The Surat Bench of Income Tax Appellate Tribunal ( ITAT ) held that the cash deposits made during demonetization out of business income cannot be treated as unexplained cash deposits completely. Despite this, the tribunal upheld that 20% of the additions was valid as the assessee cannot substantiate the source. Yogesh Kumar Chandrakant (assessee) is an individual engaged in the manufacturing of textiles and grey cloth, filed his Income tax return for the assessment year 2017-2018 declaring a total income of Rs. 3,63,060. The Assessing Officer (AO) found that the assessee made a cash deposit of Rs. 26,09,000 in Prime Co-Op Bank Ltd. The AO treated the entire cash deposit as unexplained cash and taxed the same under Section 115BBE of the Income Tax Act.

Know Practical Aspects of Tax Planning, Click Here Aggrieved by the order of the AO, the assessee filed an appeal before the commissioner of income tax [appeals] CIT (A). The CIT (A) dismissed the appeal filed by the assessee. Aggrieved by the order of the CIT (A), the assessee filed an appeal before ITAT. The counsel for the assessee argued that the assessee engaged in the business and earned income from manufacturing textile goods during the relevant financial year. He also emphasized that during demonetization, the assessee had no choice but to deposit the cash in the bank account. The counsel for the assessee also contended that the assessee already included the cash as profit in his income, therefore making this addition would amount to double taxation. The counsel of the assessee also relied on several cases and argued that cash deposits generated from business cannot be taxed under Section 115BBE of the Income Tax Act.

Know Practical Aspects of Tax Planning, Click Here The counsel of the revenue argued that the assessee failed to explain the source of the cash deposit and merely reported that the cash was received from an unidentified person. The counsel contended that the cash book was self-serving evidence. The single bench member comprising Pawan Singh (Judicial member) held that the cash sales in the business of the assessee is usual practice and considering the facts of the case the entire cash deposits cannot be treated as unexplained cash deposits. However the tribunal held that the assessee cannot substantiate the source of the cash deposit, therefore 20% of the deposit would be a reasonable addition in order to avoid revenue leakage and deleted the remaining addition. The tribunal held that the income made out of business hence cannot be taxed under Section 115BBE of the Income Tax Act and directed to tax at a normal rate. The appeal of the assessee was partly allowed.