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Facts
The assessee filed its return of income declaring Rs. 9,65,820/-. The case was selected for scrutiny due to substantial cash deposits during demonetization. The Assessing Officer (AO) added Rs. 1,14,30,000/- to the assessee's income, treating cash deposits as unexplained cash credit, citing a steep increase in cash sales compared to the previous year.
Held
The Tribunal held that the AO did not provide any substantive findings to prove that the cash deposits were not from business sales. The AO had not rejected the books of account, doubted stock, or found discrepancies, making the addition based solely on increased cash sales unjustified.
Key Issues
Whether cash deposits during demonetization, when sales are recorded in books and not doubted by AO, can be treated as unexplained cash credit under Section 68/69A without rejecting books of account.
Sections Cited
143(2), 142(1), 68, 145(3), 69A
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Income Tax Appellate Tribunal, DELHI BENCH ‘A’: NEW DELHI
(Assessment Year: 2017-18) Income Tax Officer, vs. Anil Kumar Bhakkar, New Delhi. E – 99 – B, Mansarover Garden, Delhi – 110 015. (PAN : AAMPB0474B) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ashok Agarwal, CA REVENUE BY : Shri Rajesh Tiwari, Sr. DR Date of Hearing : 20.05.2025 Date of Order : 18.07.2025 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 23.09.2024 for Assessment Year 2017-18.
Brief facts of the case are, assessee filed its return of income on 27.10.2017 declaring an income of Rs.9,65,820/-. The case was selected for complete scrutiny through CASS. Based on the information available with the Revenue that assessee has deposited cash of substantial amount as compared to returned income during demonetization period. Accordingly, notices under section 143(2) and 142(1) of the Income-tax Act, 1961 along with questionnaire were issued to explain the source of cash deposit made during demonetization period. In response, ld. AR of the assessee submitted through ITBA portal. During assessment proceedings, it was observed that assessee had deposited cash in his accounts maintained with Kotak Bank Limited to the extent of Rs.34,80,000/- and cash deposited in Indian Overseas Bank account to the extent of Rs.79,50,000/-. On verification of the bank statement submitted by the assessee, it was observed that assessee has made total cash deposited during demonetization period to the extent of Rs.1,14,30,000/-. During assessment proceedings, assessee was asked to submit cash sales during the period from 01.04.2015 to 08.11.2015, compared the cash sales during the current period from 01.04.2016 to 08.11.2016. The Assessing Officer observed that during the previous year for the period 01.04.2015 to 08.11.2015, the assessee has declared cash sales of Rs.13,12,210/- only. He observed that there is huge increase in cash deposits during the current financial year, in this regard, the assessee has made submission that assessee has already reported the cash in DVAT returns, however, the Assessing Officer rejected the same and proceeded to make the above said cash deposits as unexplained cash credit in the books of account of the assessee, proceeded to add to the total income of the assessee.
