ITAT Deletes Addition on Demonetisation Cash Deposits Supported by Opening Cash Balance and Business Records

The Income Tax Appellate Tribunal (ITAT) Mumbai has deleted the addition of Rs 25.70 lakh made under Section 69A and observed that a finding based only on doubt, without any adverse material, is unsustainable.

The assessee is engaged in the wholesale and retail business of milk and filed her return declaring an income of Rs 18.97 lakh. During scrutiny assessment, the AO treated cash deposits of Rs 2.22 crore made during the demonetisation period as unexplained money under Section 69A of the Income Tax Act, 1961. In appeal, the CIT(A) examined additional evidence and a remand report furnished by the AO. On the basis of the material produced, the CIT(A) deleted the addition to the extent of Rs 1.92 crore but sustained an addition of Rs 30.58 lakh that was for deposits made in specified bank notes (SBNs).

The assessee challenged the addition before the ITAT.

The Tribunal noted that the assessee carried on a cash-based milk business and regularly deposited cash collections into the bank for making cheque payments to suppliers. The AO in the remand proceedings had accepted that the assessee maintained cash books and sales records. Also, the pattern of cash deposits during the year was in line with the preceding two years and there was an opening cash balance of Rs 25.70 lakh as of 07 November 2016.

The Tribunal held that when the existence of the opening cash balance had already been verified and accepted during remand proceedings, the addition could not be sustained merely on the basis of suspicion. Accordingly, the Tribunal deleted the addition of Rs 2,570,945 made under Section 69A in respect of specified bank notes deposited during the demonetisation period and directed the AO to grant relief to that extent. The appeal of the assessee was partly allowed.