M/S. ASSOCIATE PLANTATIONS PRIVATE LIMITED,MUMBAI vs. ACIT CENTRAL CIRCLE 8(2), MUMBAI

Condonation of Delay 2.1 At the outset, the Registry has reported a delay of 59 days in filing the present appeal. The assessee has filed a petition seeking condonation of the delay, supported by an affidavit. It has been explained that the order of the learned CIT(A) was passed on 18.09.2025 and communicated through email. One of the directors of the assessee-company, Shri Farouk Suleman Darvesh, aged 73 years, was unwell and had been advised bed rest. It was further stated that the said director was advised to remain at home and not to visit the office. Since he resided at Bandra, whereas the office of the assessee was situated at Bhiwandi, District Thane, the appeal could not be instituted within the prescribed period.

We have considered the explanation furnished by the assessee, the petition and affidavit placed on record, as well as the no-objection expressed by the learned Departmental

The assessee has raised the following grounds of appeal: 1. The CIT(A) – 48, Mumbai erred in passing the order dated 18/09/2025 upholding the assessment order passed under section 143(3) of the Income tax Act,1961 [hereinafter referred as ‘the Act’] without appreciating the facts and circumstances of the case. The Appellant, therefore, prays that the order passed by the CIT(A) – 48, Mumbai is unjust. Hence, the same may be quashed and set aside as the CIT(A) – 48, Mumbai failed to consider that the action of the Ld. AO in making an addition of Rs. 19,41,500/- being contrary to the principles of natural justice and equity. 2. The CIT(A) – 48 erred in ignoring the fact that the Learned A O, has failed to consider that the appellant is a retailer and hence the name of the parties to whom goods were sold is not mentioned on the sales invoices and instead the word “cash memo” is typed thereby indicating that the goods were sold to the customer of the appellant on cash basis 3. The CIT(A) – 48 erred in ignoring the fact that the Learned A O, has failed to consider that various submissions such as, cash book, bank book, bank statements, etc, furnished before the learned A O to conclusively evidence the source of cash deposits; 4. The CIT(A) – 48 erred in considering the fact that the appellant is a retailer and that the customers themselves arrange the transportation

Facts of the case 5.1 The relevant facts, as gathered from the orders of the authorities below, are that the assessee is a company engaged in the business of dealing in building materials, timber and plywood. The assessee filed its return of income for the assessment year under consideration on 03.11.2017, declaring a loss of Rs.24,90,97,171/-. The case was selected for complete scrutiny under CASS. One of the reasons for selection was stated to be an “abnormal increase in cash deposit during demonetization period as compared to pre demonetization period.” Notice under section 143(2) of the Act was issued on 21.09.2018, followed by notices under section 142(1) of the Act.

In response to the notice, the assessee submitted that the cash deposited in the bank represented cash generated from the sale of timber and plywood in the ordinary course of its retail business. The assessee furnished a month-wise statement of cash sales, receipts and cash balances. As recorded in the assessment order, the statement showed cash sales of Rs.16,40,798/- during October 2016 and Rs.3,08,065/- up to 08.11.2016. After accounting for expenses of Rs.48,776/-, the assessee disclosed a closing cash balance of Rs.19,42,616/-.

The AO thereafter issued another notice under section 142(1) dated 20.11.2019, requiring the assessee to furnish proof of purchases from M/s Associate Lumbers, evidence regarding delivery of goods, rates and quantities, the address of the place of

The assessee further explained that it was engaged in retail sales of timber and plywood to carpenters and other local customers. The customers visited the godown and transported the goods at their own cost. Consequently, no transportation expenditure was incurred by the assessee and no truck numbers or lorry receipt numbers were available with it. It was also contended that, in a retail cash business, the names and addresses of the customers were ordinarily not recorded on cash memos.

The AO did not accept the explanation offered by the assessee. According to the AO, the assessee had not deposited any cash during the period from 01.04.2016 to 08.11.2016 and had also not made comparable cash deposits during November and December of the preceding year. The AO observed that the cash was deposited only after the announcement of demonetisation.

