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Facts
The assessee deposited Rs. 5,04,500 in old currency notes during the demonetization period, which the AO treated as unexplained cash credit under Section 68. The AO also disallowed part of salary expenses and courier expenses and added back an unsecured loan from a partner.
Held
The Tribunal held that the addition of Rs. 5,04,500 related to cash deposits during demonetization was sufficiently explained as arising from cash sales and thus deserved deletion. The disallowance of salary expenses was also deleted due to sufficient documentation.
Key Issues
Whether cash deposits made during the demonetization period from cash sales are unexplained cash credits. Whether disallowances of salary and courier expenses are justified without proper inquiry. Whether additions for loans are sustainable based on presumption.
Sections Cited
68, 115BBE, 234B, 234C, 270AAC, 271AAC, 44AB
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Income Tax Appellate Tribunal, DELHI BENCH “SMC’’ : NEW DELHI
BEFORE SHRI MAHAVIR SINGH, HON’BLE VICE PRESIDENT Asstt. Year : 2017-18 Royal Remedies Pharma Healthcare vs. Addl. CIT(A), 2707/B, Floor 1, Sabzi Mandi, Ward 34(5), Civic Centre, Main Bazar, Delhi New Delhi (PAN: AAPFR6429R) (Appellant) (Respondent) Appellant by : None Respondent by : Shri Sangeet Bansal, Sr. DR. Date of Hearing 04.08.2025 Date of Pronouncement 04.08.2025 ORDER This appeal has been filed by the Assessee against the order dated 17.01.2025 passed by the Addl/JCIT(A), Agra for the assessment year 2017- 18 on the following ground:- 1(a) That the Ld. CIT(A) has erred in law and on facts in upholding the addition of Rs.5,04,500/- made by the AO u/s 68 of the I.T. Act in respect of cash deposited in bank account in old Specified Bank Notes during the period of demonetization period between 9/11/2016 to 20/11/2016. b) That the Ld. CIT(A) has erred in law and on facts in holding that details of persons/debtors from whom realization of sale proceeds had been received in cash, had not been produced before the AÔ whereas complete details of month wise and date wise sales with particulars of parties had been furnished to the AO. c) That the Ld. CIT(A) has erred in law and on facts in not appreciating that out of total cash deposit of Rs.29,05,320/- made in the bank account and represented by cash sales, deposit in old SBNs was only R$.5,04,500/- i,e only a fraction of total cash deposit which was made out of cash sales made up to 8/11/2016 and opening cash in hand of Rs.1,78,191/- as on 1/4/2016 which was duly shown in the balance sheet as on 31/3/2016. d) That the Ld. CIT(A) has erred in law and on facts in not appreciating that provisions of section 68 of the I.T. Act are not applicable in respect of cash deposits in bank account, pertaining to the cash sales which have been already shown in the trading and Profit and Loss account, duly audited by the Auditor under the provisions of I.T. Act. e) That the Ld. CIT(A) has erred in law and on facts in not appreciating that the appellant had been regularly making cash deposits in bank account in respect of cash sales even before the period of demonetization and the cash deposits of Rs.5,04,500/- cannot be held as undisclosed income only for the reason that these deposits were made during the period of demonetization. f) That the Ld. CIT(A) has erred in law and on facts in not appreciating that the addition of Rs.5,04,500/- made by the AO u/s 68 of the I.T. Act has resulted into double addition as this amount of Rs.5,04,500/- had already been considered and included in the total sales and gross profit of the appellant for the year under consideration. g) That the Ld. CIT(A) has erred in law and on facts in not appreciating that in the show cause notice for the proposed addition, the AO had 2 | P a g e proposed addition u/s 69 of the I.T Act while in framing the Assessment Order, AO changed his mind and unilaterally made addition u/s 68, ignoring the fact that neither section 68 nor section 69 of the I.T. Act is applicable in respect of cash sales forming part of audited books of accounts which were found in order by the AO as no rejection of books of accounts has been made by the AO . h) That the Ld. CIT(A) has erred in law and on facts in not appreciating that provisions of section 68 of I.T. Act are not applicable in the case and therefore provisions of Section 115 BBE of the Act could not be invoked. i) That the Ld. CIT(A) has erred in law and on facts in upholding the addition of Rs.5,04,500/- in contravention of decisions of jurisdictional Hon'ble Delhi High Court and Tribunal's decisions in respect of cash deposit in bank account out of cash in hand as well as out of cash generated by cash sales forming part of books of accounts. 