This article examines the decision in ITA No. 2270/DEL/2022, wherein L R Builders Pvt. Ltd. successfully appealed against the addition of Rs. 64 lakhs to their income as undeclared cash deposits during the 2017 demonetization in India.
The appellant, L R Builders Pvt. Ltd., faced scrutiny from the Income Tax Department for depositing Rs. 65 lakhs during the demonetization period announced on November 8, 2016. The Assessing Officer (AO) challenged these deposits as unexplained cash, leading to a significant tax addition.
The main issue was whether the cash deposits made by the appellant were justifiable. The appellant argued that the deposits were from cash withdrawals recorded in their books, which the AO initially rejected, suggesting premeditation of demonetization. However, the tribunal found no evidence supporting the AO’s claims that the appellant anticipated demonetization.
The tribunal scrutinized the appellant’s cash book and bank statements, confirming regular cash withdrawals and deposits aligning with business activities. It criticized the AO’s failure to identify discrepancies in the bookkeeping, thus ruling the AO’s assumptions as baseless.
The tribunal overturned the CIT(A)’s decision, ordering the removal of the Rs. 64 lakh addition from the appellant’s taxable income. This case highlights the importance of maintaining proper financial records and how they can substantiate transactions during periods of financial scrutiny.
The outcome of ITA No. 2270/DEL/2022 serves as a precedent for similar cases, emphasizing that legitimate business transactions recorded in compliance with accounting standards should be recognized by tax authorities, even during extraordinary events like demonetization.
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