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2025 (6) TMI 290 - AT - Income TaxCash deposits in Specified Bank Notes (SBNs) during the demonetization period - unexplained cash credits - HELD THAT - Cash deposits are duly recorded in the cash book. The books of accounts have not been rejected and no defect has been found in the documents as furnished by the assessee. The fact would remain that the cash has been generated out of business activities only since the assessee do not have any other source of income. The sales turnover has duly been accepted and the impugned addition would result into double taxation which is impermissible. Pertinently no defect has been pointed out in the books of accounts. The assessee has furnished cash book which would show that the aforesaid deposits have been sourced out of business receipts only. Under these circumstances the conclusion of CIT(A) could not be faulted with. However considering the peculiar facts of the case the leakage of revenue in such huge cash deposits could not be ruled out. To plug the same we are of the considered opinion that a lump sum addition of Rs. 20 Lacs would meet the grievance of the revenue. Therefore we sustain the addition of Rs. 20 Lacs which would be considered as normal business income only.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legitimacy of Cash Deposits in SBNs during Demonetization Period Relevant legal framework and precedents: Section 68 of the Income Tax Act mandates that any unexplained cash credit is to be added to income. Section 115BBE prescribes a special tax rate on income from undisclosed sources including unexplained cash credits. The burden lies on the assessee to satisfactorily explain the source of cash deposits. Judicial precedents emphasize that books of accounts and corroborative evidence must be examined to determine genuineness. Court's interpretation and reasoning: The Tribunal noted that the assessee is a proprietor engaged in trading of precious metals and jewellery with a substantial declared turnover of Rs. 527.73 Crores. The assessee maintained regular books of account, including stock registers, purchase and sales summaries, and cash books, all audited under section 44AB. The cash deposits of Rs. 71.53 Crores during the year, including Rs. 8.10 Crores in SBNs during demonetization, were reflected in these books. The Assessing Officer (AO) suspected inflation of sales figures during October and November 2016 post demonetization announcement to create source for cash deposits. However, the assessee furnished month-wise sales data for the year under consideration and comparative data for corresponding months of previous years, demonstrating no abnormal increase in sales. The AO's allegation of bogus sales was not substantiated by any discrepancy in the books or stock records. Key evidence and findings: The Tribunal highlighted that the books of accounts were not rejected, no defects were found, and the stock and sales quantities matched the recorded transactions. The assessee's cash book showed sufficient cash balance to justify the deposits. The assessee was also registered under VAT/GST laws, further reinforcing the legitimacy of business operations. Application of law to facts: Given the comprehensive documentary evidence and audit compliance, the Tribunal agreed with the CIT(A) that the cash deposits were sourced from genuine business receipts. The addition under section 68 read with 115BBE would result in double taxation since the turnover and income were already declared and accepted. Treatment of competing arguments: The AO's argument of inflated sales was rejected due to lack of supporting evidence. The Tribunal recognized the panic buying behavior during demonetization as a plausible explanation for cash sales. The CIT(A)'s reliance on judicial precedents supporting acceptance of audited books and corroborative evidence was upheld. Conclusions: The Tribunal concluded that the addition of Rs. 8.10 Crores as unexplained cash credit was not justified and deleted the addition except for a nominal amount to address revenue leakage. Issue 2: Justification of Reopening of Assessment Relevant legal framework and precedents: Reopening of assessment under section 147 requires existence of tangible material to form a reasonable belief that income has escaped assessment. The reopening must be based on credible information and not mere suspicion. Court's interpretation and reasoning: The reopening was triggered by the cash deposits during demonetization period. However, since the assessee maintained proper books, furnished detailed sales and purchase data, and the AO found no discrepancy in documents, the reopening was not found to be justified on strong grounds. Key evidence and findings: The Tribunal noted that the books of account were audited and accepted, and the assessee's explanation was consistent and supported by records. Application of law to facts: The reopening was based on suspicion of inflated sales without concrete evidence. The Tribunal implicitly indicated that the reopening was not sustainable but did not explicitly set aside the reopening order, focusing instead on substantive merits. Treatment of competing arguments: Revenue's reliance on suspicion was not accepted; the assessee's documentary evidence was given primacy. Conclusions: The reopening was not supported by sufficient material, but the Tribunal proceeded to examine the substantive issue of addition. Issue 3: Quantum of Addition to be Made Relevant legal framework and precedents: While unexplained cash credits are liable for addition, the principle of double taxation must be avoided. Courts have discretion to make reasonable additions where some leakage of revenue is suspected despite acceptance of books. Court's interpretation and reasoning: The Tribunal acknowledged the possibility of revenue leakage given the large cash deposits during demonetization but found no basis for the entire addition of Rs. 8.10 Crores. To balance revenue interest and fairness to the assessee, the Tribunal made a lump sum addition of Rs. 20 Lakhs as normal business income. Key evidence and findings: The evidence of proper books and audit, along with the large declared turnover and cash sales, militated against a large addition. The Tribunal's decision reflects a pragmatic approach to address potential minor leakage without penalizing the assessee unjustly. Application of law to facts: The addition of Rs. 20 Lakhs was sustained as a reasonable measure to meet revenue concerns while respecting the assessee's documented business transactions. Treatment of competing arguments: Revenue's demand for full addition was moderated by the Tribunal; the assessee's claim for complete deletion was partially accepted. Conclusions: The appeal was partly allowed with a reduced addition of Rs. 20 Lakhs. 3. SIGNIFICANT HOLDINGS The Tribunal held that: "The cash deposits are duly recorded in the cash book. The books of accounts have not been rejected and no defect has been found in the documents as furnished by the assessee. The fact would remain that the cash has been generated out of business activities only since the assessee do not have any other source of income. The sales turnover has duly been accepted and the impugned addition would result into double taxation which is impermissible." This establishes the principle that where books of account are maintained regularly, audited, and no discrepancy is found, unexplained cash credits cannot be added merely on suspicion, especially when the turnover is accepted and the source is explained. Further, the Tribunal observed: "Considering the peculiar facts of the case, the leakage of revenue in such huge cash deposits could not be ruled out. To plug the same, we are of the considered opinion that a lump sum addition of Rs. 20 Lacs would meet the grievance of the revenue." This confirms the discretionary power of the Tribunal to make a reasonable addition to address revenue leakage concerns without imposing disproportionate penalties. Final determinations on each issue are:
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