The Income Tax Appellate Tribunal (ITAT) Jodhpur has upheld the deletion of a ₹3.36 crore Section 69A addition on cash deposits made during the 2016 demonetisation period. According to TaxGuru reports, the tribunal dismissed the Revenue's appeal against the National Faceless Appeal Centre, Delhi order dated 07.02.2024 for assessment year 2017-18. The assessee, a firm engaged in manufacturing and trading agricultural products, had deposited ₹3.36 crore in cash between 09.11.2016 to 25.11.2016 into its bank account during the demonetisation period.
The ITAT accepted the assessee's explanation that its Phalodi bank account had become a Non-Performing Asset (NPA) due to bad market conditions and decreased guar gum rates in 2015. As reported by TaxGuru, the bank took over the appellant's factory and house premises on 29.09.2016, forcing the assessee to shift to Mumbai with no alternative residence. The tribunal noted that the cash deposits were made in Mumbai bank accounts because the Phalodi account was NPA, and the assessee was unable to deposit cash at its home location. The Revenue had challenged this explanation, questioning why cash generated from Phalodi sales was deposited in Mumbai despite having a Phalodi bank account.
The tribunal relied on the Supreme Court judgment in Laxmichand Baijnath v. CIT, 35 ITR 416 (SC), which deals with amounts recorded in business books. According to TaxGuru analysis, the tribunal found merit in the contention that the cash deposits were already reflected in the audited books as cash sales, with the assessee producing sale bills, delivery challans, sale register and stock register before the Assessing Officer. The tribunal held that since the cash sales were recorded in regular books and corresponding income was offered to tax, the same amount could not again be treated as unexplained money under Section 69A in the absence of contrary material. This precedent continues to provide strong legal support for similar cash deposit cases.
The ITAT also upheld deletion of a ₹2.79 crore addition made by the Assessing Officer under Section 145(3) of the Act for stock valuation by rejecting Net Realisable Value (NRV) of guar gum stock. As reported by TaxGuru, the CIT(A) had observed that the appellant had adopted conventional method of inventory valuation as per Accounting Standard-2 (AS-2) on valuation of inventory, and the AO ignored the fact that this system of valuation was duly disclosed in tax audit reports. The tribunal noted that AS-2 provides that cost of inventories may not be recoverable if those inventories are damaged or if their selling prices have declined.
The ruling cites important legal precedents including ITAT Mumbai in Sanjeev Motwani case (ITA No. 682/Mum/2023) and Bombay High Court in Indian Rare Earths Ltd case. According to TaxGuru, the tribunal emphasized that in businesses where almost entire sales are made in cash, maintaining huge cash balances is necessary for liquidated flow of funds for purchase and sales transactions. The case demonstrates that when cash deposits are properly accounted for in audited books and corresponding income is offered to tax, the same amount cannot be treated as unexplained money under Section 69A without contrary material evidence. This legal framework continues to guide similar demonetisation-related cases involving legitimate cash transactions.
