The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the deletion of a ₹1.05 crore addition made against an LPG distributor over cash deposited during the 2016 demonetisation period.

The bench of Kuldip Singh (Judicial Member) and Annapurna Gupta (Accountant Member) found that the cash sales were recorded in audited books and supported by ledger accounts, VAT records and details of the currency deposited. The Assessing Officer had neither rejected the books of account nor recorded a finding that the purchases or sales were bogus.

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The appellant/assessee is a war widow who operates an LPG distribution business as an authorised Indian Oil Corporation dealer under the name M/s Vikram Krishna Indane.

For assessment year 2017–18, she filed an income tax return declaring total income of ₹8,66,670 based on financial statements audited in Form 3CB/3CD.

During assessment proceedings, the Assessing Officer noticed cash deposits of ₹1.05 crore in her bank account between November 9 and December 30, 2016, the demonetisation period. The officer sought details including bank statements, purchase and sales registers, ledger extracts and a denomination-wise breakup of the deposits.

According to the assessment order, the assessee did not produce certain documents, including GST/VAT returns, bills and vouchers. The Assessing Officer consequently treated the entire ₹1.05 crore as unexplained money under Section 69A, read with Section 115BBE of the Income Tax Act, 1961.

The CIT(A) deleted the addition. The department then challenged that decision before the ITAT.

In its appeal, the department argued that the CIT(A) had relied on the books of account, audit report and ledger extracts without adequately considering the absence of complete supporting evidence.

It contended that entries in the books alone did not conclusively establish the genuineness of substantial cash deposits made during demonetisation. The department also questioned whether the assessee had satisfactorily established the identity of customers and the genuineness of the claimed cash sales.

The department further argued that Section 69A operates independently and that an addition could be made even where the books had not been rejected under Section 145(3).

The CIT(A), whose reasoning was reproduced in the tribunal’s order, noted that the assessee was an established LPG distributor with a turnover exceeding ₹6 crore during the year. Her books had been audited under Section 44AB, and the fact of the audit had not been disputed by the Assessing Officer.

The appellate authority recorded that the assessee had furnished cash sales ledgers, a corresponding VAT output ledger, denomination-wise deposit details, bank deposit slips and purchase bills from Indian Oil Corporation.

On examining those records, the CIT(A) concluded that the deposits were linked to the assessee’s business operations. It noted that the Assessing Officer had not recorded a finding that the Indian Oil purchases were bogus, that the sales were fictitious or inflated, or that the cash-book entries had been manipulated.

The CIT(A) also observed that the officer had not compared the relevant cash sales with those of earlier years to demonstrate an abnormal increase. It held that the inability to verify some supporting documents did not, by itself, establish that the entire amount deposited was unexplained income.

The tribunal agreed with the CIT(A), describing the appellate order as well reasoned. It noted that cash transactions were common in retail LPG distribution, particularly in the rural area where the assessee carried on business.

The bench found that the cash sales ledger corresponded with the VAT output ledger and that the denomination of the deposited currency had been specified. It also emphasised that the purchases and sales were reflected in audited books which the Assessing Officer had not rejected.

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