ITAT okays, Cash Deposit during demonetization, when cash sale is normal Part of your Business

The Income Tax Appellate Tribunal(ITAT Delhi) has allowed the assessee appeal by stated that Cash Deposit is okay during demonetization, when cash sale is normal Part of your Business.

Briefly stated, the facts of the case are that the appellant company is a 100% importer wherein it purchases spectacle lenses from China and sells the same from a shop situated at Fatehpuri, Chandni Chowk, New Delhi and a shop-cum-godown at Noida. The nature of the business of the assessee is such that it has wholesale as well as retail sale. The retail sales are generally over the counter sales to various customers like small shop keepers, sales representatives etc. Customers usually pay in cash and as such, the assessee normally has sufficient cash balance throughout the year. The cash received against such cash sales is subsequently deposited into the bank account of the assessee from time to time as per the convenience of the assessee.

Return for the year under consideration was e-filed on 24.10.2017 declaring an income of Rs. 1,20,98,296/-. Return was selected for scrutiny assessment under CASS and accordingly, statutory notices were issued and served upon the assessee.

One of the reasons for taking the return for scrutiny selection was abnormal increase in cash deposits during demonetization period as compared to pre-demonetization period. On this erroneous fact, the Assessing Officer proceeded in examining the cash deposited during the demonetization period vis-à-vis during the same period in the immediately preceding year and formed a belief that the ratio laid down by the Hon’ble Supreme Court in the case of Sumati Dayal 214 ITR 801 squarely apply on the facts of the case and disbelieving the explanation of the assessee, the Assessing Officer concluded that the explanation given by the assessee regarding cash deposit of Rs. 39,92,742/- after announcement of demonetization is not satisfactorily explained and hence made the addition of Rs. 39,92,742/-.

The assessee carried the matter before the ld. CIT(A) but without any success.

Before us, the ld. counsel for the assessee explained the deposit of cash by vehemently arguing that the same has been generated out of cash sales made during the year and the Assessing Officer has accepted the sales. Therefore, there is no reason why the cash deposits should not be accepted.

In so far as the allegation that there was a substantial increase in cash transactions during the demonetization period as compared to the same period in the previous year, the ld. counsel for the assessee stated that the entire allegation is factually incorrect.

A perusal of cash sales showed during F.Y. 2016-17 is lesser than the total sales in F.Y. 2015-16. Further, cash deposited during F.Y. 2016-17 is lesser than the cash deposited in F.Y. 2015-16. Most importantly, the average cash sales for F.Y. 2016-17 is higher than the Specified Bank Notes deposited during demonetization period when the average monthly cash sales for F.Y. 2016-17 is much lesser as average monthly cash sales for F.Y. 2015-16.

In fact, cash sales during the period 01.04.2016 to 09.11.2016 is 27.21% lesser than the cash sales during the same period in the preceding year and cash deposited during the demonetization period i.e. 09.11.2016 to 31.12.2016 is 36.38%, lesser than the cash deposited during the same period in the preceding year.

These factual details are coming out of the books of account of the assessee which go on to demonstrate that the allegation of the Revenue that there was excessive cash deposit during the demonetization period is not only fallacious but also against the facts of the case in hand.

Considering the facts of the case in totality, as discussed hereinabove, we are of the considered opinion that the cash sales and corresponding cash deposits have been a regular feature of the business of the assessee and there is certainly no abnormal trend of cash sales and cash deposit during the relevant previous year. Therefore, we do not find any merit in doubting the genuineness of the cash deposits qua the cash sales. We, accordingly, set aside the findings of the ld. CIT(A) and direct the Assessing Officer to delete the addition of Rs. 39,92,742/-. Ground Nos. 2 to 5 taken together are allowed.

Ground No. 6 relates to the addition on account of delay in deposit of employee’s contribution and employer’s share of EPF/ESI which has been deposited after the due date prescribed under respective law but before filing of return of income.

In so far as delay in depositing the employee contribution is concerned, the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd 448 ITR 518 has settled the dispute in favour of the Revenue and against the assessee. Therefore, respectfully following the same, disallowance on account of delay in deposit of employee share of EPF/ ESI is sustained.

In so far as delay in depositing the employer’s contribution is concerned, we direct the Assessing Officer to verify the date of deposit and, if the same has been deposited before filing the return of income, no addition should be made as per the relevant provisions of law. Ground No. 6 is allowed in part for statistical purposes.

In the result, the appeal of the assessee in ITA No. 1533/DEL/2021 is partly allowed for statistical purposes.

For Official Judgment Download PDF Given Below: