VR DAIRY PVT. LTD.,CHENNAI vs. ITO, CORPORATE WARD-3(3), CHENNAI

The ld.AR for the assessee assailing the action of the ld.CIT(A) submitted that the assessee maintains regular books of account, which are Audited under the provisions of the Companies Act, 2013 and subject to tax audit u/s.44AB of the Act. The audited financial statements for the relevant assessment year were prepared in accordance with Sections 129, 134, and 137 of the Companies Act, 2013 and filed with the Registrar of Companies (ROC) within the prescribed statutory timelines which form part of the public record, accessible to all regulatory authorities, including the Income-tax Department.

Further, the annual accounts were duly adopted in the AGM and filed with the ROC u/s.129(3) and 137 of the Companies Act, while the annual return was filed u/s.92 read with Rule 11 of the Companies (Management and Administration) Rules, 2014. Importantly, these filings pre-date the assessment proceedings and therefore cannot be treated as an afterthought or a self-serving explanation

It is also submitted that pursuant to G.O. Notification No. G.S.R. 308(E) issued during demonetisation, companies were mandatorily required to disclose the amount of Specified Bank Notes (SBNs) held as on 08.11.2016, details of SBNs deposited or exchanged and the manner of utilisation. The assessee has fully complied with the said notification, and the disclosure of SBNs forms part of the audited financial statements and notes to accounts. Once such statutory disclosure has been made in audited accounts filed with the ROC, the same carries a presumption of correctness, unless disproved by cogent material.

The ld.AR contended that Section 69 of the Act is a deeming provision which can be invoked only when the statutory conditions prescribed therein are cumulatively satisfied, namely that the assessee has made investments which are not recorded in the books of account, if any, maintained by the :-4-: ITA NO: 2488/Chny/2025 assessee for the relevant previous year, and that the assessee offers no explanation about the nature and source of such investments, or the explanation offered is not found to be satisfactory. The provision applies only to unrecorded investments and does not extend to monies or receipts which are duly accounted for in the regular books of account, the provisions of section 69A cannot be mechanically or routinely invoked. In the present case, the assessee has maintained regular and contemporaneous books of account, and the cash deposited during the demonetisation period is duly and transparently recorded in the cash book maintained in the ordinary course of business. The assessee has also clearly explained the source of such cash as arising from business receipts generated from the procurement and distribution of milk, an activity which is inherently cash-intensive and fully consistent with the nature and scale of the assessee’s business. Further, the corresponding cash balance stands reflected in the audited balance sheet, which forms part of the statutory financial statements.

The ld.AR argued that the mere timing of the cash deposits during the demonetisation period does not, by itself, alter the intrinsic character or source of the receipts. Demonetisation was a monetary policy measure and did not create a legal presumption that cash held or deposited during the relevant period was per se unexplained. Lawful business receipts do not lose their legitimacy solely on account of being deposited during the demonetisation window, particularly when such deposits were made in compliance with Government notifications and regulatory mandates, which encouraged the deposit of SBNs into banking channels.

The ld.AR further submitted that the cash deposits made was: a) emanated from pre-existing cash balances and day-to-day business collections generated from the Appellant’s regular activity of milk procurement and distribution, which is inherently cash-driven in nature;

Thus, ld.AR argued that the deposits represent nothing but conversion of recorded cash-in-hand into bank balances, without any generation of new or undisclosed income.

Further, the ld.AR contended that the Assessing Officer has neither rejected the books of account u/s.145 of the Act nor pointed out any specific discrepancy, inflation, suppression, manipulation, or inconsistency in the cash book, ledger accounts, or audited financial statements. The books of account have therefore been accepted by implication. In the absence of rejection of books or adverse findings based on tangible and credible material, the AO lacks the jurisdictional foundation to disregard the recorded business receipts and invoke section 69. Consequently, the addition made thereunder is unsustainable in law, being based on conjecture rather than statutory conditions precedent.

In view of these undisputed facts, the ld.AR contended that the basic jurisdictional requirement for invoking section 69 namely, that the money in question is not recorded in the books of account fails outright, rendering the invocation of section 69 wholly unsustainable in law.

The ld.AR further argued that it is a settled and well-entrenched position of law that where cash receipts emanate from regular and disclosed business activity, and such receipts are duly recorded in the books of account

The ld.AR submitted that Section 69 of the Act is a deeming provision which can be invoked only when the statutory conditions prescribed therein are cumulatively satisfied, namely that the assessee has made investments which are not recorded in the books of account, if any, maintained by the assessee for the relevant previous year, and that the assessee offers no explanation about the nature and source of such investments, or the explanation offered is not found to be satisfactory. The provision applies only to unrecorded investments and does not extend to monies or receipts which are duly accounted for in the regular books of account, the provisions of section 69A cannot be mechanically or routinely invoked.

Therefore, the ld.AR stated that the assessee is carrying on a regular, identifiable and continuous business of procurement and distribution of cow milk, a trade which is inherently cash-oriented, involving daily collections from customers and distributors. The cash deposits made during the demonetisation period represent normal business receipts, accumulated out of: • opening cash-in-hand available as per books; and • daily cash collections generated in the ordinary course of business.

In view of the above arguments the ld.AR prayed that the addition made u/s.69 of the Act be held to be without jurisdiction, contrary to law, and unsustainable on facts, and accordingly be deleted in full. Per contra, the ld. DR supported the orders of the Assessing Officer and the ld.CIT(A) and submitted that the assessee had failed to substantiate the source of cash deposits to the satisfaction of the Assessing Officer and therefore the addition was rightly made and confirmed.

