INCOME TAX OFFICER, MUMBAI vs. DIVYESH CHANDRAKANT RATHOD, MUMBAI

IN THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI “D” BENCH, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER ITA No.4800/MUM/2023 (AY: 2017-18) Mr. Divyesh Chandrakant Rathod vs. ITO, Ward 34(1)(3), 4/8 B Shankar Pandey Chawl, Room No 805, 8th Floor, Kautilya Ambawadi, Jogeshwari East, Bhavan, C-41 to C-43, G Block, Bandra Mumbai-400060 Kurla Complex, Bandra (East) Mumbai-400051. PAN/GIR No: AKAPR2061E (Appellant) (Respondent) ITA No.186/MUM/2024 (AY: 2017-18) ITO, Ward 34(1)(3), vs. Mr. Divyesh Chandrakant Rathod Room No 805, 8th Floor, Kautilya 4/8 B Shankar Pandey Chawl, Bhavan, C-41 to C-43, G Block, Ambawadi, Jogeshwari East, Mumbai- Bandra Kurla Complex, Bandra 400060 (East) Mumbai-400051. PAN/GIR No: AKAPR2061E (Appellant) (Respondent) Assessee by Shri Gaurav Bansal Revenue by Shri Umashankar Prasad (CIT-DR) & Shri Annavaram Kosuri (Sr. AR) Date of Hearing 21.05.2026 Date of Pronouncement 13.08.2026 O R D E R PER BIJYANANDA PRUSETH, AM:

These cross appeals filed by the assessee and the revenue emanate from

the order passed u/s250 of the Income-tax Act, 1961 (in short, ‘Act’) by the

National Faceless Appeal Centre [in short, ‘CIT(A)’], dated 20.11.2023 for the

assessment year (AY) 2017-18.

ITA No.4800/MUM/2023 ITA No.186/MUM/2024 Mr. Divyesh Chandrakant Rathod 2. The grounds of appeal raised by the assessee are as under:

“1. On the facts and circumstances of the case and in law, the order passed by the Ld. A.O. u/s 143(3) is arbitrary, unjustified and bad-in-law

4 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred by treating the sales amount of Rs. 2,41,27,480/- as unexplained money u/s 69A of the Income Tax Act, 1961 and taxing the same u/s 115BBE of the Income Tax Act. Thus, the order passed is incorrect, invalid and bad-in-law.

ITA No.4800/MUM/2023 ITA No.186/MUM/2024 Mr. Divyesh Chandrakant Rathod 3. During the course of hearing before the Tribunal, the appellant has filed

additional ground vide letter dated 10.06.2024, which is as under:

"The Ld. AO erred in making addition of Rs. 6,03,18,700/- restricted to Rs. 2,41,27,480/- by Ld. CIT (A) in the hands of the appellant u/s 69A of the Income tax Act which is not applicable at all as the entries were duly recorded in the books of account. Hence, the addition must be deleted."

“1. On the facts and circumstances of the case and in law, Ld CIT(A) has erred in deleting 60% of total addition of Rs. 6,03,18,700/-made u/s 69A of the Income Tax Act being relief allowed of Rs. 3,61,91,220/-, ignoring the fact that the assessing officer has duly explained and justified the basis of addition made under section. 69A of the Income Tax Act (Act).

ITA No.4800/MUM/2023 ITA No.186/MUM/2024 Mr. Divyesh Chandrakant Rathod

4.1 Let us first consider the request of the assessee to admit the additional

ground raised by him. The ground is legal in nature. The Hon’ble Supreme court

in case of NTPC Ltd. vs. CIT, 229 ITR 383 (SC) has held that the order of Tribunal

u/s 254 of the Act is expressed in the widest possible terms. There is no reason to

restrict the power of the Tribunal u/s 254 only to decide the grounds which arise

from the order of the CIT (Appeals). Both the assessee as well as the Department

have a right to file an appeal/cross objection before the Tribunal. There is no

reason why the Tribunal should be prevented from considering a question of law

arising in the assessment proceedings although not raised earlier. Undoubtedly

the Tribunal will have the discretion to allow or not to allow a new ground to be

raised. But where the Tribunal is only required to consider the question of law

arising from the facts which are on record in the assessment proceedings, there

is no reason why such a question should not be allowed to be raised when it is

necessary to consider that question in order to correctly assess the tax liability of

the assessee. In the instant case, the additional ground emanates from the facts

on record and no additional facts are needed to decide the issue. Hence, following

the decision of the Hon’ble Supreme Court in case of NTPC Ltd. vs. CIT, 229 ITR

383 (SC) and the decision of the Hon’ble Jurisdictional High Court in case of CIT

vs. Pruthvi Brokers and Shareholders PVt. Ltd., 349 ITR 336 (Bom.), the additional

ground is admitted and will be decided at the appropriate place in this order. 4

ITA No.4800/MUM/2023 ITA No.186/MUM/2024 Mr. Divyesh Chandrakant Rathod

ITA No.4800/MUM/2023 (AY: 2017-18) 5. Facts of the case, in brief, are that the assessee filed return of income for

