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Facts
The assessee filed a return declaring NIL income after adjusting unabsorbed depreciation. The Assessing Officer (AO) made an addition of Rs. 1,70,52,504/- on account of cash deposits made during demonetization, finding that the assessee failed to prove these were out of normal business receipts. The AO also restricted unabsorbed depreciation and disallowed employee PF/ESI contributions.
Held
The Tribunal held that the addition made by the AO was incorrect. The CIT(A) had correctly noted that the AO's analysis was based on incorrect factual figures regarding cash sales and opening cash balance. The Tribunal found that the cash sales were explained and accounted for, and the cash deposits were out of opening balance and cash sales which had been offered for taxation, thus avoiding double taxation.
Key Issues
Whether the cash deposits made by the assessee during demonetization were adequately explained by business receipts, opening cash balance, and cash sales, and whether the addition under Section 68 was justified.
Sections Cited
68, 143(1), 142(1), 46A
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Income Tax Appellate Tribunal, DELHI BENCH ‘A’: NEW DELHI
(Assessment Year: 2017-18) DCIT, vs. Adaab Hotels Limited, New Delhi. 81, Adchini, Sr. Aurobindo Marg, Delhi – 110 016. (PAN : AABCA0850G) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ankit Kumar, Advocate Shri Parth Singhal, Advocate REVENUE BY : Shri Ramesh Chand, Sr. DR Date of Hearing : 13.05.2025 Date of Order : 06.08.2025 O R D E R
PER S.RIFAUR RAHMAN, ACCOUNTANT MEMBER :
This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT (A)] dated 09.08.2024 for Assessment Year 2017-18 raising following grounds of appeal :-
1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs 1,70,52,504/- made u/s 68 of the Act without appreciating the fact that the assessee company has failed to produce the relevant document as required by the Assessing Officer during the assessment proceedings.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.1,70,52,504/- made u/s 68 of the Act by AO, on the basis of fresh/new evidences produced by the assessee during the appellate proceedings without appreciating the facts that the assessee has failed to produce the same before the AO during the assessment proceedings and Ld. CIT(A) should have called the report from the AO on the additional/fresh evidences.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not appreciating the ratio of judgement of Hon'ble Allahabad High Court in the case of Bimal Kumar Anant Kumar vs. CIT, 288 ITR 278 wherein the Hon'ble Court has held that application under the rule 46A must be made for admission of additional evidences with reasons showing the purpose of the additional evidences and reasons for not producing it earlier.”
Brief facts of the case are, assessee filed its return of income declaring total income at Rs.NIL after adjusting the brought forward unabsorbed depreciation. Based on the information available with the Assessing Officer that during the demonetization period, the assessee had deposited cash to the extent of Rs.170,52,504/- in its various bank accounts. Accordingly, notices under section 143(1) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served on the assessee directing the assessee to submit its books of account, cash book, bank statements and tax audit report etc. Accordingly, assessee filed relevant information as called for. The Assessing Officer was not satisfied with the reply submitted by the assessee and observed that assessee had failed to prove that the cash deposit made during demonetization period was out of normal business receipts and accordingly sustained the addition. Further Assessing Officer observed that assessee has wrongly claimed set off of unabsorbed depreciation, accordingly restricted the unabsorbed depreciation to the extent of Rs.57,64,607/- and also disallowed employees contribution to PF and ESI.
