ITAT Ahmedabad Deletes Rs. 2.42 Cr Cash Deposit Addition; Restricts GP Estimate to 2.50%

Ashokkumar Vishindas Dhingwani, proprietor of Anand Pharma, filed his return for AY 2017-18, declaring Rs. 6.54 lakh. The case was selected for scrutiny to verify cash deposits during the demonetization window. The Assessing Officer noted total cash deposits of Rs. 2.42 crore during FY 2016-17 and alleged that Rs. 1.42 crore was deposited during demonetization. Not satisfied with the assessee’s explanations, the AO treated the entire Rs. 2.42 crore as unexplained under Section 68 and further rejected the books of account, estimating profit by applying a 10% GP rate and adding Rs. 88.50 lakh. The assessment concluded at Rs. 3.98 crore.

Appealed to CIT(A): On appeal, the CIT(A) reduced the GP rate to 8% but confirmed the entire cash-deposit addition. The assessee contended before the Tribunal that the AO proceeded on incorrect facts and that only Rs. 29.11 lakh was deposited during the demonetisation period, supported by bank statements and a certificate from Nutan Nagrik Sahakari Bank, of which only Rs. 16.69 lakh represented SBN notes.

Main Issue: Whether the cash deposits and GP estimation were justified when the assessee produced business records, bank confirmation, and consistent historical profit margins.

ITAT’s Ruling: The Tribunal observed that although the case was selected specifically to test cash deposits during demonetization, the AO failed to call for the bank statement directly and incorrectly assumed deposits of Rs.1.42 crore in that period. The evidence on record, including the bank certificate and comparative data, showed that only Rs. 29.11 lakh was deposited during the relevant period, consistent with normal business cash flow. The Tribunal held that the cash deposits were out of recorded cash sales, that none of the receipts exceeded the PAN-mandated threshold, and that both cash sales and deposits were comparable to earlier years. Therefore, the Tribunal deleted the entire addition of Rs. 2.42 crore.

On the GP addition, the Tribunal upheld rejection of books due to non-furnishing of bills, confirmations, and other primary records, but found no basis for adopting an 8% or 10% GP rate. Neither comparables nor past margins were considered by the authorities. Since the assessee disclosed a GP of 2.37% in the preceding year, the Tribunal estimated a reasonable GP of 2.50% and directed the AO to recompute income accordingly. The appeal was thus partly allowed.

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