The AO further observed that the sale bills merely contained the description “cash sales” without the names or addresses of the

According to the AO, the documents relied upon by the assessee were self-generated and were not supported by any independent third-party confirmation. The AO held that the assessee had failed to satisfactorily explain the nature and source of the sum of Rs.19,41,500/- credited in its books. Relying upon the provisions of section 68 of the Act and the decision referred to in the assessment order, the AO treated the amount of Rs.19,41,500/- as unexplained cash credit and added the same to the income of the assessee. Penalty proceedings under section 271AAC read with section 274 of the Act were also initiated.

Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee reiterated that it was a retailer dealing in building materials, timber and plywood. It was submitted that the sales and purchases disclosed in the financial statements amounted to Rs.40,78,855/- and Rs.34,29,972/-, respectively. The goods were purchased from M/s Associate Lumbers Private Limited, an associated wholesale concern. Since both concerns shared the

The assessee submitted that the materials were sold in small quantities to carpenters and other retail customers, who transported the goods themselves. The proceeds of such cash sales were deposited into the assessee’s bank account and the sales were duly reflected in the Profit and Loss Account. The books of account, quantitative details, cash book, bank book, bank statements, purchase details, sales details and copies of invoices were stated to have been furnished before the AO.

It was contended that the AO had not rejected the books of account or the trading results and had not pointed out any discrepancy in the quantitative stock statement or cash account. The cash deposited in the bank had already been recorded as sales and included in the disclosed turnover. Therefore, according to the assessee, treating the same amount again as an unexplained cash credit under section 68 would result in taxation of the same receipt twice.

The assessee also contended that there was no statutory prohibition against making retail sales in cash. In the case of small retail sales, the assessee could not reasonably be expected to maintain the names and addresses of every purchaser. It was submitted that the absence of transportation details was explained by the fact that the customers themselves collected and

The learned CIT(A) was not persuaded by the submissions of the assessee. He held that the principal question was whether the alleged cash sales represented genuine business transactions. According to the learned CIT(A), the plea against double taxation could arise only if the receipts were first established to be genuine sales. Since the genuineness of the alleged sales was itself under examination, mere inclusion of the amount in the turnover did not, in his view, preclude the AO from invoking section 68 of the Act.

The learned CIT(A) observed that the assessee had not recorded any cash sales before 01.10.2016 or during the corresponding period of the preceding year. He further observed that the sales were in cash, were for amounts below Rs.20,000/- and had arisen around the demonetisation period. The sale bills did not disclose the names and addresses of the purchasers and did not contain transportation particulars. On that basis, the learned CIT(A) held that the pattern of transactions was abnormal and that the assessee had failed to furnish credible third-party- verifiable evidence establishing the genuineness of the sales.

The learned CIT(A) further held that the judicial authorities relied upon by the assessee were distinguishable on facts. He concluded that the circumstances indicated that the cash did not

The learned CIT(A) also rejected the alternative plea for setting off the returned business loss against the addition. He held that income determined under section 68 was chargeable under section 115BBE and that no set-off of loss was permissible against such deemed income. Accordingly, the learned CIT(A) upheld the separate assessment of Rs.19,41,500/- and the carrying forward of the business loss of Rs.24,90,97,171/-. The appeal was consequently dismissed.

Aggrieved by the aforesaid order of the learned CIT(A), the assessee is in appeal before us, challenging the confirmation of the addition of Rs.19,41,500/- made under section 68 of the Act.

Before us, the learned Authorised Representative (AR) reiterated the facts and submissions advanced before the learned CIT(A). He submitted that the impugned cash deposits of Rs.19,41,500/- represented proceeds of cash sales of timber and plywood duly recorded in the regular books of account and included in the turnover disclosed in the Profit and Loss Account. The corresponding purchases and quantitative particulars were furnished before the AO. The books of account and trading results

The learned AR further submitted that the AO had accepted the purchases, turnover and books of account, but had separately treated the realisation of a part of the recorded sales as unexplained cash credit under section 68 of the Act. Such an addition, according to him, resulted in bringing the same receipt to tax twice. He contended that the addition was founded on suspicion arising from the timing of the cash deposits and the absence of comparable cash sales in the preceding period, without any adverse material establishing that the sale invoices were fabricated or that the assessee did not possess sufficient stock to effect the sales.

In support of his contentions, the learned AR placed reliance on following decisions of Co-ordinate Benches : 1. Ayesha Steels (P.) Ltd. v. ITO [2025] 175 taxmann.com 1084 (Delhi- Trib.)/[2025] 213 ITD 495 (Delhi-Trib.), order dated 27.06.2025 in ITA No.2563/Del/2024.

