ITAT holds that cash deposits during demonetisation cannot be added as unexplained income under section 68 if supported by sales records and already taxed.
ITAT: Deposits from Taxed Cash Sales Not Unexplained Under Section 68
The Income Tax Appellate Tribunal (ITAT) has ruled that cash deposits made during the demonetisation period cannot be treated as unexplained income under section 68 of the Income Tax Act if the assessee provides verifiable records of corresponding cash sales and has already offered such income to tax.
The tribunal accepted documentary evidence including cash memos, audited financial statements, purchase registers, and bank deposit slips. It held that once the source of funds is explained through legitimate business receipts and the income has been disclosed and taxed, no addition can be made merely on the basis of high cash deposits.
"Where income from cash sales is fully accounted for and offered to tax, the resultant deposit cannot be dubbed as unexplained."
This decision protects genuine taxpayers from arbitrary additions under section 68. It reinforces due process by emphasizing that the burden shifts to the department once prima facie evidence of legitimate source is provided. Practitioners should ensure clients maintain contemporaneous records to substantiate cash flow during demonetisation.
Citations
- Income Tax Act, 1961, s. 68
