Treating Cash Deposit During Demonetization as unexplained cash without rejecting Books of account is Invalid: ITAT [Read Order]

In a recent case, the New Delhi of the Income Tax Appellate Tribunal ( ITAT ) held that treating the cash deposit as unexplained cash without rejecting the books of account is invalid.

Pilani Industrial Corporation Limited, the Assessee's return was selected for scrutiny, wherein AO passed an assessment order under section 143(3) made disallowance of Rs. 65,49,189/- under section 69A r.w.s 115BBE on allegation that assessee failed to establish that the cash deposited during demonetisation period was as part of the normal business receipts.

The AO relied on figures given by the assessee on basis of cash deposits during the course of demonetization. The Bench observed that the corresponding previous year the cash deposit out of sales was Rs. 3,19,32,724/- on basis of which cash deposits of Rs. 65,49,189/- was declared as not explained satisfactorily.

As per Section 69 of Income tax Act, where in the financial year immediately preceding the assessment year, the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.

Whereas, Section 115BBE has been introduced in Income tax Act w.e.f. AY 2013-14 with an intention to tackle with people who shows their black income as white by paying less tax. Therefore, any income for which assessee would not be able to explain the source, now will be taxed at 30% instead of 10% or 20%.

It was found that the figures were taken from the table based on statement of profit and loss by the assessee and the statements were duly verified by independent auditors report.

The two member Bench comprising of Vimal Kumar (Judicial Member) and S Rifaur Rahman (Accountant Member) observed that when entries in books of account in regard to cash balances were held to be genuine, there was no escape from conclusion that assessee had offered reasonable explanation as to source of all high denomination notes which it encashed and it was not open to ITAT to accept genuineness of those books and accept assessee's explanation in part and reject same in regard to balance sum.

While allowing the appeal, the ITAT concluded that treating the cash deposit as unexplained cash on basis of books of account without rejecting the same is legally not permissible.

To Read the full text of the Order CLICK HERE

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