ITAT Held That Business Cash Deposits Cannot Be Treated as Unexplained Without Contrary Evidence

The assessee is engaged in onion and potato business trading and commission agency under the name “M/s Waman and Company” and in response to a notice under Section 148, filed the return of income declaring Rs 4.95 lakh income on turnover of Rs 67.92 lakh. During reassessment proceedings conducted under Sections 147 read with 144B, the AO found Rs 19.30 lakh cash deposits which were not supported by any evidence and the AO treated the entire amount as unexplained cash under Section 69A.

The assessee claimed that he was having a medical emergency during that period and thus could not furnish relevant evidence and submitted that the cash deposits represented business receipts from cash sales and recoveries from debtors in the ordinary course of his agricultural commodities business. The CIT(A) upheld the addition made despite obtaining a remand report from the AO.

The ITAT examined all the evidence on record and found out that the cash deposits were directly linked to the assessee’s disclosed business turnover and cash sales, which was supported by evidence through cash books and business records of transactions. The Tribunal held that merely because the assessee declared profit at 7.07% instead of 8% under Section 44AD, the entire cash deposits could not automatically be treated as unexplained money under Section 69A.

Accordingly, ITAT held that if once the existence of business activity and turnover is accepted, corresponding cash deposits linked to such business receipts cannot be separately taxed as unexplained cash credits and deleted the addition of Rs 19.30 lakh made under Section 69A and allowed the appeal of the assessee.