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Facts
The assessee, a wholesale pharmaceutical distributor, filed its return of income declaring Rs. 60,75,230. The case was selected for scrutiny due to large cash deposits during demonetisation. The assessee deposited Rs. 41,53,000 in demonetised currency notes on November 10, 2016.
Held
The Tribunal noted that the assessee's cash deposit percentage to sales remained consistent before and after demonetisation, indicating stable cash handling practices. The AO's addition under Section 68 was found to be unjustifiable, especially considering the business context and the lack of defects in the maintained cash books.
Key Issues
Whether the addition made by the AO under Section 68 of the Income Tax Act, 1961, on account of cash deposits during demonetisation is justified, considering the assessee's business practices and historical cash deposit patterns.
Sections Cited
143(3), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. SOUNDARARAJAN K
ORDER Per Laxmi Prasad Sahu, Accountant Member :
This appeal filed by the assesse is against the order of Addl/JCIT(A)-1, Surat, vide DIN and Order NoITBA/APL/S/250/2024-25/1065310269(1),Order dated 31.05.2024.
Briefly stated, the facts of the case are that the assesse firm is engaged in wholesale pharmaceutical business. It had filed its return of income on 30.10.2017 declaring total income of Rs.60,75,230/-. This case was selected for scrutiny under CASS for complete scrutiny. The reason for selection of case for scrutiny is “Large Value Cash deposited during demonetisation”. Accordingly, a notices were issued to the assessee and assessee submitted reply which is as under:
“We are wholesale pharmaceutical distributors in Davangere covering most part of Karnataka. We are a partnership firm consisting of two partners. We have gross profit of Rs.3,84,17,185 on sales of Rs.55,54,38,934/- which works out to 6.92% as compared to 6.83% in earlier year. There is increase in Sales by Rs.9,05,34,955/- during the year which works out to 19.47% as compared to earlier year. We are enclosing herewith CASH DEPOSIT VERIFICATION CHECK LIST as per the format provided to us. An analysis shows that there is substantial increase in cash collections before demonetisation by 22.57% as compared to same period in financial year 2015-16.There is increase in cash deposit into bank by 22.02% before demonetisation as compared to earlier year. The above are comparable to the increase sales during the year by 19.47% as explained above. There is decrease in cash deposit into bank by 33.84% as compared to earlier year during the period 09/11/2016 to 31/12/2016 i.e Rs.5,56,12,210/- in FY 2015-16 as compared to Rs.3,84,63,380/- in FY 2016 17 resulting in decrease in deposit into bank by Rs.1,71,48,830. We have not accepted any demonetised notes from 09/11/2016, hence our collections from sales fell substantially by 30.84%.”
Assessment Order under section 143(3) of the Act para 4.1 large cash deposit.
From the details submitted by the assessee, it was observed that on 10.11.2016, assessee deposited cash 15 pieces of 1000 demonetised currency notes and total 8276 pieces of 500 demonitized currency notes totalling to Rs.41,53,000/-. Which is as under:- Sl.No. Bank Customer Date of Denominations Amount of relationship demonetised transaction No. cash deposit 01. Kotak 34219052 10-11-2016 1000x15 15000.00 Mahindra Bank 500x8276 4138000.00 Total demonetised cash deposit : 4153000.00 Page 3 of 6 4. After considering the detailed written submissions, the AO added under section 68 of the Act to the tune of Rs.8,40,735/- against which assessee filed appeal before the CIT(A). The learned CIT(A) also dismissed appeal of the assesse.
Aggrieved from the Order of the learned CIT(A), assessee filed appeal before the Tribunal.
6. None was present on behalf of the assessee. Assessee has filed written submissions along with appeal set which is as under:
Summary of Analysis: Cash Deposit and Sales Analysis: FY 2015-16:
Pre-Demonetisation Period (1.4.15 to 8.11.15): Cash Deposited: 219,88,32,160 Sales: 229,11,90,023 Cash Deposit % to Sales: 68.28%
Post-Demonetisation Period (9.11.15 to 30.12.15):
Cash Deposited: 25,43,37,297 Sales: 27,94,78,893 Cash Deposit % to Sales: 68.37%
Key Insight: The cash deposit percentage to sales remained consistent before and after demonetisation (68.28% vs. 68.37%), showing stable cash handling practices.
FY 2015-16
Cash Deposited - fr 1,4.15 to 8.11.15 19,88,32,160 Cash Deposited - fr 9.11.15 to 30.12.15 5,43,37,297
29,11.90,023 Sales-fr 1.4.15 to 8.11.15 7,94,78,893 Sales - fr 9.11.15 to 30.1215
68.28% Cash Deposit % to Sales - fr 1,4.15 to 8.11.15 68.37% Cash Deposit G to Sates - fr 9,11.15 to 30.12.15
FY 2016-17: Pre-Demonetisation Period (1.4.16 to 8.11.16): Cash Deposited: 24,26.10,900 Sales: 36,78,07,516 Cash Deposit % to Sales: 65.96% 0 Post-Demonetisation Period (9.11.16 to 30.12.16): Cash Deposited: 3,73,94,564 Sales: 8,41,83,933 Cash Deposit % to Sales: 44.42% Key Insight: There is a significant reduction in the cash deposit percentage during the demonetisation period (44.42%), indicating that cash deposits were well within limits, rather than inflated.
The detailed written submissions along with Form 36 was filed which is considered for deciding this case.
Page 5 of 6 7. On the other hand, learned DR relied on the Order of the lower authorities and submitted that the very purpose for selection of this case for scrutiny is huge deposit of cash during demonetization period. Both the lower authorities have considered the written submissions filed by the assessee before them and observed that the addition made under 68 of the Act is correct.
Considering the submissions of the learned DR and material available in the appeal set, we noted that the turnover reported from 01.04.2016 to 30.12.2016 is Rs.45,19,91,449/- and the cash deposit during the demonetization period from 09.11.2016 to 30.12.2016 is Rs.3,73,94,564/-. Assessee is in the wholesale business in pharmaceuticals sector and central government had allowed to transact in the demonetized currency to the pharmaceutical sectors during the demonitized period but the assessee does not fall under this category since the assessee is in wholesale business and total disallowance made by the AO is only Rs.8,40,740/- which is 2.25% of the total cash deposits made during the demonetization period where as the total cash deposit for the period is 09.11.2016 to 30.12.2016 is Rs.3,73,94,564/- and the turnover of the assessee is also more than Rs.45 Crores from 01.04.2016 to 31.12.2016. Its business is spread in the state of Karnataka and its collection agents are not able to send money on the same day at the head office of the assessee. Considering the total quantum and the nature of the business practice adopted by the assessee, we are allowing the grounds raised by the assesse. During the course of assessment proceedings, assesse had filed cash book in soft copy to the AO and there is no defect pointed out in the cash books maintained by the assessee as per the Assessment Order. The AO has calculated the difference only the cash deposits in old currency notes and closing cash on hand on 08.11.2016 which is not justifiable.
Pronounced in the court on the date mentioned on the caption page.