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ITAT deletes addition of Cash Deposit against Opening Balance during demonetization
May, 29th 2024

The assessee filed her return of income for the assessment year 2017-18, declaring a total income of Rs. 4,10,500/-. The case was selected for scrutiny under the Computer Assisted Scrutiny System (CASS) under section 143(3) of the Income Tax Act. The scrutiny primarily focused on the cash deposits made during the demonetization period.

The Assessing Officer (AO) found the explanations provided by the assessee unsatisfactory and contradictory. Despite the submission of justifications supported by the cashbook, the AO was not convinced. The AO raised concerns about the source of income, especially since several family members had also deposited significant cash amounts during demonetization.

The assessee, however, argued that she had been regularly filing tax returns since 1998, consistently declaring income from tailoring. The nature of income and the source were already on record with the tax authorities. The cash deposits during demonetization were explained as part of the accumulated savings over the years. The opening balance, supported by cashbook entries, reflected income from previous years and should not be treated as part of the current year’s income.

The tribunal noted that the assessee had a long history of tax compliance and had been declaring income from tailoring since 1998. The cashbook presented by the assessee indicated an opening balance of Rs. 9,50,597/-, which was supported by accumulated income since 1998. The tribunal cited a decision by the jurisdictional high court regarding the treatment of opening balances, emphasizing that credits carried forward from previous years should not be added as income in the current year.

Considering the age of the assessee (77 years) and the consistent pattern of tax filing and income declaration, the tribunal concluded that the opening cash balance of Rs. 9,50,597/- was genuine and not questionable. The tribunal also took into account the circumstances of demonetization, where many individuals, including family members of the assessee, made cash deposits.

Therefore, the tribunal ruled in favor of the assessee, directing the deletion of the addition made by the AO under section 68 of the Income Tax Act. The tribunal concluded that the cash deposits made during demonetization should not be treated as unexplained income for the year under consideration.

In summary, the ITAT decision in the Aayodhya Jajra vs. CIT (Appeals) case highlights the importance of considering the history of tax compliance, the nature of income, and the circumstances surrounding cash deposits when assessing the legitimacy of income sources, especially during exceptional events like demonetization. etc.

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