The Jaipur Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the legitimacy of cash deposits made during the demonetization period and rejected their classification as unexplained under Section 68 of the Income Tax Act,1961.
Suwalka and Suwalka Properties and Builders Pvt. Ltd.,the appellant-assessee,engaged in real estate development, filed its income return for Assessment Year ( AY ) 2017-18 on 06.03.2018, declaring ₹3,67,82,720. The case was chosen for scrutiny via Computer-Assisted Scrutiny Selection ( CASS ), following Central Board of Direct Taxes ( CBDT ) guidelines.
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The Assessing Officer ( AO ) issued a notice under section 143(2) on 09.08.2018, scheduling the hearing for 20.08.2018. Further notices under section 142(1) were sent on 22.01.2019 and 30.08.2019. The assessee responded online, and these responses were reviewed and recorded by the AO.
During the assessment proceedings, the AO observed that the assessee reported expenses of ₹3,85,98,705 in the P&L account, including ₹23,02,592 in miscellaneous expenses and ₹70,000 in business promotion, without sufficient supporting documents. Employee and stock registers were not produced, and some expenses were paid in cash with unverifiable vouchers. The AO added ₹15,00,000 to the income, doubting the accuracy of the books.
The AO also noted that the assessee deposited ₹2,79,00,000 during demonetization, attributed to sales of cheja stone worth ₹3,24,44,415. The assessee surrendered ₹15,00,000 under the PMGKY scheme. However, the AO found the sales claim improbable due to a lack of stock records and supporting bills. As a result, ₹2,64,00,000 was treated as unexplained money under section 69A and taxed under section 115BBE.
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Dissatisfied with the order of the AO, the assessee appealed before the Commissioner of Income Tax (Appeals)[CIT(A)]. The CIT(A) reviewed the facts and submissions. The AO had added ₹2,64,00,000 under Section 69A, claiming the cash deposits were unexplained. The CIT(A) found the explanation for sales unconvincing due to insufficient evidence and the improbability of large cash sales in a short period.
The CIT(A) noted the AO had double-counted the amount and corrected this by reducing the assessed total income by ₹2,64,00,000. Although Section 69A was deemed inapplicable, the addition was upheld under Section 68. The CIT(A) acknowledged the appellant’s claims of double taxation but granted partial relief in Ground No. 2.
The assessee appealed before the tribunal.
The Tribunal reviewed the appeal and noted two primary grounds raised by the assessee. The first challenged the CIT(A)’s rejection of the books of accounts under Section 145(3) without examination, while the second contested the application of Section 68 instead of Section 69A for the addition of ₹2,64,00,000.
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The key issue involved a cash deposit of ₹2,79,00,000 during demonetization, with the AO allowing a deduction of ₹15,00,000 under the PMGKY scheme. The AO classified the remaining ₹2,64,00,000 as unexplained money under Section 69A, rejecting the assessee’s claim that it resulted from sales of cheja stone totaling ₹3,24,44,415 due to insufficient supporting documentation.
On appeal, the CIT(A) accepted the argument regarding double taxation but rejected the books of accounts under Section 145(3), stating the lack of credible evidence for the cash deposits. The Tribunal found this rejection unwarranted, concluding that the CIT(A) failed to demonstrate any defects in the books, as the AO had not identified any issues.
The bench emphasized that the rejection was based on assumptions rather than evidence, citing the Rajasthan High Court’s ruling in CIT Vs. Pink City Developers regarding proper procedures. The Tribunal ruled that the revenue could not accept part of the sales as genuine while classifying the remainder as unexplained.
The two member bench comprising Dr.S.Seethalakshmi ( Judicial Member ) and Rathod Kamlesh Jayantbhai ( Accountant Member ) held that cash deposits from recognized business income could not be classified under Sections 68 or 69A, allowing both grounds raised by the assessee and granting the appeal.
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