ITAT Deletes Additions: Cash Deposits Upheld with Proper Records, No Income Estimation Without Rejecting Books
ITAT Ahmedabad held that cash deposits cannot be treated as unexplained if supported by proper records and evidence. It also ruled that additional income cannot be estimated without rejecting the books of accounts, thereby deleting both additions made by the tax authorities.
The assessee, Bhurabhai, had not filed its income tax return (ITR) for the Assessment Year 2017-18. The tax authorities noticed that the assessee had made cash deposits amounting to Rs 11.50 lakh in his bank account during the period of demonetisation. Consequently, proceedings under Section 142(1) of the Act were initiated against the assessee; as a result, a notice dated March 08, 2018, under Section 142(1) of the Act was issued electronically, wherein the assessee was directed to furnish his ITR for the AY 2017-18.
However, the assessee did not file the same. After several notices were issued, the assessee filed his ITR declaring a total income of Rs 2.18 lakh. However, the tax authorities noted his total turnover at Rs 4.76 crore after verification. In conclusion, two major additions were made: first, Rs 11.5 lakh on the grounds of unexplained cash deposits under Section 69A during the demonetisation period, and second, Rs 9.3 lakh on the grounds of estimated commission income at 2% of total bank credits.
The aggrieved assessee filed a case before the ITAT Ahmedabad, claiming all the transactions in question were genuine business receipts and were properly recorded in the books of accounts. In support of his claim, he also furnished all relevant documents (including bank statements, profit and loss accounts, balance sheets, and licenses from APMC Unjha). When the tribunal analysed the case, it noted that despite the order being ex parte, the tax authorities had actually considered the taxpayer’s submissions. Therefore, the challenge to the validity of the assessment was rejected.
However, the tribunal had further noted that the assessee had submitted all the relevant documentary evidence proving the cash deposits were genuine; both the tax authorities and CIT(A) had failed to consider the documentary evidence properly; hence, the addition of Rs 11.5 was not justified or reasonable. Further, the Tribunal ruled that once business transactions and bank entries are properly recorded, estimating additional commission income without rejecting the books of accounts is not valid as per the law. Consequently, the addition of Rs 9.3 lakh was also deleted. As a result, the appeal was partly allowed.
Citation: Bhurabhai Vs ITO (ITAT Ahmedabad); ITA No. 1557/Ahd/2025; 15/04/2026; 2017-18
