NIJAMUDDIN MOHOMEDRAISH KHAN,MUMBAI vs. WARD 24(3)(1), MUMBAI, MUMBAI

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ITA 331/MUM/2026Status: DisposedITAT Mumbai12 August 2026AY 2017-1812 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee had substantiated the source of cash deposits as business receipts from milk sales. The lower authorities failed to appreciate the commercial realities and conduct necessary inquiries.

What were the facts?

The assessee, engaged in milk distribution, disclosed a turnover of Rs. 3,55,37,643/-. The Assessing Officer treated bank deposits of Rs. 2,09,12,810/- as unexplained money under section 69A, despite the assessee explaining these as business receipts.

What were the issues?

Whether bank deposits in a cash-intensive business can be treated as unexplained money under Section 69A when the assessee provides a reasonable nexus with business operations.

Which sections of the Income-tax Act were involved?

Section 69A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI

Before: SHRI CHALLA NAGENDRA PRASAD & SHRI MAKARAND VASANT MAHADEOKAR

Pronounced: 12/08/2026

PER SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER: This appeal is filed by the assessee against the order of the learned CIT(A), NFAC, Delhi, dated 02.12.2025, for the assessment year 2017-18 in sustaining the addition made under section 69A of the Act.

2.

The brief facts of the case are that the assessee is engaged in the business of distribution and sale of milk and milk products.

During the relevant previous year, the assessee disclosed turnover of Rs. 3,55,37,643/- from the said business and earned Gross Profit of Rs. 9,51,559/- and Net Profit of Rs. 2,46,010/- as reflected in the Profit & Loss Account. The business is predominantly cash-based because milk is a daily consumption product supplied to retailers, hotels, tea stalls and local customers who generally make payments in cash. The assessee collects cash against sales during the day, deposits the same into bank accounts and thereafter makes payments to milk companies towards purchases and supplies. During the assessment proceedings, the Assessing Officer noticed total Credits in the bank accounts of Assessee aggregating to Rs. 2,09,12,810/- and treated the same as unexplained money under section 69A. The assessee in the course of assessment proceedings explained that he was engaged in distribution of milk products and that the deposits were directly linked with business transactions. The assessee also furnished ledger accounts, bank statements, supplier accounts and other supporting material to establish the nexus between deposits and business activity. Despite the explanation and supporting evidences, the Assessing Officer as well as the learned CIT(A) rejected the claim and treated the entire deposits as unexplained money under section 115BBE without appreciating that the deposits represented circulating business receipts arising from the milk distribution business.

3.

Ld. Counsel for the assessee submitted that the business carried on by the Assessee during the relevant previous year is duly reflected in the books of account and Profit & Loss Account for the year ended 31.03.2017. Ld. Counsel submitted that as per the Profit & Loss Account, assessee has a turnover of Rs. 3,55,37,643/- and against the said turnover, purchases amounted to Rs.73,43,87,278/- and transportation expenses amounted to Rs.1,98,806/- were incurred resulting in a Gross Profit of Rs,9,51,559/-, which works out to approximately 2.68% of the turnover. Ld. Counsel further submitted that after claiming normal business expenses such as salary, bank charges, depreciation, interest, electricity, conveyance and other routine business expenditures, the assessee disclosed a Net Profit of Rs.2,46,010/, being approximately 0.69% of the turnover. The Ld. Counsel also submitted that the credits in the bank account of Rs.2,09,12,810/- sought to be treated as unexplained money are substantially lower than the total turnover of Rs,3,55,37,643/-. The credits therefore form part of the normal business receipts generated during the course of carrying on the milk distribution business.

4.

The Ld. Counsel further submitted that the Revenue has not disputed that the assessee was engaged in the business of distribution and sale of milk and milk products. The Profit & Loss Account demonstrates that the assessee was carrying on a genuine business activity having substantial turnover. The credits appearing in the bank account are therefore required to be examined in the context of such business operations and cannot be viewed in isolation. Ld. Counsel submitted that the bank statements further demonstrate a regular pattern of cash deposits followed by payments to suppliers. Such a pattern is wholly consistent with the nature of the assessee’s business where cash collections are received from retailers and customers and thereafter deposited into the bank for making payments towards purchases. Without prejudice, even assuming that certain deficiencies existed in maintenance of records, the settled legal position is that the entire turnover cannot be assessed as income. At the highest, only the profit element embedded in such receipts could be subjected to tax. In the present case, the assessee has already disclosed Gross Profit of Rs.9,51,559/- and Net Profit of Rs.2,46,010/- from the said business activity. Therefore, the action of treating the entire credits of Rs.2,09,12,810/- as unexplained money under section 69A is contrary to the facts on record and results in taxation of business turnover itself, which is impermissible in law.

