Facts of the Case

Under Operation “Clean Money,” the Department identified persons who had deposited substantial cash during the demonetization period but had not filed returns. The assessee had deposited ₹14,90,900 in bank accounts during November–December 2016.

As no return was filed and no explanation was furnished in response to notices under section 142(1), the Assessing Officer completed a best-judgment assessment under section 144 and treated the deposits as unexplained money under section 69A. The CIT(A), NFAC dismissed the appeal for non-prosecution but also confirmed the addition on merits.

Issues Involved

  1. Whether demonetization cash deposits can be treated as unexplained under section 69A when business activity is indicated.
  2. Whether failure to file a return or respond to notices justifies taxation of deposits without examining their nature.
  3. Whether presumptive taxation under section 44AD can apply where deposits represent business receipts.

Petitioner’s Arguments

The assessee contended that he was engaged in textile business and that the deposits represented business receipts regularly credited into the bank account, not merely during demonetization.

It was argued that since the CIT(A) himself acknowledged business activity, the deposits should be assessed as business turnover with profit estimated at 8% rather than treated as unexplained money. The assessee also sought one more opportunity to furnish explanations and supporting evidence.

Respondent’s Arguments

The Revenue emphasized persistent non-compliance by the assessee during assessment and appellate proceedings and submitted that, in the absence of satisfactory explanation, the addition under section 69A was justified.

Court Order / Findings (ITAT Allahabad)

The Tribunal observed from bank statements and ledger accounts that the assessee appeared to be engaged in business, as cash deposits occurred regularly throughout the year and were followed by transfers to various parties, likely suppliers.

On Nature of Deposits During Demonetization

It was noted that deposits were not confined to demonetization and could represent business receipts. Determining the nature of deposits required examination of:

  • Whether deposits were in specified bank notes or new currency
  • Correspondence with ledger entries
  • Availability of stock and business transactions
  • Overall cash flow

On Applicability of Section 44AD

The Tribunal observed that if business activity is confirmed and deposits represent turnover, the assessee may fall within the presumptive taxation scheme of section 44AD, provided income is offered at the prescribed rate.

Direction for Fresh Assessment

Considering the need for factual verification, the Tribunal restored the matter to the Assessing Officer for fresh examination of accounts and explanations. The Assessing Officer was directed to consider applicability of section 44AD where appropriate.

The assessee was cautioned to fully cooperate and provide documentary evidence; failure to do so could result in adverse inference. The appeal was allowed for statistical purposes.

Important Clarification

The Tribunal clarified that cash deposits cannot automatically be treated as unexplained solely due to non-filing of returns or non-compliance. Where evidence suggests ongoing business, deposits may represent turnover and must be examined accordingly before invoking section 69A.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771065394_AULADHUSIANTANDAVS.CITAPPEALSDELHI.pdf

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