PUNJAB SIND FOODS INDIA PVT. LTD.,MUMBAI vs. ITO WARD 13(1)(4), MUMBAI

The learned Departmental Representative (DR) has not raised any objection to the condonation of the delay. We have considered the explanation furnished by the assessee. The explanation is supported by the sworn affidavit of its director and the portal activity log placed on record. The material indicates that the delay was not deliberate or actuated by any mala fide intention and that the assessee initiated the appellate proceedings after becoming aware of the impugned order. Having regard to the explanation furnished, the comparatively short period of delay, the absence of

The assessment was completed under section 143(3) of the Act on 24.12.2019 by determining the total income at Rs.5,28,00,135/-, rounded off to Rs.5,28,00,140/-, after making the following additions and disallowance: Particulars Provision Amount Unexplained deposits of SBNs Section 68 Rs.66,66,264/- Unexplained unsecured loans Section 68 Rs.31,91,622/- Alleged undisclosed sales Section 28 Rs.1,37,10,999/- Disallowance of expenses Section 37 Rs.2,74,98,710/-

The assessee challenged the assessment order by filing an appeal before the CIT(A). By the impugned order, the learned CIT(A) deleted the addition of Rs.1,37,10,999/- relating to alleged undisclosed sales, restricted the disallowance of expenses from

In appeal, the learned CIT(A) compared the ratio of other expenses to turnover for the year under consideration with that of the preceding and succeeding years. By adopting the average ratio of 13.75 per cent as against 16.02 per cent claimed by the assessee, the learned CIT(A) computed the allowable other expenses at Rs.7,10,39,454/- and restricted the disallowance to Rs.1,17,47,135/-, thereby granting partial relief to the assessee.

The assessee’s explanation before the Assessing Officer was that the deposits originated from cash sales made in the ordinary course of its business and were reflected in the cash book. The assessee furnished a copy of the cash book in support of the explanation. The Assessing Officer, however, observed that the assessee had not furnished denomination-wise details of the SBNs or established the precise source of the deposits. According to him, the cash book did not disclose the required day-to-day cash balance and the assessee failed to furnish comparative figures of cash sales, cash deposits and cash in hand as on 08.11.2016.

The Assessing Officer further observed that the SBNs were deposited in instalments between 10.11.2016 and 26.12.2016. He reasoned that, had the SBNs represented cash sales made on or before 08.11.2016, the assessee would have deposited them at the earliest opportunity instead of making piecemeal deposits over an extended period. He also referred to dates on which no SBNs were deposited or only small deposits were made, followed by larger deposits on succeeding dates. On this basis, the Assessing Officer concluded that the deposits made after 10.11.2016 did not

The Assessing Officer accepted the SBNs deposited on the first day, namely 10.11.2016, amounting to Rs.12,03,650/-, as forming part of the cash in hand appearing in the regular books of account. The balance SBN deposits of Rs.66,66,264/- were treated as unexplained cash credits under section 68 of the Act and subjected to tax under section 115BBE of the Act.

Before the learned CIT(A), the assessee submitted that it carried on business through 32 outlets situated in Mumbai, Pune, Kolhapur, Gujarat, Daman, Silvassa and Goa. It was contended that the SBNs represented cash sales generated before 08.11.2016 and that time was necessarily required for collection of cash from the various outlets and its deposit in the respective bank accounts. The assessee disputed the inference drawn merely from the staggered pattern of deposits.

The assessee further submitted that there was no statutory obligation to maintain denomination-wise particulars of the currency deposited. It was pointed out that, in respect of Bank of Baroda, details were not available for cash deposits aggregating to Rs.19,08,724/- made between 10.11.2016 and 13.11.2016, and that the Assessing Officer had presumed the entire amount to consist of SBNs. The assessee relied upon its cash book containing 468 pages, purchase register, sales records, product-wise details, sales-tax returns, bank statements and bank reconciliation statements. It also contended that the aggregate cash sales, card sales and credit sales were Rs.53,03,61,570/- and that the cash deposited during November and December 2016 was lower than the

The learned CIT(A) observed that, notwithstanding the assessee’s explanation, denomination-wise details and evidence establishing the source of the SBNs had not been furnished either during the assessment proceedings or in the appellate proceedings. The learned CIT(A) also referred to the observation in the audit report that the requisite disclosure regarding the holding of and dealings in SBNs during the specified period had not been provided in the financial statements, though the audit opinion was not modified on that account.