2) a) That the Ld. CIT(A) has erred in law and on facts in upholding the ad hoc disallowance of Rs.1,85,070/- made on estimate basis by the AO out of total salary expenses of R$.7,40,276/- without making any enquiry or verification of salary expenses claimed by the Appellant. b) That the Ld. CIT(A) has erred in law and on facts in not appreciating that complete details of salary expenses with names of employees, nature of duties performed/services rendered by them and total salary of each employee were submitted to the AO and the books of accounts of the Appellant were duly audited u/s 44AB of the I.T. Act. c) That the Ld. CIT(A) has erred in law and on facts in not appreciating that there is no rationale in comparison of current year salary expenses with preceding years' salary expenses because during the year under 3 | P a g e consideration, the appellant had started new business activity of trading in products of M/s Himalaya Drug Co and achieved turnover of Rs. 1.35 crore as compared to turnover of Rs. 71013/- only in preceding year i.e. an increase of more than approx. 18900% of the turnover made in preceding year. d) That the Ld. CIT(A) has erred in law and on facts in not appreciating that in the show cause notice issued by the AO, there was no mention of any such proposed addition/disallowance out of salary expenses and therefore, disallowance of salary expenses made by the AO on estimate basis without any show cause notice is against the provisions of law. 3 a) That the do CIT(A) has erred in law and on facts in upholding the adhoc disallowance of Rs 30,000/- hade on estimate basis by the AO out of total courier expenses of V Rs.1,20,000/- without making any enquiry or verification of expenses claimed by the Appellant. b) That the Ld. CIT(A) has erred in law and on facts in not appreciating that complete details of courier expenses along with complete details of sales made through Amazon, relating to which courier expenses had been incurred, were submitted to the AO and the books of accounts of the Appellant were duly audited u/s 44AB of the I.T. Act. c) That the Ld. CIT(A) has erred in law and on facts in not appreciating that in the show cause notice issued by the AO, there was no mention of any such proposed addition/disallowance out of courier expenses and therefore, disallowance of courier expenses made by the AO on estimate basis without any show cause notice, is against the provisions of law. 4) a) That the Ld. CIT(A) has erred in law and on facts in upholding the addition of Rs.2,00,000/-made by the AO u/s 68 of the I.T. Act in respect of loan advanced by Shri Raghav Garg, partner of the firm. 4 | P a g e b) That the Ld. CIT(A) has erred in law and on facts in not appreciating that complete details of loan given by the partner were furnished along with PAN number and copy of ITR of the partner and there was no justification in disbelieving the identification and creditworthiness of the partner in advancing loan of Rs.2 lakh. c) That the Ld. CIT(A) has erred in law and on facts in not appreciating that the AO had made the addition of Rs.2,00,000/- on presumption and surmises by holding that the possibility of introduction of unaccounted cash in the books of the firm cannot be ruled out ignoring the fact that till AY 2016-17, the firm was having a very nominal turnover and there was no generation of any unaccounted cash which could be introduced as capital in the name of the partner and there is no provision of making any addition on presumption basis u/s 68 of the I.T. Act. d) That the Ld. CIT(A) has erred in law and on facts in not appreciating that provisions of section 68 of I.T. Act are not applicable in respect of capital introduction of Rs. 2,00,000/- by the partner of the firm and therefore provisions of Section 115 BBE of the Act could not be invoked. 5) That the Ld. CIT(A) has erred in law and on facts in upholding the charging of interest us 234 B and 234C of the Income Tax Act. 6) That the Ld. CIT(A) has erred in law and on facts in holding that the AO was right in initiation of penalty proceedings u/s 270AAC of the I.T. Act whereas the AO had initiated penalty proceedings u/s 271 AAC of the I.T. Act in assessment order in respect of addition of Rs.5,04,500/- and Rs.2,00,000/- without recording proper satisfaction for initiation of penalty proceedings.