3. Aggrieved, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions, the same were reproduced by the ld. CIT (A) at pages 6 to 13 of the impugned order. After considering the above submissions, ld. CIT (A) partly allowed the appeal preferred by the assessee and ld. CIT (A) has allowed the appeal on merits by observing as under :- “6.1.1 Although the AO has made addition u/s 68 by not accepting the contention of the appellant that cash deposit is made from cash sales. However, no where in the assessment order, the AO has doubted purchases or opening stock shown by the appellant. Also the AO has not pointed out any defect of inconsistency in the cash account of the appellant. Neither the books of accounts had been rejected by the AO. The AO at page 3 of the assessment order has stated that the appellant has introduced unexplained cash into business in the form fabricated cash sales. As per settled law, if the AO was of this view then he should have rejected the book result of the appellant u/s 145(3) of the Act. However, the AO has not done so. 6.1.2 Further, it is also noticed that the appellant during the course of assessment proceedings has submitted item wise and quantity wise stock details. No discrepancy regarding the opening and closing stocks has been pointed out by the AO. The AO has made addition just by giving reason that there were abnormal increase in cash sales in period 01.04.2016 to 08.11.2016 as compared to 01.04.2015 to 08.11.2015. However, no concrete evidence or fact finding has been done by the AO to prove that cash sales were non-genuine or fabricated. He has just held that cash sale does not seen to be genuine. However, without any evidence of non-genuine sale transactions or book rejection, assuming cash deposits based on higher cash sales as compared to previous year is unjustified. 6.1.3 Hon'ble ITAT, Chandigarh in case of Arun Garg Vs ITO [2023] 146 taxmann.com 10 (Chandigarh - Trib.) has held that held that addition in respect of unexplained cash credit under sections 68 and 69A of the Income Tax Act, 1961 cannot be made when documents and books of account submitted by assessee accepted by Assessing Officer (AO) in respect of cash credits during demonetization period. The relevant para is as under: "10.11 In the present case also the opening stock, purchases and sales and closing stock, declared by the assessee has not been doubted, the sales were made by the assessee out of the opening stock and purchases and the resultant closing stock has been accepted, the sales had not been disturbed either by the Assessing Officer or by the Sales TaxNAT Department and even there was no difference in the quantum figures of the stock at the time of search on April 12, 2017, therefore, the sales made by the assessee out of the existing stock were sufficient to explain the deposit of cash (obtained from realization of the sales) in the bank account and cannot be treated as undisclosed income of the assessee.”
Further, in case of Abhishek Prakashchand Chajkjed Vs ITO, Hon'ble ITAT Ahmedabad (ITA No.113/AHD/2023) has held that the cash generated from sales and duly recorded in the books of account cannot be treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The relevant para of the order is as below: "9.7 In the light of the detailed discussions and finding that has been recorded by us in the preceding para we are of the considered view that the action of the ld. AO making an addition under section 68 for an amount of Rs.80,00,000/- as unexplained cash deposit without rejecting the books of account is unwarranted based on the discussion so recorded here in above. Even the ld.AO has not find any defects in the details submitted by the assessee and audited books were considered and accepted while finalizing the assessment. Similar view has been taken by this coordinate bench of Jaipur in the case of Chandra Surana in wherein the similar view has been taken.” In the case of DCIT Vs Bawa Jewellers Hon'ble Delhi ITAT while deleting the addition made by the Assessing officer (AO), determined that, the cash deposited in bank accounts during the demonetization period was reflected in the books of account of the company. The tribunal after reviewing the facts observed that AO did not point out any defects in the books of account, no discrepancies were found in the stocks, sales and purchases. 6.1.3 Further, it is pertinent to mention here that addition by AO has been made u/s 68 of the Act. The provision of section 68 of the Act cast primary onus on the assessee to explain the nature and source of the sum credited in the books of account. This primary onus can be discharged by establishing/furnishing the proof of the identity of the creditor, their creditworthiness and genuineness of transaction. Once the primary evidence in relation to the identity, genuineness and creditworthiness is furnished by the assessee, the burden shifts on the AO to bring credible material before rejecting the primary document furnished by the assessee. Hon'ble Delhi High Court in the case of Kamdhenu Steel and alloys vs CIT [2012] 19 taxmann.com 26 (Delhi) has held that once the assessee has discharged its initial onus of proving the genuineness of the transaction, addition u/s 68 cannot be made without any additional material to support such a move. However, in the present case, no additional finding has been done by AO which can prove that sales are not genuine especially when the opening stock and purchases made by the appellant have been accepted by the AO. Further, the AO has also not rejected the books of accounts of the appellant or doubted stock summary. The AO without putting anything conclusive on record has simply made addition on the basis that cash sales were abnormally high as compared to previous year which is not enough to invoke the provisions of section 68/69A as per the above judicial pronouncements.
In view of the above discussion and judicial pronouncements, I am of the view that the AO has not brought any substantive finding on record which can prove that he cash deposit was not made from business sales of the appellant. Accordingly, addition made by AO u/s 68 of the Act of Rs.1,14,30,000/- is deleted. Ground No.1 to 6 are allowed.”
Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :-
1. That on the facts and circumstances of the case, the Ld. CIT (A) erred in law in deleting the addition of Rs.1,14,30,000/- made by the A.O. on account of unexplained cash credits u/s 68 of the Income Tax Act, 1961.
2. That on the facts and circumstances of the case, the Ld. CIT (A) erred in ignoring the relevant and circumstantial evidence regarding exorbitant increase in cash sales and cash deposits by the assessee.”
At the time of hearing, ld. DR of the Revenue brought to our notice findings of the Assessing Officer from paras 6 to 9 of the assessment order and submitted that assessee has not demonstrated the reason for steep increase in cash sales during current assessment year when compared to previous assessment year. He objected to the relief granted by the ld. CIT (A). He heavily relied on the findings of the Assessing Officer.
On the other hand, ld. AR of the assessee submitted that Assessing Officer has not rejected the books of account maintained by the assessee u/s 145(3) of the Act. Further he submitted that the Assessing Officer has not brought any contrary evidence to prove that the cash deposit was unexplained, has not provided any contradiction in sales invoices, stock registers and books of account. The cash deposit represented genuine business transactions and corresponding sales proceeds were recorded in the books. He further submitted that assessee has already offered sales realization as income for the year and Assessing Officer has accepted the same, however, made addition of the same sales u/s 68 of the Act, tantamount to double taxation. He submitted that Assessing Officer accepted the books of account but arbitrarily made the addition of cash deposit without rejecting the books of account. He prayed that the impugned order passed by the ld. CIT (A) may be sustained. In this regard, he relied on the following cases :- (i) ITAT, Chandigarh in case of Arun Garg vs. ITO (2023) 146 taxmann.com 10 (Chandigarh); (ii) ITAT Ahmedabad in case of Abhishek Prakashchand Chajkjed vs. ITO in (iii) ITAT, Delhi in case of DCIT vs. Bawa Jewellers (iv) Hon’ble Delhi High Court in case of Kamdhenu Steel and Alloys vs. CIT (2012) 19 taxmann.com 26 (Delhi); and (v) Hon’ble Gujarat High Court in case of CIT vs. Vishal Exports Overseas Limited in Tax Appeal No.2471 of 2009.
Considered the rival submissions and material placed on record. We observe that during assessment proceedings, Assessing Officer observed that assessee has made huge cash sales during the year under consideration i.e. 01.04.2015 to 08.11.2015. Since the cash sales has increased manifold compared to previous assessment year, however Assessing Officer rejected all the evidences submitted before him and proceeded to make the addition. We observe that the assessee has already brought on record the relevant stock Assessing Officer has not raised any doubt with regard to stock maintained by the assessee for opening as well as closing stock and accepted the purchase and closing stock declared by the assessee. He has proceeded to make the addition merely on the basis that assessee has declared cash sales based on the comparative data with the previous year. We observe that the Assessing Officer has not rejected the books of account and has not raised any discrepancies relating to the books of account and relevant documents maintained and submitted by the assessee. Merely on the basis of increased cash sales, he has proceeded to make the addition. We observe that various courts have held that if the assessee is able to maintain stock registers/ correspondence with the books of account maintained by the assessee and the cash sales were out of stock maintained by the assessee, the same cannot be held as undisclosed credit. We observe that ld. CIT (A) has considered the detailed facts on record and observed that the Assessing Officer has not brought on record any additional findings which proved that sales are not genuine specially when the opening stock and purchases made by the assessee have been accepted by him. Further he observed that Assessing Officer has not rejected the books of account nor doubted the stock summary submitted by the assessee. Without bringing any evidence on record and proceeded to make the addition on the basis of abnormal increase in cash 68/69A of the Act. After considering the facts available on record, we are inclined not to disturb the findings of the ld. CIT (A).
In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this 18th day of July, 2025