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Facts
The assessee, a path lab, deposited Rs. 27,34,000/- in Specified Bank Notes during the demonetization period, which the Assessing Officer added as unexplained cash credit under Section 68. The CIT(A) confirmed this addition, observing a significant rise in cash deposits compared to previous months and insufficient evidence from the assessee to prove genuineness.
Held
The Tribunal found that the cash receipts were already included in the total turnover and taxed as business income, and the AO had not rejected the books of accounts. Therefore, making a further addition under Section 68 would lead to double taxation. The Tribunal concluded that the addition was not justified and accordingly deleted it.
Key Issues
Whether cash deposits made during demonetization, which are recorded in the books and offered to tax as business income, can be again added as unexplained cash credit under Section 68, leading to double taxation.
Sections Cited
250, 68, 143(3)
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Before: SHRI PAWAN SINGH & SMT.RENU JAUHRI
Date of Hearing 30.09.2025 Date of Pronouncement 27.10.2025 आदेश / O R D E R PER RENU JAUHRI [A.M.] :-
This appeal is filed by the assessee against the order of the Learned Commissioner of Income-tax (Appeals), Mumbai/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] dated 23.05.2025 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Year [A.Y.] 2017-18.
The grounds of appeal are as followed: “The Grounds mentioned hereunder are without prejudice to one another:
1. On the facts and circumstances of the case, the learned CIT(A) erred in confirming the addition without appreciating that the books of accounts had not been rejected by the assessing officer.
2. On the facts and circumstances of the case, the Learned CIT(A) erred in confirming the invocation of section 68 without appreciating that the source of cash deposit stands explained by the books of accounts wherein, all cash receipts from patients are duly recorded, thereby resulting in double taxation of the same amount.
On the facts and circumstances of the case, the Learned CIT(A) erred in confirming an addition of Rs. 27,34,000/-in respect of cash deposited in the form of SBN Notes during 08.11.2016 to 31.12.2016 without appreciating that the proper source of cash was duly explained and disclosed in the books of accounts, and the appellant was regularly depositing such receipt of cash from patients during the whole year as well as during the previous years, thereby ruling out the possibility of any unusual receipt of cash specifically during the demonetization period. The Appellant craves the leave to add, amend, alter and/or delete any of the above grounds of appeal
at the time of hearing.”
3. The brief fact of the case are that the assessee filed its return declaring income of Rs. 65,40,850/- on 31.10.2017 for A.Y. 2017-18. The assessee is a firm deriving income from running of a path lab. The case was selected for scrutiny. It was noticed by ld. AO that the assessee had deposited huge cash during demonetization period i.e from 09.11.2016 to 31.12.2016 and observed from the assessee’s cash sales ledger that average cash sales during the months of November and December, 2016 were almost double as compared to other months of the F.Y. 2016-17.
After analyzing the information received from the HDFC bank Ltd., ld. AO noted that during the demonetization period, the assessee had deposited Rs. 30,54,000/- in cash out of which amount of Specified Bank Notes (SBN) was Rs. 27,34,000/-.
Accordingly, Rs. 27,34,000/- were added to the assessee’s income as unexplained cash credit u/s. 68 of the Act and order u/s. 143(3) was passed assessing the total income at Rs. 92,74,850/-. Aggrieved, the assessee preferred an appeal before ld. CIT(A).
After considering the assessee’s detailed submission, ld. CIT(A) confirmed the addition made by ld. AO with the following observations:
“5.2. The appellant's primary contention is that the cash deposits during the demonetization period were out of genuine business receipts from walk-in patients, duly recorded in the books and offered to tax. However, certain observations highlight the inconsistency and implausibility of this claim. The AO has rightly noted that the appellant deposited Rs. 27,34,000/- in SBNs during November and December 2016 when period when the country was facing a severe liquidity crunch. The cash deposit during this two-month period was abnormally high when compared to prior months. The AO compared the average monthly cash deposit of Rs. 11.22 lakhs from April to October 2016 with the average of Rs. 16.61 lakhs for November and December demonstrating abnormal rise of approximately 47.9%. While the appellant claims a reduction in cash receipts in percentage terms relative to total receipts, it does not satisfactorily explain the sharp rise in cash deposits in absolute terms during a period when the public's ability to transact in cash was significantly impaired. The appellant's explanation that more cash was deposited during demonetization to reduce cash on hand contradicts typical business behavior The very need to reduce cash on hand should have reflected in even lower cash receipts, not just higher deposits. Moreover, a genuine business would have continued to operate under constrained liquidity and reported reduced cash inflows, not higher 5.3. The appellant failed to produce contemporaneous and credible evidence such as sales invoices, patient-wise billing registers, and revenue reconciliation reports linking the deposited cash to actual business activity. Although the appellant annexed certain sales registers (Annexure B), these appear to have been compiled post-facto and do not meet the evidentiary threshold for rebutting the AO's suspicion under Section 68 Section 68 mandates that the assessee must satisfactorily explain the nature and source of any sum credited in its books. Mere entries in books or ledgers are insufficient unless supported by corroborative documents. The appellant has neither provided patient-wise test records nor proved that the said cash was collected during the demonetization window 5.4. The Government of India's notification on 8th November 2016 made Rs. 500 and Rs. 1.000 notes invalid tender The appellant's submission that walk-in patients continued to pay in SBNs defies economic logic, especially when healthcare services being largely elective and non-emergency for diagnostic labs would likely see lower footfall during cash shortages. As observed by the Hon'ble Supreme Court in the case of Sumati Dayal v. CIT (214 ITR 801), the doctrine of human probabilities must be applied. It is improbable that the appellant's cash collections surged precisely during the period when the public had limited access to valid currency The onus lies squarely on the appellant to provide a plausible explanation supported by facts. The appellant's explanation that the cash on hand before 8th November 2016 was Rs. 19.70 lakhs and the net receipts during demonetization added another Rs. 14.04 lakhs appears engineered to justify the Rs. 30.54 lakhs deposit. However, this explanation is rendered implausible due to lack of verifiable evidence regarding the opening cash position. Absence of a cash flow statement matching cash receipts and outflows proves the same. Non-submission of daily revenue records corresponding to deposits and failure to provide invoices or independent confirmation of services rendered other facts of the case which negate the claim of the appellant. Courts have consistently held that cash books without supporting primary documents are self-serving and cannot be relied upon to discharge the onus under Section 68. In the case of CIT v. P Mohanakala (291 ITR 278 SC) Hon'ble Supreme Court held that the explanation must be credible and not just apparent from books. 5.5. The appellant argues that taxing the cash deposits under section 68 would result in double taxation since the receipts are already offered to tax as business Income. However, this argument holds only if the receipts are proven to be genuine business income. In the absence of conclusive proof linking the deposits to actual business operations, Section 68 operates independently of the Profit & Loss account. The cash deposit must stand the scrutiny of law by establishing its identity, genuineness, and creditworthiness, failing which the presumption of unexplained credit applies. Reliance is placed on CIT v. Devi Prasad Vishwanath Prasad (72 ITR 194 SC) wherein Hon'ble Supreme Court held that cash credits found in books may be charged as income even if they are otherwise credited as business receipts if they are unexplained.” Aggrieved with the order of ld. CIT(A) the assessee has filed present appeal before the Tribunal.
Before us, ld. AR has made detailed submissions reiterating the arguments made before ld. CIT(A). It has been argued that the increase in cash deposits as compared to earlier years was on account of the fact that assessee’s total business receipts had also increased substantially during the year as compared to last year as one of the partners, earlier working with P.D. Hinduja Hospital shifted full time to Sehgal Path Lab leading to increase in turnover as under:
F.Y. Total Turn over Cash deposited in Bank 2015-16 1,07,77,945 86,19,600 2016-17 2,74,51,926 1,36,22,500
It has been pointed out that % age of cash receipts to total receipts has infact decreased as compared to earlier years as can be seen from the following:
A.Y. % of cash receipt/Total receipt 2015-16 85.22 2016-17 81.53 2017-18 56.66 Further from monthwise cash receipts, it can be seen that there is reduction in cash receipts in the months of November and December 2016 as compared to other months.
Ld. AR further pointed out that ld. AO has not rejected the assessee’s books of accounts and the addition u/s. 68 of Rs. 27,34,000/- amounts to double addition as the cash sales to this extent are already included in total receipts declared by the assessee.
On the other hand, Ld. DR has strongly relied on the orders of lower authorities and has argued that since the onus to prove the genuineness of cash receipts was not discharged by the assessee, addition has rightly been made u/s. 68 of the Act.
We have heard the rival submissions and perused the material placed on record. Admittedly, the assessee has been showing considerable cash receipts in the earlier years as well. Further the increase in cash sales in absolute terms has to be viewed in the back drop of more than two fold increase in the overall turnover and taxable income. Thus it is not correct to conclude that there was any abnormal increase in cash deposits during the demonetization period.
We are in agreement with the assessee’s contention that the impugned cash receipts have been included in the total turnover and have been already taxed under the head ‘Profit & Gains From Business and Profession’. Ld. AO has also not rejected the books of accounts of the assessee. Hence, making further addition of Rs. 27,34,000/- would indeed amount to double taxation.
In the light of above facts and circumstances, we are of the considered view that addition u/s. 68 of Rs. 27,34,000/- is not justified and is, accordingly, deleted.
In the result, assessee’s appeal is allowed.
Order Pronounced in Open Court on 27.10.2025