₹1.30 Cr Cash Deposits Not ‘Unexplained’ u/s 68: ITAT Relies on Books of Account to Reject Survey-Based Income Tax Addition [Read Order]

The Jaipurbench of Income Tax Appellate Tribunal (ITAT) held that when the cash sales were duly recorded in the books of account, they could not be treated as unexplained under Section 68 and rejected the survey-based income tax addition.

The assessee Ashok Nariyani is engaged in the business of trading of tobacco and mouth

freshener products on wholesale, retail and consignment basis in his proprietary firm, namely M/s Manisha Agencies. The assessee filed a return showing total income at Rs. 24,46,660/-.

Thereafter, the case was manually selected for scrutiny to examine the cash deposited of Rs. 5,00,98,000/- in his bank accounts during the demonetization period from 09.11.2016 to 30.12.2016. Accordingly, a notice along with a questionnaire was issued to the assessee electronically for filing the reply. The assessee replied to the notice.

Going throughthe details filed, AO noted that the assessee deposited cash of Rs. 5,00,98,000/- during the period of demonetization from 09.11.2016 to 30.12.2016 in his bank accounts. AO also observed that there was an abnormal increase in cash deposits in the bank account in November 2016. Therefore, the assessee was issued a show cause notice asking the assessee to produce the source of cash deposited, details of SBN deposited, reconciliation of sales with VAT returns, justification behind the increase in cash sales in November 2016.

The assessee submitted a written reply contending that the cash so deposited is the proceeds of the sale. The assessee submitted all documents and information. The assessee also produced details of SBN Notes deposited, new currency notes deposited, and the justification behind the increase in cash sales.

On going through the details so filed, the AO noted that a survey operation was conducted at the business premises of the assessee on. During the course of the survey, the assessee was asked to explain the source of the cash deposit of 1.58 Crores SBN Notes made in the period 09.11.2016 to 30.12.2016, to which the assessee explained that the said cash is out of the cash generated from the cash sales. But assessee had agreed that out of the total 1.58 Crores deposited, 60% cash deposit is an unrecorded sale of the assessee, which will be declared under Pradhan Mantri Garib Kalyan Yojana (PMGKY). Assessee declared the said amount under PMGKY and paid the due tax, interest and penalties.

However, during the course of assessment, AO observed that since, the cash deposited in old currency noted by the assessee in his bank accounts is Rs. 2,88,82,000/- against the surrendered amount of Rs. 1,58,00,000/- during the survey proceedings, therefore the balance amount of cash deposited of Rs. 1,30,82,000/- in old currency notes is to be treated as unexplained and out of books sale as admitted by the assessee during the survey.

Aggrieved by the order of the AO, the assessee preferred an appeal before the ld. CIT(A). Feeling dissatisfied, the assessee preferred the present appeal before the ITAT.

The assessee pointed that the cash deposits represented genuine, recorded business sales, reflected in books and VAT returns. The assessee argued that the Survey statements alone cannot form the basis of addition. The assessee further argued that the AO wrongly invoked Sections 68/69 and applied 60% tax u/s 115BBE, which applies only to unexplained income, not recorded business receipts.

In support of such contentions,the assessee relied upon various decision along with decision of Hon’ble Rajasthan High Court in the case of Smt. Harshila Chordia Vs. ITO [ 298 ITR 349 ] wherein it has held that:

“So far as question No. 2 is concerned, apparently when the Tribunal has found

as a fact that the assessee was receiving money from the customers in hands

against the payment on delivery of the vehicles on receipt from the dealer the

question of such amount standing in the books of account of the assessee would

not attract section 68 because the cash deposits becomes self-explanatory and

such amounts were received by the assessee from the customers against which

the delivery of the vehicle was made to the customers. The question of

sustaining the addition of Rs. 6,98,000 would not arise. We, therefore, hold that

no addition was required to be made in respect of Rs. 6,98,000, which was

found to be the cash receipts from the customers and against which delivery of

vehicle was made to them….”

The two-member Bench of Dr. M.L. Meena (Accountant Member) and Dr. S. Seethalakshmi (Judicial Member) observed that when the cash sales were duly recorded in the books of account and even part of the sales in new currency notes were already considered and part was not considered only due to the fact that in the survey statement, assessee has surrendered 60% of cash deposits as unrecorded sales. The Tribunal further observed that in support of the sales the assessee had submitted extensive details of cash, stock, vat returns etc. The Tribunal held that there was no reason to sustain the addition of the amount recorded as sales i.e., for an amount ofRs. 1,30,82,000/- as “unexplained cash deposits”.

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