BRIJESHBHAI DINESHBHAI SHINGALA,VANSDA, NA vs. ARIVS.INCOME TAX OFFICER ITO WARD 1(2)(1), RAJKOT, RAJKOT

The grounds of appeal raised by the assessee are as follows: 1. Learned CIT(A) erred in making order by repeating conclusion of ITO as per assessment order, without considering facts, circumstances of our case and submission made by us during appeal proceedings even though source of cash deposit already explained, therefore section 68 not applicable in our case.

Succinctly, the factual panorama of the case is that assessee before me is an Individual. The assessee has filed his return of income vide acknowledgement No.296249461071117 on 07.11.2017, declaring therein total income at Rs.4,33,760/-. The return of income has been processed u/s 143(1) of the I. T. Act, 1961. The case was selected for complete scrutiny under CASS. The notice u/s 143(2) of the Act was issued on 18.09.2018 & 25.09.2018 and duly served upon the assessee. During the course of E-proceedings, the assessee was given sufficient time & opportunities vide various notices u/s 142(1) of Act which was issued and duly served upon the assessee through Registered Email-ID of the assessee from time to time. In response to the notice u/s 142(1) dated 30.08.2019, the assessee has submitted basic details i.e. computation ITR-V, Audit report only. Thereafter, the assessee, vide show-cause notice dated 19/11/2019 was also requested to explain the source of cash deposits and also requested to submit various details as called for vide notice u/s 142(1) dated, 30.08.2019 as well as requested to produce books of account for verification before assessing officer, therefore assessing officer issued another show cause notice to the assessee. In response to the said show cause notice, the assessee could not file required documents before the assessing officer. 4. Therefore, assessing officer noted that the assessee has not submitted day- wise cash book and various other comparative details, even after specially asked for vide notice dated 30.08.2019 & show-cause notice dated 19.11.2019 and final Page | 2 show-cause notice dated 04.12.2019. Thus, even after lapse of more than three months form notice u/s 142(1) dated, 30.08.2019, the assessee has not submitted complete details as called for vide above notices. Further, the reply submitted by the assessee before the assessing officer, was not enough to complete the assessment, therefore, a show-cause notice dated 04.12.2019, has been issued by fixing date of compliance on 10.12.2019. However, the assessee has not submitted complete details as called for. Thus, it is clear that the assessee are intentionally not furnishing the details with a motive to delay the proceeding and not want to give ample time to the assessing officer for verification. Consistent delaying tactics and non-compliance of the notices in toto has left assessing officer with no option but to finalize the assessment on the basis of material available on records. 5. The assessing officer noted that the assessee has been requested to submit the details of last three year opening cash on hand and also requested to justify the same with all supporting documents, however, the assessee has not submitted any details. Further, on verification of e-filling portal, the assessee has regularly filed his ITR for AY2013-14 to AY2018-19 and as per ITR the details of cash- on-hand of last three years is as under: Opening cash in Closing cash in Closing cash in Closing cash in hand as on hand as on hand as on hand as on 01/04/2014 31/03/2015 31/03/2016 31/03/2017 385471 134336 80,516 385357 Thus, from the above it is clear that the assessee has cash-on-hand as on 31.03.2016 of Rs.80,516/- only.

