ITAT Deletes ₹1.36Cr Addition as Travel Agent's Demonetization Deposits proved as Business Income [Read Order]

In a recent ruling, the Lucknow Bench of the Income Tax Appellate Tribunal ( ITAT ) overturned a tax demand related to ₹1.36 crores in cash deposits made during the demonetisation period by the assessee.

The Assessee, Jai Singh, a travel agent, deposited a total of ₹1.36 Cr in old currency notes into his bank accounts during the demonetisation period. The tax authority classified these deposits as unexplained income under Section 69A of the Income Tax Act, 1961. This led to an increase in his assessed taxable income to ₹1.41 crore.

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The addition made by the assessing officer ( AO ) was deemed erroneous. The aggrieved assessee moved with an appeal to the Commissioner of Income Tax (Appeals) [CIT(A)], where the assessee secured a partial relief when the CIT(A), after considering all due submissions, deleted ₹1.36 crore deposited in the assessee’s business account. The CIT(A), however, retained an addition of ₹5.78 Lakhs, which he deposited in his personal savings account.

The assessee and the revenue department filed cross-appeals before the Income Tax Appellate Tribunal. The assessee's authorised representative argued that cash payments were prevalent in the travel agency business, mainly from clients purchasing airline tickets.

AR contended that the AO failed to acknowledge the evidence submitted by the assessee, which included a list of customers, invoices, and confirmations from travellers. These prove that the cash originated from legitimate business transactions. The AR further contended that the remaining ₹5.78 lakhs were from personal savings, a preventive practice common in Indian households.

The departmental representative ( DR ) argued that the AO was correct in treating the ₹1.36 crore cash deposits as unexplained cash credits under Section 69A. DR further contends that merely showing that the assessee's business line involves cash transactions is insufficient and that the assessee failed to prove that all deposits came from customers.

The DR also stated that personal savings should be supported by withdrawal patterns or cash flow records, which the assessee failed to submit.

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The ITAT found the AO’s addition unjustified and stated that cash was regularly deposited in the assessee’s account and later transferred to airline accounts. These transactions substantiate that the flow of funds was not income; instead, they were business-related transactions.

The tribunal agreed that the assessee's savings of ₹5.78 lakhs were not excessive in the assessee's line of business. The tribunal asserted that the AO’s suspicion alone did not classify the amount as unexplained income.

The tribunal asserted that the assessee had fully cooperated with the proceedings by providing all relevant documents, which the AO ignored. It noted that the AO had not made any inquiries under Section 133(6) to properly verify the assessee’s claims.

The tribunal consisting of Subhash Malguria ( Judicial Member ) and Anadee Nath Mishra ( Accountant Member ), dismissed the income tax department’s appeal seeking to reinstate the ₹1.36 crore addition which was deleted by the CIT(A). The Tribunal allowed the assessee’s appeal by deleting the entire disputed amount along with the ₹5.78 lakh addition levied on the assessee. As a result, the assessee's appeal was allowed.

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