On the strength of the aforesaid decisions, the learned AR submitted that an abnormal increase in cash sales or the deposit of such sale proceeds during the demonetisation period, by itself, could not justify an addition under section 68. According to him, once the sales were recorded in the books, the corresponding stock position was available for verification, and the books and turnover were not rejected, the cash realization from such sales could not separately be treated as unexplained income. He, therefore, prayed that the orders of the authorities below be set aside and the addition of Rs.19,41,500/- be deleted.

Per contra, the learned Departmental Representative relied upon the orders of the authorities below. He submitted that the assessee had no history of comparable cash sales during the corresponding period of the immediately preceding year and had also not made any comparable cash deposits during that period. It was pointed out that the alleged cash sales arose immediately before demonetisation, whereas the cash was deposited in the bank only during the demonetisation period.

We have considered the rival submissions and carefully perused the assessment order, the impugned appellate order, the

Section 68 of the Act applies where a sum is found credited in the books maintained by an assessee and the assessee either offers no explanation regarding its nature and source or the explanation offered is not found satisfactory. The initial burden is therefore upon the assessee to establish, through credible and contemporaneous evidence, the nature and source of the credit. The mere description of an entry as “cash sales” does not place the credit beyond examination. Equally, an addition cannot be sustained merely because cash was deposited during the demonetisation period or because the volume of cash transactions was unusual. The explanation must be tested against the complete factual matrix.

The assessee claims that cash sales of Rs.16,40,798/- were made during October 2016 and further cash sales of Rs.3,08,065/- were made up to 08.11.2016. After accounting for the opening cash balance, a bank withdrawal and expenses, the assessee claimed a closing cash balance of Rs.19,42,616/-. Out of this amount, Specified Bank Notes aggregating to Rs.19,41,500/- were deposited on 30.11.2016, 09.12.2016 and 13.12.2016.

The explanation regarding a common godown may account for the absence of transportation between the supplier and the assessee. It does not, however, establish the subsequent delivery of the goods to the alleged retail purchasers. The sale bills do not contain the names or addresses of the purchasers. There are no delivery acknowledgements, gate passes, vehicle particulars, weighment records or any other contemporaneous material showing the actual outward movement of timber and plywood to the alleged customers.

We are conscious that in a genuine retail cash business, the seller may not always record the complete identity and address of every customer. Therefore, the absence of customer particulars, by itself, is not decisive. However, where the customers are unidentified, the genuineness of the sales must be capable of

The assessee has placed reliance upon the purchase ledger of Associate Lumbers Pvt. Ltd., showing the following purchases: Date Nature of purchase Gross amount 30.09.2016 Timber purchase Rs.22,95,362/- 03.12.2016 Plywood purchase Rs.8,02,022/- 05.12.2016 Plywood purchase Rs.7,95,584/- Total Rs.38,92,968/-

The net purchase cost, after excluding VAT of Rs.4,63,041/-, is reflected at Rs.34,29,927/- in the financial statements.

The purchase ledger establishes that purchase entries were recorded in the books. It does not, by itself, establish that the goods covered by those purchases were sold through the cash memos relied upon by the assessee. The purchases dated 03.12.2016 and 05.12.2016, aggregating to Rs.15,97,606/-, could not have supported cash sales allegedly made during October 2016 and up to 08.11.2016. It was therefore necessary for the assessee to demonstrate, through a date-wise and quantity-wise reconciliation, that sufficient stock arising from the purchase

Although the assessee asserted that quantitative details had been furnished, the material placed before us does not contain a reliable reconciliation of the opening quantity, inward movement, invoice-wise outward movement and closing quantity. The value- wise purchase ledger cannot substitute for a quantitative stock record. There is consequently no verifiable correlation between the goods purchased, the goods allegedly sold for cash and the corresponding reduction in stock.

The Profit and Loss Account shows revenue from operations of Rs.40,78,855/- and purchase cost of Rs.34,29,927/- for the year under consideration. In the immediately preceding financial year, the assessee disclosed neither revenue from operations nor purchases of traded goods. Thus, the description of the assessee as a retailer does not, by itself, establish that it had an existing or regular pattern of retail cash sales. The financial statements support the submission of the learned DR that there was no comparable sales activity in the preceding year.

