MYSORE DIAGNOSTIC CENTER PRIVATE LIMITED,MYSURU vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1) & TPS, MYSORE, MYSORE

The assessee is aggrieved by the confirmation of an addition of ₹13,36,573 made by the Assessing Officer in respect of cash deposits in specified bank notes.

Briefly stated, the assessee filed its return of income for Assessment Year 2017-18 on 28 October 2017, declaring total income of ₹29,66,180. The assessee is engaged in the business of running a diagnostic center and earned income from that business

During the assessment proceedings, the Assessing Officer noted that the assessee had accepted specified banknotes. A notice under section 133(6) was issued, requiring the assessee to furnish audited financial statements and a note on its business activities. The assessee submitted the required details. On verification, the Assessing Officer found cash deposits aggregating to ₹48,95,500, of which ₹21,67,061 represented deposits in new currency notes. The assessee was asked to explain the source of the deposits. After considering the explanation and cash balances disclosed by the assessee, the Assessing Officer treated ₹13,36,573 as unexplained excess cash deposits and made an addition under section 69A of the Act while passing the assessment order dated 21 December 2019.

Before the Commissioner of Income Tax (Appeals), the assessee contended that it had produced its cash book, audited accounts, and details of receipts before the Assessing Officer. It was therefore concluded that the addition was unjustified.

The Commissioner of Income Tax (Appeals) considered the assessee’s explanation but held that the assessee was not permitted to accept specified bank notes during the relevant period, as those notes had ceased to be legal tender. Accordingly, the Commissioner upheld the addition of ₹13,36,573 made by the Assessing Officer and dismissed the assessee’s appeal.

Aggrieved by the appellate order, the assessee preferred the present appeal. The assessee’s principal submission is that the cash deposits arose in the regular course of its diagnostic business and were supported by the cash book, audit report, and other records produced before the Assessing Officer. It was therefore argued that the addition confirmed by the Commissioner of Income Tax (Appeals) is not sustainable.

The learned Departmental Representative strongly supported the orders of the lower authorities and submitted that the assessee was not eligible to collect specified banknotes. The acceptance of such notes, according to the Department, was contrary to the instructions of the Reserve Bank of India.

We have carefully considered the rival submissions and perused the orders of the lower authorities. The addition has been made solely on the ground that the assessee

The judicial precedents relied upon by the assessee also support the view that where cash sales or receipts are duly recorded in the books of account and no defect is found in those books, addition on account of such deposits is not warranted. Accordingly, the action of the lower authorities in confirming the addition is unsustainable.

The decisions relied upon by the lower authorities are distinguishable, as they involved cases where the assessmentsfailed to explain the nature and source of the receipts to the satisfaction of theAssessing Officer. That is not the position in the present case. None of the receipts has been shown to be bogus or artificially recorded to generate cash in the books of account. Nor has it been shown that the assessee failed to disclose these receipts as income in its income and expenditure account or profit and loss account.

Accordingly, the appeal of the assessee is allowed.