ITAT Confirms Legitimacy of Aries Agro’s Cash Deposits During Demonetisation Citing Clear and Verified Records [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) upheld the deletion of additions under Section 68 of the Income Tax Act, 1961, concerning unexplained cash credits, confirming that Aries Agro Ltd.’s cash deposits made during the demonetisation period were legitimate and backed by clear documentary records.

Aries Agro Ltd., the assessee, is a publicly listed company engaged in manufacturing agricultural micronutrients and nutritional products with a nationwide presence through 6 factories and 28 depots. For the Assessment Year 2017–18, the company filed its return declaring an income of Rs. 18.98 crores and disclosed a turnover exceeding Rs. 229 crores.

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The Assessing Officer (AO) observed substantial cash deposits between 01.11.2016 and 08.11.2016, just before the announcement of demonetisation. Noting that such cash receipts had not occurred in earlier years and that transactions had typically been routed through banking channels, the AO treated these deposits as unexplained cash credits under Section 68. The AO contended that the assessee failed to prove the genuineness and creditworthiness of the source.

On appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee explained that the cash deposits were not from cash sales but were realised in cash against earlier credit sales. It provided complete records, including names, addresses, PANs, ledgers, and confirmations from 357 clients, some of whom also responded to notices issued under Section 133(6), confirming their payments. The CIT(A) accepted the assessee’s submissions and deleted the addition.

On further appeal before the ITAT by the Revenue, it was argued that the CIT(A) had failed to consider the theory of human probability as laid down in CIT v. Durga Prasad More and Sumati Dayal v. CIT, contending that the timing and pattern of the cash deposits defied logic.

The two-member bench comprising Sandeep Gosain (Judicial Member) and Prabhash Shankar (Accountant Member) observed that the assessee’s books of accounts were audited, not rejected by the AO, and supported by a sale register, cash book, and confirmations. The tribunal also observed that no discrepancy in the stock, purchases, or reported sales was identified by the AO.

It held that once the cash receipts were taxed as business income, treating the same as unexplained under Section 68 would result in double taxation. The tribunal found the theory of human probability inapplicable, explaining that the AO had brought no evidence to contradict the assessee’s explanations or prove any falsity in the records.

The tribunal upheld the CIT(A)’s order, dismissed the Revenue’s appeal, and confirmed the legitimacy of Aries Agro’s cash deposits during demonetisation.

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