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Facts
The Revenue appealed against the deletion of an addition made under Section 68. The Assessing Officer (AO) added Rs. 2,53,60,000/- as undisclosed income on account of cash deposits during the demonetization period, citing abnormal growth in sales and deposits compared to the previous year. The CIT(A) deleted this addition.
Held
The Tribunal held that the AO had not pointed out any defects in the stock register, purchases, or sales. The sales declared were consistent with VAT returns and supported by stock records. Since the assessee's books were audited and the turnover matched VAT returns, the cash deposits, which were linked to sales, could not be treated as unexplained income.
Key Issues
Whether cash deposits during the demonetization period, linked to sales declared and supported by audited books, can be treated as unexplained income under Section 68 if the AO fails to find any defects in the assessee's records.
Sections Cited
68, 115BBE
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Income Tax Appellate Tribunal, DELHI BENCH “A”NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI S RIFAUR RAHMAN
आदेश /O R D E R
PER C.N. PRASAD, J.M.
This appeal is filed by the Revenue against the order of the Ld. CIT(Appeals)-NFAC Delhi dated 30.01.2024 for the AY 2017-18 in deleting the addition made u/s 68 of the Act in respect of cash deposits into its bank account during the assessment year under consideration.
Brief facts are that the assessee company filed its return of income on 06.11.2017 declaring income of Rs.4,72,350/-. The case was selected for scrutiny under CASS and in the course of assessment proceedings the Assessing Officer noticed that assessee during demonetization period made cash deposits of Rs.2,85,88,000/- into its bank account maintained with State Bank of India. The assessee was required to explain the source of cash deposits with evidences. The assessee furnished the details for cash deposits made. However, the AO while comparing the cash deposits made by the assessee during the assessment year under consideration with the corresponding period in the previous assessment year came to the conclusion that there is substantial increase in cash deposits during the assessment year under consideration, similarly there is substantial growth in the sales when compare to the corresponding period in the previous assessment year. The AO disbelieved that the cash deposits are made on account of sales by the assessee and accordingly an amount of Rs.2,53,60,000/- was held to be undisclosed income of the assessee. On appeal the Ld. CIT(A) deleted the addition against which the Revenue is in appeal before us.
The Ld. DR strongly supported the orders of the AO and the Ld. Counsel for the assessee strongly supported the order of the Ld. CIT(Appeals). Ld. Counsel further placing reliance on the decision of the Delhi Bench in the case of Deepak Sharma Vs. ACIT in dated 26.3.2025 submitted that once the purchases, sales declared by the assessee have been accepted and did not find any discrepancy in stock register, the cash sales deposited into the bank account cannot be treated as unexplained income of the assessee. Ld. Counsel also placed reliance on the decision of the Delhi Bench in the case of DCIT Vs. E.P. Electricals dated 5.5.2025 in support of the above contention.
Heard rival submissions, perused the orders of the authorities below and the case law relied on. We find that the AO treated the cash deposits as an unexplained income of the assessee for the reason that there is abnormal increase in sales, cash deposit into bank account when compared to the sales and cash deposits in the corresponding period in the preceding assessment year. Ld. CIT(A) considering the submissions and evidences furnished by the assessee and after analysing the details furnished by the assessee concluded that the books of the assesee were audited, the turnover of the assessee matches with the VAT returns, copies were also filed before the AO and there was no enquiry made by the AO with regard to cash deposited into bank account to show that the cash sales during the year under consideration were not genuine. The AO not pointed out any defects in the stock register, the stock position was not doubted, purchases were not doubted. Therefore, the Ld. CIT(A) on analysing all the aspects concluded that the stand taken by the AO that the cash deposited by the assessee into bank account as undisclosed income of the assessee was held to be not tenable and accordingly the addition was deleted observing as under:
“6.1 I have perused the impugned order, the statement of facts, the grounds of appeal and the submissions filed by the appellant before the AO through the CPC 2.0 portal. Grounds no. 1 and 8 are general in nature and do not require any adjudication. Grounds no. 2 to 6 relate to the addition made by the AO u/s 68. (misquoted by appellant as 69A in the grounds of appeal) of Rs. 2,53,60,000/- All these grounds are disposed of together as under. 6.2 The issue of treatment of cash deposits made by a business subject to Audit and filing VAT returns as unexplained cash credits under section 68 has been much litigated. In this regard the following two decisions of the Hon'ble ITAT have fact pattern and assessment order similar to the present case.
