Once VAT returns stands accepted without any allegation of manipulation to reflect inflated cash deposits, no addition warranted u/s 68

While hearing an appeal filed against additions framed under Section 68 of the Income Tax Act, 1961, on grounds of Unexplained Cash Deposits, the Income Tax Appellate Tribunal Bench at New Delhi observed that the additions warranted being quashed since the Assessing Officer (AO) had not pointed out any discrepancies in the Assessee’s books of accounts, details of sales/purchases or stock positions.

A Division Bench of Mr. NK Billaiya, Accountant Member and Mr. Anubhav Sharma, Judicial Member, observed that even the Assessee’s VAT returns were accepted by the Revenue, without any allegation that they had been manipulated to reflect inflated cash deposits by the Assessee.

The Appellant-Revenue was represented by Mr. Vivek Kumar Upadhyay, Sr. DR whereas the Respondent-Assessee was represented by Mr. Gaurav Jain, Advocate.

The Assessee filed ITR for the relevant period, declaring loss of about Rs 66.41 Lakhs. Subsequently, notices were issued to the Assessee. On assessment, the AO noticed there to be cash deposits made by the Assessee during the Demonetization drive. Upon analyzing the cash deposited during the relevant period and the immediately preceding AY, the AO concluded there to be an increase of 643% in deposits and so concluded that the excess amount of cash deposited to the tune of about Rs 3.41 Crores was income of the Assessee as per Section 68 of the Income Tax Act 1961.

On appeal, such additions were assailed before the CIT(A), before whom the Assessee argued that it had furnished complete details of sales/receipts and justification of cash generated and deposited during the relevant years with comparative details of purchases, sales and stock position. The Assessee also submitted a copy of VAT returns. The CIT(A) went on to quash the additions framed.

On considering the contentions of both parties, the Bench observed that the AO was not able to point out any defects in the books of account nor discrepancies were found in the stock, sales and purchases. The VAT returns were accepted by the authorities and there was not even a whisper in respect of revised VAT return to show that the assessee manipulated its books of account to show inflated cash sales during the demonetization period to justify the cash deposit.

There was not even a single finding by the AO that the purchases were inflated to show inflated sales to cover up the cash deposit in the bank during the demonetization period, the Bench observed.

Therefore, the additions came to be quashed and the order passed by the CIT(A) was upheld.

Cause Title – ACIT, Circle 10(1), New Delhi vs. M/s Himachal Fibres Limited [ITA No: 927/Del/2023 / 2023-Enterslice-23-ITAT-Del]

Click here to read/download the Order

ACIT-verses-Himachal-Fibres-Limited