3. Aggrieved, assessee preferred an appeal before the ld. CIT (A) and filed detailed submissions. For the sake of brevity, the same is reproduced below:- (i) The opening balance of cash in hand available with the appellant was 15685656/- which was evident from note 2.5 to the audited balance sheet of the appellant under the head ‘cash and cash equivalent’ as at 31.03.2016, as against mentioned at Rs.63.77 lakhs by the AO vide page 5 of his assessment order. ii) The appellant provided copies of statements of all his 9 bank accounts wherein the cash was deposited by it during the demonetization period which came to Rs.16668410 as against Rs.17052504/- as added by the AO to its total Income. iii) The appellant provided re-conciliation of its cash balances right from the opening of the year, that is 1.4.2016 to 08.11.2016 and then from 08.11.2016 to 30.12.2016 (being demonetization period) and thereafter till 30.12.2016. The said re-conciliation is reproduced hereunder: Sr.No. Particulars Amount (Rs.) i) Opening Cash 1,56,85,656 01.04.2016 to 07.11.2016 ii) Cash Withdrawal 2,06,46,140 iii) Cash Sales 2,03,72,273 iv) Cash received from debtors in respect of sales made by 2,75,002 the appellant and declared as income v) Less : Cash deposits in banks (2,40,35,755) vi) Less : Cash Expenses (66,99,434) vii) Closing Balance as on 07.11.2016 2,62,43,882 08.11.2016 to 30.12.2016 viii) Cash Sales 13,23,575 ix) Cash received from debtors in respect of sales made by - the appellant and declared as income x) Cash withdrawal 12,50,000 xi) Less : Cash Expenses (15,99,281) xii) Cash available for deposit 2,72,18,176 xiii) Cash deposit during 08.11.2016 to 30.12.2016 (1,66,68,410) xiv) Closing Balance as on 30.12.2016 1,05,49766 iv) The appellant further contended that the breakup of the cash sales to total sales made by the appellant during FY 2016-17 was inadvertently submitted wrong before the AO. The correct sales breakup (cash and total) made during FY 2016-17 based on the VAT/ Service tax returns filed by the appellant is reproduced hereunder Sr. Observation of Assessing Officer Submission of the Appellant (Pages of Paper book) No. i) The cash sales constituted 87% of It is submitted that during the course of assessment the total sales for the year under proceedings appellant company inadvertently consideration. The cash sales upto submitted incorrect sale break up. The correct Oct’16 were Rs.5,89,48,564/- and break up of sale is tabulated hereunder: total sales upto Oct’2016 was Rs.6,60,69,591/- and the cash Sale break up for the period 2016-2017 sales constituted 89% of the sales. The average monthly cash sales (including VAT/Service Tax) upto Oct’16 came to Rs.84,21,223/- and monthly Month Cash Sales Credit Total Sales average cash sale came to Apr 24,42,079 66,28,315 90,70,394 Rs.84,14,718/-. However as per May 28,96,371 71,73,641 1,00,70,012 earlier submission, the assessee June 24,85,284 65,78,691 90,63,975 company has stated that total July 26,59,688 70,05,813 96,65,501 Aug 32,29,922 61,01,838 93,31,760 sales including Vat & Service tax Sep 30,85,669 66,35,302 97,20,971 amounted to Rs.10,64,66,648/- Oct 28,28,239 63,18,739 91,46,978 consisting of cash sales of Nov 12,39,001 82,65,622 95,04,623 Rs.5,06,44,427/- & credit sales of Dec 8,61,330 1,19,30,916 1,27,92,246 Rs.5,58,22,221/-. However, the Jan 12,13,562 82,44,595 94,58,157 sales shown in the P&L account Feb 13,90,396 89,93,595 1,03,83,577 were Rs.9.45 cr excluding VAT Mar 18,75,422 61,20,436 79,95,858 &Service Tax. Total 2,62,06,963 8,99,97,089 11,62,04,052 (Page 5 of Assessment order. It is submitted that in view of aforesaid tabulation it is evident that cash sale is 23% of total sale, it is although submitted that the aforementioned sale is as per audited financial statement and as such no adverse inference may please be drawn.
