ITAT: Cash Deposits from Genuine Sales, Demonetization Addition Quashed

The assessee, engaged in trading of rubber and chemicals, was subjected to scrutiny for AY 2017-18 after the Assessing Officer noticed cash deposits during the demonetization period. The company explained that it had made regular cash sales from its Delhi and Faridabad branches, which were duly reflected in its books, income tax return, and VAT filings. The assessee furnished complete sale and purchase records, stock inventory, and supplier details to substantiate the source of cash deposits. Despite this, the AO treated the deposits of Rs. 2.22 crore as unexplained cash credits under Section 68 read with Section 115BBE and made an addition.

On appeal, the CIT(A) deleted the addition, accepting that the cash sales were genuine, backed by proper documentation, stock movement, and consistent past practice.

Issue Raised: Whether cash deposits made during the demonetization period, duly reflected as cash sales in the books, could be treated as unexplained cash credits under Section 68.

Tribunal Held: The ITAT upheld the deletion, noting that the stock register was not rejected and cash sales were part of disclosed turnover. It held that taxing disclosed cash sales would amount to double addition. The Tribunal also observed that the higher tax under Section 115BBE could only apply prospectively from AY 2018–19.

Therefore, the Revenue’s appeal was dismissed, and the assessee’s cross-objection was allowed.

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