the AY 2017-18 on 29.10.2017 declaring total income at Rs.3,41,690/-. During the

scrutiny proceedings, the AO noticed substantial cash deposits during the

demonetisation period. The assessee explained that the deposits represented

cash sales and capital contribution for business purposes. However, the AO was

not satisfied with the explanation, as the assessee failed to furnish satisfactory

documentary evidence and transaction-wise details to substantiate the source of

the specified bank notes. The AO further observed that the assessee's

explanation was not in accordance with the test of human probabilities and that

the cash deposits were disproportionate to the assessee's disclosed financial

position and business activity. He relied upon the decisions of Hon’ble Supreme

Court in case of CIT vs. Durga Prasad More 82 ITR 540 (SC) and Sumati Dayal vs.

CIT 214 ITR 801 (SC). He accordingly held that the source of the cash deposits

remained unexplained. Accordingly, the AO treated the cash deposits of

Rs.6,03,18,700/- as unexplained money u/s 69A of the Act and added the same

to the total income of the assessee. He also levied tax u/s 115BBE of the Act.

Consequently, the total income was determined at Rs.6,06,60,390/-.

The CIT(A) examined the assessee's claim that the cash deposits of

ITA No.4800/MUM/2023 ITA No.186/MUM/2024 Mr. Divyesh Chandrakant Rathod Rs.6,03,18,700/- represented sale proceeds of gold jewellery. He observed that

the assessee had recorded 379 sale transactions, each generally below Rs.2 lakh,

around the period of demonetisation. The CIT(A) found the sale bills to be

stereotyped and lacking meaningful particulars enabling verification of the

purchasers. The CIT(A) further held that the assessee had accepted specified bank

notes (SBN) after 08.11.2016 from the purchasers, which was contrary to the

applicable demonetisation notification. The circumstances surrounding the

transactions, including the timing of the sales, absence of adequate customer

details and the manner in which the transactions were recorded, cast serious

doubt on their genuineness. Accordingly, the CIT(A) upheld the applicability of

section 69A in respect of the unexplained cash deposits. However, considering

that the sales were reflected in the regular books and following the principle that

only the income element embedded in such sales should be brought to tax, he

restricted the addition to 40% of Rs.6,03,18,700/-, i.e. Rs.2,41,27,480/-, instead

of the entire amount. The CIT(A) also held that the addition u/s 69A was liable to

be taxed u/s 115BBE. Thus, the appeal was partly allowed.

Tribunal. The Ld. AR has filed paper books including case law paper book. He

submitted that the assessee had duly recorded the impugned cash sales in his

regular books of account and that the cash deposits of Rs.6,03,18,700/-

ITA No.4800/MUM/2023 ITA No.186/MUM/2024 Mr. Divyesh Chandrakant Rathod represented genuine business receipts. He submitted that the AO and CIT(A) have

not brought any cogent material on record to establish that the sales were bogus

or that the cash deposits represented undisclosed income. He further submitted

that the CIT(A), having accepted the existence of the sales and restricted the

addition to 40%, ought not to have sustained any addition u/s 69A.

7.1 The Ld. AR also submitted that provisions of section 69A is not applicable

since the sales are recorded in the books of account and appellant had provided

all necessary explanation to prove the source of cash deposited in various bank

accounts which were received out of cash sales made by the assessee. The books

of account are duly audited u/s 44AB of the Act. The cash deposit of

Rs.6,03,18,700/- in the bank account was out of cash sales which is included in

the total sales of Rs.18,96,48,472/-. The AO also did not reject the books of

account u/s 145(3) of the Act. He has also relied on some decisions of Tribunals in

support of the contention that provisions of section 69A are not applicable

namely, Ramchandra Kanu Mendadkar in ITA No.163/Mum/2023 (Mum.), JMK

Export (Delhi) (TM) (2024) 161 taxmann.com 481 (Del.), DCIT vs. Harjinder Talwar

1741/Del/2023 dated 17.05.2024 and ITO vs. Tatiparti Satyanarayan

(Vishakhapatnam) in ITA No.76/Viz/2021 dated 16.03.2022. Accordingly, the Ld.

AR requested that the addition sustained by the CIT(A) be deleted, and the appeal

be allowed.

ITA No.4800/MUM/2023 ITA No.186/MUM/2024 Mr. Divyesh Chandrakant Rathod 8. On the other hand, the Ld. Sr. DR supported the order of AO. He submitted that the CIT(A) should have upheld the entire addition instead of restricting the addition to 40% of the cash deposits. He submitted that the case laws relied upon by the Ld. AR are not applicable because the facts are different. He submitted that test of human probability is applicable in the present case. He also submitted that it was not possible to sell so may gold bars of value of less than Rs.2 Lakhs each. 9. We have heard both the parties and perused the material available on

record. We have also deliberated on the case laws relied upon by the parties.