5.

Ld. Counsel for the assessee submitted that the primary requirement of section 69A is that the money found deposited should remain unexplained as to its nature and source. In the present case, the source of deposits was fully explained. The assessee is carrying on a regular milk distribution business and the cash deposited in the bank account represented business collections generated from sale of milk and milk products. The learned CIT(A) proceeded on the assumption that since the assessee could not produce every document sought during the assessment proceedings, the deposits automatically became unexplained. Such an approach is contrary to the settled legal position. Once the assessee establishes a reasonable nexus between cash deposits and business operations, the burden shifts to the Revenue to bring material on record demonstrating that the explanation is false or improbable. Neither the Assessing Officer nor the learned CIT(A) has brought any evidence to show that the deposits represented undisclosed investments, unaccounted assets, unexplained money or income from any source other than business.

6.

Ld. Counsel for the assessee submitted that the assessee had specifically explained that he was dealing in milk products supplied by milk companies including Amul and other suppliers. Ld. Counsel submitted that the learned CIT(A) observed that no confirmation from milk companies was produced and therefore the claim could not be accepted. However, no independent enquiry was conducted from any supplier. No notice under section 133(6) was issued to the milk companies. No investigation was undertaken to verify the assessee’s explanation. The entire addition has been sustained merely on presumptions and surmises. It is a settled proposition of law that suspicion, however strong, cannot take the place of evidence.

7.

Ld. Counsel for the assessee submitted that the assessee’s bank statements clearly demonstrate a regular pattern of cash deposits followed by corresponding payments towards purchase of milk products. The nature of the business itself explains the cash deposits. Milk distribution is a daily cash- intensive activity. Cash is collected from retailers and customers and is deposited into the bank for making onward payments to suppliers. The learned authorities below failed to appreciate the commercial realities of this line of business. The deposits cannot be viewed in isolation. They must be examined in the context of the assessee’s business activity and the corresponding flow of funds. Once business activity is accepted, the gross deposits cannot be treated as income. Even assuming without admitting that certain deficiencies existed in maintenance of records, at the highest, only profit element embedded in the deposits could be brought to tax and not the entire turnover.

8.

Ld. Counsel for the assessee submitted that the assessee placed reliance upon the decision of the Hon'ble ITAT Mumbai Bench in the case of Santosh Bhairu Bhilare vs. Assessing Officer, ITA No. 346/Mum/2025, order dated 28.08.2025. In the said case, the assessee was engaged in milk distribution business. Cash deposits were made in the bank account during the demonetisation period. The Assessing Officer treated such deposits as unexplained money under section 69A. Before the Tribunal, the assessee explained that the deposits represented cash received from sale of milk and that the same was subsequently utilized for making payments to Gujarat Cooperative Milk Marketing Federation Ltd. (AMUL). The assessee furnished bank statements, ledger accounts and business records establishing the source of deposits. After considering the material on record, the Hon'ble Tribunal held that the cash deposits represented business receipts arising from milk distribution activity and deleted the addition made under section 69A. The Tribunal specifically observed that the cash deposits were used for making payments to Gujarat Cooperative Milk Marketing Federation Ltd. and that the explanation offered by the assessee stood substantiated by documentary evidence.

9.

Ld. Counsel submitted that the facts of the present case are substantially identical. The nature of business is identical. The source of cash deposits is identical. The documentary evidences relied upon are similar. Therefore, on the principle of judicial consistency and parity of facts, the ratio laid down by the Hon'ble Mumbai Bench deserves to be applied to the present case.

10.

Heard rival submissions and perused the orders of the authorities below. We find considerable merit in the submissions of the learned Counsel for the assessee. We also find that an identical issue came up for consideration before the Coordinate Bench of the Tribunal in the case of Santosh Bhairu Bhilare v.

