Cash Deposits During Demonetisation Accepted as Genuine – ITAT Deletes Section 68 & 14A Additions

ACIT Vs Mahendra Educational Pvt. Ltd. (ITAT Lucknow)

Assessee, running 140 coaching centres across India, declared income of ₹9.60 crore. AO completed assessment u/s 143(3) at ₹11.47 crore by making two additions:

 ₹1,84,67,187/- u/s 68 – Cash deposits during demonetisation period

AO treated increased cash deposits as unexplained cash credits and alleged abnormal jump in sales.

CIT(A) deleted the addition, and the Tribunal confirmed the deletion because:

• Books of account were audited and accepted; no defects found.
• Cash receipts are normal in this line of business (coaching fees).
• Historical cash-to-receipt ratios: 81.41%, 92.13%, 50.25%, 73.19% – showing fluctuations are common.
• Increase in cash receipts explained by discontinuation of online payments & removal of discounts.
• No transaction was found bogus or false.
• The same amount was already recorded in P&L – AO’s addition caused double taxation.
• Addition was based only on suspicion and surmise, not evidence.

₹2,95,000/- disallowance u/s 14A r.w. Rule 8D

The AO made disallowance despite no exempt income during the year.

The Tribunal upheld CIT(A)’s deletion because:

• No fresh investment was made that could yield exempt income.
• Even existing investments generated no exempt income in AY 2017-18.
• As per binding precedents (Cheminvest 378 ITR 33 (Del.), Shivam Motors (All HC), GVK Projects (Del HC)), Section 14A cannot apply if no exempt income is earned.
• The Explanation to Section 14A inserted by Finance Act 2022 is prospective (Delhi HC in Era Infrastructure, Gauhati HC, Calcutta HC), thus not applicable to AY 2017-18.

FULL TEXT OF THE ORDER OF ITAT LUCKNOW