Section 69A Addition Deleted Where Cash Deposits Related to Accepted Business Turnover: ITAT Chennai

Veerakumar Traders Vs ITO (ITAT Chennai)

Summary: The Chennai ITAT considered whether cash deposits of Rs.14,83,500 made during the demonetisation period could be separately treated as unexplained money under section 69A when the assessee was an existing partnership firm engaged in trading in puffed rice and the other credits in the same bank accounts had been accepted as business turnover. For AY 2017-18, the assessee had not filed its return within the prescribed time. The Assessing Officer completed a best-judgment assessment under section 144 after the assessee failed to comply with statutory notices issued under section 142(1). Aggregate credits of Rs.52,39,458 were found in two Canara Bank accounts, of which Rs.37,55,958 were treated as business turnover and income was estimated at 8%. The assessee subsequently filed a belated return declaring business income of Rs.4,19,870 under section 44AD. The CIT(A) enhanced the business income to Rs.4,19,870 but sustained the entire Rs.14,83,500 cash deposit addition under section 69A. The Tribunal held that the Revenue had accepted the assessee’s business activity and had treated substantial credits in the very same bank accounts as business receipts. The mere fact that Rs.14,83,500 was deposited during the demonetisation period did not, by itself, alter the character of the receipts or establish an independent unexplained source. The Tribunal found no positive material showing that the disputed deposits came from a source unconnected with the assessee’s business. It further observed that the best-judgment assessment could not be founded merely on conjectures and that the statutory requirements of section 69A nevertheless had to be satisfied. Since the business income of Rs.4,19,870 had already been determined by the CIT(A), the Tribunal held that no separate addition of the gross cash deposits was warranted. The CIT(A)’s finding sustaining the Rs.14,83,500 addition was therefore set aside and the Assessing Officer was directed to delete the addition. The business income of Rs.4,19,870 was left undisturbed and the assessee’s appeal was allowed.