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Facts
The assessee, a proprietor of a jewelry business, had cash deposits during the demonetization period, which the AO treated as unexplained income under Section 69A read with Section 115BBE. The assessee also received unsecured loans of Rs. 60 lakhs, which the AO added back as unexplained cash credit under Section 68.
Held
The Tribunal held that the cash deposits were proved to be out of regular cash balance from sales, and the unsecured loans met the three ingredients of Section 68, with the transaction not materializing leading to repayment. Therefore, the additions made by the AO were deleted.
Key Issues
Whether cash deposits during demonetization and unsecured loans received were sufficiently explained by the assessee.
Sections Cited
143(3), 69A, 115BBE, 68, 234B, 234C
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Income Tax Appellate Tribunal, DELHI BENCH “A”: NEW DELHI
Before: SHRI C. N. PRASAD & SHRI M. BALAGANESH
O R D E R PER M. BALAGANESH, A. M.: The appeal in AY 2017-18, arises out of 1. the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. NFAC’, in short] in Appeal No. ITBA/NFAC/S/250/2023-24/1056419870(1) dated 22.09.2023 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.12.2019 by the Assessing Officer, ITO, Ward-1(5), Faridabad (hereinafter referred to as ‘ld. AO’).
Ground Nos. 1 and 2 raised by the assessee are challenging the 2. addition made on account of cash deposits made during the demonetization period in the sum of Rs. 5,90,00,000/- u/s 69A read with Section 115BBE of the Act.
We have heard the rival submissions and perused the material 3. available on record. The assessee is a proprietor of M/s. Gayatri Diamonds carrying on jewellery business including bullion. The return of income for AY 2017-18 was filed by the assessee on 30.10.2017 declaring taxable income of Rs. 11,52,650/-. During the course of scrutiny assessment proceedings, the ld AO noted that there was cash deposits made by the assessee during demonetization period. The assessee stated that cash deposits were made out of cash sales and same were duly reflected in the cash book. The assessee gave the month-wise details of cash sales. The assessee submitted that he had cash balance of Rs. 5,89,45,683/- as on 08.11.2016 which was subsequently deposited in the bank during demonetization period. The assessee gave the complete details of cash movement for all the 12 months in tabular form which proved that cash deposits were made by the assessee on a periodic basis both prior to demonetization period, during the demonetization and post demonetization period. The assessee also submitted that cash sale has been included as part of total turnover in the profit and loss account and total sales is also disclosed in the income tax return. The assessee also submitted VAT returns for all the quarters before the ld AO. The ld AO disregarded all the contentions of the assessee and proceeded to treat the cash deposits made during demonetization period as unexplained money u/s 69A read with Section 115BBE of the Act in the sum of Rs. 5,90,00,000/-. In appeal, the assessee reiterated the contentions. This action of the ld AO was upheld by the ld CIT(A).
It is not the case of the revenue that assessee did not have sufficient stock of jewellery and bullion in its kitty to effect the sales (both cash and credit sales). The entire cash sales have been duly reflected in the cash book and assessee was having sufficient cash balance in its kitty to make cash deposits on various dates including demonetization period. The assessee had submitted the copy of sale invoices, VAT charged details, purchase details, cash book, bank book apart from availability of cash balance on several months in a tabular form. The assessee also gave the details of original VAT returns and revised VAT returns. The assessee gave party-wise details of purchases, purchase registers and purchase invoices before the ld AO. The assessee furnished the copy of stock register summary showing the complete movement of goods in respect of opening stock, purchases, sales and closing stock. The assessee gave the details of month-wise purchase and sales before the ld AO together with the comparative details of earlier year. No discrepancies whatsoever were found in these documents furnished by the assessee before the lower authorities. The lower authorities had completely ignored all the documents of the assessee and simply proceeded to treat the cash deposits made during the demonetization period as unexplained money ignoring the fact that assessee had already disclosed cash sales of Rs. 5.53 crores in the return of income. On each date of cash deposit made by the assessee, the assessee had sufficient cash balance in its kitty. Hence, cash deposits cannot be treated as having been made out of unexplained sources warranting any addition u/s 69A of the Act. Since the sales disclosed by the assessee have been accepted by the revenue, a separate addition on account of cash deposit which emanates out of cash sales and cash balance available with the assessee would only result into double addition. Further, reliance in this regard has been rightly placed by the ld AR decision of the Hon’ble Jurisdictional High Court in the case of PCIT Vs. Agson Global Pvt. Ltd reported in 441 ITR 550 (Del); decision of Delhi Tribunal in the case of ITO Vs. J K Woods India Pvt. Ltd reported in 205 ITD 10 (Delhi Tribunal) and decision of the Delhi Tribunal in the case of J R Rice Mills Pvt. Ltd Vs. ACIT reported in 157 taxmann.com 337 among others. The VAT returns though revised have been accepted by the VAT authorities and assessee also placed on record the copy of VAT assessment order for 3rd quarter of FY 2016-17 on record to justify his contentions.
