ITAT Deletes Rs 2.47 Crore Unexplained Cash Deposits Addition, Accepts Pharma Retailer’s Cash Explanation:

Cash deposits of Rs 2.47 crore made by a Delhi-based medicine retailer came under income tax scrutiny during the demonetisation period. The Assessing Officer (AO) treated the deposits as unexplained cash, but the Income Tax Appellate Tribunal (ITAT), Delhi, later accepted the taxpayer’s explanation and granted relief.

A pharmaceutical and medicines retailer based in Delhi had deposited cash amounting to Rs 2.47 crore in his three savings bank accounts. The assessee explained that the money came from sales of his pharmaceutical and medicine business. He submitted audited financial statements, balance sheet, profit and loss account, bank statements, VAT returns and sample sales invoices to support the source of the deposits.

During the assessment of the return, the Assessing Officer (AO) treated the entire cash deposits as unexplained cash credits and made an addition of the same to the assessee's income, pointing to the absence of matching bank entries for certain business expenses and irregular salary and bonus payments. The CIT(A) also upheld the addition, following which the taxpayer approached the ITAT.

The ITAT Delhi noted that the taxpayer had produced substantial evidence showing the source of the cash. Importantly, neither the AO nor the CIT(A) identified any specific defect in the documents or rejected the books of accounts under Section 145 of the Income Tax Act.

The tribunal found that the cash deposits could be linked to sales from the taxpayer’s retail pharmaceutical business during the demonetisation period. It also accepted his explanation regarding certain cash withdrawals, which were stated to have come from savings accumulated by family members.

The ITAT noted that family savings of Rs 72 lakh and the taxpayer’s own savings of Rs 2.46 lakh were supported by documents. It observed that the CIT(A) had rejected the explanation without giving convincing reasons.

The tribunal held that the evidence furnished was sufficient to establish the availability and source of cash and deleted the disputed addition. The ruling highlights the importance of maintaining proper records and supporting documents for large cash transactions.