Assessing Officer in ITA No. 346/Mum/2025, vide order dated 28.08.2025, wherein the Tribunal held as under:

“4. Brief facts of the case are that assessee filed his return of income on 06.02.2018 reporting total income at Rs.3,99,330/-. On the basis of data analytics and information gathered during the phase of online verification under "operation clean money", department gathered list of assesses who had deposited substantial cash in bank accounts during the demonetization period. Based on this, ld. Assessing Officer noted that assessee had deposited total cash of Rs.1,19,85,000/- in his bank account with Dattatraya Maharaja Kalambe Jaoli Sahakari Bank Ltd. (DMK Jali Bank), Maulana Azad Road, Near Round Temple, Mumbai with current bank account No. 002010000002350. Ld. Assessing Officer had issued notice u/s.133(6) to the said bank calling for the bank statement. Assessee was also called for the required information and details in respect of deposit of cash in his aforesaid bank account. Ld. Assessing Officer records in his assessment order that assesseefailed to furnish details called and did not comply to the show cause notices issued by him. 4.1. According to the ld. Assessing Officer, assessee has deposited cash in his bank account during the demonetization period, which appears in the bank statement called by him from the bank by issuing notice u/s.133(6) but such cash deposits are not recorded in the books of accounts of the assessee and not offered to tax. He also observed that nature and source of such deposits made in the bank account are not explained by the assesse. He thus, completed the assessment by holding the deposit of cash of Rs. 1,17,71,000/- as un-explained money u/s.69A. 5. Before the ld. CIT(A), it was contended that assessee had submitted profit and loss account of the business concern in the name and style of Bhilare Brothers Dairy Farm, of which assessee is the proprietor. Sales reported in the profit and loss account are at Rs.8,91,00,423/-. However, no details in respect of such sales has been furnished including tax audit report, sales register, GST return, sales bill, cash register, list of customers to whom cash sales were made, etc. Ld. CIT(A) thus, observed that assessee has not discharged his primary burden of explaining the source of cash deposits during the demonetization period. He thus, dismissed the appeal of the assessee by observing that assessee is not willing to cooperate with the appellate authority and thus, sustained the addition so made by ld. Assessing Officer. Aggrieved, assessee is in appeal before the Tribunal. 6. Before us, ld. Counsel for the assessee contended that assessee is a distributor for Amul milk, carrying his business in the proprietaryconcern in the name and style of Bhilare Brothers Dairy Farm. Ld. Counsel submitted that assessee has placed on record, copy of his bank statement to demonstrate the business transactions undertaken by him. Assessee maintains books of accounts which are audited under Section 44AB of the Act. The deposit of cash pertains to the milk distribution business, for which the cash is collected and then the same is paid to Gujarat Cooperative Milk Marketing Federation Ltd. (GCMM). The source of the said cash was explained as arising out of business receipts duly recorded in the books of accounts. Necessary documentary evidences, including the Bank Statement, Amul Ledger etc, were submitted. 6.1. Assessee submitted that as per the procurement policy of Gujarat Cooperative Milk Marketing Federation Ltd (Amul), he is required to make advance payments on a daily basis via bank transfer to purchase milk and other related products. Accordingly, cash generated from day- to-day cash sales is deposited into the bank account, and subsequently transferred to Amul to settle daily purchase invoices. The profit margin in this line of business is nominal, usually ranging between 1% to 1.5%, as the maximum retail price (MRP) of the products already factors in the margins of both wholesalers and retailers. Moreover, he has to incur additional administrative and operational expenses to run the business, further reducing net profits. 6.2. Assessee contended that net profit from the business, even after considering these sales, is very low of Rs.4,31,695/- and the books are audited which include: a) The ledger account of Amul, evidencing purchases made,b) The bank statement reflecting corresponding cash deposits and bank transfers to Amul, placed on record to substantiate the claim. 7. Ld. DR placed on record a written submission reiterating the stance taken by the authorities below. He acknowledged the nature of business but disputed on the inadequate explanation given by the assessee on the source of cash which was deposited in the bank during demonetization period. Detailed written submission has been perused. 8. We have heard the rival contentions and perused the material placed on record. Fact of the matter is that assessee is carrying on milk distribution business, the cash deposits in the bank account were received from sale of milk and the same has been used to make payment towards purchase of milk to Gujarat Co-operative Milk Marketing Ltd. (GCMM) by way of cheque/demand draft as reflected in the bank statement of the assessee. On the other hand, the learned Departmental Representative supported the order passed by the CIT(A) and placed reliance on the order passed by the AO and the CIT(A). On perusal of the material on record, we find that assessee furnished all the documents as filed before the CIT(A) which support the averments made by him. Cash book and bank statement of the assessee for the relevant financial year and the ledger account of purchases made from GCMM show that assessee had deposited cash from sale of milk in the bank account which was used to make payments for purchase of milk from GCMM.

