Demonetization Cash Deposits not Explained Sufficiently, does not Pass Test of Human Probability: ITAT Questions Reliability of Books of Account [Read Order]

The Income Tax Appellate Tribunal (ITAT),Ahmedabad Bench, heard a matter wherein cash deposits during demonetization were not explained sufficiently and did not pass the test of human probability. The ITAT ultimately questioned the reliability of the assessee’s books of account.

The assessee-appellant, Patel Wines, filed its return of income for AY 2017-18. A survey under Section 133A of the Income-tax Act, 1961 was conducted on 17.03.2017 at the business premises of the assessee. The Assessing Officer (AO) observed cash of INR 1,31,34,000/- in the form of demonetized currency of INR 500 and INR 1000.

The assessee submitted that these deposits were made out of accumulated cash of INR 1,61,37,212/- which had been retained over the years due to family disputes and apprehension of bank account operations being interfered with by relatives. The AO observed that the assessee had been consistently showing very high cash-in-hand balances for several years.

According to the AO, the assessee after being repeatedly asked about the details of the family disputes, court cases and the manner and place where such cash was kept, failed to produce any convincing documentary evidence in support of its explanation. AO made an addition as unexplained money under Section 68 read with Section 115BBE, penalty proceedings under Section 270A also were initiated.

The appellant-assessee challenged the addition, submitting that the cash deposited in the bank was fully explained by the opening cash-in-hand reflected in the audited books of account. It was also submitted that the nature of business mandated cash sales and accumulation of cash was normal.

The CIT(Appeals) ( CIT)(A) ) observed that the claim of family disputes haD not been substantiated with any evidence and the explanation of keeping cash-in-hand for several years did not pass the test of human probabilities. CIT(A) held that merely showing an opening cash balance in the books does not automatically explain the source if the genuineness of such cash balance itself is doubtful.

The ITAT relied on CIT v. Durga Prasad More (1971) which held that taxing authorities are entitled to look into the surrounding circumstances and apply the test of human probabilities, and that apparent facts may be disregarded if they are contrary to human conduct and probabilities. Accordingly, the bench concluded that the assessee must prove the availability and genuineness of cash balance which they have failed to do.

The two member bench of Annapurna Gupta (Accountant Member) and Sidhhartha Nautiyal (Judicial Member) opined that the assessee failed to discharge the onus under Section 68 and upheld the earlier orders. The addition was confirmed and the appeal was rejected.

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