTJ (All) 247
Daulat Ram Rawatmull 87 ITR 349 (SC)

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition on account of cash deposits in bank during demonetization period.

The assessee firm was engaged in the manufacturing and trading of readymade Garments. The return of income of the assessee was selected for scrutiny.

The Assessing Officer (AO) observed that the assessee had made cash deposit of large amount during the demonetization period and out of which majority were deposited on one date.

In its response, the assessee submitted the breakup of cash sales to the identifiable persons with PAN and in respect of the remaining amount it was submitted by the assessee that the same was related to cash sales of clothes to certain unidentifiable persons without PAN.

The AO from the cash book observed that prior to October 2016, there are very nominal instances of cash sales. It was from 06/10/2016 that cash sales have abruptly gone up. Further, the cash sales of the assessee had again come down from the closure date of demonetisation.

In view of the above, the AO held that the cash book was not trust worthy and treated the part of cash deposit as undisclosed cash credit in the book of account of the assessee which were brought to tax under section 68 r.w.s 115BBE of the Act.

The Tribunal noted that the source of such cash deposits has been explained by the assessee as out of its cash sales so undertaken and it has also been explained that such cash sales are subject to VAT where VAT has been collected and deposited with the government treasury. In support of its explanation, the assessee had furnished the cash book containing the entries towards the cash sales, bank statement for the relevant period, VAT returns, copy of trading and profit/loss account and balance sheet which are duly audited.

The Tribunal further observed that no defect had been pointed out by the AO in terms of availability of stock or in any of the documentation so submitted by the assessee or in the books of accounts.  

The Tribunal opined that merely the fact that certain cash deposits have been made by the assessee during the period of demonization and such deposits are on a higher side considering the past year figures cannot be basis to hold the explanation so made by the assessee as unsustainable and treat the cash sales as bogus and bringing the cash deposits to tax u/s 68 of the Act.

The Tribunal observed that the comparative figures for past years can no doubt provides a starting point for further examination and verification but basis such comparative analysis alone and without any further examination which points out any defect or manipulation in the documentation so submitted or in terms of availability of requisite stock in the books of accounts, the sales so undertaken by the assessee which is duly recorded in the books of accounts cannot be rejected and treated as bogus.

Therefore, the Tribunal expressed agreement with the contention of the assessee that where the cash sales duly offered to tax have been accepted, bringing the realization of sale proceeds in cash to tax will amount to double taxation and the same is clearly unsustainable in law and cannot be upheld.

Accordingly, the Tribunal directed the addition to be deleted and the appeal of the assessee was allowed.

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