Even during the year under consideration, there was no demonstrated history of cash sales before October 2016. The cash generation relied upon by the assessee was concentrated in the brief period immediately preceding demonetisation. The alleged

We do not regard the absence of cash sales in the preceding year, the concentration of cash sales in October and early November 2016, or the delay in depositing the cash as individually conclusive. These circumstances merely require the explanation to be supported by cogent evidence. The difficulty for the assessee is that the surrounding circumstances are not supported by a demonstrated stock trail, evidence of delivery or independently verifiable records of the alleged retail transactions.

The financial statements and bank statement also disclose subsequent transfers to group concerns. However, the subsequent application of the money cannot, by itself, determine the source from which the cash was originally generated. Further, the identity and purpose of certain transfers described in the bank statement as “ASSOCIATE” or “ASSOCIATES” were not specifically put to the learned AR during the hearing. We therefore draw no independent adverse inference from the destination of those transfers and do not sustain the addition on that basis. At the highest, the bank statement establishes the deposit of cash. It does not establish that the cash so deposited arose from the sale transactions asserted by the assessee.

The assessee’s plea of double taxation proceeds on the assumption that the disputed receipts have first been established as genuine business sales. That foundational fact has not been established in the present case. A unilateral entry under the head “sales” cannot conclusively determine the true nature of the credit. The dispute is not whether genuine sales already offered as business receipts can again be taxed under section 68. The dispute is whether the credits described as sales have been satisfactorily proved to be genuine sales at all. Unless that primary fact is established, the plea of double taxation cannot be accepted.

We may also observe that the AO referred to Pr. CIT v. NRA Iron & Steel (P.) Ltd. while discussing the burden under section 68. That decision arose in a different factual context. We do not rest our conclusion merely upon the said authority. Our conclusion is based independently upon the statutory requirement

On a cumulative consideration of the material, we find that the explanation offered by the assessee cannot be accepted merely on the basis of the cash memos and accounting entries presently available. At the same time, the available material does not enable us to record a conclusive finding affirming that the impugned cash deposits represented unexplained income. The decisive factual link between the purchases, availability of stock, actual retail sales, receipt of cash and subsequent deposits has not been adequately verified by the authorities below.

The AO required the assessee to furnish evidence concerning the purchases, delivery of goods, rates, quantities, place of storage and particulars of the purchasers. The assessee explained that the goods were purchased from Associate Lumbers Pvt. Ltd., that both concerns shared the same godown and that retail customers transported the goods themselves. The AO rejected the explanation principally because the purchasers were unidentified, the invoices did not contain transportation particulars, every invoice was below Rs.20,000/-, there was no comparable cash-sale history and the documents were self-generated.

These circumstances undoubtedly required closer scrutiny. However, the AO did not undertake a complete quantitative verification of the opening stock, purchases, invoice-wise sales and

This verification assumes particular importance because the purchase ledger records gross purchases of Rs.38,92,968/- from Associate Lumbers Pvt. Ltd. Out of these purchases, Rs.15,97,606/- was recorded only on 03.12.2016 and 05.12.2016, whereas the assessee claims that the relevant cash sales occurred during October 2016 and up to 08.11.2016. It is therefore necessary to ascertain whether adequate stock arising from the purchase dated 30.09.2016 or from any opening inventory was available to support the alleged cash sales.

The assessee has stated that quantitative particulars were furnished, but neither the assessment order nor the order of the learned CIT(A) contains a date-wise and quantity-wise examination of such particulars. The learned CIT(A) confirmed the addition substantially on the basis of the abnormal timing, the absence of customer identities and the lack of transportation particulars. The first appellate order also does not reconcile the purchases, stock movement and alleged cash sales.

The bank statement and financial statements placed before us disclose further matters requiring verification. After the relevant

We clarify that the subsequent utilisation of the cash cannot, by itself, establish or disprove its original source. Further, these aspects of the banking trail were not specifically put to the learned AR during the course of hearing before us. It would therefore be inappropriate to draw a final adverse inference from such entries without first affording the assessee an opportunity to explain them and produce the corresponding bank and ledger records. In Ayesha Steels (P.) Ltd. v. ITO [2025] 175 taxmann.com 1084 (Delhi-Trib.), the coordinate Bench recorded: “It is noted that the relevant documents to substantiate the cash sales has been provided by the assessee and no discrepancy or defects has been pointed out in the same.” 51. The relief in that case rested upon the production and verification of the cash book, cash-sale invoices, customer details, VAT records, stock register and sales register. A remand report was also obtained, in which no discrepancy was identified. Whether comparable evidence exists in the present case and satisfactorily establishes the alleged sales has not been completely verified.