We have heard the rival submissions and carefully perused the material available on record. Upon consideration of the facts and circumstances of the case, certain foundational aspects remain undisputed. Firstly, the assessee maintains regular books of account in the ordinary course of its business. Secondly, such books are duly audited in accordance with the statutory requirements. Thirdly, the impugned cash deposits stand recorded in the cash book maintained by the assessee. Fourthly, the Assessing Officer has not invoked the provisions of Section 145 of the Act, so as to reject the books of account. Lastly, no independent or incriminating material has been brought on record by the Revenue to demonstrate that the deposits represent unaccounted income of the assessee.

We note that section 69 of the Act is a deeming provision and, being in the nature of a legal fiction, must be strictly construed. The provision is attracted only when the following cumulative conditions are satisfied: (i) the assessee has made investments; (ii) such investments are not recorded in the books of account, if any, maintained by the assessee for the relevant previous year; and (iii) the assessee either offers no explanation regarding the nature and source of such investments or the explanation offered is found to be :-8-: ITA NO: 2488/Chny/2025 unsatisfactory. Thus, non-recording of the investment in the books of account is a sine qua non for invoking Section 69.

In the present case, it is not in dispute that the impugned cash deposits are duly recorded in the regularly maintained cash book of the assessee. Once the transactions are admittedly recorded in the books of account, the very jurisdictional foundation for invoking Section 69 collapses. A deeming provision cannot be extended to transactions that are already accounted for in the books maintained in the normal course of business.

The mere fact that the deposits were made during the demonetisation period, in our considered view, cannot by itself justify an adverse inference in the absence of any material to show that the cash so deposited was unaccounted or represented undisclosed income. Suspicion, howsoever strong, cannot take the place of proof.

The Tribunals have consistently taken the view in matters concerning cash deposits during the demonetisation period that where such deposits are traceable to regular books of account, the books have not been rejected, and the nature of business is cash-oriented, additions u/s.69 or 69A cannot be sustained merely on suspicion or on the basis of the timing of deposits.

The Tribunal under the identical set of facts deleted the additions made by the Assessing Officer in the case of Shri Raju Dinesh Kumar vs DCIT, dated 19.01.2024, after considering this Tribunal’s following decisions in M/s.Micky Fireworks Industries Vs. ACIT – dated 26/07/2023, Mrs.Umamaheshwari Vs. ITO - dated 14/10/2022, Amar Sparklers Factory vs ITO - dated 11/10/2023, held as under: “9. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts borne out from the record clearly indicate that the assessee is running a dhall mill and :-9-: ITA NO: 2488/Chny/2025

It could also be seen that during the course of assessment proceedings, various notices were issued u/s 142(1) from time to time calling numerous details from the assessee. The assessee was required to file numerous details including monthly cash flow statement, inventory of closing stock, copy of sales tax assessment order, monthly cash deposits and credits for various periods, ledger account for purchase and other expenditure, monthly sales gross receipts, monthly purchases, details of old notes and new notes deposited during demonetization period, the day book, Cash book, ledger maintained for business, cash balance as per cash book etc. All these details were duly submitted by assessee vide reply dated 12-12- 2019. The assessee also submitted month-wise cash deposits in all bank accounts, details of old notes deposited at the time of demonetization period. Pertinently, the assessee also furnished details of name, address and PAN of cash depositors who deposited cash during demonetization period. The same has been detailed on pages 24 to 35 of the paper book. Apparently, the same could not be faulted with by Ld. AO. There is no allegation of any irregularity in the books of accounts.

In cases where the assessee demonstrated availability of sufficient cash-in-hand as per books and the Department failed to bring any contrary evidence on record, the Tribunal has held that deposits made during the demonetisation window cannot be treated as unexplained income solely because they were deposited during the specified period. The consistent ratio emerging from the decisions of the Chennai Benches is that demonetisation, being a policy measure, does not create a legal presumption that cash deposits made during that period are unexplained. Recorded business receipts cannot be re-characterised as unexplained investments in the absence of material evidence. Suspicion, however strong, cannot substitute proof. Furthermore, unless the books of account are rejected in accordance with law, the entries recorded therein are entitled to due evidentiary weight.

Applying the above legal principles to the facts before us, we note that the assessee is engaged in the business of milk procurement and distribution, which is inherently cash-driven. Daily cash collections are a normal and integral feature of such trade. The explanation furnished by the assessee that the deposits represent opening cash balance and daily business receipts is plausible, consistent with the nature of business, and supported by contemporaneous entries in the cash book.

We find that the AO has not demonstrated any abnormal spike in turnover inconsistent with past records, nor has he established any falsification of the cash book or discrepancy in the audited financial statements. No material evidence has been brought on record to suggest suppression of sales or introduction of unaccounted money. In the absence of rejection of books and in the absence of any incriminating material, few are of the considered view that the addition appears to have been made solely on account of the timing of deposits during the demonetisation period.

It is a settled principle of law that suspicion, however strong, cannot replace legal proof. A deeming provision such as Section 69 must be strictly construed and can be invoked only when its statutory preconditions are fully satisfied. Those conditions are clearly not met in the present case.

In view of the foregoing discussion, particularly the fact that the deposits are duly recorded in the regular books of account and in the absence of rejection of books u/s.145 of the Act and in the absence of any independent or contrary evidence brought on record by the Revenue, the deposit of cash cannot be considered as unexplained. This view is supported by the consistent judicial view taken by the Tribunals in similar matters and hence, we hold that the invocation of Section 69 in the present case is legally unsustainable. Accordingly, the addition of Rs.49,77,000/- made u/s.69 of the Act and sustained by the learned CIT(A) is hereby deleted.

In the result the appeal of the assessee is allowed.