ITAT Mumbai Deletes Rs. 27.40 Lakh Addition Under Section 69A in Magnus Cars Case: Car Booking Advances Held as Duly Explained Cash Deposits

Background and Overview

The Mumbai Bench of the Income Tax Appellate Tribunal, in the case of Magnus Cars Vs ITO (ITAT Mumbai), delivered a significant ruling by directing the deletion of an addition of Rs. 27,40,000/- made under Section 69A of the Income Tax Act, 1961. The Tribunal concluded that the cash deposits in question were satisfactorily explained by the assessee as booking advances collected from customers prior to demonetisation for the purchase of motor vehicles.

This decision carries considerable practical relevance for automobile dealerships and partnership firms operating in the vehicle sales segment, particularly those that handled substantial cash transactions in the period leading up to November 2016.

Case Details

Facts of the Case

The Assessee's Business Profile

Magnus Cars is a partnership firm engaged in the business of dealing in motor vehicles of reputed car manufacturers. For Assessment Year 2017-18, the assessee filed its return of income on 28.12.2017, declaring total income of Rs. 1,44,590/-.

Cash Deposits That Triggered Scrutiny

The case was selected for scrutiny to examine the genuineness of high-value cash receipts during the relevant period. During the course of assessment proceedings, the Assessing Officer (AO) noted that the assessee had made cash deposits aggregating to Rs. 43,50,000/- across two bank accounts:

• Bassein Catholic Co Op Bank Ltd. — Rs. 34,00,000/-
• New India Cooperative Bank Ltd. — Rs. 9,50,000/-

The AO called upon the assessee to furnish a satisfactory explanation regarding its business activities and the source of these cash deposits. The AO also conducted a comparative analysis of month-wise cash deposits for FY 2015-16 and FY 2016-17 to assess any unusual pattern.

Assessee's Explanation Before the AO

In response to the final show cause notice, the assessee filed a reply dated 27.12.2019 and explained that the cash amounts represented advances received from customers for facilitating the purchase of motor vehicles. The assessee furnished names and details of seven individuals who had handed over cash for car bookings.

Partial Acceptance by the AO

Upon reviewing the details and supporting invoices, the AO accepted the cash deposits pertaining to two customers:

• Sanjay M. Kasar — Rs. 7,10,000/-
• Jayprakash Patil — Rs. 3,00,000/-
• Total Accepted: Rs. 10,10,000/-

However, deposits attributable to the remaining five customers — Praful Bandu Raut, Dinesh Gadge, Ratan R. Sharma, Vinit Vijay Naik, and Balshiram Narsale — were not accepted, and the AO proceeded to add Rs. 33,40,000/- as undisclosed cash, subjecting the same to taxation under Section 115BBE.

Proceedings Before CIT(A) / NFAC

Assessee's Submissions

Before the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), the assessee reiterated that: