Sita Ram Rastogi Vs ITO (ITAT Lucknow)
The Lucknow Bench of the Income Tax Appellate Tribunal allowed the appeal filed by Sita Ram Rastogi and deleted an addition of Rs.19,10,000/- made under Section 68 of the Income-tax Act, 1961, in respect of cash deposited during the demonetisation period. The Tribunal also deleted ad-hoc disallowances of Rs.15,688/- towards shop-maintenance expenses and Rs.5,693/- towards vehicle-maintenance expenses.
The assessee was an individual carrying on the business of purchase and sale of gold jewellery and silver ornaments under the name M/s Shyam Jewellers. For Assessment Year 2017-18, he filed his return declaring total income of Rs.12,16,680/-. During the assessment proceedings, the assessee explained cash deposits made in his ICICI Bank account during the demonetisation period. The deposits were Rs.9,90,000/- on 17 November 2016, Rs.20,00,000/- on 18 November 2016 and Rs.19,10,000/- on 23 November 2016, aggregating to Rs.49,00,000/-.
The assessee maintained audited books of account and produced before the Assessing Officer extensive supporting material, including the cash book, daily sale register, sale and purchase ledgers, stock register, purchase bills, sale invoices, bank statement, VAT returns, month-wise cash-sale and cash-deposit details, cash summary and comparative gross-profit and net-profit rates. He explained that the cash deposited represented cash-in-hand arising from the sale proceeds of gold jewellery and silver items, together with the cash balance reflected in the books.
The Assessing Officer accepted the first two deposits of Rs.9,90,000/- and Rs.20,00,000/-. However, he treated the third deposit of Rs.19,10,000/- as unexplained under Section 68 of the Income-tax Act, 1961. The basis adopted was that the third deposit had been made five days after the second deposit and, according to the Assessing Officer, the amount could have represented old specified bank notes generated during the demonetisation period and illegally accepted by the assessee.
The Tribunal rejected this approach. It found that the assessee had explained the nature and source of the cash and had supported the explanation with contemporaneous business records. The books of account had been produced and examined. No defect had been identified in the books, purchases, sales or stock. The sales were recorded in the books and were also disclosed in the VAT returns. The Assessing Officer had accepted the trading results, including the gross-profit and net-profit figures, as well as the audited books maintained under Section 44AB.
The Tribunal noted that the assessee had established the sales through bills and that the corresponding stock position had not been doubted. The cash balance and sales were found to be matching with the books of account. Since the cash represented revenue receipts from recorded sales and those receipts had already been offered to tax, the Tribunal held that there was no justification for treating the same amount as unexplained cash credit under Section 68.
The Tribunal also rejected the Revenue’s contention that the entire cash should necessarily have been deposited on a single day. The mere fact that the deposits were made on different dates did not establish that the final deposit represented undisclosed income. There was no evidence brought on record by the Assessing Officer demonstrating that the Rs.19,10,000/- represented undisclosed old specified bank notes or that the recorded sales were fictitious.
In reaching its conclusion, the Tribunal relied upon ACIT Vs M/s Hirapanna Jewellers, where a similar addition concerning cash deposits made during demonetisation was deleted after the assessee established that the deposits represented recorded jewellery sales, supported by sale bills and corresponding stock. ACIT Vs M/s Hirapanna Jewellers
The Tribunal also considered CIT Vs Associated Transport (P.) Ltd., concerning cash balances reflected in accepted books, and Lakshmi Rice Mills Vs CIT, concerning high-denomination notes where the books were accepted as genuine and the cash balance was sufficient to explain the amount. TaxGuru’s reported material records the principle from Lakshmi Rice Mills that where the books are accepted and the cash balance is sufficient, there is no requirement to establish a separate source for the particular high-denomination notes. Lakshmi Rice Mills Vs CIT
The Tribunal further relied upon the Supreme Court decision in Lalchand Bhagat Ambica Ram Vs CIT, which is relevant to the evidentiary requirement that an assessment cannot rest merely upon suspicion, conjecture or surmise. TaxGuru’s publication records the Supreme Court’s rejection of conclusions founded on probabilities and conjectures unsupported by evidence. Lalchand Bhagat Ambica Ram Vs CIT
Applying these principles, the Tribunal held that the assessee had established the source of the Rs.19,10,000/- as opening cash-in-hand and cash received from recorded sales. Since those sales constituted revenue receipts which had already been offered to tax, the addition under Section 68 was held to be unsustainable. The Tribunal specifically observed that the Assessing Officer had made the addition on the basis of pure guesswork, without bringing contrary evidence on record.
The Tribunal thereafter considered the disallowances of Rs.15,688/- relating to shop-maintenance expenses and Rs.5,693/- relating to vehicle-maintenance expenses. The Assessing Officer had disallowed 15% of the respective expenditure. The Tribunal found that neither the Assessing Officer nor the CIT(A) had identified any particular voucher showing that the expenditure was not genuine or was not incurred wholly and exclusively for business purposes. There was also no finding that any expenditure was bogus or fictitious.
The Tribunal held that there was no rational basis for selecting 15% as the disallowance percentage. In the absence of specific defects or contrary material, the ad-hoc disallowances could not be sustained.
Accordingly, the Tribunal allowed the appeal of the assessee, deleted the Rs.19,10,000/- addition made under Section 68 and also deleted the two ad-hoc expenditure disallowances.
The decision reiterates that where demonetisation-period cash deposits are demonstrably connected with recorded business receipts, supported by books, sale bills, stock records and statutory returns, and the Revenue does not identify defects in those records or produce contrary evidence, the mere timing or manner of depositing the cash cannot by itself justify an addition under Section 68. It also reinforces that an assessment cannot be sustained merely on suspicion or an arbitrary percentage-based disallowance unsupported by specific evidence.
