No Income Tax Addition on Demonetization Cash Deposits Already Recorded as Cash Sales Turnover: ITAT Deletes ₹82.40 Lakh Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT) Chandigarh Bench has deleted an addition of ₹82.40 lakh made towards cash deposits during the demonetization period, holding that cash sales already recorded as turnover in the books of account cannot again be treated as unexplained cash credits under Section 68 of the Income Tax Act 1961.

The dispute arose after the Assessing Officer (AO) scrutinized cash deposits of ₹82.40 lakh made by the assessee,Greyline Knitwear during the demonetization period for the assessment year 2017-18.

The assessee, engaged in the manufacturing and trading of garments and hosiery goods, explained that the deposits originated from regular cash sales duly recorded in the cash book.

However, during the assessment proceedings, the AO observed that the assessee’s total sales had increased substantially to ₹23.01 crore with cash sales amounting to ₹1.53 crore as against ₹90.47 lakh cash sales in the preceding year. The AO alleged that the assessee manipulated its cash-in-hand position, noting substantial cash deposits and withdrawals during October and November 2016.

It was further stated that cash sale bills did not contain names and addresses of customers. Consequently, the AO treated the deposits as unexplained cash credits under Section 68 and added ₹82.40 lakh to the assessee’s income.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition after observing that the percentage of cash sales during the relevant year was actually lower than the preceding year. The CIT(A) also noted that the AO had neither rejected the books of account nor disputed the purchases recorded by the assessee. VAT returns reflecting the sales turnover had also been accepted by the State authorities.

The bench comprising Rajpal Yadav and Manoj Kumar Aggarwal held that the impugned cash deposits represented business sale proceeds already accounted for as turnover. The bench observed that once the sales were accepted and reflected in the books and VAT returns, taxing the same amount again as unexplained cash credit would amount to impermissible double taxation.

Accordingly, the Tribunal dismissed the Revenue appeal and upheld the deletion of the ₹82.40 lakh addition.

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