Brief facts of the case are that the assessee had deposited cash of Rs. 29,05,320/- in its bank accounts during the demonetization period. Out of this, Rs. 5,04,500/- was deposited in old currency notes of Rs. 500 and Rs. 1000/- denominations between 09.11.2016 to 20.11.2016. The AO held that transactions in old specified bank notes were not allowed after 08.11.2016, and therefore, treated this amount as unexplained cash credit under section 68 of the Act. The AO disallowed Rs. 1,85,070 out of the total salary expenses of Rs. 7,40,276/- claimed by the appellant. The AO observed that the appellant had not provided sufficient details and evidence to justify the full amount of salary expenses claimed. The AO disallowed Rs. 30,000/- out of the courier expenses of Rs. 1,20,000/- claimed by the appellant. The AO noted that while the appellant claimed these expense were for deliveries to USA through Amazon, no evidence was provided to substantiate sales through Amazon to foreign parties. The AO made an addition of Rs. 2,00,000/- under section 68 for an unsecured loan received from the partner Shri Raghav Garg. The AO held that mere filing of ITR acknowledgement and confirmation from the loan creditor were not sufficient to prove the genuineness of the transaction. In appeal, Ld. CIT(A) dismissed the appeal of the assessee. Aggrieved, assessee filed the appeal before the Tribunal.
None appeared on behalf of the assessee, despite issue of notice of hearing, hence, I am proceeding exparte qua the assessee, after hearing the Ld. DR and perusing the records.
As regards, addition of Rs. 5,04,500/- made on account of cash deposited in old specified bank notes during the period of demonetization period between 9.11.2016 to 20.11.2016 is concerned, it is noted that it is the contention of the assessee that out of total cash deposit of Rs. 29,05,320/- made in the bank account and represented by cash sales, deposit in old 6 | P a g e specified bank notes was only Rs. 5,04,500/- i.e. only a fraction of total cash deposit was made out of cash sales upto 8.11.2016 and opening cash in hand of Rs. 1,78,191/- as on 1.4.2016 which was duly shown in the balance sheet as on 31.3.2016, which clearly establish the explanation relating to source of cash deposits through the cash sales during the demonetization period, therefore, it was prayed that addition of Rs. 5,04,500/- may be deleted. Per contra, Ld. DR relied upon the orders of the authorities below. I have heard the Ld. DR and perused the records. I have given my thoughtful consideration to the assessee’s contention and Revenue’s contention in support of the impugned addition. After carefully perusing the records, I find plausible contention in the assessee’s view, as discussed above, that there is sufficient justification/explanation relating to source of cash deposits through the cash sales being deposited during the demonetization period, therefore, the addition of Rs. 5,04,500/- deserve to be deleted. I hold and direct accordingly.
As regards, adhoc disallowance of Rs. 1,85,070/- made on estimate basis is concerned, it is noted that it is the contention of the assessee that AO had made the addition out of total salary expenses of Rs. 7,40,276/- without making any enquiry or verification of salary expenses claimed by the assessee. It was the contention of the assessee that Ld. CIT(A) did not appreciate the complete details of salary expenses with names of employees, nature of duties performed / services rendered by them and total salary of each employee were submitted to the AO and the books of accounts of the assessee were duly audited u/s. 44AB of the Act. Therefore, it was prayed that addition of Rs. 1,85,070/- may be deleted. Per contra, Ld. DR relied upon the orders of the authorities below. I have heard the Ld. DR and 7 | P a g e perused the records. I have given my thoughtful consideration to the assessee’s contention and Revenue’s contention in support of the impugned addition. After carefully perusing the records, I find plausible contention in the assessee’s view, as discussed above, because complete details of salary expenses with names of employees, nature of duties performed / services rendered by them and total salary of each employee were submitted to the AO and the books of accounts of the assessee were duly audited u/s. 44AB of the Act, hence, the estimation of disallowance is not sustainable in the eyes of law, thus the same deserve to be deleted. I hold and direct accordingly.
As regards adhoc disallowance of Rs. 30,000/- made on estimate basis by the AO out of total courier expenses of Rs. 1,20,000/- is concerned, it is noted that before the AO the assessee could not establish properly the expenses made for deliveries to USA through Amazon and the receipts from the Indian Postal Department also do not conclusively prove that the deliveries were for business purposes. Therefore I affirm the action of the lower authority on this issue by sustaining the addition in dispute.
As regards addition of Rs. 2,00,000/- made by the AO u/s. 68 of the Act in respect of loan advanced by Shri Raghav Garg partner of the firm is concerned, it is noted that before the AO the assessee could not establish that the loan was given out of cash in hand by Shri Raghav Garg is not supported by any documentary evidence and no bank statements or other financial records were provided to substantiate the availability of such funds with the partner. Therefore I affirm the action of the lower authority on this issue by sustaining the addition in dispute.