OM SHREE RETAILS INDIA LIMITED,NEW DELHI vs. ITO WARD 19(1), NEW DELHI

Brief facts of the case are that the assessee is a company, engaged in the business of wholesale trading and filed its return of income on 31.03.2018, declaring loss of INR 11,264/-. The case was selected for scrutiny and notice u/s 143(2) followed by notice u/s 142(1) were issued from time to time. In response, the had filed submissions stating that the allegation of the cash deposit of INR 2,00,10,000/- in the show cause notice as cash deposited in bank is incorrect and the correct figure was of INR 1,00,05,000/- which was deposited in SBN during the period of demonetization in Three bank accounts maintained with Punjab National Bank. In support, assessee has filed the copies of the bank statements and claimed that entire cash was deposited out of the sales made during the year in cash. Before the AO, the assessee has filed all the details and claimed that since the account was almost becoming NPA and therefore, the assessee was holding the cash to negotiate with the bank to get better opportunity for making payment of outstanding balance. The assessee filed copy of the sales book and cash book and other documents before the AO however, the AO has made the addition of the cash deposited as unexplained credit u/s 68 of the Act and further invoked the provision of section 115BBE of the Act for charging higher rate of tax. Besides this, addition u/s 14A was also made and accordingly, total income was assessed at INR 1,02,21,736/- by the AO.

Against the said order, assessee filed an appeal before ld. CIT(A) who vide order dated 27.02.2026, partly allowed the appeal of the assessee.

Aggrieved by the order of ld. CIT(A), assessee is in appeal before the Tribunal by taking various grounds of appeal mentioned in the appeal memo.

Before us, no any submissions was made in support of the Grounds of appeal Nos. (A) to (C) taken by the assessee wherein the assessee has challenged the validity of the assessment order being passed without issuing the valid jurisdictional notice u/s 143(2) of the Act. As no written submission was filed nor oral arguments were made in support of Grounds of appeal Nos. (A) to (C), therefore, they are dismissed.

In the remaining Grounds of appeal Nos. (D) to (F), the assessee has challenged the action of ld. CIT(A) confirming the additions of INR 1,00,05,000/- made u/s 68 of the Act.

Before us, ld.AR for the assessee submits that immediate source of cash deposit was out of the funds accumulated as a result of cash sales made during the year under appeal which was duly recorded in the regular books of accounts maintained. The AO has not doubted the sales made nor the trading results declared were doubted and the books of accounts have been accepted. Once the sales have been accepted, the cash deposited into bank out of the accumulation of cash from such sales could not be held as unexplained credit more particularly when, all the entries in the books of account are duly supported by the respective sales invoices, purchase bills and availability of stock as per the stock register. The ld.AR submits that under these circumstances, addition made u/s 68 as unexplained credits be deleted. For this, reliance is placed on various judgements of Hon’ble Allahabad High Court and Hon’ble Jurisdictional High Court and of the Co-ordinate Benches of the Tribunal.

On the other hand, ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submits that there were no cash sales in immediately preceding years and in the year under appeal, total cash sales declared was of INR 1,05,04,689/- which appears to be declared to cover up the source of cash deposited in SBN during the demonetization period. He therefore, prayed for the confirmation of the orders of the lower authorities.

Heard the contentions of both parties at length and perused the material available on record. It is observed that the AO has treated the cash deposited in SBN during the demonetization period in the bank as unexplained credits u/s 68 of the Act solely for the reason that there were no cash sales declared by the assessee in the immediately preceding year and during the year under appeal, the assessee has not provided the names of the parties, PAN etc. to whom cash sales were made. Thus the AO was of the opinion that the assessee has failed to prove the identity, creditworthiness and the genuineness of the transactions. At this juncture, we refer the provision of section 68 of the Act which reads as under:- Cash credits. 68. “Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless,— (a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided also that nothing contained in the first proviso or second proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.”

From the perusal of the provision of section 68 of the Act, it is observed that the provisions of section 68 are applicable wherein some deposits were credited in the books of accounts and the assessee has failed to establish the identity, creditworthiness of the persons from whom such funds are received and genuineness of the transactions is not established. In the instant case, the assessee has duly offered the explanation, stating that the cash was deposited out of the cash sales made and it is a matter of fact that such cash sales has not been doubted by the AO who has accepted the trading results declared by the assessee. Once the sales have been accepted, the explanation tendered by the assessee with respect to the source of such cash cannot be held as unexplained credits u/s 68 of the Act which relates to the sum credited in the shape of borrowed funds etc. and not for the credits in the shape of sale consideration received against the supply of goods. This being so, in our opinion, the AO has incorrectly invoked the provision of section 68 of the Act in the instant case with respect to the cash deposit during demonetization period in SBN. When the assessee has been able to establish that the said cash was deposited out of the sales made and the AO has not doubted the sales nor pointed out any defects in the stock inventory produced by the assessee, under these circumstances, no addition could be made on this score. This view is also supported by following judgments:-

In view of above discussion and by respectfully following the order of the Hon’ble Jurisdictional High Court, Of Hon’ble Allahabad High Court and judgments of the coordinate benches of Tribunal, we direct the AO to delete the addition sustained by ld. CIT(A). Since we have deleted the additions made on account of cash deposited during the demonetization period in SBN, therefore, issue of application of provision of section 115BBE become infructuous. Accordingly, Grounds of appeal Nos. BBE become (D) to (F) raised by the assessee are allowed.

In the result, appeal of the assessee is partly allowed.