JBA Metal Company Vs ACIT (ITAT Chennai)
Chennai ITAT: Cash Deposits During Demonetisation Cannot Be Taxed Under Section 68 Merely on Suspicion; Refund of Business Advances Accepted
The Chennai ITAT held that cash deposits made in Specified Bank Notes (SBNs) during the demonetisation period cannot be treated as unexplained cash credits under section 68 merely because they were deposited after 8 November 2016, where the assessee furnishes a credible explanation supported by regularly maintained books of account. The assessee, engaged in the manufacture of MS billets, MS ingots and TMT rods, explained that the cash deposited represented refunds of business advances received from 57 purchase agents to whom advances had earlier been given for procuring metal scrap. The assessee produced its cash book, ledger accounts, bank statements, audited financial statements, tax audit report and a detailed list of the purchase agents. The Assessing Officer, however, rejected the explanation without making any independent enquiry and taxed ₹61.19 lakh under section 68 read with section 115BBE.
The Tribunal observed that the books of account had never been rejected under section 145, and the Assessing Officer himself had accepted the opening cash balance reflected in the same cash book. Having accepted the books to that extent, the Assessing Officer could not selectively reject only the entries relating to the refunds from purchase agents without identifying any specific defect or conducting verification. Significantly, no notice was issued to any of the 57 agents, nor was any material brought on record to establish that either the advances or the subsequent refunds were fictitious. The Tribunal reiterated that mere suspicion or disbelief cannot substitute evidence, and once the assessee furnishes a plausible explanation supported by contemporaneous records, the burden shifts to the Revenue to disprove it.
The Tribunal also found that there was no abnormal spike in cash deposits during the demonetisation period. In fact, despite an increase in turnover from ₹43.96 crore to ₹61.78 crore, the assessee’s cash deposits during the relevant financial year were substantially lower than those in the preceding year, demolishing the Revenue’s allegation that the deposits were unusual. Further, relying on the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 and its earlier decision in TASMAC, the Tribunal held that there was no statutory prohibition on voluntarily receiving or transferring SBNs in genuine commercial transactions prior to 31 December 2016, notwithstanding that the notes had ceased to be legal tender from 8 November 2016.
Holding that the essential conditions for invoking section 68 were absent, the Tribunal concluded that the cash deposits stood fully explained as refunds of business advances received in the ordinary course of business, duly recorded in the books and unsupported by any contrary evidence from the Revenue. The addition having been made purely on suspicion and surmises, the Tribunal deleted the entire addition of ₹61.19 lakh made under section 68 read with section 115BBE and allowed the assessee’s appeal.
Cases Discussed:
- JBA Metal Company Vs ACIT (ITAT Chennai) (Order pronounced on 13th July, 2026).
- Tamil Nadu State Marketing Corporation Limited (TASMAC), ITA No. 431/Chny/2023, dated 07.10.2024.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
The present appeal has been preferred by the Assessee against the order dated 29.07.2025 passed by the Learned Commissioner of Income Tax (Appeals)-1, Nashik [hereinafter referred to as “the Ld. CIT(A)”], arising from the assessment order dated 26.12.2019 passed by the Assistant Commissioner of Income-tax, Circle-1, Vellore [hereinafter referred to as “the AO”], u/s.143(3)of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the Assessment Year 2017-18.
