Mazars Tax Update | Edition 20.20

Analysis of Income Tax Assessment of Demonetisation Cases and way forward

*With the recent conclusion of assessments for the A.Y. 2017-18, we observed that in most of the cases involving the deposit of a substantial amount of cash in the bank accounts by various taxpayers during the period 09-11-2016 to 30-12-2016 (‘demonetization period’) on account of sales, the Assessing Officers (‘the A.OS.’) have considered the impugned deposits as unexplained cash credits under section 68 read with the section 115BBE of the Income-tax Act, 1961 (‘the Act’) thereby raising huge tax demands against such taxpayers. In most of the cases, the A.O. had merely considered the cash deposited in bank accounts of the taxpayer during the demonetization period on account of cash sales which has been considered as unexplained cash credits/income by placing reliance on certain comparative analysis and ratios of previous trends and probabilities. It was further observed that the A.O.s have not drawn any negative inference regarding the rest of the business operations like the facts of availability of opening stock, purchases made during the year, direct and indirect costs incurred to convert the said stock into finished goods and eventual sales thereof.

The present article is a conscious attempt to particularly examine the position of such cash deposits already considered as “sales/revenue” in the financial results by various taxpayers which however have been assessed as “deemed income” under section 68 read with section 115BBE of the Act in the assessments concluded by the A.O.s for the A.Y. 2017-18.

The article examines the critical facets of such additions and recourses available to the genuine taxpayers in the light of the existing tax provisions and available jurisprudence on the impugned issue.*