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TMI Blog2025 (1) TMI 1054X X X X Extracts X X X X X X X X Extracts X X X X ..... mal increase in cash deposited during demonetization period as compared to pre-demonetisation period. The AO issued statutory notices u/s 143(2)/142(1) from time to time which were complied by assessee. During scrutiny, the AO found that the assessee had made a total deposit of Rs. 42,52,500/- in bank accounts on different dates during demonetization period, the AO has extracted datewise details of such deposits in assessment-order. When the AO show-caused assessee to explain the sources of these deposits, the assessee made submissions. The AO considered assessee's submissions and accepted only a deposit of Rs. 985,000/- being the first deposit made by assessee on 10.11.2016 immediately after declaration of demonetization as explained and treated the rest of deposits of Rs. 32,67,500/- as unexplained cash credit u/s 68 and accordingly made addition. Aggrieved, the assessee carried matter in first-appeal but did not get any relief. Now, the assessee has come in next appeal before us. 3. Ld. AR for assessee firstly drew us to the relevant para of assessment-order passed by AO reading as under: "5. Given the above, the explanation given by the assessee as regards the source of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While framing the Assessment order the Ld. AO from the total cash deposit of Rs. 42.52 Lakhs during the demonetization gave allowance of Rs. 9.85 Lakhs as average cash balance and has made addition of Rs. 32,67,500/- by treating the balance amount as unexplained cash credit U/s 68 r.w.s 115BBE. Our Contentions in brief in respect of addition of Rs. 32,67,500/- made u/s 68 of the Act: 1.1. During the Assessment proceedings, it was explained that the source of the cash deposit was closing cash balance of Rs. 44.33 Lakhs as on 08.11.2016 (Page 185 of the PB). This was accumulated majorly from cash withdrawals from the bank account and a very minor receipt from sale/debtor realization. During the pre-demonetization period, there was total net cash withdrawals of Rs. 1.24 Crores and receipts from debtor of Rs. 1.21 Lakhs. Kindly Refer Page no. 44 of the PB. 1.2. In support of its contentions, the appellant had submitted various documentary evidences as tabulated below: - S.No. Nature of Document Page no. of the PB 1. Bank Statement and Bank Book 45 to 141 2. Cash book 170 to 198 3. Pivot table summarizing the transactions into pre-demonetization and post demoneti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016" (before initiation of Scrutiny proceedings) where it was also clarified that the source of cash deposit pertained from cash withdrawal from the Bank account. (Kindly refer page no. 142 to 145 of the PB). 1.9. The Ld. AO resorted to reject the books of accounts of the appellant u/s 145(3) and invoked section 68 of the act for which it is submitted that - * That the Ld. AO failed to take cognizance of the submission of the appellant that the cash balance as on 08.11.2016 amounting to Rs. 44.33 lakhs was substantially covered by opening balance and cash withdrawals made to the tune of Rs. 43.12 lakhs (approx. 98% of the cash balance as on 08.11.2016). * Kindly refer to the Page no. 44 of the PB - Particulars (Pre-demonetization Period from 01.04.2016 to 08.11.2016) Amount (Rs.) Opening Balance 7.13 Lakhs Add: Cash withdrawals 154.49 lakhs Less: Cash Deposit (30.14 lakhs) Less: Cash payments (88.35 lakhs) Balance forming part of cash balance as on 08.11.2016 43.13. lakhs *More than adequate documentary evidences in the form of cash book, bank book, bank statements etc were submitted and are on record which proved the source from cash withdrawals and neede ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16-17 as Annexure-A-1 & A-2 to reply dated 03.07.2019 (Paper-Book Page 167 to 213) in response to AO's notice dated 26.06.2019. The entries in Cash-Book are in conformity with the Cash Summaries filed earlier to AO. Ld. AR submitted that the AO has wrongly disapproved assessee's submission by making an incorrect observation that the assessee introduced unaccounted cash in the guise of cash sales and proceeds from debtors' realization whereas the collection from debtors was just Rs. 1.21 lakhs. He submitted that the AO has not made any observation qua the Cash Withdrawals made by assessee from bank a/cs which was in fact a major source of Opening Balance on 09.11.2016 and utilized for deposit in demonetization period; the AO has wrongly attempted to link the deposits with cash sales/recovery from debtors which is not correct. (ii) That, prior to initiation of scrutiny by AO, the assessee also filed an online response to Income-tax Department against "Cash Transaction 2016" drive to enquire about deposits made in demonetization (Paper-Book Page 142-145). In this response, the assessee clearly mentioned source of cash deposits from bank withdrawals and the assessee also filed details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently no addition can be made u/s 68: (a) CIT Vs. Dulla Ram (2014) 42 taxmann.com 349 (Punjab & Haryana HC) (b) CIT Vs. K.M.N. Naidu (1996) 221 ITR 451 (Mad HC) (c) ACIT Vs. Shri S. Moorthy, ITA No. 3091/CHNY/2019 (ITAT, Chennai) (d) Sh. Collector Ram Sharma Vs. Deputy Commissioner of Income-tax 2016 (12) TMI 448 - ITAT, Jaipur 6. With these submissions, Ld. AR requested that the addition made by AO is neither sustainable on merit nor on legal provision of section 68. Therefore, the action of AO must be reversed and the impugned addition be deleted. 7. Per contra, Ld. DR for revenue made following submissions and claimed that the addition made by AO is very much correct, hence the same must be upheld: (i) The AO and CIT(A) both have mentioned that the assessee did not produce books of account. The assessee has not filed even "Cash Flow Statement", only Cash Summaries have been filed. (ii) When the assessee was already having cash balance, there was no point in making further withdrawals from bank so as to hold till 09.11.2016 and subsequently re-deposit during demonetization period. 8.We have considered rival submissions of both sides and carefully perused the docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be pressed into service whether by the assessee or the revenue. Thus, when account books are rejected, it would follow, as a necessary corrolary, that entries in the account books whether suspicious or not cannot be relied by the revenue or the assessee. To hold otherwise, would, in essence, render account books valid for certain purposes and invalid for others, a course impermissible in law. The Assessing Officer rejected the account books in their entirety and thereafter proceeded to assess income by applying a flat rate of profit of 10%. After applying a flat rate of profit of 10%, the Assessing Officer added Rs. 1,98,298/- to the income of the assessee on the basis of certain 'entries' deemed to be suspicious. The Commissioner of Income Tax (Appeals) as well as the Tribunal have rightly held that as books of accounts were rejected in their entirety, the Assessing Officer could not rely upon any entry in the books of accounts for making an addition of Rs. 1,98,298/-. A bare reading of Section 68 of the Act would reveal that it would not apply to a situation where account books have not been rejected." 10. Therefore, in view of above discussion, we are of the considered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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