The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has ruled that the assessing officer (AO) must verify the source of cash deposits made during the demonetization period. The ITAT’s decision in the case of Jumbo Electronics Corporation Pvt Ltd. v. Pr. CIT-2 is a reminder to businesses of the importance of accurate record-keeping and transparency with the tax authorities.
The assessee, Jumbo Electronics Corporation Pvt Ltd., is a company engaged in the business of retailing electronic items. The assessee filed an income return for 2017-18, claiming a loss of ₹27,18,40,152. The PCIT questioned the assessment order, which was passed under CASS under Section 143(3) of the Income Tax Act, 1961.
The PCIT argued that the order was erroneous and prejudicial to revenue interest due to the AO’s failure to verify the assessee’s business’s acceptance of Specified Business Notes (SBN) and the difference in receipt between the service tax return and ITR. The assessee challenged the order in the ITAT.
The assessee contended that the AO had conducted an inquiry into the matter of a disparity in the gross revenues stated in the service tax return, the 26AS, and the P&L account but had not added anything to the difference amount. Additionally, it said that since the assessee provided an income that was larger than what was reported in 26AS, there was no revenue leakage in this instance.
The PCIT argued that the AO had not made any inquiries to verify the source of the cash deposits and that there was a possibility that the assessee had not disclosed the entire amount of cash deposits.
The ITAT observed discrepancies in gross receipts reported in service tax returns, 26AS, and P&L accounts and the AO failed to add the difference amount and found no revenue leakage. It also observed no inquiries to verify cash deposits during the demonetization period and a possibility that the assessee had not disclosed the entire amount.
The Two Bench Members comprising Justice S Rifaur Rahman (Accountant Member) and Justice Kavitha Rajagopal (Judicial Member) decision was to partly allow the appeal filed by the assessee. It upheld the order of the PCIT on the issue of cash deposits made during the demonetization period, but it set aside the order of the PCIT on the issue of discrepancy in the gross receipts reported in the service tax return, the 26AS, and the P&L account.
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