HIRAL DEVENDRA DANGAR,GANDHIDHAM vs. ITO WARD 1, GANDHIDHAM, GANDHIDHAM

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ITA 720/RJT/2025Status: DisposedITAT Rajkot31 July 2026AY 2017-185 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the cash deposits were inherently connected with the business receipts and not unexplained money. The addition made under Section 69A was directed to be deleted.

What were the facts?

The assessee, a medical store proprietor, failed to file an income tax return. The Assessing Officer treated substantial cash deposits in the assessee's bank account as unexplained income under Section 69A and made an addition. The CIT(A) upheld this addition.

What were the issues?

Whether cash deposits in a bank account, in the absence of a filed return, can be treated as unexplained money when the assessee claims they are business receipts. The extent to which profit embedded in such deposits should be taxed.

Which sections of the Income-tax Act were involved?

Section 69A,Section 144,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Rajkot Bench, Rajkot

Before: Dr. Arjun Lal Saini & Shri Sonjoy Sarma

For Appellant: Shri Kalpesh Doshi, Ld. AR
For Respondent: Shri Ganesh Iyer, Ld. Sr. DR
Hearing: 23/07/2026Pronounced: 31/07/2026

आयकर अपीलीय अिधकरण, राजकोट �यायपीठ, राजकोट। In The Income Tax Appellate Tribunal, Rajkot Bench, Rajkot Before Dr. Arjun Lal Saini, Accountant Member And Shri Sonjoy Sarma, Judicial Member

आयकर अपील सं./ITA No. 720/RJT/2025 [ �नधा�रण वष�/Assessment Year: 2017-18 ] Hiral Devendra Dangar ITO Ward 1, Gandhidham C-22, Shaktinagar, 346R-RQQ, Sector 8, Vs. Gandhidham-370201, Gujarat Gandhidham-370201, Gujarat �थायीलेखासं./जीआइआरसं./PAN/GIR No.: ADEPH1606C (अपीलाथ�/Appellant) (��यथ�/Respondent) Appellant by : Shri Kalpesh Doshi, Ld. AR Respondent by : Shri Ganesh Iyer, Ld. Sr. DR Date of Hearing : 23/07/2026 Date of Pronouncement : 31/07/2026

:: ORDER :: Per, Shri Sonjoy Sarma, JM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2017-18, is directed against the order under section 250 of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’] passed by the National Faceless Appeal Centre [hereinafter referred to as ‘NFAC’], dated 02.09.2025, which in turn arises out of an order passed by assessing officer u/s. 144 of the Act, dated 28.06.2019.

2.

Brief facts of the case are that the assessee is an individual and the proprietor of Life Care Medical Store, engaged in the business of trading in pharmaceutical and medical products. The assessee is duly registered under the relevant provisions

ITA No. 720/RJT/2025 Hiral Devendra Dangar governing the business of medicines in the State of Gujarat. For the assessment year under consideration, the assessee did not file the return of income. During the course of assessment proceedings, it was noticed that the assessee had deposited substantial cash in his bank account maintained with HDFC Bank, Gandhidham. In order to verify the source of such deposits, summons under section 131(1) of the Income-tax Act, 1961, were issued. Since there was no compliance, notices under section 142(1), read with section 129 of the Act, were also issued. However, the assessee failed to comply with the statutory notices. On verification of the bank account, the Assessing Officer found that the assessee had deposited cash aggregating to Rs.36,52,011/- during the previous year. As no satisfactory explanation or documentary evidence regarding the nature and source of the deposits was furnished, the Assessing Officer treated the entire amount as unexplained money under section 69A of the Act and completed the assessment under section 144 by assessing the total income at Rs.36,52,011/-.

3.

Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), however, dismissed the appeal and confirmed the addition by holding that the cash deposits represented unexplained income.

4.

Still, aggrieved by the order of the Ld. CIT(A) assessee is in appeal before this Tribunal. At the time of hearing the Ld.AR submitted that the assessee has been carrying on a genuine medicine business under the name and style of Life Care Medical Store for several years. In support of the business activity, the assessee furnished copies of the drug licence issued by the Food and Drugs Control Administration, the licence for running the medical store, the rent agreement relating to the business premises, sample purchase and sale bills, registration certificates under the Goods and Services Tax Act, VAT registration details, and the audited

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ITA No. 720/RJT/2025 Hiral Devendra Dangar financial statements comprising the Profit & Loss Account and Balance Sheet. It was submitted that the cash deposits in the HDFC Bank account were nothing but business receipts generated from retail cash sales of medicines. The assessee demonstrated that the turnover for the year under consideration was Rs.58,34,291/-, on which a net profit of Rs.5,30,864/-, being 9.10% of the turnover, was earned. The Ld.AR also placed on record the financial performance of the assessee for the various assessment years as under:

