Sanhati Infocom Services Private Limited, a company providing internet services, the assessee initially failed to file a return under Section 139(1) or respond to statutory notices, eventually filing a return declaring zero income only after a notice was issued under Section 148.

During the assessment, the Assessing Officer (AO) identified cash deposits of Rs. 26,96,730 made during the demonetisation period and, citing the assessee’s lack of compliance, treated this amount as undisclosed income under Section 69A rather than business turnover.

While the Commissioner of Income Tax (Appeals) upheld this addition, the Income Tax Appellate Tribunal (ITAT) ultimately set aside the decision, ruling that the deposits were adequately explained as regular sales proceeds based on the company’s documented business history and consistent practice of depositing cash from its internet service operations.

Issue of the case

Was the addition of Rs. 2,696,730 made under Section 69A on account of cash deposited during the demonetisation period sustainable, given the assessee’s claim that the funds originated from regular business sales proceeds?

Decision of the Tribunal

The ITAT set aside the CIT(A)’s order and directed the deletion of the addition, ruling that the assessee’s records and bank statements proved a consistent, year-round practice of depositing legitimate sales proceeds.
Relying on precedents like Jayanta Fanzen Lighting Industries and Lakshmi Rice Mills, the Tribunal held that because the business transactions were regularly accounted for and the books were not found defective, the cash deposits during demonetisation were adequately explained as business turnover rather than undisclosed income.