Facts of the Case

The assessee, Patliputra Distributors Private Limited, engaged in wholesale trading, filed its return of income for Assessment Year 2017-18 on 06.11.2017 declaring income of ₹1,77,07,480. The case was selected for complete scrutiny and notices under Section 143(2) and other statutory provisions were issued. During assessment proceedings, the Assessing Officer noticed cash deposits of ₹2,10,38,900 in the assessee’s current account with ICICI Bank during the demonetisation period from 09.11.2016 to 30.12.2016. The assessee furnished bank book and tax audit report in Form 3CD. The Assessing Officer held that the assessee failed to satisfactorily explain the source of cash deposits and treated the same as unexplained money under Section 69A, making addition and levying tax under Section 115BBE. The CIT(A) confirmed the addition. Aggrieved, the assessee filed appeal before the Tribunal.


Issues Involved

Whether cash deposits made during the demonetisation period out of business turnover can be treated as unexplained money under Section 69A, whether the Assessing Officer erred in ignoring embedded profit already offered to tax, and whether CBDT instructions governing verification of demonetisation cash deposits were properly followed.


Petitioner’s Arguments

The assessee contended that the cash deposits represented business receipts forming part of turnover and that the Assessing Officer had not disputed the turnover itself. It was argued that profit embedded in such turnover had already been offered to tax and that treating the entire cash deposits as unexplained money resulted in double taxation, which is impermissible under law. It was further submitted that the books of account were not rejected and that the Assessing Officer acted on conjectures and surmises without conducting proper examination in accordance with CBDT instructions relating to demonetisation cases.


Respondent’s Arguments

The Revenue relied on the orders of the lower authorities and submitted that the assessee failed to properly explain the source of cash deposits during the demonetisation period. It was argued that the quantum of cash deposits during the relevant period was excessive compared to pre- and post-demonetisation periods and that the assessee did not produce sufficient evidence during assessment proceedings to establish the genuineness of the deposits.


Court Order / Findings

The ITAT Patna observed that the addition was made under Section 69A solely for want of proper explanation of cash deposits during demonetisation, without granting proportionate benefit for embedded profit in the business turnover. The Tribunal noted that CBDT had issued detailed instructions requiring comparative and statistical analysis of cash deposits, cash sales, stock position and past history, which were not adequately followed by the Assessing Officer. Relying on the coordinate bench decision in Bhoopalam Marketing Services Pvt. Ltd. vs ACIT, the Tribunal held that not every cash deposit during demonetisation can automatically be treated as unaccounted money and that proper verification is essential. Accordingly, the matter was remitted to the file of the Assessing Officer for fresh examination in light of CBDT instructions after granting reasonable opportunity to the assessee.


Important Clarification

The Tribunal clarified that while the burden lies on the assessee to establish the genuineness of cash deposits during demonetisation, the Assessing Officer is equally obligated to examine such cases in accordance with CBDT-prescribed procedures and to avoid double taxation by ignoring embedded profit already offered to tax.


Final Outcome

The appeal filed by the assessee was allowed for statistical purposes, and the issue relating to addition of ₹2,10,38,900 under Section 69A was remanded to the Assessing Officer for de novo consideration in accordance with law after providing due opportunity of hearing to the assessee.

 

Link to download order   https://www.mytaxexpert.co.in/uploads/1769072778_PATLIPUTRADISTRIBUTORSPRIVATELIMITEDPATNAVS.DCACCIRCLE2PATNA.pdf 

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