Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the order dated 07.11.2023 passed by the Income Tax Appellate Tribunal, Delhi Bench, which dismissed the Revenue’s appeal and affirmed the deletion of an addition of ₹2,80,00,000 made under Section 68 of the Act for Assessment Year 2017–18.

The respondent assessee, Pancham Realcon Pvt. Ltd., engaged in the business of real estate, had deposited cash amounting to ₹2,80,00,000 during the demonetisation period. The Assessing Officer treated the deposit as unexplained cash credit, noting that as per certain impounded documents during a survey conducted at the premises of the holding company, the assessee allegedly had cash balance of only ₹3,87,270 as on 08.11.2016. The assessment was completed by adding the said amount to the returned income.

The Commissioner of Income Tax (Appeals) deleted the addition after examining cash books, bank statements, audit reports, and comparative charts for earlier years, holding that the cash deposits were fully explained. The ITAT affirmed the said findings.

Issues Involved

Whether the cash deposits made by the assessee during the demonetisation period were unexplained so as to warrant addition under Section 68 of the Income-tax Act, and whether the findings of the CIT(A) and ITAT gave rise to any substantial question of law under Section 260A.

 

Appellant’s Arguments

The Revenue contended that the ITAT erred in affirming the order of the CIT(A) and failed to consider that the impounded documents indicated a much lower cash balance on the date of demonetisation. It was argued that the assessee could not satisfactorily explain the source of cash deposited during the demonetisation period and that the findings of the lower authorities were erroneous.

Respondent’s Arguments

Though unrepresented, the respondent relied upon the detailed factual findings recorded by the CIT(A) and affirmed by the ITAT. It was contended that the assessee had consistently maintained high cash balances in earlier years, supported by income tax returns and audit reports filed prior to demonetisation, and that cash withdrawals and deposits were regular features of its business.

Court Order / Findings

The Delhi High Court examined the record and held that the issue involved was purely factual in nature and did not give rise to any substantial question of law. The Court noted that the CIT(A), whose findings were endorsed by the ITAT, had undertaken a detailed analysis of comparative charts for Financial Years 2015–16 and 2016–17, bank withdrawals, cash books, and audit reports.

The Court observed that the assessee had maintained high cash balances consistently prior to demonetisation, that such balances were duly reflected in returns and audit reports filed before 08.11.2016, and that substantial cash withdrawals and deposits were regular features of the assessee’s business. The Court further noted that the Assessing Officer had wrongly ignored the main cash book and relied selectively on site cash books, without any cogent reasoning.

The Court held that the findings recorded by the CIT(A) and ITAT were based on material on record, were neither perverse nor unreasonable, and therefore could not be interfered with in an appeal under Section 260A.

Important Clarification

The Court clarified that the business prudence of maintaining high cash balances cannot be questioned by the Assessing Officer in the absence of contrary evidence, and that where factual findings are supported by contemporaneous records such as returns, audit reports, bank statements, and cash books, no addition under Section 68 can be sustained merely on suspicion.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court held that no substantial question of law arose from the order of the Income Tax Appellate Tribunal and upheld the deletion of the addition made under Section 68 on account of cash deposits during the demonetisation period, thereby deciding the matter in favour of Pancham Realcon Pvt. Ltd. and against the Revenue.

Link to download order - https://www.mytaxexpert.co.in/uploads/1769678469_PR.COMMISSIONEROFINCOMETAXCENTRALGURUGRAMVsPANCHAMREALCONPVT.LTD..pdf

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