Demonetization Cash Deposits Treated as Business Sales, Only 8% Taxable as Income: ITAT Pune

Aurangabad Steel Corporation Vs ITO (ITAT Pune)

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) partly allowed an appeal concerning an addition made on account of unexplained cash deposits during the demonetization period for Assessment Year 2017–18. The appeal arose from an assessment completed under section 143(3) of the Income Tax Act, where an addition of ₹38,57,530 was made towards alleged unexplained cash deposits. The assessee, a partnership firm engaged in the business of scrap, had declared an income of ₹3,25,560 and maintained regular books of account, which were not rejected by the Assessing Officer. The case was selected for scrutiny due to low income reported against TCS receipts from scrap transactions.

The Tribunal noted that the Assessing Officer had accepted the books of account and the regular business activity of the assessee, questioning only the cash sales effected during the demonetization period. It was observed that demonetization was an unprecedented event that created panic and could not be equated with normal business conditions. The assessee’s sales were made from existing stock, quarterly sales were reported under VAT laws, and no material was brought on record to disprove that the cash deposits originated from business cash sales.

However, the Tribunal also recorded that despite multiple opportunities, the assessee failed to appear or furnish complete supporting details before the Tribunal. In the absence of comprehensive evidence, but considering that the source of cash deposits was linked to business activity, the Tribunal held that the deposits could not be treated entirely as unexplained income. Instead, it found it reasonable to estimate income by applying a profit rate of 8% on the alleged cash sales of ₹38,57,530.

Accordingly, the Tribunal restricted the addition to ₹3,08,600, being 8% of the cash sales, and granted partial relief to the assessee. The appeal was thus partly allowed. The order was pronounced on 28 January 2026 by the Income Tax Appellate Tribunal Pune Bench.

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal at the instance of the assessee is directed against the order of Learned Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”], dated 17.06.2025 passed under section 250 of the Income Tax Act, 1961 (“Act”) which is arising out of order u/s. 143(3) of the Act, dated 27.12.2019 for the Assessment Year (AY) 2017-18.

2. When the case called for, none appeared on behalf of the assessee. On the previous two dates of hearing fixed for 25.09.2025 & 27.10.2025 intimated to the assessee through a valid notice, the assessee has neither represented in person nor through authorized representative. I, therefore, proceed to adjudicate the appeal exparte qua assessee with the assistance of Ld. Departmental Representative (DR) and the documents available on record.

3. The assessee has raised seven grounds of appeal, but the sole grievance revolves around the addition for unexplained cash deposit of ₹ 38,57,530 .

4. Departmental Representative (DR), at the outset, supported the order of Ld. CIT(A).

5. I have heard the ld. Departmental Representative and perused the records placed before me. I observe that the assessee is a partnership firm and declared income of ₹3,25,560 in the e-return for A.Y. 2017-18 furnished on 31.10.2017. The return selected for complete scrutiny under CASS for the reason that “low income from TCS receipts-scrap” and is duly assessed under VAT Act and quarterly sales figures have been declared therein. Books of accounts are regularly maintained and that the sales are made out of stock available with the assessee. From the assessment order, I observe that Ld. Assessing Officer (AO) has not rejected the book results and has only questioned the cash sales which took place during the demonetization period. Once the books of accounts have been accepted, it means that the assessee is regularly carrying on business of scrap and proper details are maintained. It is well evident that declaration of demonetization scheme was never known to the public at large and at that point of time panic is inevitable. Such period of panic certainly cannot be equated to the normal period of carrying on business activities. In the instant case since the assessee’s regular business has not been disputed and that the assessee is a partnership firm maintaining proper books of account, which has been accepted by the Ld.AO and necessary details of cash sales have been filed. In absence of any contrary material, I find that the source of cash deposits is from the cash sales of business activity carried out by the assessee. However, since no proper details filed before this Tribunal inspite of providing sufficient opportunities and also other necessary details are not emerging from the available records, therefore, I deem it appropriate to estimate income @8% of the alleged cash sales of ₹38,57,530 and sustain addition at ₹3,08,600 and give part relief to the assessee. Effective grounds of appeal raised by the assessee are partly allowed.

6. In the result, appeal of the Assessee is partly allowed as per the terms indicated above.

Order pronounced in the open Court on 28.01.2026.