ITAT Delhi Ruling On Demonetisation Cash Deposits, Unexplained Creditors & VAT Claims

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) in Patanjali Renewable Energy Pvt. Ltd. Vs DCIT examined a range of issues arising from scrutiny assessments for Assessment Year 2017-18 and Assessment Year 2018-19. The disputes primarily concerned:

  • Addition on account of cash deposits during the demonetisation window under Section 68 read with Section 115BBE
  • Addition for an alleged unexplained sundry creditor, M/s Goldi Green Technologies Pvt. Ltd. (formerly M/s Goldi Solar Pvt. Ltd.)
  • Disallowance of expenditure relating to VAT demand and cessation of input VAT credit
  • Carry forward and set-off of business loss from AY 2017-18 to AY 2018-19

The appeals were filed against orders of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi under Section 250, arising out of assessments framed under Section 143(3) and Section 143(3) read with Section 143(3A) and Section 143(3B) of the Income Tax Act 1961.

Background Of The Case

Nature of Business and Return Filing

Patanjali Renewable Energy Pvt. Ltd., engaged in:

  • Trading in solar panels, and
  • Development of new solar power projects,

had e-filed its return of income for AY 2017-18 on 28.09.2017 declaring:

  • Loss of Rs. 82,89,975 under the normal provisions, and
  • Loss of Rs. (-) 2,38,93,726 under Section 115JB.

The case was picked up for scrutiny through CASS. Assessment was completed under Section 143(3) and several additions were made, converting the returned loss into positive income.

For AY 2018-19, the assessee filed return declaring nil income, but the Assessing Officer (AO) computed income after denying set-off of brought-forward business loss of AY 2017-18.

Two separate appeals were filed before the ITAT:

  • ITA No.606/Del/2026 for AY 2017-18
  • ITA No.607/Del/2026 for AY 2018-19

Issue 1: Cash Deposits During Demonetisation – Partial Relief Under Section 68

Facts and Additions Made

During the demonetisation period from 09.11.2016 to 31.12.2016, the assessee deposited cash of Rs. 33,55,000 in its bank account.

The AO held that the assessee failed to satisfactorily explain the source of these deposits and treated the amount as unexplained cash credit under Section 68, applying the provisions of Section 115BBE.

The CIT(A)/NFAC confirmed the addition, upholding the view that the explanation regarding cash sales was not acceptable.

Assessee’s Contention Before ITAT

The assessee argued that:

  • The cash deposited during the demonetisation window was generated from cash sales duly recorded in the regular books of account.
  • Books of account, including stock records and purchase details, were not rejected by the AO.
  • There was sufficient cash balance arising from recorded business activities, and therefore the entire deposit could not be treated as unexplained.
  • It was also contended that Section 115BBE was not applicable in the manner invoked by the AO for the relevant year.

Revenue’s Stand

The Departmental Representative relied on the findings of the AO and the CIT(A), arguing that:

  • There was a sharp and unexplained spike in cash sales prior to demonetisation.
  • The assessee did not furnish a cogent and convincing explanation for this disproportionate increase.
  • The AO was justified in treating the entire amount as unexplained cash credit.

Tribunal’s Analysis

The ITAT examined:

  • Books of account
  • Stock register
  • Purchase records
  • Pattern of cash sales, particularly around the demonetisation period

The Tribunal recorded the following key observations: