The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) directed for a fresh examination of cash deposits made during the demonetisation period, asserting that the taxability of such deposits depends on the source and legitimacy of the income.
The assessee, B.K Rajanna, is a bar and restaurant owner who filed his income for the assessment year (AY) 2017-18, reporting income from multiple sources, including his business income. During a scrutiny, the assessing officer observed that the assessee had deposited ₹44.83 Lkah in cash during the demonetisation period, out of which ₹24 lakh were in specified bank notes (SBNs).
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The AO disallowed Rs. 9.50 lakh, arguing that bars and restaurants were not authorised to accept SBNs after November 8, 2016. The amount was added as unexplained cash credit under Section 68 of the Income-tax Act, 1961, and taxed at a higher rate under Section 115BBE.
Aggrieved by this addition made by the AO, the assessee forwarded an appeal to the CIT(A), where the CIT(A) upheld the AO’s decision, rejecting the argument that post-demonetization SBN deposits should be treated as business receipts, as bars and restaurants were not among the exempted entities allowed to accept old currency.
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The ITAT, in an appeal forwarded by the assessee against the CIT(A)’s order, stated that if the assessee could establish that the cash deposits were linked to recorded sales conducted by way of business in the books, the addition under Section 68 would not stand. The records submitted by the assessee convinced the ITAT. The ITAT consisting of Soundararajan K (Judicial Member) and Prashant Maharshi (Vice President) directed the AO to examine the assessee’s sales records to verify if the deposit genuinely originated from business transactions along with whether the cash flow in the books supports the deposits. The ITAT stated that if the income were already accounted for, such an addition would lead to double taxation. As a result, the appeal filed by the assessee was allowed.
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