Further, on scrutiny of the ledger from the assessee's books and contra ledger account of Kataria Enterprise's books as well as bank account of the assessee, purchase ledger submitted by the assessee, it was found that the assessee has made payment to Kataria Enterprise then Kataria Enterprise issued sale bills and goods to the assessee and after 10-15 days the balance of these Page | 3 parties goes to Rs.Nil/-. Further, after 10-15 days there are no such balance either in debit or credit in the ledger of Kataria Enterprise, this means the assessee had made all payment related to purchases immediately. The opening balance as on 01.04.2016 from Kataria Enterprise ledger is Rs.4,937/-(DB) and closing balance of Rs. Nil, as on 31.03.2017. Further, the only source of cash generation of the assessee is only from cash sales of Wafers and Namkeens purchased from M/s.Kataria Enterprise. Hence there is opening cash on hand as on 01.04.2016 is only Rs.80,516/- and after payment to Kataria Enterprise the differential cash will remain with the assessee which will be only as per profit ratio of the assessee. Further, on scrutiny of the balance sheet, audit report of the assessee it was noticed that there is gross profit @5.40% and Net profit of Rs.0.90% only. Therefore, considering the above facts looking to the profit/income shown, the cash deposited in SBN at Rs.28,60,000/- was found to be on higher side. Further on going through HDFC bank account no.5020000538530 statement (01.04.2016 to 31.03.2017) of the assessee it is noticed that the assessee has regularly made payments approximately Rs.10 to15 lakhs to M/s Kataria Enterprise within 7 to 10 days period. Further on verification of purchases and sales ledger submitted by the assessee, it is also found that average purchase and sale of 7 to 10 days period comes approximately Rs.10 to 15 lakhs. Thus, it is clear that the assessee is remitting his cash sales to his purchaser, M/s Kataria Enterprise regarding payment of purchase within 7 to 10 days period. The above, mentioned bank account show this pattern of cash deposits and payments to M/s Kataria Enterprise, hence it is clear that availability of cash on hand with the assessee more or less Rs. 10 to 15 Lakhs just before the payment to M/s Kataria Enterprise. Further on scrutiny of HDFC bank account no.5020000538530 statement for the month of November-2016, it was found that the assessee has made payment of Rs. 10,00,000/- to M/s Kataria Enterprise on 05.11.2016. Considering the above facts as well as trend of sale and purchase of the assessee, after this payment on 05.11.2016 it is clear that there is only source of cash generation is from cash sales between the period of 05.11.2016 to 08.11.2016, which cannot be more Page | 4 than Rs.5 Lakhs to Rs.7 Lakhs after considering the pattern of the assessee's business as discussed above. Further, remaining cash on hand on 05.11.2016 after payment of Rs. 10 Lakh which cannot be more than Rs.3 to 5 Lakhs after considering the average purchase and sale of 7 to 10 days period comes approximately Rs. 12 to15 lakhs as discussed above. Therefore, it is clear that there is maximum cash on hand on 08.11.2016 cannot be more than Rs. 10 to12 Lakhs. Thus after considering the above facts as discussed above paras, a maximum benefit up to Rs. 12,00,000/- as cash on hand in SBN as on 08.11.2016, can be given to the assessee which can be assumed that the same was available as cash-on-hand on 08.11.2016 for deposit just before demonetization period. Therefore, it is clear that the remaining cash deposits of Rs. 16,60,000/- (Rs 28,60,000-Rs. 12,00,000) during demonetization period as mentioned above bank accounts is nothing but unexplained income from undisclosed source of income which was not offered for taxation purposes. Therefore, an addition of Rs.16,60,000/- was made to the total Income of the assessee u/s 68 of the Act. The total income assessed is taxed u/s.115 BBE of the Act at the rate of 60%.

Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld.CIT(A), who has confirmed the action of the assessing officer. “All the grounds are identical in nature and related to addition of Rs.16,60,000/- u/s 68 of the Income Tax Act. 1961. Hence, all grounds are taken up together for adjudication. Brief facts of the case are that the assessee had made cash deposit during the demonetization period of Rs. 28,60,000/- during demonization period in the bank account no. 50200021809732 maintained with HDFC BANK, Vansada which was operated by the assessee. The assessee vide his reply regarding source of cash deposits the assessee has submitted that "Cash has been sourced by sale proceeds of business. The reply of the assessee has been considered carefully but not found tenable. 