ITAT Says Cash Sales Cannot Be Treated as Bogus Without Proper Enquiry, Deletes Rs 24.59 Lakh Demonetisation Addition:

The Income Tax Appellate Tribunal (ITAT), Lucknow Bench, has directed the Assessing Officer (AO) to delete an addition of Rs. 24.59 lakh made on account of cash deposits during the demonetisation period. The Tribunal held that the tax authorities could not treat the cash sales as bogus without conducting proper enquiries and examining the supporting documents submitted by the assessee.

The case involved Raj Kala Agarwal, who was engaged in the business of trading in Bardana (gunny bags). For Assessment Year 2017-18, she filed her income tax return (ITR), declaring a total income of Rs. 10.07 lakh. During scrutiny, the AO found cash deposits in her savings bank account during the demonetisation period from November 9, 2016, to December 30, 2016. Treating the same cash deposits as unexplained under Section 68 of the Income Tax Act, 1961, the AO made an addition of Rs 24.59 lakh to the assessee's income after allowing relief for peak credit and other deposits. When the case was taken to the first appellate authority, the CIT(E) sustained the disputed addition, following which the assessee approached the ITAT.

Before the Tribunal, the assessee argued that the cash deposits came from regular business sales and available cash balances. She submitted that the sales were recorded in the books of accounts and supported by audited financial statements, cash books and monthly VAT returns. She also contended that the tax authorities had not identified any specific defects in these records.

The Tribunal, after examining the submissions and available documents, held that "in the absence of any further enquiry or cogent adverse material brought on record by the Assessing Officer, the conclusion that the sales were bogus would base on mere conjectures and surmises. Such a view cannot be sustained. Considering the totality of the facts and peculiar circumstances of the case, and particularly the fact that the assessee has furnished relevant documentary evidences and the AO failed to verify its correctness. Therefore, in the absence of such enquiry no adverse inference ccould be drawn. "

It was noted by the tribunal that the AO had presumed that the cash sales were bogus and intended to introduce unaccounted money into the business. However, the authorities had not conducted proper enquiries or produced evidence to establish that the sales were not genuine.

Accordingly, the ITAT deleted the impugned addition due to the lack of proper verification and supporting adverse evidence.