8.1. In our view, by furnishing the aforesaid documents/details assessee substantiated the stand taken. However, ld. CIT(A) did not deal with documents/details furnished and failed to either carry out any inquiry/verification into purchase/sale of milk to averments so made or to point out any infirmity in the aforesaid documents/details. 8.2. Notification No. S. O. 3408(E) provided that specified bank notes would continue to be legal tender for purchase of milk at GCMM. Assessee provided explanation about the source and nature of cash deposited in the bank account as cash received from sale of milk in the normal course of business. Accordingly, in the facts and the circumstances of the present case, addition of Rs.1,17,71,000/- made by the ld. AO under s. 69A of the Act is deleted. Grounds raised by the assessee are allowed.” 11. Similarly, we find that the Pune Bench of the Tribunal in the case of Sandip Chandrakant Renuse v. ITO in ITA No. 887/PUN/2026, vide order dated 04.06.2026 held as under:

“3. We have heard rival contentions and perused the record placed before us. We observe that the assesse is an individual and Rs. 3,90,720/- declared in the return of income for A.Y. 2017-18 e-filed on 23.02.2018. The assessee is a milk distributor for various Brands namely Chitale, Amul and Krushna. Business is being carried out in the name under the sole partnership of M/s 'Hari OM Shree Milk Suppliers'. On the total sales effected by the assessee from various milk suppliers, assessee earns gross commission income of Rs. 14,20,331/- Ld AO has carried out the assessment proceedings based on the information about cash deposits during the demonetization period at Rs. 67,76,500/- Subsequently during the course of assessment proceedings, Ld. AO after going through the account of cash sales/cash in hand as on 19.11.2016, was not satisfied with the contentions of the assessee that the cash deposited in SBN at Rs. 9,16,000/- after 10.11.2016 are out of regular sales carried out by the assessee. 4. We observe that the assessee is into this business for past many years. In the preceeding year for A.Y. 2015-16 total cash deposited in the bank amounted to Rs. 4,64,44,850/- which included the cash deposit during the period 09.11.2015 to 31.12.2015 at Rs. 1,87,01,680/- We also note that total cash deposit in bank during financial year 2016-17 (A.Υ. 2017-18) is Rs. 4,87,24,600/- out of which Ld. AO has only doubted cash deposit of Rs. 9,16,000/- Only allegation of the AO is that how he could have received SBN notes post the announcement of demonetization scheme.5. We note that the assessee is a milk distributor and earns commission income (subject to deduction of tax at source) and claims incidental expenses. Complete details of cash deposits in bank are maintained by the assessee. Letter from Amul, Chitale and Krushna Milk Suppliers are placed on record. When the genuineness of the regular business of milk distribution source and major portion of cash deposit is not in dispute then challenging the genuineness of the alleged cash deposits is not justified. Therefore considering the submissions filed by assessee before this Tribunal placed in paper book running from page No. 01-75 and also placing reliance on decision of Benches as well as this Tribunal Benches placed in paper book from page No. 01 to 49, we are of the considered view that the source of alleged cash deposit is the receipts from sale of milk by the assessee in the capacity of a milk distributor and therefore no addition u/s 69A r.w.s 115BB of the Act at Rs. 9,16,000/- is called for. Finding of Ld. CIT(A) is reversed and impugned addition is deleted. Grounds of appeal raised by the assessee are allowed.” 12. The factual situation in the case of the assessee is identical to the factual situation in the cases referred to above. Therefore, the same squarely applies to the facts of the assessee's case. Thus, respectfully following the said decisions, we delete the addition made under section 69A of the Act.

13.

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

Order pronounced in the open court on 12/08/2026

Sd/- Sd/- MAKARAND VASANT MAHADEOKAR CHALLA NAGENDRA PRASAD ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 12/08/2026 Prabhat Copy to: NIJAMUDDIN MOHOMEDRAISH KHAN, MARIUMBAI CHAWL, JUHU LANE, 1 ANDHERI (W) MUMBAI, MUMBAI-400058, MAHARASHTRA

WARD 24(3)(1), MUMBAI, 2 PIRAMAL CHAMBER, MUMBAI, MUMBAI-400058, MAHARASHTRA

3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE

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