ITAT nixes additional tax demand on firm for deposits during demonetisation

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An Income Tax tribunal has rejected the demand of the authorities to impose tax on cash deposits made by a company during the demonetisation period as it had explained the source of such deposits.

Tax authorities had made an additional demand of Rs 2.88 crore on account of cash deposited by the company in specified bank notes in its bank account during the demonetisation period between November 9 and December 30, 2016.

The government on November 8 withdrew Rs 500 and Rs 1,000 currency notes from circulation and people were asked to deposit them in banks during the period cited above.

However, the Delhi-based income tax appellate tribunal (ITAT) deleted the addition in tax demand on the company engaged in operation of ships for exploitation of mineral oil for state-owned ONGC. The company also provides infrastructure facilities at New Mangalore Port.

ITAT said the company is mandated to maintain cash balance at various levels in view of its business operations and to meet exigencies.

It concluded that when the books of account were not rejected and no deficiencies were found in the cash book, there is no case for the tax authorities to disbelieve the existence of cash balance on November 8, 2016.

The company had cash balance of Rs 2.76 crore on April 1, 2016 and the return of income filed prior to demonetisation has also been accepted by the tax authorities. Evidence of cash movement was furnished for the year as well as past year to show that it had an available balance of Rs 2.94 crore on November 8, 2016.

ITAT said the company explained the source of cash deposits made in specified bank notes, out of cash balance available with it as on Nov 8, 2016.

It also said that the company has been consistently holding a huge cash balance which explains the entire cash deposits made during the whole year including deposits made during the demonetisation period in specified bank notes.

Hence, there is absolutely no case for the tax department to make an addition as the entire cash deposits are totally explained by proper sources, ITAT concluded.

From the beginning of demonetisation, the Income Tax Department has been litigating large value cash deposits made during the period.

In most cases, the tax department has treated cash deposits as unexplained credits without even proper examination of the circumstances

The department has been functioning with a sole presumption that mere existence of cash balance at the time of demonetisation is sufficient reason to believe that such cash had been acquired by taxpayers through unexplained sources.However, this ruling has examined the case on merits and provided much needed relief to the taxpayer.

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Pooja Gupta

CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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