Hyderabad ITAT deleted demonetization cash deposit addition as no concrete basis existed for treating the higher sales in that month as fictitious
Recently, the Hyderabad ITAT deleted demonetization cash deposit addition as no concrete basis existed for treating the higher sales in that month as fictitious
The case detail is as under:
ITAT HYDERABAD SHYAM SUNDER BAHETI VERSUS THE INCOME TAX OFFICER, WARD – 9 (4), HYDERABAD.No.- ITA. No. 89/Hyd/2025 Dated.- April 16, 2025
Let us have a Short Overview of the case:
The assessee, an individual and proprietor of M/s. Baheti Steels, had filed his return of income for AY 2017-18 declaring income of ₹15.54 lakhs. His case was picked for scrutiny under CASS due to an apparent spike in cash deposits during the demonetization window compared to the preceding period.
During assessment proceedings, the assessee submitted that the cash deposits were made from the available cash in hand of ₹ 80.53 lakhs as on 08.11.2016, duly reflected in his cash book. Supporting documents like bank statements, books of account, P&L, balance sheet, audit report, and month-wise cash sales and deposit details were filed.
However, the Assessing Officer rejected the explanation on grounds that the average daily cash deposit during the demonetization period (₹3.97 lakhs) was disproportionately higher than the pre-demonetization average (₹7,636), concluding that the source of cash deposit was unexplained.
Consequently, ₹60 lakhs was added as unexplained cash credit under Section 68.
On appeal, the CIT(A) upheld the addition. While acknowledging that the assessee had filed supporting books and invoices, the CIT(A) doubted the genuineness of sales, noting the invoices lacked complete purchaser details. Relying on Supreme Court precedents (Durga Prasad More and Sumati Dayal), the CIT(A) concluded that the sudden spike in sales was improbable and not substantiated.
However, the ITAT overturned the lower authorities’ findings. It observed that the assessee had submitted comparative data of cash sales for several years, which showed no abnormal spike in overall cash sales during the year in question. The tribunal opined that comparing sales only for the month of November 2016, which coincided with demonetization, was inappropriate. It further noted that sales are inherently variable and not evenly distributed over the year. The ITAT found no concrete basis for treating the higher sales in that month as fictitious, particularly when sales invoices had been produced and the cash balance as per the books was sufficient.
Accordingly, the ITAT held that the explanation provided by the assessee regarding the source of cash deposits was satisfactory, and the addition under Section 68 was not justified. The order of the CIT(A) was set aside, and the Assessing Officer was directed to delete the addition.
The copy of the order is as under:
