Demonetization: ITAT Sustains Partial Addition of Cash Deposits in December 2016

Demonetization: ITAT Sustains Partial Addition of Cash Deposits in December 2016

Issue

Whether the addition made by the Assessing Officer (and partly sustained by the CIT(A)) under Section 69A for unexplained cash deposits during the demonetization period is sustainable, when the assessee’s books are audited and sales have been accepted as genuine.

Facts

• Assessee: Proprietor of M/s Jagdambey Feed Shop, trading in cattle and animal feed.

• Reopening: Case reopened u/s 147 due to cash deposits of ₹2.40 crores (including ₹28 lakhs during demonetization).

• AO’s Order: Made an addition of ₹21,50,000 under Section 69A as unexplained cash deposits during Nov-Dec 2016.

• CIT(A)’s Order: Deleted ₹13,50,000 (accepting cash balance as per books on 11.11.2016) but sustained ₹8,00,000 deposited in December 2016, arguing that SBNs (Specified Bank Notes) could not have been possessed after 11.11.2016.

• Delay: The appeal was filed with a delay of 457 days due to filing in the wrong forum (CIT(A) instead of ITAT). The Tribunal condoned this delay.

Decision

• The Income Tax Appellate Tribunal (ITAT) partly allowed the appeal.

• Cash Book Accepted: The Tribunal noted that the CIT(A) had already accepted the reliability of the assessee’s cash book by deleting the major portion of the addition.

• Sales Accepted: Since the trading results were audited and sales figures were not disputed by the AO, the source of cash (business sales) cannot be entirely disregarded.

• Partial Relief: The Tribunal observed that the explanation for December deposits (continuing cash sales) was plausible but required some adjustment for verification gaps.

• Final Computation:

  • Addition Sustained by CIT(A): ₹8,00,000

  • Relief Granted by ITAT: ₹5,00,000 (Deleted)

  • Final Addition Sustained: ₹3,00,000

Key Takeaways

• Audited Books are Strong Evidence: When books of account are audited and sales are accepted, it is difficult for the Revenue to treat corresponding cash deposits as unexplained solely based on the timing (demonetization).

• Wrong Forum Excuse Valid: Pursuing a remedy in the wrong forum (filing an appeal before the wrong authority) due to a bona fide mistake is a sufficient cause for condoning delay under Section 5 of the Limitation Act.

• Estimated Additions: In cases where explanations are plausible but lack perfect documentary trails for specific dates, Tribunals may resort to a fair estimation to balance the interests of revenue and the taxpayer.

THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCHES, “SMC” CHANDIGARH
Shri Jai Prakash
C/o Jagdambey Feed Shop,
Morinda, Punjab-140101
Vs
The ITO
Ward 2(2)
Ropar