Loading judgment…
Facts
The assessee filed its return of income and was selected for scrutiny. The AO noted that cash sales were nominal except for a period before demonetization. The AO added Rs. 61,20,000/- representing cash deposits made during demonetization as unexplained income under Section 68 of the Act, which was upheld by the CIT(A).
Held
The Tribunal held that the addition made under Section 68 of the Act was unsustainable as the AO did not reject the assessee's books of accounts, nor did they dispute the sales, purchases, or stock. The Tribunal relied on various precedents where similar additions were deleted when books were not rejected.
Key Issues
Whether the addition of cash deposits made during the demonetization period under Section 68 of the Income Tax Act is justified when the assessee's books of accounts have not been rejected.
Sections Cited
68, 143(2), 142(1), 115BBE, 69A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH: ‘A’: NEW DELHI
Before: SHRI SHAMIM YAHYA & SHRI SUDHIR PAREEK
The instant appeal has been preferred by the assessee against the order of National Faceless Appeal Centre (NFAC) [hereinafter referred to as the “Ld. CIT(A)”] dated 14.02.2023 for Assessment Year 2017-18. 1.1 The assessee has raised the following grounds of appeal:
ITA No.-636/Del/2023 Abhilasha Impex Pvt. Ltd. “ 1. The Ld. CIT(A) has erred in law and facts while confirming the additions of Rs. 61,20,000/- made by the Ld. AO to the income of the assessee.
2. The Ld. CIT(A) has erred in law and facts while confirming the additions made u/s 68 of the Act.
3. The Ld. CIT(A) has erred in law and on facts wile upholding the additions merely on the basis of whims and surmises without rejecting books of accounts or without pointing out any infirmity in the books of accounts of the assessee.
4. The Ld. CIT(A) erred in law and facts while ignoring the books of accounts for explaining the source of cash deposited into the bank account for business transactions.
5. The assessee may please be allowed to add, alter, amend its ground of appeal at any time before or during the course of hearing of the appeal.”
Facts of the case concisely described as that the asssessee filed original return electronically at an income of Rs. 8,02,790/- on 30th October, 2017 and the case was selected for scrutiny under CASS and in pursuant thereof notices u/s 143(2), 142(1) of the Act issued on different dates. In the course of proceedings, the Ld. AO found that the cash sales were made only in the month of October, 2016 and first week of November, 2016 i.e. the period just before demonetization and very nominal cash sales were made by the assessee in other months. So, thereafter, the assesee was issued another notice u/s 142(1) of the Act along with specific questionnaire dated 30.12.2019.
ITA No.-636/Del/2023 Abhilasha Impex Pvt. Ltd. 2.1 The Ld. AO observed that the assessee failed to submit list of customers who purchased the goods in cash. The Ld. AO by stating that there is no justification to hold cash of Rs. 61,20,000/- as cash in hand or not to deposit it in bank account of the assessee and so it makes it further clear that assessee had deposited the said amount during period of demonetization out of unaccounted cash kept by the assessee and later made certain adjustments in the cash book in terms and sales of stocks and tried to justify the source of cash deposit. The Ld. AO held that the cash deposited during the demonetization period amounting to Rs 61,20,000/- remain unexplained on the part of the assessee company and accordingly added to the total income of the assessee company u/s 68 of the Act r.w.s 115BBE of the act. The assessee assailed the order passed by the Ld. AO by way of appeal, which was dismissed by the Ld. CIT(A) and confirmed the addition in question.
Aggrieving by the same, the assessee before us by preferring instant appeal for adjudication.
Heard rival contentions and perused the material available on record. The Ld. AR reiterated the ground of appeal expressing
ITA No.-636/Del/2023 Abhilasha Impex Pvt. Ltd. grievances that Ld. CIT(A) erroneously confirmed the addition of Rs. 61,20,000/- made by the AO to the income of the assessee u/s 68 of the Act, by upholding additions merely on the basis of whims and surmises and without rejecting the books of accounts or without pointing out any infirmity in the books of accounts of the assessee and ignoring the books of accounts for explaining the source of cash deposited into the bank account for business transactions.
Per contra, the Ld. Sr. DR relied upon the order of the authorities below.
The Ld. AR further submitted that the assessee company is trader in EVA resin since long and having bank borrowings. Godown cleaning by landlord due to Deepawali festival falling on 30.10.2016, old and obsolete goods were being cleared off in retails in cash. Due to this, very low and only cash sales during the month of October and Novembers, which is duly reported in VAT returns and VAT paid on above sales. The Ld. AR also submitted that in this case, there is no rejection of books of account or denial to the sales during assessment or appellate proceedings, and cash deposited into bank and duly recorded in books of accounts was added to the income of the ITA No.-636/Del/2023 Abhilasha Impex Pvt. Ltd. company as cash credit u/s 68 of the Act. In support of above arguments, the Ld. AR also submitted audited financial statements, monthly sales and purchase, details of sales during October and November, VAT return for quarter 3, stock status as on 01.10.2016, cash account and ledger account of TP impex.