In Assistant Commissioner of Income Tax v. Hirapanna Jewellers [2021] 128 taxmann.com 291 (Visakhapatnam- Trib.), the Co-ordinate Bench observed: “Once there is no defect in the purchases and sales and the same are matching with inflow and the outflow of stock, there is no reason to disbelieve the sales.”

The applicability of the above principle depends upon a factual finding that the purchases, sales and stock movement correspond with each other. That foundational verification remains incomplete in the present appeal.

Likewise, in ACIT v. Ramlal Jewellers (P.) Ltd. [2023] 154 taxmann.com 584 (Mumbai-Trib.), the coordinate Bench observed: “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.” 55. The words “once, it has been established” are material. Whether the alleged cash sales in the present case represented a corresponding and duly accounted outflow of stock must first be established through verification.

We are conscious that the transactions pertain to FY 2016- 17, the assessment order was passed on 10.12.2019 and the first

However, the lapse of time cannot substitute for the necessary factual determination. The issue cannot fairly be decided against the assessee on the basis of matters not specifically confronted to it. Nor can the addition be deleted merely because the lower authorities did not carry out the required stock and fund- flow verification. A limited remand is therefore necessary to determine the true nature and source of the impugned deposits on the basis of contemporaneous records.

The delay in reaching the present stage also cannot be attributed entirely to the assessee. The appeal before the learned CIT(A), instituted on 31.12.2019, remained pending until 18.09.2025. In these circumstances, the passage of time, though relevant for controlling the scope and manner of verification, does not justify deciding the issue without examining the material facts. 59. We accordingly set aside the finding of the learned CIT(A) confirming the addition of Rs.19,41,500/- and restore the issue to the file of the AO for fresh adjudication. The restoration is confined to determining whether the cash deposits of Rs.19,41,500/- represented the proceeds of genuine cash sales recorded by the assessee. It shall not be treated as authority for an unrelated or roving enquiry.

The AO shall specifically verify: i. he opening stock and the date-wise and quantity-wise movement of timber and plywood; ii. the correlation of the purchase dated 30.09.2016 with the cash sales claimed during October 2016 and up to 08.11.2016; iii. the relevance of the purchases recorded on 03.12.2016 and 05.12.2016 to the transactions under examination; iv. the invoice-wise cash sales and corresponding reduction in stock; v. the reconciliation of the cash book with the deposits made on 30.11.2016, 09.12.2016 and 13.12.2016; vi. the period for which the alleged cash was retained and the contemporaneous cash balance; vii. the identity and ledger treatment of the payments described in the bank statement as “ASSOCIATE” and “ASSOCIATES”; viii. the ledger accounts of Associate Lumbers Pvt. Ltd., Associate Holdings Pvt. Ltd., Associate Infratech Pvt. Ltd. and the concerned director or related concern; ix. the correlation, if any, between the payments aggregating to Rs.45,38,000/- and the advance disclosed to Associate Holdings Pvt. Ltd.; and x. the reconciliation of the Union Bank account with the bank book and audited financial statements. 61. The assessee shall be afforded an effective opportunity to furnish the stock register, quantitative reconciliation, cash book, bank book, purchase and sale invoices, VAT records, related-party ledgers, bank reconciliation statement, cheque copies, beneficiary details and such other contemporaneous evidence as may be relevant. Considering the lapse of time, the assessee shall not be

The AO shall examine the evidence objectively and apply the decisions relied upon by the assessee after determining whether their factual preconditions are satisfied. If any third-party material or information obtained directly from the bank or related concerns is proposed to be used adversely, the same shall be furnished to the assessee and a proper opportunity to respond shall be granted. The AO shall pass a speaking order in accordance with law and, having regard to the age of the matter, complete the proceedings expeditiously within the statutory period. We have not expressed any final opinion on the genuineness of the alleged cash sales or the taxability of the impugned deposits.

Grounds Nos.1 to 5 are accordingly allowed for statistical purposes.

In the result, the appeal filed by the assessee is allowed for statistical purposes.