2025 (5) TMI 965 - AT - Income Tax

Addition made on account of cash deposits - unexplained cash credit u/s 68 read with Section 115BBE - HELD THAT - Entire details have been filed by the assessee before the lower authorities which was not appreciated by the lower authorities. There could not be any other better detail that are left in the instant case which was not submitted by the assessee. We find that the assessee had already disclosed the sales which has been accepted by the revenue. After crediting the entire sales the assessee had declared loss of Rs. 5, 25, 60, 240/-. Hence fresh addition made in the sum of Rs. 2, 24, 69, 739/- amounts to double addition made by the AO. Hon ble Madras High Court in the case of SMILE Microfinance Limited 2024 (11) TMI 1444 - MADRAS HIGH COURT had held that the enhanced rate of tax prescribed in section 115BBE of the Act could be made applicable only from AY 2018-19 onwards and not for the earlier years. Thus we hold that there is no question of application of provisions of Section 115BBE of the Act in the instant case as the cash deposits were duly explained out of cash balance available in the books of the assessee which stood rejected by the lower authorities. Hence we have no hesitation to delete the addition in the sum of Rs. 2, 24, 69, 739/- and allow the grounds raised by the assessee

Summary

1. The principal issue considered by the Tribunal is whether the addition of Rs. 2,24,69,739/- on account of cash deposits made during the demonetization period was justified in the facts and circumstances of the case.

2. Issue-wise detailed analysis:

Issue: Legitimacy of addition on account of cash deposits during demonetization period

Relevant legal framework and precedents: The addition was made under Section 68 read with Section 115BBE of the Income-tax Act, 1961. Section 68 deals with unexplained cash credits, allowing the Assessing Officer (AO) to treat unexplained cash deposits as income if the assessee fails to satisfactorily explain the source. Section 115BBE prescribes an enhanced rate of tax on income declared or assessed under certain provisions, including unexplained cash credits. The Tribunal also referred to a recent decision of the Madras High Court in SMILE Microfinance Limited vs ACIT, which held that the enhanced rate of tax under Section 115BBE applies only from AY 2018-19 onwards and not to earlier years.

Court's interpretation and reasoning: The Tribunal noted that the assessee had submitted extensive documentary evidence before the AO, including detailed cash sales, withdrawals, deposits, stock statements, purchase and sales details, ledger accounts of suppliers, and date-wise sales data. The assessee's business involved retail sales of pharmaceutical and allied consumer goods through 27 stores, and the government had permitted medical stores to receive cash in Specified Bank Notes (SBNs) during demonetization. The AO did not reject the books of account, nor did he doubt the purchases, stock statements, or sales party details. Despite this, the AO made the addition on the basis that cash sales exceeding the average for November 2016 were not genuine. The Tribunal observed that the assessee had already declared the sales, which were accepted by the revenue, and had declared a loss of Rs. 5,25,60,240/-. The addition of Rs. 2,24,69,739/- therefore amounted to a double addition, as it was made without adjusting the declared loss for the same amount.

Key evidence and findings: The assessee provided detailed documentary evidence covering cash sales, cash deposits, stock statements, purchases from parties exceeding Rs. 10 lakhs, ledger accounts of suppliers exceeding Rs. 25 lakhs, and date-wise sales and cash balance statements. The AO did not discredit or reject any of these documents. The assessee's explanation that cash deposits were from genuine business transactions and cash sales was supported by the stock and purchase data. The government notification allowing medical stores to accept SBNs during demonetization further supported the genuineness of cash deposits.

Application of law to facts: Since the cash deposits were satisfactorily explained by the assessee through comprehensive documentation and consistent business records, the presumption under Section 68 did not arise. The AO's addition was therefore unwarranted. Furthermore, the application of Section 115BBE was held to be impermissible for the assessment year 2017-18 as per the Madras High Court ruling, which the Tribunal respectfully followed.

Treatment of competing arguments: The revenue's contention rested on the premise that cash deposits exceeding average cash sales for November 2016 were unexplained and hence taxable as unexplained cash credits. The Tribunal rejected this argument on the ground that the assessee had fully explained the source of cash deposits, and the AO had not doubted the books or supporting documents. The Tribunal also found that the addition resulted in double counting since the sales were already included in the declared loss.

Conclusions: The addition of Rs. 2,24,69,739/- was not justified. The cash deposits were adequately explained by the assessee's detailed submissions and consistent business records. The application of Section 115BBE was not valid for AY 2017-18. Consequently, the addition was deleted.

3. Significant holdings:

"The assessee had already disclosed the sales which has been accepted by the revenue. After crediting the entire sales, the assessee had declared loss of Rs. 5,25,60,240/-. Hence, fresh addition made in the sum of Rs. 2,24,69,739/- amounts to double addition made by the ld AO."

"The enhanced rate of tax prescribed in section 115BBE of the Act could be made applicable only from AY 2018-19 onwards and not for the earlier years. Respectfully following the same, we hold that there is no question of application of provisions of Section 115BBE of the Act in the instant case."

"The cash deposits were duly explained out of cash balance available in the books of the assessee which stood rejected by the lower authorities. Hence, we have no hesitation to delete the addition in the sum of Rs. 2,24,69,739/- and allow the grounds raised by the assessee."

Core principles established include that unexplained cash credits under Section 68 require the AO to demonstrate that the cash deposits are not satisfactorily explained by the assessee, and that the enhanced tax rate under Section 115BBE applies prospectively from AY 2018-19. The Tribunal reaffirmed that double addition of the same income is impermissible.

Final determination: The appeal was allowed, and the addition of Rs. 2,24,69,739/- was deleted.