Cash Deposited in Bank Accounts during Demonetization Period reflected in Books of Account of Company: ITAT deletes Addition [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT), while deleting the addition made by the Assessing officer (AO), determined that the cash deposited in bank accounts during the demonetization period was reflected in the books of account of the company.

The assessee, Bawa Jewellers Pvt. Ltd.  Is a company engaged in the business of manufacture of gold and diamond jewellery, filed its return of income on 29.09.2017 declaring income of Rs.1,21,28,780/-. The case was selected for scrutiny through Computed Assisted Scrutiny Selection (CASS) as the assessee made large cash deposits during the demonetization period.

During the assessment proceedings, the Assessing Officer noticed that the assessee company has deposited cash of Rs.21,69,98,000/- from 09.11.2016 to 31.12.2016 during demonetization period. Thereafter, the assessee furnished all details of transaction regarding cash sales, cash deposits, purchases, opening cash in hand, advances from debtors, closing cash balances in hand.

Further, also assessee submitted that after the Prime Minister’s Speech on 08.11.2011 that 1000 and 500 currency notes would no longer be a legal tender after 12:00 midnight of 08.11.2016 there was a huge rush of customers pouring in the showroom to purchase and cash generated from out of cash sales was deposited in parts in its banks namely Kotak Mahindra Bank and Federal Bank Ltd.

Subsequently, after analyzing the cash deposits during demonetization period for the financial year 2016-17 in comparison to financial year 2015- 16 AO came to the conclusion that it is not in line with normal business and observed that there is an increase in cash deposit at 168% and cash sales at 111%.

Thus, the AO addition made under Section 68 of the Income Tax Act in respect of cash deposits made by the assessee into its bank accounts during the demonetization period.

Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)[CIT(A)] who deleted the addition made under Section 68 of the Income Tax Act. 

Against the CIT(A) order revenue filed an appeal before the tribunal.

Kanv Bali, the department representative, supported the decision of the lower authorities and contented that the assessee company had failed to discharge the onus of proving genuineness of the cash deposited in bank accounts under Section 68 of the Income Tax Act.

Hiren Mehta, the Counsel for the assessee submitted that assessee has sufficient stock-in-hand to justify sales. Hence, during the course of assessment proceedings, the assessee provided quantitative details as on 31.07.2017 of the stock position before the A.O.

The tribunal after reviewing the facts observed that AO did not point out any defects in the books of account, no discrepancies were found in the stocks, sales and purchases.

The assessee has amply demonstrated with evidence that the cash sales and the cash deposits during financial years 2015-16 and 2016-17 were almost same and there is only a minimal increase in cash deposits during the financial year 2016- 17 relevant to the assessment year 2017-18.

After determining the facts and submissions made by both parties the bench consisting of two members, Narendra Kumar Billaiya (Accountant Member) Challa Nagendra Prasad (Judicial Member) observed that the assessee was maintaining complete stock tally, the sales were recorded in the regular books of accounts and the amount was deposited in the bank account out of the sale proceeds.

Thus, the bench dismissed the appeal filed by the revenue.

To Read the full text of the Order CLICK HERE

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