Demonetisation Deposits From Cash In Hand Cannot Be Rejected Without Evidence: Allahabad High Court

The Allahabad High Court on 8 April held that where a taxpayer explains cash deposits during 2016 Indian demonetization as arising from cash in hand, the Assessing Officer cannot reject the explanation in the absence of any material to the contrary.

A Bench comprising Justices Shekhar B. Saraf and Abdhesh Kumar Chaudhary dismissed the appeal filed by the Principal Commissioner of Income Tax, Lucknow against Medharaj Techno Concept Pvt. Ltd. and upheld the order of the Income Tax Appellate Tribunal in favour of the taxpayer. The judges held:

“..once the availability of the cash in hand was established and the Assessing Officer could not indicate anything to the contrary as to how that cash in hand was spent, the explanation of the assessee that the cash in hand was deposited in the banks could not have been rejected by the Assessing Officer.”

The Revenue challenged the ITAT's order before the High Court and argued that the Tribunal wrongly applied the principle of preponderance of probability. The Tribunal, however, had found that the Assessing Officer did not point out any defect in the books of account and should have conducted further enquiry before rejecting the taxpayer's explanation regarding the source of the cash deposits.

The Court examined whether the Tribunal had considered the evidence on record while ruling in favour of the taxpayer. It found that the Tribunal evaluated all material on record and recorded that the accounts of Medharaj Techno Concept were audited without any adverse comment from the Assessing Officer.

The Bench further noted that the Tribunal found that the Assessing Officer disregarded both the evidence and the explanation furnished by the taxpayer without bringing any contrary material on record. It held:

“Upon a perusal of the judgment of the Tribunal, it is crystal clear that the cash deposits by the petitioner during the period of demonetization were from the cash in hand that was available to the petitioner and was very much explained.”

The judges held that cogent material supported the Tribunal's findings and that no procedural irregularity arose. It concluded that the record clearly showed that the taxpayer deposited cash in the bank out of available cash in hand.

Accordingly, the High Court dismissed the appeal.