No Section 68 Addition When Demonetization Cash Deposits Explained by Books: Allahabad HC

PCIT Vs Medharaj Techno Concept Pvt. Ltd. (Allahabad High Court)

The Allahabad High Court dealt with an appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT), Lucknow for Assessment Year 2017–18. The central issue before the Court was whether the Tribunal had correctly appreciated the evidence relating to cash deposits made by the assessee during the demonetisation period and whether deletion of addition under Section 68 was justified.

The Revenue raised multiple substantial questions of law, including whether the Tribunal erred in deleting the addition merely on the basis of cash balance reflected in books without verifying its genuineness and credibility; whether addition under Section 68 could be made independently of rejection of books of account; whether abnormal cash deposits during demonetisation required application of tests such as human probabilities and surrounding circumstances; and whether the Tribunal misapplied the distinction between suspicion and proof.

Upon examination, the High Court noted that the Tribunal had thoroughly considered the evidences placed on record by the assessee. It recorded that the books of account were duly audited and that the Assessing Officer had not pointed out any defects in those books. The Tribunal found that the Assessing Officer had disregarded voluminous evidence submitted by the assessee and had rejected the explanation without bringing any contrary material on record. It further held that the Assessing Officer’s conclusions were based on presumption and preponderance of probability rather than concrete evidence.