The learned CIT(A) noted that the assessee had claimed that it refused to accept notes of Rs.500/- and Rs.1,000/- after the announcement of demonetisation, while contending that the deposits represented collections from different outlets. According to the learned CIT(A), the assessee did not correlate the deposits with identifiable earlier cash sales or furnish contemporaneous supporting material, such as sales invoices, customer particulars, stock records, monthly sales summaries and reconciliation of the cash sales with the deposits. The learned CIT(A) held that the cash book entries, without supporting primary evidence, did not satisfactorily establish that the SBN deposits represented cash generated from sales made on or before 08.11.2016.

The learned CIT(A) accordingly concurred with the conclusion of the Assessing Officer that the SBNs deposited after 10.11.2016

In response to the notice under section 142(1) dated 29.10.2019, the assessee furnished loan confirmations from both lenders. The assessment order also records that PAN particulars were furnished. The Assessing Officer, however, observed that no sufficient material was produced to establish the creditworthiness of the lenders and the genuineness of the transactions. The assessee was again called upon by notices dated 03.12.2019 and 12.12.2019 to furnish the relevant evidence, but, according to the Assessing Officer, no further details or explanation were submitted.

The Assessing Officer held that furnishing PAN particulars and confirmations or routing the amounts through banking channels was not, by itself, sufficient to prove the creditworthiness of the lenders and the genuineness of the transactions. He further

Aggrieved by the order of the learned CIT(A), the assessee is in appeal before us and has raised following grounds of appeal: General 1. On the facts and circumstances of the case and in law, the order passed by the Commissioner of Income Tax (Appeals) [‘CIT(A)’] is bad in law, contrary to the facts of the case and merits to be quashed. Invalidity of Notice under section 143(2) – Jurisdictional Defect 2. On the facts and circumstances of the case and in law, the assessment order passed by the Assessing Officer (‘AO’) is void ab initio and bad in law, as the notice issued under section 143(2) of the Income-tax Act, 1961 (‘Act’) was contrary to the binding mandate, thereby rendering the subsequent proceedings invalid. 3. The AO failed to appreciate that the impugned notice did not specify the category of scrutiny (i.e., Limited, Complete, or Manual), thereby failing to give proper notice to the Appellant regarding the scope of the assessment, rendering the subsequent proceedings invalid.

The learned CIT(A) observed that the assessee claimed to have furnished the income-tax returns and bank statements of the lenders as Annexure “U”, but those documents were not reflected

In the case of Shri Baljit Singh Gandhi, the learned CIT(A) noted from the cash book that Rs.15,00,000/- and Rs.10,00,000/- were received through banking channels on 02.12.2016 and 09.12.2016, respectively. The learned CIT(A), however, held that the bank statements of the assessee and the lender, the lender’s income-tax return and capital account had not been produced. The learned CIT(A) also referred to the fact that the loan was advanced during the demonetization period. He consequently held that the identity and creditworthiness of the lender and the genuineness of the transaction had not been established by primary evidence. The addition of Rs.31,91,622/- under section 68 was accordingly confirmed.

At the time of hearing, the learned Authorised Representative (AR) submitted that the assessee did not wish to press ground Nos.2 and 3 challenging the validity of the notice issued under section 143(2) of the Act and ground No.4 alleging violation of the principles of natural justice. In view of the specific statement made by the learned AR, ground Nos.2 to 4 are dismissed as not pressed. Consequently, we refrain from expressing any opinion on the merits of the contentions raised in these grounds.

Regarding Ad-hoc disallowance of expenses, the learned AR drew our attention to paragraphs 6.6.7 to 6.6.14 of the impugned order and submitted that, although the learned CIT(A) found the disallowance made by the Assessing Officer at 25% to be ad hoc and unsupported by any scientific basis, the learned CIT(A) thereafter adopted another estimated basis by computing an average expense- to-turnover ratio of 13.75% for four assessment years. By applying this average ratio to the turnover of the year under consideration, the learned CIT(A) allowed other expenditure of Rs.7,10,39,454/- and sustained the balance disallowance of Rs.1,17,47,135/-. The learned AR submitted that the percentage adopted by the learned CIT(A) was itself ad hoc and theoretical, since the expenditure incurred in different assessment years could not be mechanically compared without examining the nature of the business operations and the circumstances prevailing in each year. It was further submitted that neither the Assessing Officer nor the learned CIT(A) identified any specific expenditure as bogus, non-genuine or incurred otherwise than for the purposes of business. The books of account were audited and had not been rejected under section 145 of the Act. The learned AR, therefore, contended that the substituted disallowance sustained by the learned CIT(A) was equally based on estimation and was liable to be deleted.

