REENA TINAAZ PRIVATE LIMITED,MUMBAI vs. THE CIT (APPEALS), MUMBAI

The assesse has taken the following grounds: “1. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals), Income Tax Department (referred to as "THE LEARNED CIT(A)") erred in sustaining the Returned income Rs.32,76,52,275/- under Section 143(3) as against the assessed income of Rs.8,66,97,900/- by confirming the addition of Rs.24,09,54,375/- under Section 68 of the Income Tax Act, 1961.

The brief facts of the case are that the assessee company is in the business of wholesale trade and is distributor and sub-distributor of fast- moving consumer goods such as cigarettes, blades, soaps, biscuits, groceries and other daily-use items. The assessee filed the return by declaring total income of Rs.8,66,97,900/-. The assessee’s case was selected for scrutiny. During the assessment proceedings, the Ld. AO found that the assessee had deposited cash during the demonetization period amounting to Rs.

The Ld. AR argued and filed a paper book comprising pages 1 to 231 which has been placed on record. The Ld. AR argued that during the assessment proceedings and in the appellate proceeding, the assessee has submitted all the relevant documents. The entire turn over was duly declared in the State VAT Return. The alleged amount was arising out from cash sales which is the part of the turnover, reflected in return of imcome. The Ld. AR has contended that the Ld. AO erred in making the addition of Rs. 24,09,54,375/- on account of cash deposit made in SBN during the demonetization period by treating them as unexplained and deemed income u/s. 68 of the Act without appreciating that the source of such deposit was from genuine business received arising out from cash sales. He advanced his argument by submitting that the books of accounts were duly audited, the sales were properly recorded, disclosed in the State VAT Return and no specific defects or discrepancies were pointed out by the Ld. AO during the assessment proceedings. Therefore, the addition made merely on conjecture and presumption, without rejection of the books of accounts u/s. 145(3) is arbitrary and unsustainable in the law. The Ld. AR submitted the list of documents which were duly submitted before the Ld. AO. The list of documents is reproduced as below: Sl No. Particulars APB Page Nos. 1. Copies of all the letters along with proof of uploading the details on the e-proceedings portal. a) Letter Dt. 20.12.2019 65-72 b) Letter Dt. 23.12.2019 73-78 c) Letter Dt. 27.12.2019 d) Letter Dt. 28.12.2019 (Two Letters) 80-85

The Ld. DR contended that the assessee had deposited SBN during demonetization period and the total cash sales of the assessee for 01.11.2016 to 08.11.2016 was Rs.15.46 crore which is abnormally high cash sales in comparison to the earlier years. The Ld. DR invited our attention in impugned assessment order. The observations of the Ld. AO in relevant paragraphs are reproduced as below: “b) The source of the cash deposits made during demonetisation period has been submitted by the assessee from the cash sales. The assessee was specifically asked, vide notice u's 142(1) dated 18.10.2019, to submit the details of customers to cash sales have been made along with name, PAN amount of cash sales. In response, the assessee has not submitted the details. On perusal of cash book submitted for the period 01.11.2016 to 08.11.2016, it is noted that cash sales of less than Rs. 2,00,000 are made to various Paan Shop and General Stores. The assessee is into practice of depositing the cash received from sales into its bank account on a daily basis. The same can be noted that cash sales made on 01.11.2016 are deposited in bank account on 02.11.2016. There is no reason for assessee to maintain large amount of cash-in-hand on a routine basis as the payments for purchases are being made through banking channels and very few amounts of cash expenses are incurred. This can be seen from the cash book submitted. The assessee has booked transported charges and conveyance expenses of Rs. 6,000 on 01.11.2016. There is a spike in cash sales starting from 02.11.2016 up to 08.11.2016. The average cash sales in the months prior to Nov, 2016 is around Rs. 15 cr. Whereas the assessee has shown Rs. 15 cr. of cash sale in the first week of November, 2016 only. Even if the assessee is not bound to accept PAN as per Rule 1148 of the Income-tax Rules, 1962, the assessee is doing business on a daily basis with these customers and must have maintained the name, address, bank account number of these customers. During the proceedings, the assessee has not submitted any document in relation to the identity of these customers. Also, the assessee has not filed stock reconciliation for the days of first week of November, 2016. The assessee is showing that it has made large amount of cash sales starting from 02.11.2016 up to 08.11.2016 whereas no reason for spiked cash sales has been submitted by the assessee. Also, the assessee has shown cash sales of Rs. 1,68,79,625 during 01.11.2015 to 08.11.2015 in FY 2015-16. c) Most importantly, the assessee has failed to prove these cash sales on 08th Nov, 2016 as it has not made the submission of following documents/evidences before the undersigned: i) Stock register, ii) Sales invoices in support of cash sales. iii) Purchase and Sale register maintained for FY 2016-17. iv) Details of the customers to whom sales are made on days on 1st week of November, 2016 when it is doing regular business with these customers. v) Details of cash sales on days starting from 5th November, 2016 to 12th November, 2016, vi) Stock reconciliation for period 01.11.2016 to 08.11.2016”

