Demonetisation addition deleted on Cash sales duly recorded in VAT return and ITR

The assessee, Kanchan Chopra, made cash deposits of Rs 1,66,70,000 in his bank account during the demonetisation period. During the assessment proceedings, when the AO questioned about the cash deposits, the assessee explained that these were from cash sales before the demonetisation, and the sales were duly recorded in books and VAT returns. To prove her claim, the assessee submitted the summary of cash and quarterly VAT return, along with the sales ledger, before the AO. However, the AO did not consider the submission and made an addition saying that the cash sales were bogus. This decision was upheld by the CIT(A).

The assessee approached the Income Tax Appellate Tribunal (ITAT), Delhi, challenging the addition along with an additional ground. As per this additional ground, the assessee claimed that the assessment was invalid since the notice under Section 143(2) was issued by ITO, Ward 40(1), while the order was passed by ITO, Ward 43(6). The AO, in this regard, submitted that this happened because of the restructuring of the office. As this was genuine, the Tribunal dismissed the additional ground.

Coming back to the main issue of the addition of Rs 1.66 crore, the Tribunal observed that the total sales and purchases made by the assessee had not been doubted by the AO. Further, the assessee had submitted the complete cashbook, showing the month-wise cash flows, and there was no negative balance that was questioned by the AO.

The Tribunal also noted that the ITR, which included the cash sales, was accepted by the AO and making an addition would result in double taxation. Further, the assessee had submitted the books of account and cashbook, which were not rejected by the AO. The tribunal also noted that Section 115BBE’s enhanced tax rate applied from AY 2018-19 onwards, not AY 2017-18. Therefore, the addition was deleted.