The Ld. AR relied upon the order passed by the Co-ordinate Bench of Delhi, in the case of Cumin Infotech Pvt. Ltd. vs. ITO, in ITA No.-3838/Del/2023, in which it is held that no any reason gave by the Ld. AO for rejecting the explanation of the assessee that the cash deposits were made out of sale proceeds and also neither disputed the purchases, sales, stocks nor pointed out any defects in the audited books of accounts. In the absence of rejection of books of accounts and pointing out any defects in the books of accounts, the addition made by the Ld. AO u/s 68 of the Act, unsustainable. The relevant para no. 7 and 9 are reproduced as under:
“ 7. Heard rival submissions, perused the orders of the authorities below. On reading of the assessment order, it is noticed that the Assessing Officer did not give any reason for rejecting the explanation of the assessee that the cash deposits were made out of sale proceeds. The Assessing Officer neither disputed the purchase, sales, stocks nor pointed out any defects in the audited books of accounts. In the absence of rejection of books of accounts and pointing out any defects in the books of accounts, not disputing the purchases, sales, stocks and cash in hand there is not justification in treating the cash deposits as 5 ITA No.-636/Del/2023 Abhilasha Impex Pvt. Ltd. unexplained money of the assessee ignoring the explanation of the assessee that the cash deposits made in the bank account are from ale proceeds only.
The Mumbai Bench of the Tribunal in the case of ACIT vs. Ram Lal Jewellers Pvt. Ltd. (supra) held that addition u/s 68 on account of cash deposits cannot be made simply on the reasons that during the demonetization period cash deposits viz -a – viz cash sale ratio is higher. If the parties during the period of demonization has purchases huge quantity of jewellwery on cash which has been duly recorded in the books of accounts of the assesses and also tally with the quantity of stock, then simply because there was a huge cash sale in a particular month cannot be a reason for treating it as an undisclosed income from undisclosed sources.
9. In the case on hand it is not even the case of the Assessing Officer that cash deposits viz-a-viz cash sales ratio is higher. Nothing has been stated by the AO as to why the explanation of the assessee was rejected. Therefore, in the circumstances, the addition made by the Assessing Officer u/s 68 of which was treated as addition u/s 69A by the Ld. CIT(Appeals) cannot be sustained. Thus, the AO is directed to delete the addition of Rs. 24,06,635/-made towards unexplained money. Grounds raised by the assessee are allowed.”
8. Likewise, the Ld. AR relied upon the order passed by the Co- ordinate Bench of ITAT, Delhi, in the case of Bharat Agro Industries vs. DCIT, in ITA No.- 3934/Del/2023, the relevant para of this order is reproduced as under:
“ 9. From the above, it is clear that the Ld. CIT(A) did not advert to submissions that no error was found in the stock of the assessee. Once the assessee has recorded the sales in its books and there is no adverse finding qua stock and purchases are made. In my considered view, invoking the provision of section 68 of the Act, would not be justified. It is not case of inflated purchases but AO treated cash sales being bogus without disturbing the books results. I therefore, hold that authorities below have committed error in making impugned addition without bringing any adverse material in respect of purchases and stock of assessee. The impugned order is hereby, set aside and the AO is 6
ITA No.-636/Del/2023 Abhilasha Impex Pvt. Ltd. directed to delete the impugned addition. Thus, grounds raised by the assessee allowed.
The Ld. AR vehemently relied upon the order passed by the us, in the case of Shivinder Pal Singh Chahal vs. ACIT, in ITA No.- 3248/Del/2023, in which we hold that since entire sales and corresponding purchases also been accepted by the Revenue Department and books have not been rejected, the disallowance made by the AO and confirmed by the Ld. CIT(A), is unsustainable in law. The relevant para no. 3 is reproduced as under:
“ 3. We have heard both the parties and perused the records. We find that the entire sales have been accepted by the Revenue Department, corresponding purchases have also been accepted and books have not been rejected. In this view of the matter, the disallowance made by the AO and confirmed by the Ld. CIT(A), is not sustainable, hence, we direct that the same be deleted. Accordingly, this ground is allowed.”
In the instant case, it is undisputed fact, during assessment and appellate proceedings, cash sales and corresponding purchases already been accepted and books of accounts have not been rejected and without rejection of the books of accounts, the Ld. AO made the disallowance of Rs. 61,20,000/-, which is confirmed by the Ld. CIT(A)
ITA No.-636/Del/2023 Abhilasha Impex Pvt. Ltd. u/s 68 of the Act, cannot be sustained as per precedents mentioned hereinbefore and deserves to be deleted.
Consequently, the appeal of the assessee is hereby allowed as indicated above.
Order pronounced in the open court on 28.05.2025