AARYA SILVER,MUMBAI vs. ITO WARD-22(2)(1), MUMBAI

This appeal by the assessee is directed against the order dated 29.10.2025 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [‘learned CIT(A)’], under section 250 read with section 254 of the Income-tax Act, 1961 [‘the Act’], for the assessment year 2017-18. The order appealed against arises from the assessment order dated 20.12.2019 passed by the Income Tax Officer, Ward 22(1)(1), Mumbai, under section 143(3) of the Act.

The assessee has raised the following grounds of appeal:

Briefly stated, the assessee is a partnership firm engaged in the business of silver jewellery and ornaments. It filed its return of income on 01.11.2017 declaring total income of Rs.17,85,990. The case was selected for scrutiny. During the demonetisation period, the assessee deposited aggregate cash of Rs.1,21,23,000 in four bank accounts, namely, Rs.50,50,000 in IndusInd Bank, Rs.34,03,000 in Kotak Mahindra Bank, Rs.24,50,000 in HDFC Bank and Rs.12,20,000 in Punjab and Sind Bank. The assessee explained that these deposits were made out of cash available in its books.

The Assessing Officer observed that the cash balance as on 08.11.2016 was substantially higher than the balances in the preceding months. He further observed that the assessee had not furnished confirmations from debtors and complete supporting material to substantiate the cash receipts. The explanation was, therefore, rejected and the entire cash deposit of Rs.1,21,23,000 was treated as unexplained money under section 69A of the Act. The assessed income was determined at Rs.1,39,08,990.

The learned CIT(A) sustained the addition. He held, inter alia, that the sharp increase in cash immediately before demonetisation was not adequately supported by contemporaneous evidence; that the alleged cash sales were not corroborated by customer confirmations, PAN details and stock movement records; and that mere entries in a self- prepared cash book did not establish the physical availability of cash. He also rejected the challenge to the validity of the notice under section 143(2) and dismissed the appeal.

Before us, the learned Authorised Representative submitted that the cash book, bank statements, invoices, sales-tax returns and month- wise cash summaries were placed on record. He explained that at the 3

The learned Departmental Representative relied upon the assessment order and the order of the learned CIT(A). He submitted that the sudden increase in the cash balance immediately before demonetisation and the absence of satisfactory independent corroboration justified the rejection of the explanation and the addition under section 69A of the Act.

We have heard the rival submissions and perused the material available on record. The short issue for consideration on merits is whether the cash deposits of Rs.1,21,23,000 made during the demonetisation period remained unexplained. The cash-book summary placed before us shows the following position: 4

Thus, the cash of Rs.1,23,50,153 available at the close of 08.11.2016 was more than the aggregate deposits of Rs.1,21,23,000 made thereafter. The source claimed by the assessee is not a bare oral explanation. It is traceable to the opening cash balance, cash sales and bank withdrawals recorded in the books. The month-wise record also shows closing cash balances of Rs.64,48,548 for September 2016 and Rs.80,75,954 for October 2016. Therefore, the balance did not arise for the first time on the date of demonetisation; the books disclose an increasing cash position before 08.11.2016.

The assessment order proceeds substantially on the absence of confirmations from debtors. However, the case of the assessee before us is not that the impugned deposits represented collections from debtors. Its explanation is that the deposits came from the cash balance already recorded in its books, comprising opening cash, cash sales and prior bank withdrawals. The learned CIT(A), therefore, proceeded on a premise which does not answer the actual explanation tendered by the assessee.

It is also relevant that the assessee is engaged in the business of wholesale and retail trading in silver jewellery and ornaments. The cash sales of Rs.96,42,892 up to 08.11.2016 were stated to be supported by 5

The observation that the balance was unusually high or that the cash sales increased close to demonetisation may justify examination of the books and supporting documents, but suspicion by itself cannot displace the entries in regularly maintained books without pointing out a specific defect or bringing contrary material on record. Section 69A applies where the assessee is found to be the owner of money not recorded in the books, if any, and either offers no explanation about its nature and source or the explanation offered is not satisfactory. In the present case, the money deposited is recorded in the books and its source is explained by a cash balance exceeding the deposits. On the facts available before us, the explanation cannot be rejected merely on general probabilities.

In view of the above, we hold that the assessee has satisfactorily explained the nature and source of the cash deposits of Rs.1,21,23,000. The addition made under section 69A of the Act is, therefore, directed to be deleted. Grounds no.3 to 5 are allowed.

Since the assessee succeeds on merits, we do not consider it necessary to adjudicate the legal ground challenging the validity of the notice under section 143(2) and the assessment framed pursuant thereto. Ground no.2 is accordingly kept open.

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