ITAT Removes Addition on Cash Deposited on Amount of Sale of Petroleum Products During Notebandi

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has removed the additional scrutiny of cash deposits made during the demonetization period related to the sales of petrol, diesel, and other petroleum products.

The panel, consisting of T.R. Senthil Kumar (Judicial Member) and Waseem Ahmed (Accountant Member), has determined that these cash deposits are directly associated with the sales of gasoline, diesel, and other petroleum products, all of which have been adequately documented in the company’s financial records.

Additionally, the company correctly collected VAT taxes for these sales. Furthermore, the manager of the company provided a notarized affidavit confirming these facts during the assessment proceedings.

Consequently, the Assessing Officer’s approach of labelling the cash deposits as unexplained cash credits while also acknowledging their source is inconsistent.

The appellant/assessee is involved in the business of trading petroleum products and serves as a dealer for Reliance Industries Ltd., engaging in the trade of petrol, diesel, and related items.

The assessee initially submitted a Nil Income Tax Return. This return underwent processing and subsequently became the subject of a thorough examination and assessment.

At the time of the demonetization period, the taxpayer has deposited Specified Bank Notes (SBN) in the Co-operative Bank of Rajkot Ltd. The Assessing Officer issued an inquiry to the Co-operative Bank of Rajkot Ltd. and acquired details of the cash deposits in SBN during the demonetization period.

The manager of the assessee company was summoned, and in his affidavit, he affirmed that the SBN cash deposit totalling Rs. 1.24 crore was derived from cash sales made during that specific time frame.

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The taxpayer appealed with the Commissioner (Appeals), resulting in the removal of the addition previously imposed by the Assessing Officer.

The department argued that the Commissioner (Appeals) was mistaken in eliminating the Assessing Officer’s addition. They further cited a notification dated November 8, 2016, which exclusively applied to public sector oil marketing companies and not to private dealers.

The taxpayer’s counter-argument was based on the fact that they were selling gasoline and had collected the SBN from their retail customers. Consequently, they contended that the provisions of Section 68 were inapplicable since the origin of the cash deposit was undisputed according to the Assessing Officer.

The Income Tax Appellate Tribunal (ITAT) upheld the removal of the Rs. 1,24,59,500 addition as per Section 68 of the Income Tax Act.