Facts of the Case

The assessee, engaged in the business of gold and diamond jewellery, deposited cash amounting to ₹94,49,786 in his bank account during the demonetisation period from 09.11.2016 to 30.12.2016. The Assessing Officer treated the cash deposits as unexplained money under Section 69A on the grounds of abnormal increase in cash sales compared to the preceding year, absence of customer details in cash sale bills, deviation in cash-deposit pattern, high cash balance before demonetisation, and deposit of old currency notes which had ceased to be legal tender. The AO further taxed the addition at 60% under Section 115BBE. The CIT(A) confirmed the addition but directed exclusion of gross profit element from the cash sales while sustaining the balance addition and also upheld application of Section 115BBE. The assessee appealed before the Tribunal.

Issues Involved

Whether cash deposits during demonetisation could be treated as unexplained under Section 69A when the assessee explained the source as cash sales recorded in books, whether reliance on assumptions and human probability without rejecting books was sustainable, and whether tax under Section 115BBE at 60% was applicable.

Petitioner’s Arguments

The assessee contended that the entire cash deposited was fully explained from recorded cash sales supported by cash book, sales ledger, stock records and VAT returns, all of which were accepted and not rejected by the Department. It was explained that increased sales were due to shifting to a larger showroom and heavy festival and demonetisation-day demand, particularly on 08.11.2016. It was argued that there is no legal requirement to record customer identity in cash sales below ₹2 lakh and that acceptance of demonetised currency, even if irregular under other laws, does not render the source unexplained under the Income-tax Act. The addition was stated to be based purely on assumptions and presumptions.

Respondent’s Arguments

The Revenue supported the orders of the lower authorities and contended that abnormal cash sales, unusual cash-deposit patterns and acceptance of demonetised currency justified the inference that the cash deposits were unexplained, warranting addition under Section 69A.

Court Order / Findings

The ITAT Jaipur held that the assessee had satisfactorily explained the source of cash deposits as arising from cash sales duly recorded in the regular books of account. The Tribunal noted that the assessee produced complete cash book, sales ledger and VAT returns evidencing the sales and that no infirmity was found in the books, nor were they rejected by the Assessing Officer. The Tribunal observed that all so-called abnormalities and inconsistencies relied upon by the AO were duly explained with documentary evidence and that the Department failed to controvert these explanations. It was held that merely applying the theory of human probability or drawing suspicion from acceptance of demonetised currency cannot justify addition under Section 69A when the source stands explained. Accordingly, the entire addition of ₹94,49,786 was directed to be deleted. Since the addition itself was deleted, the ground relating to taxation under Section 115BBE was rendered infructuous.

Important Clarification

The Tribunal clarified that once an assessee explains cash deposits with reference to recorded cash sales supported by books of account and statutory returns, and no defects are found therein, the burden shifts to the Revenue. Acceptance of demonetised currency may have consequences under other laws but does not automatically lead to addition as unexplained income under the Income-tax Act.

Final Outcome

The appeal filed by the assessee was allowed in full. The addition of ₹94,49,786 made under Section 69A on account of demonetisation-period cash deposits was deleted, and the application of tax under Section 115BBE was held to be infructuous.

Link to download order

https://www.mytaxexpert.co.in/uploads/1768993405_DAMODARPRASADAGARWALJAIPURVS.ITOWARD35JAIPURJAIPUR.pdf

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