Income Tax Appellate Tribunal on Cash Deposit during Demonetization and Applicability of Section 68.

Headnote:

The Delhi Bench of the ITAT held that cash deposits made by a petrol pump dealer during the demonetization period could not be treated as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The Tribunal observed that the deposits were duly supported by sales transactions, VAT records, and audited books of accounts. Consequently, the addition of ₹53,87,989 made by the Assessing Officer and confirmed by NFAC was deleted.

Background:

• The assessee, a petrol pump operator, filed a return declaring total income of ₹42,78,630 for AY 2017–18.

• During scrutiny, the AO noticed cash deposits of ₹3.19 crore during the demonetization period, significantly higher than previous months.

• The AO treated ₹53,87,989 as unexplained cash under Section 68, rejecting the assessee’s explanation that deposits represented legitimate business sales and contra bank transfers.

• The NFAC upheld the addition, holding that the assessee failed to justify the source of cash deposits.

• The assessee argued that all sales were VAT-bound, purchases were made from government-controlled suppliers via cheques, and books were duly audited and accepted in prior years.

Tribunal’s Observations:

• The AO had accepted the assessee’s books of accounts, purchases, and sales without any defect, making the invocation of Section 68 unjustified.

• The explanation regarding contra entries and bank transfers was supported by documentary evidence.

• The AO’s findings were speculative and not supported by evidence; primary records substantiated the source of cash.

• The Tribunal noted that during demonetization, petrol pumps witnessed high cash inflow as customers paid in cash, making such deposits normal business activity.

• It emphasized that once the sales and books of accounts are accepted, cash deposits arising from such sales cannot be treated as unexplained cash credits.

Legal Provisions Discussed:

• Section 68, Income Tax Act, 1961 – Unexplained cash credits.

• Principle: Accepted books of accounts and recorded sales cannot be recharacterized as unexplained cash.

Decision:

The ITAT deleted the addition of ₹53,87,989 made under Section 68 and allowed the appeal in favour of the assessee.

Citation: ITA No. 3346/DEL/2024

Case: Suraj Pal v. Assistant Commissioner of Income Tax, Circle 4(1), Gurgaon

Court: Income Tax Appellate Tribunal, Delhi Bench “G”

Coram: Shri Challa Nagendra Prasad (Judicial Member) & Shri M. Balaganesh (Accountant Member)