1. ACIT vs Ramlal Jewellers Private Limited in dated 26/07/2023 2. ITO vs Ashapura Petrochem Marketing Pvt. Ltd in dated 18/10/2023 It is pertinent to reproduce the relevant part of the ITAT decision in the case of Ramlal Jewellers Private Limited: 12. We find that the only reason given by the Id. AO for treating the entire cash deposited in the bank account is that, there was abnormal growth on the cash sales in the month of November 2016 and corresponding cash deposits from the month of November to December, which alone cannot be the ground when deposits are directly linked with sale duly disclosed in the books. Another point raised by him was that, some of the cash sales made to different parties cannot be identified and the parties who responded were unable to explain the source of their funds. From the perusal of the material placed on record and also the explanation given by the assessee before the Id. AO, it is seen that assessee has maintained regular books of accounts which was subject to audit and has produced the entire sale bills, stock register and purchases and also quantitative tally of sales and corresponding stock. The assessee has also demonstrated that there was a direct correlation of cash outflow from the books of accounts with cash deposit in the bank accounts and also produced day wise stock report, wherein the outflow of stock against sales has been clearly reflected. Apart from that, sales declared under the Maharashtra VAT Act and the VAT return completely tallied with the sales of the assessee shown in the books of accounts. Even the Id. AO before whom all these documents were furnished has not pointed out any discrepancy in the sales bills, sales register, purchases and stock. Neither has he admitted the quantity of purchases at the stock with assessee and the corresponding quantity of sales made by the assessee during the year.
Another important fact is that assessee has duly filed cash compliance report with respect to cash sales in Form 61A giving all the details with respect to cash sales. Nowhere, the Id. AO has pointed out that assessee did not have sufficient stocks in its possession or otherwise found any 5 defect in the stock register. If that finding has not been given and no discrepancy has been pointed out, then how the corresponding sales of same stock and quantity can be treated as ‘undisclosed income’ of the assessee. Once, AO has accepted the sales and there is direct nexus with the closing stock and the sales alongwith movement of stock linked to purchases then such credit on account of sales cannot be added u/s.68. If the cash sales have been accepted, then deposit of the same cash in the bank account which is tallying with the entries in regular cash book, cannot be treated as deposits made out of any undisclosed income.
Addition u/s.68 on account of cash deposits cannot be made simply on the reason that during the demonetization period, cash deposits vis-a-vis cash sales ratio is higher. If the parties during the period of demonetization has purchased huge quantity of jewellery on cash which has been duly recorded in the books of accounts of the assessee and also tallying with the quantity of stock, then simply because there was a huge cash sales in that particular month cannot be the reason for treating it as undisclosed income from undisclosed sources. Here in this case the parties to whom notices u/s. 133(6) were issued have confirmed the purchases but also filed the purchase bills. The Id. AO cannot disbelieve the purchases made from the assessee simply on the ground that those parties could not submit the source of their funds which is not the requirement of the assessee to prove specifically when assessee is a retail seller of jewellery and even law does not prohibit any cash sales or there is any requirement to seek any further detail. For this compliance assessee has also filed Form 61A before the Id. AO. Once, it has been established that sales representing outflow of stocks is duly accounted in the books of accounts and there are no abnormal profits during the year, then there is no justification why AO should treat the deposits made in the bank account out of cash sales to be income from undisclosed sources. Thus, aforesaid finding 6
recorded by the Id. CIT(A) which is based on correct appreciation of facts on record and there is no adverse finding by the Id. AO with regard to the availability of stock and quantity of items shown in the stock register and the corresponding sales, no addition can be made. Accordingly, order of the Id. CIT (A) is confirmed and the grounds raised by the Revenue is dismissed. 6.3 In the present case, the books are subjected to audit. The appellant has furnished the cash book before the AO. Cash deposited in the bank account during the demonetization period is stated to be out of sales of the business. The turnover matches the VAT returns filed, copies of which were also furnished before the AO. There is no enquiry conducted by the AO to show that cash sales during the demonetization period are not genuine. The AO has not doubted the position of stock or the purchases which resulted in the corresponding sales. When the initial onus cast upon the appellant stands discharged, the explanation given cannot be brushed aside without any cogent material available in the form of findings of any enquiry or any specific defect pointed out in the accounts of the appellant. The AO has only relied on percentage calculations and the fact that the VAT return for the third quarter was revised on 29.3.2018 to hold that the appellant has not discharged its onus of proving the source of cash credits in the bank account. The stand taken by the AO is not tenable. The addition of Rs. 2,53,60,000/- is hereby deleted and grounds no. 2 to 6 are allowed.”
Further we observe that in the case of Deepak Sharma Vs. ACIT the coordinate bench of the Tribunal in dt.
