2025 (7) TMI 1561 - AT - Income Tax

Unexplained cash credit u/s 68 and tax u/s 115BBE - assessee submitted that he is a distributor of LPG cylinder for Bharat Petroleum Corporation Ltd. and is distributing the LPG cylinder to various house-holds and collected 90 to 95% of sales in cash therefore cash amount is collected and deposited on various dates HELD THAT - Assessee is engaged in the business of distribution of LPG cylinder. It is a matter of common knowledge that in F.Y. 2016-17 majority of gas distribution was in cash. The assessee has shown cash sales in more than Rs. 22.00 crore. The cash sales are not disputed. The assessing officer doubted the cash deposit in the form of SBN as the same were deposited only after 16.12.2016. Government of India has allowed to cash to deposit cash in the form of SBN upto 30.12.2016. The assessing officer has not investigated the matter nor examined total cash sales upto 15.12.2016. AO doubted the cash deposits as it was deposited in the bank after 15.12.2016. Facts remained the same that Government of India allowed such cash deposits in SBN up to 31.12.2016. Therefore considering the peculiar business activities of the assessee wherein majority of sales were in cash therefore there was no justification of making addition of such cash deposit. In the result the grounds of appeal raised by the assessee are partly allowed.

Summary

ISSUES:

Whether cash deposits in banks during demonetization period, including deposits after 15.12.2016, can be treated as unexplained cash credit under section 68 of the Income Tax Act.Whether the assessee's explanation of cash deposits as business receipts from LPG cylinder sales, collected in cash and deposited with delay due to business operations, is acceptable.Whether documentary evidence such as audited cash books and bank statements are necessary and sufficient to substantiate the source of cash deposits during demonetization.Whether delay in depositing specified bank notes (SBN) beyond 15.12.2016 but before 30.12.2016 is permissible under Government and RBI demonetization regulations.

RULINGS / HOLDINGS:

Cash deposits in the form of specified bank notes (SBN) made after 15.12.2016 but before 30.12.2016 are not automatically unexplained cash credit, as the Government of India allowed deposit of demonetized currency up to 30.12.2016.The assessee's explanation that cash deposits represent genuine business receipts from LPG cylinder sales collected in cash and deposited with some delay due to the nature of business is accepted to the extent of deposits made before 15.12.2016 and partly for those made after, considering the business context.The absence of bank statements for deposits after 15.12.2016 and reliance on a self-made cash book without independent validation weakens the assessee's claim for those deposits; hence, additions on unexplained cash credit are partly justified.The assessing officer's presumption that cash deposits after 15.12.2016 represent fresh receipts of old currency notes is not warranted where delay in deposit is explained as due to operational reasons and deposits fall within the permissible period up to 30.12.2016.

RATIONALE:

The Court applied the statutory provisions of the Income Tax Act, particularly section 68 relating to unexplained cash credits, and the demonetization scheme regulations issued by the Government of India and Reserve Bank of India, which permitted deposit of specified bank notes up to 30.12.2016.The Court relied on the factual matrix that the assessee's business involved predominantly cash sales (over Rs. 22 crore), making it plausible that cash collected before demonetization deadlines was deposited with some delay due to the operational nature of the business.The Court noted the absence of detailed investigation or examination by the assessing officer into total cash sales and timing of cash collections, which undermined the addition of unexplained cash credit.The Court distinguished between mere delay in deposit and fresh receipt of demonetized currency after the cutoff date, holding that delay due to business logistics does not convert genuine business receipts into unexplained credits.Partial allowance of relief was granted where documentary evidence was insufficient to substantiate cash on hand for deposits made after 15.12.2016, reflecting a balanced approach between strict proof requirements and business realities.