Recently in a decision, the Income Tax Appellate Tribunal ( ITAT ) of Bangalore, quashed an addition made under Section 69A of the Income Tax Act 1961 ( ITA ) holding that treating cash deposits from “business income” as “unexplained” can lead to double taxation.
The case is an appeal filed by the assessee/appellant Nitin Kumar Bohra, against the Income Tax Officer regarding the assessment for the financial year 2017-18. The assessee, a jeweler operating under the proprietorship of M/s. Anup Jewellers, was scrutinized for substantial cash deposits made during the demonetization period. He declared an income of ₹6,51,400 after deductions, but the tax authorities assessed his income at ₹58,47,140, attributing the difference of ₹51,95,740 to unexplained cash deposits under Section 69A of the tax statute. This addition led to a substantial tax liability under the provisions of Section 115BBE of ITA, applicable to unexplained income.
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The authorities initiated scrutiny because of an abnormal increase in cash deposits in the assessee’s bank accounts during the demonetization period compared to the pre-demonetization period. The tax officials issued a notice asking for information, which was partially provided. Upon reviewing bank statements, it was revealed that the appellant deposited cash in three accounts totaling ₹51,95,740. Although it was explained that these deposits were from his business sales, the tax authorities were not satisfied as the sales were mostly in cash and lacked customer details like names and addresses.
The assessee argued that it was common practice in the retail jewelry business to conduct sales in cash, especially among middle-class and low-income households. He contended that there was no legal requirement to maintain detailed customer information, except when the sales exceeded a certain threshold requiring a PAN. He stressed that the deposits came from sales proceeds and loans and that treating them as unexplained cash was unjustified. It was further argued that his turnover was below the threshold for compulsory tax audit and thus, he filed returns under the presumptive taxation scheme, under which he wasn’t required to maintain detailed books of accounts.
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The Commissioner of Income Tax (Appeals) [CIT(A)] rejected the assessee’s books of accounts, invoking Section 145(3) of the tax legislature, and upheld the addition under Section 69A of the same.
Aggrieved, the assessee challenged this before the ITAT, arguing that the turnover was declared correctly, and the cash deposits should not have been treated as unexplained income. He cited multiple legal precedents supporting his case and asserted that his sales and cash deposits were duly accounted for in his business turnover.
The bench Mr Laxmi Prasad Sahu and Mr Keshav Dubey considered both sides of the argument. The benc acknowledged that the assessee had declared a turnover of ₹78,71,394 with a net profit of 9.92%, and observed that the cash deposits in the assessee’s bank accounts were part of his business receipts, and that treating them as unexplained income resulted in double taxation. It ruled that once the authorities accepted the declared turnover and profit, they could not separately assess the cash deposits as unexplained. Moreover, the tribunal highlighted that the authorities failed to prove that the bank deposits exceeded the declared turnover.
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In result the tribunal found the assessment of unexplained income under Section 69A to be incorrect and ruled in favor of the assesseee.It also negated the application of Section 115BBE of ITA, which applies only to unexplained income. The appeal was allowed, and the assessee’s declared income under the head of profits and gains from his jewelry business was accepted.
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