The learned AR further pointed out that, as specifically stated in the submissions reproduced at page 30, Annexure “T” contained the details of the expenses, the respective expense heads and the corresponding amounts. The assessee had also asserted that the payments were made through banking transactions. The books of account were subject to statutory audit as well as tax audit, without any qualification in the audit reports. The extract of the cash book

The learned AR placed reliance on the decision in Principal Commissioner of Income-tax v. R.G. Buildwell Engineers Ltd. [2018] 99 taxmann.com 284/259 Taxman 370 (SC), whereby the Special Leave Petition against the decision of the Hon’ble Delhi High Court reported in [2018] 99 taxmann.com 283 (Delhi) was dismissed. The learned AR also relied upon Anupam Industries Ltd. v. Assistant Commissioner of Income-tax [2025] 180 taxmann.com 678 (Ahmedabad - Trib.)

Regarding cash deposits, the learned AR submitted that the assessee had deposited aggregate cash of Rs.3,35,43,515/- in its three bank accounts during the period from 09.11.2016 to 30.12.2016. Out of the same, the Assessing Officer determined the deposits in Specified Bank Notes at Rs.78,69,914/-. The learned AR pointed out that Punjab and Maharashtra Co-operative Bank Limited had reported SBN deposits of Rs.39,34,500/-, whereas no SBNs were deposited with Kotak Mahindra Bank. In respect of Bank of Baroda, the bank was unable to furnish denomination-wise particulars of deposits aggregating to Rs.19,08,724/- made between 10.11.2016 and 13.11.2016. The Assessing Officer nevertheless presumed the entire amount to represent SBNs and determined the SBN deposits in that account at Rs.39,35,414/-. It

The learned AR further submitted that the deposits represented cash sales made in the ordinary course of business before 08.11.2016 and collected from the assessee’s 32 outlets. In support thereof, the assessee had furnished a cash book comprising 468 pages, purchase register, product-wise sales and stock details, sales-tax returns, statements of all three bank accounts with bank reconciliations, details of hired vehicles and audited financial statements. The aggregate cash, card and credit sales recorded in the books amounted to Rs.53,03,61,570/-. It was also pointed out that cash deposits of Rs.1,35,45,260/- during November 2016 and Rs.1,81,27,843/- during December 2016 were lower than the deposits made in the preceding months.

The learned AR placed reliance on the following decisions in support of the contention that cash deposits arising from recorded business receipts could not be assessed again under section 68 merely because the deposits comprised specified bank notes or were made during the demonetisation period : 1. Soger Malleshappa Manjunath v. CIT(A), NFAC [2026] 186 taxmann.com 734 (Bangalore-Trib.) 2. Anantpur Kalpanaana v. ITO [20222] 138 taxmann.com 141/194 ITD 702 (Bangalore-Trib.) 3. J. R. Rice India Pvt. Ltd. v. ACIT, ITA No.2852/Del/2022, order dated 31.07.2023 4. Goldman Tapes Private Limited v. ACIT, ITA No.547/Mum/2024, order dated 17.06.2025 32. Relying upon the aforesaid decisions, the learned AR submitted that the cash book, sales records, stock particulars, sales-tax returns, bank statements and audited financial

Regarding the addition on account of unsecured loans, the learned AR submitted that the Assessing Officer had made an addition of Rs.31,91,622/- under section 68 of the Act, comprising a loan of Rs.6,91,622/- received from Smt. Bhupender Kaur Bajaj, wife of Shri Jaswinder Singh Bajaj, a director of the assessee- company, and a loan of Rs.25,00,000/- received from Shri Baljit Singh Gandhi.

The learned AR submitted that, in response to the notice issued under section 142(1) dated 29.10.2019, the assessee had furnished loan confirmations, copies of the income-tax returns for the assessment year 2017-18 and the relevant bank statements of both lenders. The Assessing Officer had acknowledged and verified the confirmations but rejected the assessee’s explanation merely on the ground that the creditworthiness of the lenders had not been established.

It was further submitted that the identity of the lenders and genuineness of the transactions were supported by documentary evidence and the loans were routed through banking channels. If the Assessing Officer entertained any doubt regarding the creditworthiness of the lenders, the same could have been verified from their respective jurisdictional Assessing Officers.

The learned AR also placed on record copies of the respective ledger accounts for the relevant and succeeding financial years to

The learned AR placed reliance on the decision of the Hon’ble Gujarat High Court in Principal Commissioner of Income-tax v. Ambe Tradecorp (P.) Ltd. [2022] 145 taxmann.com 27/[2023] 290 Taxman 471 (Gujarat). It was submitted that where the identity of the lenders and genuineness of the transactions were supported by confirmations, ledger accounts, bank statements and income-tax records, subsequent repayment of the loans constituted material corroborating the genuineness of the credits.