7.2.1 Further the assessee has submitted that he deposited total cash Rs.64,30,840/- during demonetization period. Out of which Rs.28,60,000/- were demonetized currency and balance Rs.38,70,840/- were regular currency. Cash has been sourced by sale proceeds of business. As we are engaged in the business of distribution of Balaji Wafer's products namely wafers & namkeens under proprietary concem Shingala Enterprise during the year under consideration and we have to distribute its products in designated area. Sales are made to small retailers, provision stores, etc. and entire sale are in cash. Thus, only source of cash deposit is sale proceeds received in cash from customer in regular course of business. They are distributing numerous items to small retailers. Thus, Page | 5 only source of cash deposit is sale proceeds received in cash from customer in regular course of business. 7.2.2 The submission of the assessee has been considered carefully, but found tenable for the following reasons/findings as under: On perusal of assessment record, it is evident that the assessee has not submitted day- wise cash book and various other comparative details even after specially asked for vide notices it is clear that the assessee is intentionally not furnishing the details with a motive to delay the proceeding and not want to give ample time to the AO for verification. Consistent delaying tactics and non-compliance of the notices in toto has left AO with no option but to finalize the assessment on the basis of material available on records. Further on verification of e-filling portal, the assessee has regularly filed his ITR for AY 2013-14 to AY 2018-19 and as per ITR the details of cash-on-hand of last three years is as under. Closing Closing cash Closing cash Closing cash cash in in hand as on in hand as on in hand as on hand as on 31/03/2015 31/03/2016 31/03/2017 31/03/2014 3,85,471/- 1,34,336/- 80,516/- 3,85,357/- Thus from the above it is clear that the assessee has cash-on-hand as on 31.03.2016 of Rs.80,516/- only. Further, on scrutiny of the ledger from the assessee's books and contra ledger account of Kataria Enterprise's books as well as bank account of the assessee, purchase ledger submitted by the assessee, it is found that the assessee has made payment to Kataria Enterprise then Kataria Enterprise issued sale billis and goods to the assessee and after10-15 days the balance of these parties goes to Rs. Nil/, Further, after 10-15 days there are no such balance either in debit or credit in the ledger of Kataria Enterprise, this means the assessee had made all payment related to purchases immediately. The opening balance as on 01.04.2016 from Kataria Enterprise ledger is Rs.4,937/- and closing balance of Rs. Nil as on 31.03.2017. Further, the only source of cash generation of the assessee is only from cash sales of Wafers and Namkeens purchased from M/s. Kataria Enterprise. Hence there is opening cash on hand as on 01.04.2016 is only Rs.80,516/- and after payment to Kataria Enterprise the differential cash will remain with the assessee which will be only as per profit ratio of the assessee. Further on scrutiny of the balance Audit report of the assessee it is noticed that there is gross profit @5.40% and Net profit of Rs.0.90% only. Therefore, considering the above facts looking to the profit/income shown, the cash deposited in SBN at Rs.28,60,000/- is found to be on higher side. Further on going through HDFC bank account statement (01.04.2016to 31.03.2017) of the assessee it is noticed that the assessee has regularly made payments approximately Rs. 10 to 15 lakhs to M/s Kataria Enterprise within 7 to 10 days period. Further on verification of purchases and sales ledger submitted by the assessee it is also found that average purchase and sale of 7 to 10 days period comes approximately Rs. 10 to 15 lakhs. Thus, it is clear that the assessee is remitting his cash sales to his purchaser M/s Kataria Enterprise regarding payment of purchase within 7 to 10 days period. The above-mentioned bank account shows this pattern of cash deposits and payments to M/s Kataria Enterprise; hence it is clear that availability of cash on hand with the assessee more or less Rs.10 to 15 Lakhs just before the payment to M/s Kataria Enterprise. Further on scrutiny of HDFC bank account statement for the month of November-2016, it is found that the assessee has made payment of Rs.10,00,000/- to M/s Kataria Page | 6 Enterprise on 05.11.2016. Considering the above facts as well as trend of sale and purchase of the assessee after this payment on 05.11.2016 it is clear that there is only source of cash generation is from cash sales between the period of 05.11.2016 to08.11.2016, which cannot be more than Rs.5 Lakhs to Rs.7 Lakhs after considering the pattern of the assessee's business as discussed above. Further, remaining cash on hand on 05.11.2016 after payment of Rs.10 Lakh which cannot be more than Rs.3 to 5 Lakhs after considering the average purchase and sale of 7 to 10 days period comes approximately Rs. 12 to 15 lakha as discussed above. Therefore, it is clear that there is maximum cash on hand on 08.11.2016 cannot be more than Rs. 10 to12 Lakhs. Thus, after considering the above facts as discussed above paras, a maximum benefit upto Rs. 12,00,000/- as cash on hand in SBN as on 08.11.2016, can be given to the assessee which can be assumed that the same was available as cash-on-hand on 08.11.2016 for deposit just before demonetization period. Therefore, it is clear that the remaining cash deposits of Rs. 16,60,000/- (Rs.28,60,000 Rs. 12,00,000) during demonetization period as mentioned