ITAT Delhi Cancels Additional Tax Demand for Cash Deposits During Demonetisation Period

The government’s request to tax cash deposits made by a corporation during the demonetization era was denied by an income tax tribunal since the company had provided information about the source of the deposits.

On account of cash deposited by the business in specific bank notes in its bank account between November 9 and December 30, 2016, during the demonetization era, tax authorities had made an extra demand of Rs 2.88 crore.

People were urged to deposit the Rs. 500 and Rs. 1,000 notes in banks during the time period mentioned above after the government removed them from circulation on November 8.

The Income Tax Appellate Tribunal (ITAT), which is situated in Delhi, however, removed the increase to the tax demand placed on the firm operating ships for the state-owned ONGC’s mineral oil extraction. At New Mangalore Port, the company also offers infrastructure amenities.

In order to support its business operations and respond to emergencies, the firm is required, according to ITAT, to maintain a cash balance at certain levels.

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It came to the conclusion that there was no reason for the tax authorities to doubt the existence of a cash balance on November 8, 2016, as the books of accounts were not rejected and no flaws in the cash book were discovered.

On April 1, 2016, the firm had a cash balance of Rs 2.76 crore, and the tax authorities also approved the income report that was submitted before demonetization. Evidence of cash flow for the current year and the previous year was provided to demonstrate that it has a balance of Rs 2.94 crore available as of November 8, 2016.

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According to ITAT, the firm provided an explanation of the cash deposit sources made in certain bank notes from the cash balance that was on hand as of November 8, 2016.

Additionally, it was said that the corporation has constantly held a sizable cash balance, which accounts for all cash deposits made during the year, including those made during the demonetization phase in specific bank notes.

As a result, ITAT determined that there was no need for the tax department to add anything as all monetary deposits could be fully explained by reliable sources.

The Income Tax Department has been pursuing significant cash deposits made during that time in court since the onset of demonetization.

The tax administration has typically accepted cash deposits as unexplained credits without even thoroughly reviewing the facts.

The department has been operating under the sole assumption that the sheer fact that there was a cash balance at the time of demonetization is sufficient evidence to infer that the cash was obtained by taxpayers from mysterious sources.

But this decision has looked at the case’s merits and given the taxpayer much-needed relief, he added.