The learned AR accordingly contended that the addition was made without undertaking the necessary verification and, therefore, the addition of Rs.31,91,622/- under section 68 of the Act was liable to be deleted.

We have considered the submissions of the learned representatives and perused the orders of the authorities below and the material placed on record. Ground Nos. 2 to 4 have already been dismissed as not pressed. We proceed to adjudicate the remaining substantive grounds issue-wise.

Having so held, however, the learned CIT(A) substituted another estimate by computing an average expense-to-turnover ratio of 13.75 per cent for four assessment years and sustained a disallowance of Rs.1,17,47,135/-. Significantly, the average adopted by the learned CIT(A) includes the ratio of 16.02 per cent for the year under consideration itself, besides the ratios of one preceding and two succeeding years. Such an exercise is inherently circular. Further, there is no finding that the nature, scale and circumstances of the business were identical in all four years or that any particular expenditure incurred during the year was excessive, non-genuine or not incurred wholly and exclusively for business purposes.

The assessee had furnished the details of the expense heads and the corresponding amounts as Annexure “T”, an extract of the cash book and the audited financial statements. The accounts were subjected to statutory audit and tax audit without any qualification concerning the expenditure in question. Neither the Assessing Officer nor the learned CIT(A) rejected the books of account under section 145(3) of the Act or pointed out any specific defect in the

In Principal Commissioner of Income-tax v. R.G. Buildwell Engineers Ltd. [2018] 99 taxmann.com 283 (Delhi), the Hon’ble Delhi High Court found no infirmity in the deletion of an ad hoc disallowance where the books had not been rejected and the historical treatment of the expenditure supported the assessee. The Special Leave Petition against that decision was dismissed by the Hon’ble Supreme Court in [2018] 99 taxmann.com 284/259 Taxman 370 (SC). Similarly, in Anupam Industries Ltd. v. Assistant Commissioner of Income-tax [2025] 180 taxmann.com 678 (Ahmedabad–Trib.), the Co-ordinate Bench held: “No disallowance can be made on an ad-hoc or estimated basis in the absence of specific defects being pointed out in the books of account.” 44. The decision in CIT v. Hero Cycles Ltd. [2010] 323 ITR 518 (P&H), relied upon by the learned AR, arose in the context of section 14A and is not directly applicable to a disallowance under section 37. However, CIT v. Modi Xerox Ltd. [2014] 365 ITR 200 (Allahabad) supports the general proposition that an estimated addition unsupported by any material and resting merely on presumption cannot be sustained.

In the present case, the learned CIT(A), after holding that the Assessing Officer’s estimate lacked a scientific basis, could not have

At the outset, the determination of the quantum of SBNs itself is partly founded upon a presumption. Bank of Baroda was unable to furnish denomination-wise particulars for cash deposits of Rs.19,08,724/- made between 10.11.2016 and 13.11.2016. In the absence of such information from the bank, the Assessing Officer presumed that the entire amount represented SBNs. Such a presumption, unsupported by evidence from the bank or any other material, cannot form the basis of an addition.

Even otherwise, the controversy is not merely about the denomination of the currency deposited but about its source. The assessee consistently explained that the deposits represented cash sales effected before 08.11.2016 and collected from its 32 outlets situated at different places. In support of the explanation, it

No specific defect has been pointed out in the recorded sales, purchases, stock particulars or sales-tax returns. The books of account have not been rejected. Nor has any material been brought on record to show that the recorded cash sales were fictitious or that unaccounted money was introduced in the guise of sales.

The principal reason given by the Assessing Officer for rejecting the explanation is that the deposits were made in instalments over a period of time. The assessee, however, operated through 32 outlets spread across several cities and States. Its explanation that time was required to collect and deposit the cash generated at the different outlets is not inherently improbable. The Assessing Officer accepted the deposit made on 10.11.2016 as arising from the recorded cash in hand but rejected subsequent deposits having the same stated source merely because they were made later. Timing of deposit, without any corresponding defect in the cash book or other business records, is insufficient to draw such a distinction.

The absence of denomination-wise particulars or the audit disclosure concerning SBNs could justify closer scrutiny, but it cannot substitute proof that the source disclosed in the regular

In Anantpur Kalpana v. ITO [2022] 138 taxmann.com 141/194 ITD 702 (Bangalore–Trib.), the Co-ordinate Bench held that where the sale proceeds had already been admitted as income, a further addition under section 68 “will amount to double taxation once as sales and again as unexplained cash credit.”