above bank accounts is nothing but unexplained income from undisclosed source of income which was not offered for taxation purposes. Therefore, the addition of Rs.16,60,000/- is added to the total Income of the assessee u/s 68 of the Act by the AO. The appellant's submission has been duly perused; however, it cannot be accepted. Upon examining the documents provided by the appellant, it is observed that the appellant deposited cash amounting to Rs. 28,60,000/- during the demonetization period. The appellant had a closing cash balance of Rs. 80,516/- as on 31 -March-2016. This constituted the opening cash position as of 01-April-2016. Further, it was seen that payments made to Kataria Enterprise were followed by issuance of sales invoices and supply of goods. Within 10-15 days of each such transaction, the inter party ledger balances reconciled to nil, indicating that all purchase payments were promptly settled. The opening balance as at 01-April-2016 in Kataria Enterprise's ledger stood at Rs. 4,937/- and the closing balance as at 31-March-2017 was Rs. Nil. The only discernible source of cash inflow to the assessee was from cash sales of wafers and namkeens procured from Kataria Enterprise. With a gross profit margin of approximately 5.40% and a net profit margin of just 0.90%, the cash generation capability of the business is modest and directly tied to its low margin model. Further, the HDFC Bank account (01-April-2016 to 31-March-2017) reveal periodic remittances of Rs.10 to 15 lakhs to M/s Kataria Enterprise every 7 to 10 days, correlating with similar levels of purchase and sale volumes. This cyclic cash flow pattern establishes that nearly Rs.10-15 lakhs of cash on hand was available immediately prior to each such payment. On 5 November 2016, the assessee remitted Rs. 10,00,000/- to M/s Kataria Enterprise. Given historic cash turnover patterns, it is inferred that total sales receipts in the subsequent 3-day window 05.11.2016 to 08.11.2016) could not have exceeded Rs.5-7 lakhs. Therefore, maximum cash on hand on 08.11.2016 is estimated at Rs.10-12 lakhs. This is the highest amount reasonably held in Specified Bank Notes (SBNs) immediately before demonetization. The assessee deposited a total of Rs.28,60,000/- in SBNs during the demonetization period. The unexplained excess deposit Rs. 16,60,000/-(Rs.28,60,000/- minus Rs. 12,00,000) is not supported by the assessee's business cash flow, books, or documented transactions. Under Section 68 of the income-Tax Act, 1961, any cash credit unexplained to the satisfaction of the Assessing Officer regarding identity, genuineness, and source is liable to be treated as the assessee's income. Here the assessee has failed to establish source for the excess amount. In the absence of credible explanation for Rs.16,60,000/- of cash deposited, this amount is treated as unexplained cash credit under Section 68 of the Income Tax Act. AO has established that the only source of cash deposit is from business of wafers and Namkeen. The detailed analysis made by AO has made it clear that cash deposit of Rs. 16,60,000/- is excess to the known sources of income of the assessee i.e. business income. Appellant failed to submit any evidence to rebut the assessment of AO even at the assessment stage or at the appellate stage. The facts and circumstances surrounding the cash deposit during the demonetization period are rightly considered by the AO and the analysis led to addition of Rs. 16,60,000/-on account of excess cash deposit, the source of which is not explained by the appellant satisfactorily. Hence the addition made by the AO is correct in light of section 68 of the I.T. Act. 1961 Section 68 of the Act deals with Money etc. owned by the assessee and found in possession including in the bank accounts of the assessee which remained unexplained. Cash credits. 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 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. Nobody can prove the appellant's intentions other than himself but this is a clear instance where the decisions in the cases of CIT v. Durga Prasad More [1971]82 ITR 540 (SC) and Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 (SC)can be applied where the Supreme Court has laid down Human Probability test as one of the important test in order to check genuineness of the transactions entered into the books of account of the assesses. The Apex court stated that, taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. Section 68 of the Income Tax Act, 1961 deals with unexplained cash credits. It states that if any sum is found credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof, or the explanation is not satisfactory in the opinion of the Assessing Officer, such amount may be charged to income tax as the income of the assessee. The above findings are supported by the following factual position and judicial pronouncements: 1. CIT v. P. Mohanakala [2007] 291 ITR 278 (SC) Assessee received gifts from NRIs, claimed as genuine. AO found no creditworthiness or genuineness. Hon'ble Supreme Court upheld the addition. The assessee failed to prove creditworthiness and genuineness. Burden of proof lies on assessee. 2. Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) Page | 8 Assessee claimed income from horse races and failed to justify repeated winnings. Hon'ble SC applied the test of human probabilities - the explanation was not acceptable. Addition under Section 68 upheld. 3. CIT v. NRA Iron & Steel (P) Ltd.[2019] 412 ITR 161 (SC) Assessee received share capital from several companies. AO found lack of creditworthiness and genuineness. Hon'ble SC ruled in favour of Revenue. Mere furnishing of PAN and bank statements not sufficient. Assessee must prove identity, creditworthiness, and genuineness of the transaction. 4. CIT v. Nova Promoters & Finlease (P) Ltd. [2012] 342 ITR 169 (Delhi HC) Assessee received share application money from suspicious companies. Hon'ble Delhi HC upheld addition under Section 68. Said companies were mere conduits; assessee failed to discharge the onus. Therefore, the above mention judicial pronouncements are squarely applicable in the instance case as the appellant has failed to satisfactorily discharge his onus to establish the genuineness of source of cash credit Rs. 16,60,000/-. Hence the action of the AO in making the addition of Rs. 16,60,000/- towards unexplained cash credit u/s 68 of the Income Tax Act. 1961 of the appellant as discussed above is upheld and the ground of appeal on this issue is dismissed”.

Aggrieved by the order of the Ld. CIT(A), the assessee is in further appeal before this Tribunal. 9. I have heard, both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Learned Counsel for the assessee submitted that assessee has furnished all the possible evidences about the cash deposited during the demonetization period, however the Assessing Officer did not consider the same. The ld. Counsel also submitted that an estimated addition may be made in the hands of the assessee and appeal of the assessee may be partly allowed. On the other hand, learned DR for the revenue submitted that assessee has not furnished the entire documents and evidences before the assessing officer during the assessment proceedings, therefore, matter may be restored back to the file of the assessing officer with the direction to the assessee to furnish the required documents and details before the assessing officer, and then assessing officer may frame the fresh assessment order. The Ld. DR for the revenue also submitted that whatever the total documents and evidences submitted by the assessee, during the assessment proceedings, the Assessing officer has given the relief to the assessee, therefore now the assessee does not deserve further relief and entire addition to the tune of Rs.16,60,000/- made by the Assessing Officer should be sustained.

I have considered the submissions of both the parties. I note that assessee has failed to produce the documentary evidences in respect of the cash deposit of Rs.16,60,000/-, and also failed to submit evidences to rebut the allegations made by the Assessing Officer. During the assessment proceedings, the assessing officer observed as follows: “…assessee has not submitted day-wise cash book and various other comparative details, even after specially asked for vide notice dated 30.08.2019 & show-cause notice dated 19.11.2019 and final show-cause notice dated 04.12.2019. Thus, even after lapse of more than three months form notice u/s 142(1) dated, 30.08.2019, the assessee has not submitted complete details as called for vide above notices. Further, the reply submitted by the assessee before the assessing officer, was not enough to complete the assessment, therefore, a show-cause notice dated 04.12.2019, has been issued by fixing date of compliance on 10.12.2019. However, the assessee has not submitted complete details as called for. Thus, it is clear that the assessee are intentionally not furnishing the details with a motive to delay the proceeding and not want to give ample time to the assessing officer for verification. Consistent delaying tactics and non-compliance of the notices in toto has left assessing officer with no option but to finalize the assessment on the basis of material available on records”. 11. Therefore, I note that there was non-compliance attitude of the assessee before the assessing officer during the assessment proceedings and assessee has not submitted the required documents and evidences before the assessing officer. Therefore, I am of the view that one more opportunity should be provided to the assessee to furnish the relevant documents and evidences before the assessing officer to prove his claim. For the reasons given above, I am of the view that the order of the CIT(A) on this issue requires to be set aside and the issue needs to be looked into afresh by the assessing officer in the light of the observations as set out above. I hold and direct accordingly. The assessing officer will afford opportunity of being heard to the Assessee before deciding the issue. The Assessee will also be at liberty to let in further evidence to substantiate it’s case. For statistical purpose, the appeal of the assessee is treated as allowed.

In the result, the appeal filed by the assessee is allowed, for statistical purposes. Order is pronounced in the open court on 03/07/2026.