The Ld. DR further contended that the assessee had carried the matter in appeal before the Ld. CIT(A). However, the Ld. CIT(A), after considering the facts and material available on record, observed that the assessee had failed to furnish the relevant supporting documents and was also unable to satisfactorily explain and substantiate the abnormal surge in sales during the impugned assessment year. The relevant observations of the Ld. CIT(A), as recorded in paragraphs 4 to 4.3 of the impugned order, are reproduced below: “4. Findings and decision: 4.1. I have carefully considered the assessment order, the submissions made by the appellant, and the facts and documents placed on record. The central issue for adjudication is whether the cash deposits made in Specified Bank Notes (SBNs) during the demonetization period, amounting to Rs.25,78,34,000/-, represent genuine business receipts or unexplained income under the provisions of the Income-tax Act, 1961. 4.2. The appellant has explained that these deposits were out of regular cash sales recorded in the books of account. However, on a detailed examination, it is evident that this contention does not support with the financial and transactional data available. The appellant reported abnormally high cash sales of Rs.15.46 crore during the brief period from 01.11.2016 to 08.11.2016, which is approximately nine times the cash sales of the same period in the preceding year (Rs.1.68 crore). No supporting evidence such as customer details, invoices, stock movement registers, or corresponding increase in business activity has been produced to justify this abnormal surge. Such a sudden increase, uncorroborated Supreme Court in the cases of CIT v. Durga Prasad More (82 ITR 540) and SumatiDaval v. by normal business conduct or evidence cannot be accepted at face value. CIT (214 ITR 801). The Courts have consistently held that apparent statements unsupported by normal business conduct or evidence cannot be accepted at face value. 4.3. It is also pertinent to note that the use and exchange of SBNs were banned from 09.11.2016, except under specific permitted circumstances. Any attempt to deposit unaccounted cash in old currency under the guise of business receipts must, therefore, be examined strictly considering the surrounding circumstances and available evidence. In the present case, the explanation furnished by the appellant lacks credibility, particularly as there is no contemporaneous record indicating that such large-scale cash sales genuinely occurred during the relevant week. The cash balance of Rs.25.78 crore claimed to be held as on 08.11.2016 is wholly inconsistent with earlier cash patterns and disproportionate to the overall business turnover.”

We have heard the rival submissions and perused the material available on record. The dispute relates to the addition of Rs.24,09,54,375/- under section 68 of the Act in respect of cash deposited in SBNs during the demonetization period. The assessee’s consistent explanation is that the source of the impugned deposits was cash generated from its regular business sales. The assessee has further contended that such sales were duly recorded in the books of account and formed part of the turnover disclosed in the State VAT returns. The assessee has also placed reliance upon various documents contained in the paper book, including quantitative details of stock, month- wise details of sales and purchases, comparative sales figures, VAT returns, cash book, bank statements, details of cash sales and cash deposits, and reconciliation statements. On the other hand, the revenue authorities have raised specific doubts regarding the abnormal increase in cash sales during the period from 01.11.2016 to 08.11.2016. The Ld. AO observed, inter alia, that the assessee had not furnished the stock register, sales invoices, purchase and sales registers, customer details and stock reconciliation for the relevant period. The Ld. CIT(A) also recorded that cash sales of Rs.15.46 crore during 01.11.2016 to 08.11.2016 were substantially higher than the cash sales of Rs.1.68 crore during the corresponding period of the preceding year and held that the abnormal surge was not adequately substantiated by contemporaneous evidence. At the same time, we find that the assessee claims to have furnished substantial documentary evidence before the revenue authorities and has also placed the same in the paper book before us. The documents stated to have been furnished include the quantitative details of opening and closing stock, month-wise sales and purchases, comparative statement of sales for different financial years and VAT returns. The assessee has further referred to the cash book, bank statements, explanation and comparative details of cash deposits and cash sales for the relevant financial years. In these circumstances, the factual controversy regarding the source of the SBN deposits and the genuineness of the corresponding cash sales requires proper verification and reconciliation with the books of account, stock records, sales and purchase records, VAT returns and banking transactions. Accordingly, in the interest of justice, we set aside the impugned order of the Ld. CIT(A) on this issue and restore the matter to the file of the Ld. AO for fresh verification. The Ld. AO shall examine the documentary evidence furnished by the assessee and verify, inter alia, the cash sales, corresponding stock movement, purchases, cash book, bank deposits, sales invoices, VAT returns and other relevant records and decide the issue afresh in accordance with law. The assessee is directed to furnish all necessary documents and reconciliations and to cooperate with the proceedings. Needless to say, the Ld. AO shall afford a reasonable opportunity of being heard to the assessee before deciding the issue afresh. We have not expressed any view on the merits of the addition. Accordingly, the grounds raised by the assessee on this issue are allowed for statistical purposes.

In the result, the appeal of the assessee bearing ITA No.7539/Mum/2025 is allowed for statistical purposes. Order pronounced in the open court on 18th day of August 2026.