Facts of the Case

The assessee, an authorized dealer of Indian Oil Corporation operating a petrol pump, deposited substantial cash during the demonetization period. The Assessing Officer observed deposits of ₹1.51 crore during the period and, after analyzing patterns of deposits and sales, concluded that ₹21,55,000 represented unexplained money.

The addition was based on a comparison between average daily sales before demonetization and higher deposits thereafter. The Assessing Officer held that deposits exceeding the computed average sales were unexplained under section 69A. The CIT(A), NFAC upheld the addition, stating that discrepancies between reported sales and cash deposits remained unexplained.

Issues Involved

  1. Whether cash deposits from business sales during demonetization can be treated as unexplained money under section 69A.
  2. Whether authorities can rely on estimated “average sales” to determine unexplained deposits.
  3. Whether recorded transactions supported by stock registers and cash books can be disregarded without identifying specific discrepancies.

Petitioner’s Arguments

The assessee contended that all cash deposits represented sale proceeds of petrol and diesel, which were duly recorded in audited books of account, cash book, and stock register. It was emphasized that petroleum products were controlled commodities purchased from Indian Oil Corporation and sold through regulated channels.

The assessee further pointed out that government notifications allowed acceptance of specified bank notes at fuel stations during demonetization, leading to increased cash sales. Deposited funds were subsequently transferred to Indian Oil Corporation for purchase of further stock, demonstrating business continuity.

It was argued that section 69A applies only when money is not recorded in books or explanation is absent, neither of which applied in this case.

Respondent’s Arguments

The Revenue contended that discrepancies existed between reported sales and cash deposits, particularly during the demonetization period, and that the assessee failed to satisfactorily explain these differences. Therefore, the addition was justified.

Court Order / Findings (ITAT Allahabad)

The Tribunal observed that the assessee dealt in a controlled commodity and maintained proper books of account, including stock records reflecting purchases from Indian Oil Corporation and corresponding sales. No discrepancy in stock position, purchases, or sales was identified by the Assessing Officer.

It held that the method adopted by the Assessing Officer—computing average sales prior to 08.11.2016 and comparing them with subsequent deposits—was arbitrary and meaningless in the absence of any specific defect in the books.

Since the cash deposits were duly supported by recorded sales and stock movement, there was no basis to treat them as unexplained money. Accordingly, the addition of ₹21,55,000 under section 69A was deleted.

Important Clarification

The Tribunal emphasized that additions under section 69A require proof that money is unrecorded or unexplained. When business transactions are properly documented and consistent with regulatory permissions, mere suspicion arising from higher deposits cannot justify taxation as undisclosed income.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771062490_ASHATEWARIMAHARAJGANJVS.ITO14MAHARAJGANJ.pdf

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