ITAT Holds Demonetisation-Period Deposits Cannot Alone Disprove Genuine Cash Sales:

The assessee is a trader in hardware items who challenged the order of the CIT(A) which had confirmed an addition of Rs.30 lakh under Section 68 of the Income Tax Act, 1961 in respect of cash deposited in his bank account. During assessment proceedings, the AO questioned the source of the deposits. The assessee explained that the cash represented proceeds from his cash sales. However, the AO noted that the deposits had substantially increased during the demonetisation period and that cash deposits in the earlier months and years were comparatively lower. On this basis, the AO treated the cash sales as bogus and the bank deposit as income from undisclosed sources.

The CIT(A) upheld the addition, following which the assessee approached the Tribunal.

The Tribunal examined the month-wise cash-sales data for Financial Year 2016-17 and found that the assessee had made cash sales consistently throughout the year. Although cash sales increased during September, October and November 2016, the Tribunal noted that cash sales were not absent in the months preceding the announcement of demonetisation.

The assessee explained that the cash generated from sales was ordinarily utilised for cash expenditure and purchases, and only the balance was retained in the cash book. He also produced figures from earlier and subsequent years to demonstrate that the cash sales during the relevant year were not abnormal.

The Tribunal observed that following the announcement of demonetisation, transactions in the demonetised currency were restricted and persons holding cash in their books were required to deposit it in their bank accounts. Therefore, an increase in bank deposits during November 2016 could naturally occur due to the circumstances created by demonetisation and could not, by itself, establish that the cash sales were fictitious.

Accordingly, the Tribunal held that there was no justification for sustaining the addition of Rs.30 lakh under Section 68 and ordered its deletion. The appeal filed by the assessee was consequently allowed.