Addition towards cash deposits during demonetization deleted by ITAT as it was adequately explained based on the facts and nature of the business
The case of Shobha Prakash Shetty v. Assistant Commissioner of Income Tax, Circle 25(1), Mumbai (ITA No. 1095/M/2024) decided on November 22, 2024, dealt with the issue of unexplained cash deposits during the demonetization period.
Facts:
• The assessee deposited ₹92,24,000 in cash between November 9, 2016, and December 30, 2016, in her Vijaya Bank account. Out of this, ₹44,05,000 was in old demonetized currency.
• During a survey under Section 133A conducted on March 29, 2017, the assessee claimed that ₹15,50,000 of the deposited amount was declared under the PMGKY 2016 scheme and the remaining ₹29,15,468 came from her cash-in-hand as on November 8, 2016.
• The Assessing Officer (AO) rejected her explanation, citing inconsistencies:
• Opening cash-in-hand for FY 2016-17 was only ₹23,876.
• No complete cash book was provided during the survey.
• The cash book later submitted during assessment was deemed fabricated.
• The AO highlighted the pattern of multiple cash deposits and discrepancies in the cash trail provided by the assessee.
The AO added ₹29,15,468 to the assessee’s total income under Section 68 of the Income Tax Act as unexplained cash credits. This addition was upheld by the CIT(A).
Decision:
The Income Tax Appellate Tribunal (ITAT), Mumbai, reversed the findings of the AO and CIT(A), holding as follows:
1. Cash Book Rejection Not Justified:
• The AO’s rejection of the cash book as fabricated was not based on specific defects.
• Comparative analysis of sales and cash sales did not show any abrupt or unusual spikes during the year.
2. Nature of Business:
• The assessee, a widow, ran a retail liquor business, which reasonably required keeping substantial cash on hand.
• One of the seized papers during the survey supported her claim of cash being kept at home.
3. Disclosures and Audited Accounts:
• The assessee had already disclosed 50% of the disputed amount under the PMGKY scheme, demonstrating fairness.
• Her accounts had been consistently audited by a qualified Chartered Accountant, lending credibility to her financial records.
4. No Evidence of Undisclosed Income:
• The AO did not bring forth evidence of any alternative undisclosed source of income.
• The deposits were considered business receipts rather than unexplained cash credits under Section 68.
Conclusion:
The ITAT deleted the addition of ₹29,15,468 made by the AO, holding that the cash deposits were adequately explained based on the facts and nature of the business. The addition was made without proper appreciation of the relevant circumstances and was therefore unjustified.
