ITAT Bangalore Quashes Rs. 2 Lakh Addition on Cash Deposits During Demonetisation for Retail Assessee

Overview of the Adjudication

In the legal matter of Nisarahmed Aralimatti Vs ITO, the Income Tax Appellate Tribunal (ITAT), Bangalore Bench, delivered a significant ruling concerning the evidentiary requirements for cash deposits made by small retail businesses. The tribunal addressed whether a retail shop owner, opting for presumptive taxation, is obligated to maintain and furnish exhaustive details of individual walk-in customers to justify cash deposits. The ITAT ultimately ruled in favor of the assessee, deleting an addition of Rs. 2,00,000 made by the tax authorities, noting that the deposit was entirely commensurate with the declared business turnover.

Detailed Factual Matrix

Initial Disclosures and Scrutiny

The assessee operated a proprietary concern named Royal Traders, which engaged in the retail sale of tobacco, supari, and related items. Additionally, the assessee held a partnership interest in a separate wholesale tobacco enterprise. For the Assessment Year (AY) 2017-18, the assessee submitted the return of income on 9 June 2017, declaring a total income of Rs. 22,69,100.

During the demonetisation phase, cumulative cash deposits amounting to Rs. 1,21,24,000 were recorded across multiple bank accounts associated with the assessee. This aggregate figure comprised Rs. 1,19,94,000 deposited into the partnership firm's account and Rs. 2,00,000 deposited into the proprietary concern's account. The case initially underwent scrutiny, during which the assessing officer accepted the explanations provided by the assessee regarding these deposits.

Revisional Proceedings and Reassessment

The initial acceptance was subsequently disturbed when revisionary proceedings were triggered under Section 263 of the Income-tax Act, 1961. Pursuant to an order dated 8 August 2090, the assessing officer was instructed to re-evaluate the cash deposits made during the demonetisation period and conduct fresh inquiries.