Adhoc additions cannot be made by AO on gross suspicion: ITAT quashes 9.41 Crore Demonetisation Addition [Read Order]

A Division Bench of the ITAT has quashed an addition of ₹9.41 crore made on account of alleged unexplained cash deposits during the demonetisation period, holding that adhoc additions cannot be sustained on mere suspicion or conjecture without corroborative evidence.

The assessee, Basant Kumar Aggarwal, had filed its original return of income declaring ₹64,93,410, and the case was selected for scrutiny to examine abnormal cash deposits during the demonetisation period as compared to the pre-demonetisation period, along with large-value cash deposits made during that time.

The assessee furnished the requisite details and supporting documents in response to the queries raised during assessment proceedings. However, the Assessing Officer was not satisfied and concluded that the assessee had booked fictitious cash sales to route undisclosed income during the demonetisation period.

The addition was upheld by the Commissioner of Income Tax (Appeals), leading to the present appeal before the Tribunal.

On behalf of the assessee, it was argued that in the absence of specific defects pointed out under Section 145(3) of the Income-tax Act, 1961, rejection of books of account and consequent estimation of income on an adhoc basis was impermissible. It was contended that the Assessing Officer had acted purely on surmises and conjectures without any supporting material or corroborative evidence to discredit the assessee’s explanation.

The Department supported the orders of the lower authorities, relying on the reasoning that cash sales were unusually concentrated in specific months during the relevant year, unlike the pattern in earlier years.

The Tribunal observed that the Commissioner of Income Tax (Appeals) had sustained the adhoc additions merely on suspicion regarding the timing and pattern of cash sales, without any supporting evidence. It was further noted that no defect was pointed out in the books of account, and the quantitative details of sales, purchases, and stock stood duly accepted.

The Tribunal comprising S Rifaur Rahman, Accountant Member and Anubhav Sharma, Judicial Member held that “No explanation of assessee can be rejected questioning the prudence to hold the cash or deposit of cash unless there is something in the form of direct or substantial evidence which establishes that the cash was merely reflected in the book and was otherwise not available.

However, in the case in hand there is no such evidence as quantitative details with regard to sales, purchase and stocks stand admitted.” The Tribunal concluded that the addition of ₹9.41 crore made on an adhoc basis was unjustified and directed its deletion.

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