26.3.2025 held as under:
“3. We have heard both the parties and perused the records. At the time of hearing, Ld. Counsel for the assessee submitted that once the purchases declared in the books of account were accepted, there is no basis to treat the sales made out of such purchases as 7 unexplained cash credits taxable under section 68 of the Act. It was further submitted that the cash deposits which has- already declared in the return of income as part of total sales and that it amounts to double taxation of the same amount. It was further submitted that even assuming that the additions were warranted under section 68 of the Act, the Ld. CIT(A) has erred both on facts and in law in confirming the demand computed in accordance with rate specified in section 115BBE of the Act the authorities below. We find that Ld. CIT(A) has not disputed the sales made which were duly disclosed in VAT return and also in books of accounts maintained by the assessee audited and also under section 44AB of the Act, no adverse inference could be drawn in respect of the declared sales by the assessee. We further note that once the purchases declared in the books of accounts were duly accepted then no subjective assumption and presumption could be made a basis to assume, allege and conclude that sales made out of such purchases were unexplained cash credits taxable under section 68 of the Act. It is settled law that once the books of accounts, sales have been accepted, the same could not be regarded as unexplained credits. It is also noted that aforesaid sales as made by the assessee were supported by the availability of stock in the books of accounts whose availability is not disputed and is otherwise too supported by genuineness of creditors and also sales bills maintained. In view of the aforesaid peculiar facts and circumstances of the case, we are of the considered view that addition in dispute confirmed by the Ld. CIT(A) deserve to be deleted. We hold and direct accordingly. So far as assessee’s assessment u/s. 115 BBE of the Act is concerned, Hon’ble Madras High Court in SMILE Microfinance Ltd. vs. ACIT in WP(MD) no. 2078 of 2020 & 1742 of 2020 dated 19.11.2024 (Mad.) has already settled the issue against the department that the law applies to the transaction on or after 01.04.2017 only. Ordered accordingly.”
Similarly in the case of DCIT Vs. EP Electrical Paradise Ltd. in ITA 3566/D/2023 the coordinate bench held as under:
“5.We have heard both the parties and perused the records. Ld. DR relied upon the order of the AO. Per contra, Ld. AR for the assessee submitted that Ld. CIT(A) has passed a reasonable order which does notrequire any interference on our part. She submitted that books have not been rejected and assessee’s submissions have been disbelieved without any cogent basis. She further submitted that in identical situation the Coordinate Bench of the Tribunal in for AY 2017-18 vide order dated 26.3.2025 in the matter of Deepak Sharma vs. ACIT has allowed the assessee’s appeal on similar cash deposit. 5.1 Upon careful consideration, we find that on identical facts this Tribunal in the case of Deepak Sharma vs. ACIT (Supra) has held as under: “3. We have heard both the parties and perused the records. At the time of hearing, Ld. Counsel for the assessee submitted that once the purchases declared in the books of account were accepted, there is no basis to treat the sales made out of such purchases as unexplained cash credits taxable under section 68 of the Act. It was further submitted that the cash deposits which has already declared in the return of income as part of total sales and that it amounts to double taxation of the same amount. It was further submitted that even assuming that the additions were warranted under section 68 of the Act, the Ld. CIT(A) has erred both on facts and in law in confirming the demand computed in accordance with rate specified in section 115BBE of the Act as amended by Taxation Laws (Second Amendment) Act, 2016. Ld. DR relied upon the orders of the authorities below. We find that Ld. C1T(A) has not disputed the sales made which were duly disclosed in V AT return and also in books of accounts maintained by the assessee audited and also under section 44AB of the Act, no adverse inference could be drawn in respect of the declared sales by the assessee. We further note that once the 9 purchases declared in the books of accounts were duly accepted then no subjective assumption and presumption could be made a basis to assume, allege and conclude that sates made out of such purchases were unexplained cash credits taxable under section 68 of the Act. It is settled law that once the books of accounts, sales have been accepted, the same could not be regarded as unexplained credits. It is also noted that aforesaid sales as made by the assessee were supported by the availability of stock in the books of accounts whose availability is not disputed and is otherwise too supported by genuineness of creditors and also sales bills maintained. In view of the aforesaid peculiar facts and circumstances of the case, we are of the considered view that addition in dispute confirmed by the Ld. CIT(A) deserve to be deleted. We hold and direct accordingly. So far as assessee’s assessment u/s. 115 BBE of the Act is concerned, Hon’ble Madras High Court in SMILE Microfinance Ltd. vs. ACIT in WP(MD) no. 2078 of 2020 & 1742 of 2020 dated 19.11.2024 (Mad.) has already settled the issue against the department that the law applies to the transaction on or after 01.04.2017 only. Ordered accordingly. 5.2 We find that the aforesaid case law is squarely applicable in the facts of the present case. Moreover, Ld. CIT(A) has passed a reasonable order, wherein he has given a finding that AO has not rejected the books of account and sales 'during the festive seasons sales were on higher side. Furthermore, there was no iota of evidence having adverse remark on the purchases shown by the assessee accounts. Hence, we do not find any infirmity in the order of the Ld. CIT(A), thus, we confirm the same.”
In view of the above discussion, we see no infirmity in the order passed by the Ld. CIT(A) in deleting the addition made u/s 68 of the Act by the AO. Grounds raised by the Revenue are rejected.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 25/06/2025