Vinayaga Fireworks Vs DCIT (ITAT Chennai)
In this case, the assessee, a fireworks manufacturer, faced addition of ₹2.79 crore u/s 68 for cash deposits made during the demonetisation period, which was confirmed by the CIT(A).
The assessee contended that the deposits were genuine business receipts, being cash sales during peak festival season (Dasara & Deepavali), duly recorded in audited books of account. Detailed customer lists, PAN details (where available), cash book, and turnover comparisons were furnished.
The ITAT observed that:
- The books of account were not rejected u/s 145(3),
- The AO had not disputed the sales, nor found them to be bogus or inflated,
- The cash deposits were already recorded in books, and hence section 68 cannot be invoked mechanically.
The Tribunal emphasized that:
- Once sales are accepted, corresponding cash receipts cannot be treated as unexplained,
- No abnormal increase in turnover was found (in fact, turnover showed a declining trend),
- The AO failed to follow CBDT SOP (2019) requiring comparative and analytical verification,
- No evidence of fictitious sales, stock discrepancies, or backdated entries was brought on record.
Further, the ITAT clarified that:
- Demonetisation by itself cannot justify addition,
- Even if there is a violation of SBN notification, taxability under Income-tax depends on source explanation,
- Suspicion, however strong, cannot replace evidence.
Accordingly, the Tribunal held that the assessee had discharged the burden of proof, and in absence of contrary evidence, the addition of ₹2.79 crore u/s 68 was unsustainable and deleted.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the assessee is filed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2017-18, dated 07.07.2025.
