Unexplained Cash Deposits during the Demonetization period: ITAT remits matter to AO produce Bills and Vouchers for Purchase and Sale of Gold [Read Order]

The Hyderabad bench of the Income Tax Appellate Tribunal ( ITAT ) has remitted the matter to the Assessing Officer, directing them to produce bills and vouchers related to the purchase and sale of gold in response to unexplained cash deposits during the demonetization period.

During the assessment proceedings, the Assessing Officer observed that the assessee had deposited a significant amount of cash into its bank accounts during the demonetization period. Consequently, the Assessing Officer requested the assessee to provide various documents including books of account, profit and loss account, bank statements, tax audit report, turnover details for the past three years, and specifics regarding cash deposits made during the demonetization period.

However, the assessee failed to comply with these requests. Due to the substantial cash deposit of Rs. 14,88,01,620/- during the demonetization period, the Assessing Officer deemed it as unexplained money under section 69A of the Income Tax Act,1961, read with section 115BBE of the Act, 1961 and made an addition to the assessment accordingly.

The counsel for the assessee S.Rama Rao asserted that the assessee maintained proper books of account, including a stock register supported by bills and vouchers, with all purchases and sales accurately recorded. They clarified that the sales were not disputed by the Assessing Officer and highlighted that the books of accounts underwent auditing as required under the Companies Act and Section 44AB of the Income Tax Act,1961.

 Moreover, he pointed out that the opening cash balance as of November 8, 2016, was Rs. 70,70,12,947/-, and the sales were duly recorded in the cash book. They argued that the assessee deposited the cash available at that time into the bank account. Therefore, they concluded that both lower authorities were unjustified in making the addition under the provisions of Section 69A of the Income Tax Act,1961.

The counsel for the assessee argued that since the assessee was able to substantiate the results recorded in the books, with the profit rate remaining consistent across both periods, the Assessing Officer should not have opted for income estimation. Therefore, making an addition of Rs. 10,97,68,945/- was unwarranted. Additionally, he contended that the decision of the CIT ( Appeals ) NFAC to uphold the addition was unjustified. Consequently, he urged for the deletion of both additions made by the Assessing Officer and upheld by the CIT ( Appeals ) NFAC.

  On the other hand, counsel for the revenue, TH Vijaya Lakshmi strongly objected to the arguments advanced by the assessee and he  accordingly submitted that the order of the  CIT (A) NFAC sustaining the addition of Rs. 14,88,01,620/-was  justified.

The bench observed that the assessee's business comprised the sale of jewelry and bullion. Regarding the first addition of Rs. 14,88,01,620/- attributed to cash deposits during the demonetization period, it was explicitly stated before the learned CIT ( Appeals )/NFAC that the assessee had provided the cash book containing the opening cash balance and sales made during the year.

However, the opening cash balance of Rs. 7,70,12,947/- as of November 8, 2016, was not taken into consideration at all. Moreover, the details of sales conducted by the assessee were not disputed by the Assessing Officer. Hence, when the deposits originate from the available cash balance documented in the cash book, it is unclear why the addition made by the Assessing Officer under section 69A, of the Income Tax Act,1961, upheld by the learned CIT ( Appeals ), was deemed necessary.

Furthermore, despite the presentation of all relevant details, the learned CIT ( Appeals ) did not request any remand report or return the issue to the Assessing Officer's file.

The two member bench of the tribunal comprising Laliet Kumar ( Judicial member ) and R.K. Panda ( Vice President ) concluded that the  grounds raised by the assessee are accordingly allowed for statistical purposes. In the result, an appeal filed by the assessee was  allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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