In Soger Malleshappa Manjunath v. CIT(A), NFAC [2026] 186 taxmann.com 734 (Bangalore–Trib.), it was similarly held that once cash sales formed part of the total sales accepted by the Assessing Officer, taxing the same amount again under section 68 would result in double taxation.

In J.R. Rice India Pvt. Ltd. v. ACIT, ITA No.2852/Del/2022, order dated 31.07.2023, the Tribunal took note that the cash book and supporting books had been furnished and “no deficiencies were pointed out thereon by the ld. AO and the said books were not rejected.” The coordinate Bench in Goldman Tapes Private Limited v. ACIT, ITA No.547/Mum/2024, order dated 17.06.2025, also accepted the source of deposits where the receipts were supported by the regular books and the addition rested substantially upon the fact that the deposits comprised SBNs.

These decisions apply to the material facts of the present case. The assessee has explained the source as recorded business receipts, and the Revenue has not brought any cogent material to displace that explanation. Once the corresponding sales are already included in the business receipts, treating the same money again

We accordingly direct the Assessing Officer to delete the addition of Rs.66,66,264/- made under section 68 read with section 115BBE of the Act. Ground Nos. 8 to 11 are allowed.

For a credit to be accepted under section 68, the assessee is required to establish the identity of the creditor, the creditworthiness of the creditor and the genuineness of the transaction. The confirmations and PAN particulars of the lenders were admittedly furnished before the Assessing Officer. The learned CIT(A) also accepted the identity of Smt. Bhupender Kaur Bajaj. The entries in the assessee’s cash book show that the amounts from Shri Baljit Singh Gandhi were received through banking channels. The dispute substantially concerns the creditworthiness of the lenders and whether the supporting income-tax returns and bank statements were actually available before and considered by the lower authorities.

The assessee claims that the income-tax returns and bank statements were furnished as Annexure “U”. The learned CIT(A), however, recorded that these documents were not reflected in the appellate case history. Thus, there is a factual conflict as to whether

The ledgers produced before us have a material bearing upon the transactions. The account of Smt. Bhupender Kaur Bajaj shows that Rs.25,00,000/- was received through bank on 06.09.2016 and that, after repayments and adjustments aggregating to Rs.18,08,378/- during the relevant year, Rs.6,91,622/- remained outstanding. The ledger for the succeeding year contains various payments and adjustments, but it is a running account containing further credits relating to director’s remuneration and reflects a closing balance of Rs.9,13,029/-. Similarly, the account of Shri Baljit Singh Gandhi shows receipt of Rs.25,00,000/- during the relevant year and repayment of Rs.10,00,000/- through Bank of Baroda on 09.06.2017, leaving Rs.15,00,000/- outstanding. Consequently, the ledgers establish subsequent repayment activity, but do not establish that both loans were repaid in full.

In Principal Commissioner of Income-tax v. Ambe Tradecorp (P.) Ltd. [2022] 145 taxmann.com 27/[2023] 290 Taxman 471 (Gujarat), the Hon’ble Gujarat High Court approved the following finding: “Once repayment of the loan has been established based on the documentary evidence, the credit entries cannot be looked into isolation after ignoring the debit entries.” 62. The principle requires the subsequent debit entries to be considered while appreciating the genuineness of a credit. That decision, however, was rendered where ledger accounts, bank statements, income-tax returns and balance sheets of the lenders were available, notices under section 133(6) had been answered and repayment stood established. In the present case, the later-year

In these circumstances, neither outright confirmation of the addition nor its deletion without verification would be justified. We accordingly set aside the finding of the learned CIT(A) on this issue and restore the matter to the file of the Assessing Officer for the limited purpose of verifying: 1. the confirmations, PAN particulars, income-tax returns, balance sheets or capital accounts and bank statements of both lenders; 2. the subsequent repayment and adjustment entries reflected in the ledger accounts and corresponding bank statements. 64. The Assessing Officer may undertake verification under section 133(6) or through the jurisdictional Assessing Officers of the lenders. The assessee shall furnish the complete supporting evidence and cooperate with the proceedings. The Assessing Officer shall thereafter decide the issue afresh in accordance with law after granting the assessee an adequate opportunity of being heard. The fact that the loans were interest-free or unsecured shall not, by itself, constitute a ground for making the addition.

Ground Nos. 12 and 13 are accordingly allowed for statistical purposes.

Ground No.15, challenging the initiation of penalty proceedings, is premature and is dismissed.

Ground No.1 is general and requires no separate adjudication. The residuary prayer seeking leave to add, alter or delete the grounds also requires no adjudication.

In the result, the appeal of the assessee is partly allowed in the terms indicated above.