Summary : The ITAT Bangalore in Sri Soger Malleshappa Manjunath Kanasoger v. ITO, deleted an addition of ₹29,27,000 made under Section 68 in respect of cash deposits during the demonetisation period, holding that the deposits were fully explained through recorded cash sales reflected in the assessee’s regular books of account. The assessee, engaged in trading of agricultural and borewell equipment, maintained audited books including cash book, stock register, VAT returns, invoices, and vouchers. The Assessing Officer treated the deposits as unexplained cash credits on the ground that specified bank notes were accepted after 08.11.2016, allegedly contrary to RBI guidelines. The Tribunal observed that both lower authorities had accepted that the deposits originated from genuine sales and that the only objection related to acceptance of demonetised currency. It held that for Section 68, the crucial requirement is establishing the nature and source of credits, which stood satisfactorily explained. Since the sales were already included in turnover and taxed, any further addition under Section 68 would amount to impermissible double taxation.
Core Issue
The issue before the Tribunal was whether cash deposits aggregating to ₹29,27,000 made during the demonetisation period could be assessed under section 68 when the assessee established that the deposits represented cash sales recorded in regular books of account, and the only objection of the Revenue was that specified bank notes were accepted after 08.11.2016.
Facts of the Case
The assessee, Sri Soger Malleshappa Manjunath Kanasoger, was proprietor of M/s Kalleshwara Enterprises and engaged in trading of borewell pipes, GI pipes, collars, bore caps, and agricultural equipment.
For Assessment Year 2017-18, the assessee maintained day-to-day books of account, including cash book, ledger, stock register, VAT returns, sales bills, and vouchers. The books were duly audited.
During demonetisation, the assessee deposited ₹45,81,500 in specified bank notes. Since the cash balance as on 08.11.2016 was ₹16,54,500, the Assessing Officer treated the difference of ₹29,27,000 as unexplained cash credit under section 68, on the ground that the assessee was not authorized to accept specified bank notes after 08.11.2016.
The assessee explained that the deposits represented cash sales made during the demonetisation period and furnished complete supporting documents, including cash book, VAT returns, stock register, sales invoices, bank deposit slips, and audited financial statements.
The CIT(A) upheld the addition solely because acceptance of specified bank notes after 08.11.2016 was allegedly contrary to RBI guidelines.
ITAT Bangalore Findings
The Tribunal deleted the addition.
It observed that both the Assessing Officer and the CIT(A) had effectively accepted that the deposits were generated from cash sales made during the demonetisation period. The sole reason for rejecting the explanation was that specified bank notes were accepted in alleged contravention of RBI instructions.
The Tribunal held that for purposes of section 68, the relevant inquiry is limited to the nature and source of the credit. Once the assessee established that the deposits arose from recorded sales supported by audited books and documentary evidence, the statutory requirement stood satisfied.
The Tribunal emphasized that whether acceptance of specified bank notes violated RBI guidelines was a separate issue and had no bearing on the applicability of section 68.
It further noted that the banks accepted the deposits and credited the amounts to the assessee’s account. Since the corresponding sales were already included in turnover and offered to tax, taxing the same amount again under section 68 would amount to impermissible double taxation.
Accordingly, the Tribunal held that invocation of section 68 was wholly unsustainable and directed deletion of the addition of ₹29,27,000.
Conclusion
Where cash deposits during demonetisation are fully explained as cash sales recorded in audited books and supported by contemporaneous records such as cash book, stock register, VAT returns, and invoices, they cannot be assessed as unexplained cash credits under section 68 merely because specified bank notes were accepted after 08.11.2016. Once sales are already disclosed as turnover, any further addition under section 68 would amount to double taxation.
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