From the above table it is evident that cash sale is only 23% of the total sale as against 87% mentioned by the AO at page 5 of his order. (v) Further in response to personal hearing granted to the appellant through video conferencing on 28.05.2024 the appellant submitted a certificate from his statutory tax auditor evidencing that cash sales during FY 2016-17 amounted to Rs.26206963/- as against total sales of Rs.116204052/-, being 22.5% thereof, whereas cash sales up to October 2016 was Rs.19627252/- as against total sales up to the said period being Rs.66069591/- (percentage of cash sales to total sales up to October 2016 being 30%). The appellant thereby demonstrated that his cash sales to total sales ratio was in consonance with the same ratio during the preceding financial years and therefore no adverse inference on this count was warranted. (vi) The appellant has also relied on various judicial pronouncements to establish the following aspects with respect to addition made by the AO: a) That once cash deposits are duly explained by way of withdrawals made from the bank accounts, no adverse inference can be validly drawn; and addition made is illegal, invalid and unsustainable. b) That once cash sales has been offered as income, cash deposited in bank account out of such cash sales cannot be taxed u/s 68 of the Act as it tantamounts to double taxation. c) That once audited set of books of accounts are accepted by the AO it would be presumed that sales duly recorded in the books of accounts are also correct and therefore no adverse inference on account of cash deposits made arising out of such cash sales can be made. d) That section of 68 of the Act does not apply to a sum already disclosed as income. e) That section 68 of the Act does not apply to revenue transactions. f) Reliance was placed on the decision of Honorable ITAT Delhi in the case of AGSON GLOBAL PVT LTD. Vs. ACIT in wherein addition of Rs.73 crores on account of cash deposits during demonetization period was deleted as there was no substantial increase in sales post demonetization compare to earlier years. The appellant contends that in his case, as compared to financial year 2014-15 and 2015-16 percentage of cash sales to total sales has in fact gone down from 36% and 26.4% respectively to 23% in the year under consideration.”
After considering the above, ld. CIT (A) allowed the claim of the assessee with the following observations :- “5.1.6 The contentions of the AO raised in the assessment order and that of the appellant raised during the course of assessment proceedings and during the course of the current appellate proceedings before this authority have been closely perused. It is found that the addition made by the AO is based mainly on the premise that the cash sales made by the appellant during the FY 2016-17 jumped up exponentially to 87% of total sales when compared to preceding two financial years. Further the AO took the opening cash in hand position of the appellant at Rs.63.77 lakhs as on 01.04.2016. The AO totally brushed aside the cash sales made by the appellant and contended that the total cash withdrawals made from the banks up to October 2016 was not enough to meet the cash expenses and cash deposited into bank accounts for the same period. Based on this analysis the AO made additions to the total income of appellant. However, it is now seen that the AO’s analyses were incorrect on the following counts: i) The cash on hand available with the appellant as on 01.04.2016 was Rs.15685656 and not Rs.63.77 lakhs as contended by the AO.
ii) The cash sales to total sales or the appellant during the current financial year was only 23% as against 87% contended by the AO. This lapse happened as the appellant during the assessment proceedings had wrongly communicated the figures of cash sales to the AO at Rs. 10.09 crores as against the actual figures of 2.62 crores, for which the appellant had filed its submissions as per VAT returns and audited sets of books of accounts as tabulated above. iii) The appellant has also given re-conciliation of its cash in hand position at every crucial dates of the financial year to evidence that the cash deposits into the bank account were sourced out of either its opening cash in hand, or its cash sales, or cash withdrawals made from its bank accounts. The said re-conciliation has also be reproduced above provide para no. 5.1.5(iii) of this order. iv) The AO has not rejected the books of accounts of the appellant by bringing out any defects therein so as to not accept the stock position, cash in hand position, cash sales made during the year and total sales made during the year. However, he has made addition solely based on his analyses which, in turn, was based on wrong factual figures which gave rise to a conclusion that there was an exponential increase during the year in cash sales of the appellant vis-à-vis its total sales as compared to preceding two financial years. v) When the cash deposits into the bank accounts are out of the cash sales made by the appellant made either during this year or during the preceding financial years, which accumulated in the hands of the appellant in the form of bank balance or cash in hand, and when the said cash sales have been duly offered for taxation by the appellant, the AO has not brought on record as to how taxing the same would not amount to double taxation. vi) It was also not the case of the AO that the appellant had booked any bogus/non-existing expenses in its books of accounts post demonetization to legitimize its unaccounted income. The AO has not brought on record anything to suggest that such non-existing sales were credited to the profit and loss account by appellant which was set off by it by claiming any bogus expenses. 5.1.7 In view of the above factual findings, statutory documents submitted by the appellant, judicial pronouncements relied upon by the appellant, more specifically decision of the Honorable Tribunal of Delhi in the case of AGSON GLOBAL (Supra), it is held that addition made by the AO was incorrect and therefore ought to be deleted. Consequently, the grounds raised by the appellant are allowed.”