Assessment Year 2016-17 2017-18 2018-19 2019-20 Turnover (Rs.) 49,58,038 58,34,291 94,80,691 91,69,625 Net Profit (Rs.) 7,56,942 5,30,864 9,04,811 7,37,454 Net Profit Ratio 15.27% 9.10% 9.54% 8.04% It was further submitted that the assessee has regularly maintained books of account and the sales are duly reflected in the VAT/GST returns. Monthly sale statements, cash book, purchase bills and sale bills were also produced to establish that the cash deposits represented sale proceeds. The assessee explained that in the business of retail sale of medicines, a substantial portion of receipts is received in cash and thereafter deposited into the bank account in the ordinary course of business. The Ld.AR further submitted that the difference noticed by the Ld.CIT(A) between the cash book and turnover was only apparent and could be explained by factors such as sales returns, purchase returns, indirect taxes collected on behalf of the Government, and recovery of outstanding dues, all of which affect the cash book but do not necessarily form part of the net turnover reflected in the Profit & Loss Account. It was also argued that even assuming, without admitting, that the cash deposits represented undisclosed sales, the entire sales receipts could never be treated as income. Only the profit embedded in such sales could be brought to tax, since sales represent gross receipts and not taxable income. Reliance was placed on the settled legal principle that only the profit element embedded in unrecorded sales can be assessed. Without prejudice, the Ld.AR submitted that the assessee is willing to offer

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ITA No. 720/RJT/2025 Hiral Devendra Dangar the business income of Rs.5,30,864/-, being the net profit at 9.10% on the turnover of Rs.58,34,291/-, for the purpose of bringing the dispute to an end.

5.

On the other hand, the Ld. DR supported the orders of the authorities below. However, he could not controvert the factual position that the assessee was carrying on a genuine medical business and that the turnover for the year under consideration was Rs.58,34,291/-, on which the assessee had disclosed a net profit of Rs.5,30,864/-

6.

We have heard the rival submissions and carefully perused the material available on record. We find that the assessee is carrying on a genuine business of trading in medicines through Life Care Medical Store. Though the assessment was completed ex parte under section 144 of the Act, the assessee actively participated in the appellate proceedings and furnished documentary evidence including the drug licence, GST/VAT registration, purchase and sale bills, and other business records. We further find that the Ld. CIT(A), in paragraph 8.9.5 at page 36 of the appellate order, has himself recorded that the turnover declared by the assessee broadly matches with the VAT returns and that the deposits in the HDFC Bank account are broadly in line with the declared sales. The Ld. CIT has also observed that the Assessing Officer has not pointed out any defect either in the VAT returns or in the sales disclosed by the assessee. The objection regarding the absence of the pharmacist’s agreement was held to be merely technical in nature. Once the genuineness of the business and the turnover have substantially been accepted, the entire cash deposits cannot simultaneously be treated as unexplained money under section 69A of the Act. The cash deposits are found to be inherently connected with the business receipts of the assessee. The assessee has disclosed a turnover of Rs.58,34,291/-, which includes the cash deposits of Rs.36,52,011/- made in the HDFC Bank account, and has offered a net profit of Rs.5,30,864/-, representing

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ITA No. 720/RJT/2025 Hiral Devendra Dangar 9.10% of the turnover. Considering the nature of the business, the past and subsequent years’ profit ratios, and the material placed before us, we find the declared profit to be fair and reasonable. The Assessing Officer has made the addition of Rs.36,52,011/- under section 69A without appreciating that the deposits formed part of the regular business turnover and without granting the benefit of the business expenditure embedded therein. Accordingly, we direct the Assessing Officer to delete the addition of Rs.36,52,011/- made under section 69A of the Income Tax Act, and direct the Assessing Officer to reframe the assessment by accepting the bank deposits as business income and estimate the profit thereon at 5% of the total bank deposits of Rs.36,52,011/- which works out to Rs.1,82,600/- and the tax shall be computed thereon after allowing basic exemption limit prescribed under the law.

7.

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

Order pronounced in the open court on this 31st day of July, 2026.

Sd/- Sd/- [ Dr. Arjun Lal Saini ] [ Shri Sonjoy Sarma ] लेखा सद�य/Accountant Member �याियक सद�य/Judicial Member राजकोट/Rajkot िदनांक/ Date: 31/07/2026 Copy of the order forwarded to : 1. The assessee 2. The Respondent 3. CIT 4. The CIT(A) 5. DR, ITAT, Rajkot 6. Guard File By order //True Copy// Sr. Private Secretary ITAT, Rajkot

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