ITAT Deletes Addition of Rs. 20 Lakhs Cash Deposit in SBN; Accepts Regular Cash-Intensive Business Pattern

The assessee, now represented by his widow as legal heir, was engaged in trading agricultural commodities in Palitana, Bhavnagar, where major sales occurred in cash due to dealings with farmers. For AY 2017-18, the return was originally accepted, but later reopened after the Department noticed cash deposits of Rs. 39,95,000 during the demonetisation period. The assessee explained that Rs. 20,00,000 deposited  consisted of Specified Bank Notes (SBN), being cash realized from routine agricultural trade, while the balance was deposited in regular (non-SBN) currency. Despite these explanations, the Assessing Officer treated the entire Rs. 39,95,000 as unexplained under Section 68, and added it to income.

On appeal, the CIT(A) accepted part of the explanation and deleted Rs. 19,95,000 but sustained Rs. 20,00,000 relating to SBN deposits. Before the Tribunal, the assessee furnished a comparative month-wise chart of cash deposits for three assessment years, showing consistent and substantial cash banking every year. He also submitted the cash flow statement showing that out of total sales of Rs. 3.47 crore in AY 2017-18, Rs. 3.23 crore (93.09%) was realised in cash, matching the nature of the business. VAT returns reflecting the cash sales were accepted by State authorities, and no alternative source of income was identified by the Department.

Central Issue: Whether the Rs. 20,00,000 cash deposit in Specified Bank Notes on 12-11-2016 represented unexplained income under Section 68, despite the assessee’s historically consistent cash-based business model and supporting records.

Tribunal Held: The Tribunal found that the assessee had a clear and verifiable pattern of cash deposits across earlier years, which aligned with the nature of his agricultural trading activity. The month-wise deposit figures for AYs 2015-16, 2016-17, and 2017-18 showed that cash deposits were a routine and substantial part of business operations. Moreover, cash realisation of 93.09% out of Rs. 3.47 crore total sales was consistent with dealings predominantly involving farmers. The VAT records corroborated the cash sales, and the Department had not disputed the existence of such sales or suggested any alternative source of income.

The Tribunal observed that the CIT(A) confirmed the addition without fully verifying the cash flow pattern, past deposit behaviour or corroborative documents already placed on record. Since the deposits were supported by business transactions and fell within the normal course of trade, the sustained addition of Rs. 20,00,000 was unsustainable. Accordingly, the Tribunal deleted the remaining addition and allowed the appeal in full.

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