Cash Sales by Medical Shops Permitted by RBI during Demonetization, Doctors Prescription and ID of Purchasers Not Required: ITAT deletes Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore bench, while deleting an addition under section 68 of the Income Tax Act, 1961 has held that the cash sales by the medical shops and pharmacies were permitted during the demonetization period under the circular issued by the RBI.

The assessee, Manasa Medicals is a partnership firm engaged in the business of selling pharmaceutical products. The case of the assessee was selected for scrutiny for the purpose of verification of “large value of cash deposits during demonetisation” and accordingly notices were issued to the assessee. After verification of the details submitted by the assessee, the AO proposed to make an addition u/s. 68 of the Act as unexplained cash towards cash deposits made during the demonetisation period.

The assessee furnished contended that as per the RBI guidelines, any pharmacy, medical shop was one of the specified entities/persons permitted to accept Special Bank Notes (SBN) of Rs.1,000 and Rs.500 towards sale of medicines.

The department contended that though the assessee belongs to the exempted category of entities who can accept SBN during demonetisation period, the Circular specifies that the SBN can be accepted only on production of Doctor’s prescription and proof of identity which would mean that the same needs to be kept on record by the assessee for future verification.

Shri George George K., Judicial Member and Ms. Padmavathy S, Accountant Member allowed the plea of the assessee and observed that “the AO is not questioning the source of the cash deposit since he has recorded a finding that cash sales during the demonetisation period is brought to tax u/s. 68 which makes it clear that it is admitted fact that sales is the source for cash deposits.”

Upholding the first appellate order deleting the addition, the Tribunal held that “the revenue is contending that there is a requirement as per the Circular that the Doctors prescriptions and identity of the persons purchasing medicines needs to be kept in record to substantiate the cash sales during demonetisation period. However, from the plain reading of the said Circular, there is no specific mention as contended by the department. Further, the AO did not reject the books of accounts of the assessee and has not brought anything contrary on record to show that cash sales is not the source for the cash deposited during demonetisation period. We are therefore of the opinion that there is no case here for making the addition as unexplained u/s.68. In view of this discussion, we see no reason to interfere with the order of the CIT(A).”

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