ITAT holds cash deposits during demonetisation cannot be added under Section 68 if sourced from disclosed and taxed cash sales with supporting records.
ITAT on Demonetisation-Era Cash Deposits
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 taxpayer demonstrates that the funds originated from legitimate cash sales that were duly recorded and already subjected to tax.
The tribunal emphasized that the burden under Section 68 shifts only when the source is opaque. Here, the assessee provided sales bills, audited financial statements, purchase registers, and bank deposit slips linking the deposits to disclosed business receipts. Since the income had already been offered to tax, no addition under Section 68 was warranted.
"Where cash deposits are fully supported by records of cash sales, which have been reported in the books of accounts and income offered to tax, the provision of Section 68 does not apply."
This decision offers relief to businesses scrutinized for high demonetisation deposits. Practitioners must ensure clients retain comprehensive documentation to substantiate the commercial origin of such deposits. The ruling discourages repetitive tax scrutiny where income has already been declared.
Citations
- Income Tax Act, 1961, Section 68
