Rs 2.47 cr cash deposit gets tax notice: Why ITAT Delhi ruled in favour of assessee

In a recent ruling, the Income Tax Appellate Tribunal (ITAT) in Delhi sided with a pharmaceutical retailer who faced an income tax notice for depositing Rs 2.47 crore in cash into his bank accounts. The case highlights the scrutiny that cash deposits can attract from tax authorities if the source and trail cannot be clearly traced.

The medicine shop owner, based in Delhi, had deposited the cash into three savings accounts. Initially, the Income Tax Department questioned the deposits as unexplained cash. The owner provided an explanation, stating that the cash originated from his pharmacy sales and was accurately recorded in his business books. He submitted an audited balance sheet, VAT returns, and sample sales invoices to support his claim.

However, the Assessing Officer (AO) did not accept the owner's explanation, citing unrecorded expenses in the profit and loss statement and irregular salary and bonus payments. The Commissioner of Appeals (CIT(A)) also upheld the AO's assessment, rejecting the owner's explanation. The case then proceeded to the ITAT Delhi for further review.

The ITAT Delhi examined the cash deposits and found that the owner had submitted financial records, including financial statements, balance sheet, profit and loss account, bank statements, VAT returns, and sales bills. These documents demonstrated that the cash generated from sales came from the pharmaceutical stock and was deposited into his bank accounts.

The tribunal concluded that the AO and CIT(A) had not identified any defects in the documents and evidence provided by the owner. They also noted that the cash could be directly linked to sales made during the demonetisation period, given that the owner operated a retail business in medicines and pharmaceuticals. The ITAT Delhi accepted the owner's explanation regarding the cash withdrawals from his bank account, stating that the money had come from family savings and was substantiated through bank statements.

The decision emphasizes the importance of proper documentation in the face of cash transaction scrutiny by tax authorities. Chartered Accountant Ashish Niraj, Partner at A S N & Company, explained that income tax officials are diligent in examining cash deposits during the demonetisation period and place the responsibility on taxpayers to prove the legitimacy of the transactions. The ITAT Delhi's ruling affirms that if a taxpayer can provide supporting documents, a negative assessment can be challenged and overturned.