ITAT Delhi Deletes Rs 9.41 Crore Addition on Demonetisation Cash Deposits Holding Suspicion Alone Cannot Justify Addition

The Income Tax Appellate Tribunal (ITAT) Delhi held that where cash sales were duly recorded in books, supported by stock records and VAT returns, the addition could not be sustained merely on suspicion regarding the timing of sales and deposits.

The assessee is carrying on the bullion and jewellery business and had filed his return declaring an income of Rs 64.93 lakh for Assessment Year 2017-18. The case was selected for scrutiny on account of substantial cash deposits made during the demonetisation period. During November 2016, the assessee deposited cash amounting to Rs 26.89 crore in his bank account, which, according to him, was sourced from cash sales recorded during October 2016 and November 2016.

The AO observed that the assessee had shown unusually high cash sales of approximately Rs 19.82 crore in October 2016 and Rs 6.88 crore during the first week of November 2016. Consequently, the AO concluded that the assessee had manipulated the books of account and has invoked Sections 68 and 145(3) of the Income Tax Act. The AO treated 35% of the cash deposits, amounting to Rs 9.41 crore, as unexplained cash credits taxable under Section 115BBE.

The CIT(A) upheld the addition. The Tribunal observed that once the existence of stock, sales, and cash balance stood accepted by the Department, the addition could not be sustained merely on the basis of suspicion regarding why the assessee retained cash instead of depositing it immediately in the bank. The Bench emphasized that no crucial corroborative evidence had been brought on record to establish that the cash sales were fictitious or that the assessee manipulated the book of accounts.

ITAT held that the addition was based solely on suspicion and not on evidence, the Tribunal deleted the addition in full and allowed the assesse’s appeal