5. Aggrieved with the above order, Revenue is in appeal before us.
6. At the time of hearing, ld. DR of the Revenue brought to our notice page 7 of the appellate order and submitted that assessee has submitted various submissions before the ld. CIT (A) and ld. CIT (A) failed to call for remand report from the Assessing Officer. He also brought to our notice grounds of appeal wherein it was alleged that ld. CIT (A) has accepted additional evidences under Rule 46A and failed to collect remand report from the Assessing Officer. Further ld. CIT (A) has not considered the ratio of decision of Hon’ble Allahabad High Court in the case of Bimal Kumar Anand Kumar vs. CIT (288 ITR 278). With the above submission, ld. DR prayed that the issue may be remanded back to the Assessing Officer.
7. On the other hand, ld. AR of the assessee submitted that assessee has not filed any additional evidences before the ld. CIT (A) and submitted that relevant information what was already submitted before the Assessing Officer were submitted before the ld. CIT (A) and the information which was submitted before Assessing Officer were rearranged and the same was submitted before the ld. CIT (A), it was not the additional evidences as claimed by the ld. DR of the Revenue.
8. Considered the rival submissions and material placed on record. We observe that the Assessing Officer has rejected the submissions made by the assessee before him and proceeded to make the addition on his observation that cash sales has increased exponentially 87% of the total sales when compared to preceding financial years. Further he has considered only the opening cash balance of Rs.63.77 lakhs and added the cash withdrawals made by the assessee upto October 2016, according to him, it is not enough to meet the cash expenses and the cash deposits made by the assessee during the demonetization period. However, we observe that ld. CIT (A) gave a finding on the basis that assessee held opening cash balance of Rs.1,56,85,656/- and considered the other cash sales made during the year. We observe that from the records, submitted before the ld. CIT (A), ld. CIT (A) gave a categorical finding on all the issues in paras 5.1.6 and 5.1.7 which are reproduced above.
9. Further before us, ld. DR of the Revenue contended that ld. CIT (A) has accepted the additional evidences which were not forwarded to the Assessing Officer and called for the remand report. However, we considered various informations submitted before the ld. CIT (A), all these details like cash books, bank book and details of cash sales were already available with the Assessing Officer and assessee has rearranged the same information and submitted before the ld. CIT (A), information relating to opening cash balance is already submitted before the Assessing Officer which the Assessing Officer has rejected on gross basis. Considering the various details on record, we are of the opinion that the evidences which has bearing on the findings of the ld. CIT (A), were already brought on record. Whatever the information reproduced by the ld. CIT (A) in his order are already available with the Assessing Officer. Therefore, we are inclined to reject the submissions of the ld. DR of the Revenue. Accordingly, grounds raised by the Revenue is dismissed and there is a substantial amount of opening cash balance and supporting cash sales available in the business of the assessee to accommodate the expenses and cash deposits made during the year. The case laws relied upon by the ld. DR are distinguishable. Accordingly, the grounds raised by the Revenue are dismissed.
10. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this 6th day of August, 2025.