Demonetisation Period Cash Deposits From Recorded Sales Cannot Be Treated as Unexplained Income: ITAT [Read Order]

The Income Tax AppellateTribunal (ITAT) Mumbai Bench has held that the cash deposits made during the demonetisation period cannot be held to be unexplained money under Section 68 of the Income Tax Act, 1961 if they are supported by audited books of accounts and business activities.

The assessee P.V. Media Vision Pvt. Ltd. is a company dealing in the trading of digital media products, and had filed its return for AY 2017-18. During the demonetization period the company made cash deposits of Rs. 2,20,28,551.

The Assessing Officer (AO) on observing that the company maintained a large amount of cash just before the ban on high-value currency notes held that the cash deposits made throughout the year to the extent of Rs. 4,74,91,252 were unaccounted income. The AO also held that the company made bogus cash sales and debtor recoveries to channelize its unaccounted income.

However, the revenue department submitted that it was unlikely for a business to have Rs. 2.18 crores in cash just before the demonetization move. They also stated that the business accepted illegal Specified Bank Notes (SBNs) from debtors which they termed an illegal transaction.

On the other hand, the Assessee argued that its business is conducted in both the organized and unorganized sectors which necessarily involves large cash transactions. They submitted that the deposits were raised from cash sales recoveries from long-standing debtors and re-deposits of previous cash withdrawals; also their accounts were audited and not rejected by the AO under Section 145.

The Commissioner of Income Tax (Appeals) [ CIT(A) ] reduced the major portion of the addition but confirmed Rs. 68,61,386 on the ground of delayed VAT returns treating that particular amount as unvouched on account of delayed VAT returns, leading to the present appeal before the ITAT.

The Tribunal Bench consisting Vikram Singh Yadav (Accountant Member) and Anikesh Banerjee (Judicial Member) reversed the CIT(A)’s partial confirmation and held that the assessee maintained a high level of cash sales in earlier years which often surpassed the sales of the current year.

It was noted that the AO did not produce any material to show that the cash was utilized for other purposes, while the assessee established the availability of cash through audited accounts.

However, a simple delay in filing VAT returns cannot be treated as unvouched sales if they are reflected in audited accounts and offered for taxation. Hence, the Tribunal held that the addition of sales realization separately is double addition as the turnover was already offered for taxation.

Therefore, the ITAT deleted the remaining addition of Rs. 68,61,386 allowing the assessee's appeal and rejecting the Revenue's claims.

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