In view of the aforesaid observations, we have no hesitation to 5. conclude that assessee had duly proved the source for cash deposits made during demonetization period to be emanating out of regular cash balance as per the cash book and hence, the addition made u/s 69A read with Section 115BBE of the Act is hereby deleted. Accordingly, ground Nos. 1 and 2 raised by the assessee are allowed.
Ground Nos. 3 and 4 raised by the assessee are challenging the 6. addition on account of unsecured loans received during the year in the sum of Rs. 60 lakhs as unexplained cash credit u/s 68 of the Act.
We have heard the rival submissions and perused the material 7. available on record. During the course of assessment proceedings, the assessee furnished the details of Rs. 60 lakhs received as unsecured loan from M/s. Omnis Developers Pvt. Ltd on 13.02.2017. Notice u/s 133(6) of the Act was issued by the ld AO to the said lender. The said lender in response to the notice u/s 133(6) of the Act submitted that it had given advance of Rs. 60 lakhs on 13.02.2017 to the assessee for purchase of a land but since the transaction did not materialize, the said amount was received back from the assessee during the FY 2017-18. The ld AO on perusal of the financial statement of M/s. Gayatri Diamonds (proprietary concern) observed that there was no land in the fixed assets of the assessee. Hence, the assessee could not have received any advance for land from the said Omnis Developers Pvt. Ltd. Accordingly, he concluded that the transaction looks suspicious and hence, added the same as undisclosed income of the assessee. This action was upheld by the ld CIT(A).
It is not in dispute that the assessee had indeed received a sum of 8. Rs 60 lakhs which also stood confirmed by the lender. These facts stood confirmed by the lenders in response to reply filed u/s 133(6) of the Act directly before the ld AO. The assessee had duly proved the three ingredients of Section 68 viz identity of the lenders, creditworthiness of the lenders and genuineness of the transaction. The only issue sought to be disputed is that the lender had stated that money paid to the assessee is towards advance for purchase of land and since, the transaction did not materialize, the said money was received back by the lender from the assessee in subsequent financial year. The very fact that the transaction not getting materialized itself goes to prove that the monies given by the lender to the assessee becomes a hand loan given to the assessee. The assessee had disclosed the amount received from the lender as unsecured loan. The source and creditworthiness of the lender to make advance of Rs. 60 lakhs to the assessee is not doubted by the revenue. Since, the transaction did not materailize, the assessee had repaid the loan in next financial year. Hence we hold that this is not a fit case for making any addition u/s 68 of the Act in the hands of the assessee. Accordingly, ground No. 3 and 4 raised by the assessee are allowed.
Ground no. 5 is challenging the chargeability u/s 234B and 234C of 9. the Act. With regard to chargeability of interest u/s 234B of the Act, the same is consequential. With regard to chargeability of interest u/s 234C of the Act, the law is very well settled that the same shall be charged only on the returned income and not on the assessed income.
Ground no. 6 raised by the assessee is general in nature and does 10. not require any specific adjudication.
In the result, the appeal of the assessee is allowed. 11.
Order pronounced in the open court on 30/06/2025.