Records maintained for sales carried out by assessee prevents credit to be held as unexplained cash U/S 68: ITAT deletes Addition [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) held that the credit could not be held to be unexplained cash credit and the impugned additions are not sustainable in law.

The assessee is a partnership firm and is stated to be engaged in manufacturing and wholesale of fireworks. The case was selected for scrutiny assessment for the reason that assessee deposited an amount of Rs.118.23 Lacs in the form of Specified Bank Notes (SBN). The  AO observed that as per notification S.O.No.3407(E) dated 08-11-2016 as issued by the Govt. of India, it was notified that SBN shall cease to be legal tender to the extent specified. In the notification, it was mandated that SBN held by a person other than banking company may be exchanged at specified bank branches for the purpose of exchanging. The notification permit that SBN could be deposited in to third party bank accounts after specific authorization.

Therefore, after 08-11-2016 any transaction done through SBN will not have any legal validation. As per notification, only transaction allowed in the form of SBN after 08-11-2016 would be for exchange of SBN by persons other than banking company. The transaction which is null and void legally would not be accepted as satisfactory explanation to explain the source of cash deposit. The assessee was prohibited to deal with SBN after 08-11-2016, other than for exchanging the same at banks. Accordingly, said deposits were added under section 68 read with section 115BBE of the Act.

The tribunal noted that the assessee has realized debtors out of such sale in SBN which have been deposited in the bank account of the assessee. The cash deposited by the assessee has duly been accounted for in the books of accounts. The  AO has not alleged any bogus sales or back dated sales made by the assessee. No defect has been pointed in the books of accounts as maintained by the assessee.

It could also be seen that during the course of assessment proceedings, various notices were issued under section 142(1) from time to time calling numerous details from the assessee. The assessee was required to file numerous details including monthly cash flow statement, inventory of closing stock, copy of sales tax assessment order, monthly cash deposits and credits for various periods, ledger account for purchase and other expenditure, monthly sales gross receipts, monthly purchases, details of old notes and new notes deposited during demonetization period, the day book, Cash book, ledger maintained for business, cash balance as per cash book etc. All these details were duly submitted by assessee vide reply dated 12-12-2019

The assessee also submitted month-wise cash deposits in all bank accounts, details of old notes deposited at the time of demonetization period. Pertinently, the assessee also furnished details of name, address and PAN of cash depositors who deposited cash during demonetization period. The same has been detailed on pages 24 to 35 of the paper book. Apparently, the same could not be faulted with by  AO. There is no allegation of any irregularity in the books of accounts.

The two member bench consisting of Mahavir Singh (Vice president) and Manoj Kumar Aggarwal (Accountant member) held that the assessee has duly identified the debtors from whom the cash was received and the same could not be disputed by lower authorities. The PAN of respective debtors as well as quantum of cash realized from each of them has duly been detailed by the assessee before  AO during assessment proceedings. No defect has been pointed out in the books of accounts. In such a case, the credit could not be held to be unexplained cash credit and the impugned additions are not sustainable in law. Thus the appeal was allowed.

To Read the full text of the Order CLICK HERE

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