G.Ramesh Vs ITO (ITAT Chennai)
Chennai ITAT Deletes Demonetisation Addition; Cash Deposits Matching Audited Sales and VAT Returns Cannot Be Treated as Unexplained
The Chennai ITAT held that cash deposits made during the demonetisation period cannot be treated as unexplained under section 69A where they are duly supported by audited books of account, regular business sales and VAT returns. The Tribunal noted that although the CIT(A) had restricted the addition to ₹33.66 lakh, representing deposits in Specified Bank Notes (SBNs), he failed to consider the assessee’s specific evidence showing that the cash deposits were out of regular business sales. The assessee had produced audited books of account, details of purchases and sales for the period from 01.04.2016 to 31.12.2016, and demonstrated that the figures matched the VAT returns filed with the Sales Tax authorities. The Tribunal observed that the CIT(A) himself had accepted that the entire cash sales proceeds could not be brought to tax, yet overlooked the crucial evidence correlating the impugned cash deposits with recorded sales. Holding that the matching VAT returns and business records had not been properly examined, the Tribunal found the appellate order unsustainable, set aside the addition of ₹33.66 lakh, and allowed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order dated 25.09.2020 passed by the ld. Commissioner of Income Tax (Appeals)-1, Trichy for the assessment year 2017-18.
2. The assessee raised Ground Nos. 2 to 8, amongst which the only issue emanating for consideration is as to whether the ld. CIT(A) is justified in confirming the addition made by the AO on account of cash deposits during the demonetization period, ignoring the explanation that it was out of the sale proceeds of the business, in the facts and circumstances of the case. We note that, according to the AO, no return of income was filed for the period under consideration and even for the earlier assessment years 2015-16 and 2016-17, which were filed belatedly. Further, according to the AO, addition was made on account of unexplained money under section 69A of the Income-tax Act, 1961 (for short, “the Act”) vide order dated 27.11.2019 passed under section 144 of the Act. The assessee challenged the same before the ld. CIT(A), and based on the remand report, the ld. CIT(A) confirmed the addition to the extent of ₹33,66,000 by holding that the same was not adequately explained.
3. Ld. AR, Mr. M.K. Rangasamy, C.A., submits that the ld. CIT(A) arbitrarily held the said amount of ₹33,66,000 as unexplained, ignoring the conclusion drawn by the AO in the remand report. Further, he argued that there is a specific mistake in the remand report with reference to the said amount and that the ld. CIT(A) completely missed the basic fact that the cash deposits into the bank account were directly from regular daily business sales. The ld. AR vehemently argued that the assessee has properly maintained books of account, which were duly audited, clearly showing a sales turnover matching the cash deposits. He submits that the cash deposits were out of cash sales made in the normal course of business. The assessee drew our attention to the paper book and argued that the cash deposits were out of sales made during the business activity of the assessee.
4. Ld. DR, Mr. L. Christopher Vasanth, JCIT, relied on the order of the ld. CIT(A).
5. We note that the ld. CIT(A) admittedly held that the AO was incorrect in bringing to tax the entire cash sales proceeds and, however, directed the AO to add only ₹33,66,000 deposited in specified bank notes (SBN). Accordingly, the AO has given effect to the direction of the ld. CIT(A), which is also on record vide order dated 10.11.2022. The only case before us is that the details of purchases and sales for the period 01.04.2016 to 31.12.2016 were placed on record, wherein they match with the VAT returns filed with the Sales Tax authorities. Admittedly, the said issue was not considered by the ld. CIT(A) in respect of admission of sales in the VAT returns. Therefore, the order of the ld. CIT(A) is not justified and is set aside. Thus, the grounds 2 to 8 raised by the assessee are allowed.
6. In the result, the appeal of the assessee is allowed.
Order pronounced on 21stJuly, 2026 at Chennai.