Since the original grounds and the additional ground are inter-related and pertain

to the same addition of Rs.6,03,18,700/- u/s 69A of the Act, they are considered

together for decision. The assessee is engaged in the business of trading in bullion

and silver under the proprietorship concern M/s Divya Bullions, which was

established in August, 2016, in the impugned AY. Thus, the business of the

assessee was only for 2 months before the demonetization. The Ld. AR submitted

that the assessee was engaged in trading of gold bars and not in jewellery. The

assessee maintained books of account, which are duly audited under section

44AB of the Act. The assessee deposited the daily business receipts in his bank

account and such practice continued in earlier years as well. The assessee

explained that the cash deposits of Rs.6,03,18,700/- during the demonetization

period was out of the cash sales from the available stock recorded in the books of

account.

ITA No.4800/MUM/2023 ITA No.186/MUM/2024 Mr. Divyesh Chandrakant Rathod 9.1 On careful perusal of the assessment order, it is seen that the lower

authorities have raised specific doubts on the genuineness of sales bills. It was

noted that many bills lacked proper address, PAN and signature of purchasers. As

noted by CIT(A), there were 379 sale transactions, each generally below

Rs.2,00,000/-. The price of gold bar was roughly Rs.2,60,000/- to Rs.2,80,000/-

based on daily spot market rate during the relevant period. Official market rate

was between Rs.2,70,000/- to Rs.3,00,000/- per 100gm. In order to sell the gold

bar at a price below Rs.2,00,000/-, the 100 gm bars had to be cut into smaller

pieces. The appellant has not brought any evidence on record that he had reduced

the size of gold bars of 100 gm each in nearly 400 cases before selling them to his

customers. The evidences with respect to physical cutting of the bars, the

expenses incurred towards related labour charges etc. have not been produced

before the lower authorities or the Tribunal. Hence, the test of human probability,

relied upon by the lower authorities, is rightly applicable in this case. This principle

is used to evaluate where a transaction or claim makes logical sense in light of

ordinary human behavior, rather than just accepting paper work at fact value. The

origin of rule is rooted in the decisions of Hon’ble Supreme Court in cases of Durga

Prasad More (supra) and Sumati Dayal (supra) establishing that apparent facts are

not always real when human behavior suggests otherwise. While it is true that in

a retail bullion trade, it may not be possible to identify all cash customers, the fact

ITA No.4800/MUM/2023 ITA No.186/MUM/2024 Mr. Divyesh Chandrakant Rathod remains that the evidence produced by the assessee to substantiate the

genuineness of the sales was not fully verifiable. Thus, the possibility of non-

genuine entries in cash sales cannot be entirely ruled out.

9.2 The Ld. AR has relied on various decisions of the Tribunal that provisions of

section 69A are not applicable. The Ld. AR has not explained as to how the facts

of the cases relied upon are similar to the facts of the present appeal. The Hon’ble

Bombay High Court in case of Ashish Gandhi Builders & Developers Pvt. Ltd. vs.

ITAT, (2017-TIOL-137-HC-MUM-IT) has held that mere filing of paper book is not

indicative of the fact that the case laws referred therein has been relied upon by

assessee and submissions have been made with regard to the same. The Hon’ble

Supreme Court in case of Padmasundar Rao vs. State of Tamil Nadu, 255 ITR 147

(SC) has held that small difference of facts makes a world difference in the

conclusion. Be that as it may, we find that the Hon’ble High Court of Orissa in case

of Pankaj Gupta vs. Pr. CCIT 477 ITR 387 held that where assessee deposited Rs.

28 lakhs in bank using old currency notes of Rs. 500 and Rs. 1,000 and claimed

that deposits were made out of cash sales and realization of debtors in regular

course of assessee's business, since assessee did not explain nature or source of

acquisition of money, impugned addition of amount as unexplained money under

section 69A was justified. The Hon’ble Supreme Court has dismissed the SLP in

ITA No.4800/MUM/2023 ITA No.186/MUM/2024 Mr. Divyesh Chandrakant Rathod 477 ITR 390 (SC) dated 16.05.2025. In view of the above authoritative decision,

the plea of the assessee is rejected.

9.3 However, we concur with the finding of the CIT(A) that the entire cash

deposits cannot be treated as unexplained money u/s 69A of the Act, because the

deposits are recorded in the books of the assessee. However, considering the

deficiencies noted in verification of sale bills and the lack of complete supporting

evidence regarding the genuineness of all cash sales, it would be fair and

reasonable to hold that a portion of the deposits may not be satisfactorily

explained. Accordingly, an estimated addition to account for unverifiable sales

would meet the ends of justice. In a number of decisions, it has been held that

where sales are recorded in the books but the vouchers or bills are unverifiable,

an ad hoc addition on a reasonable percentage basis is justified to plug possible

leakage of revenue. Considering the overall facts, viz., the nature of the business,

the audited books and at the same time, the incomplete verifiability of cash sales,

we are of the considered view that sustaining 20% of the addition by the AO

would be fair and reasonable to cover possible discrepancies and non-genuine

elements in the sales claimed by the appellant. Accordingly, out of the total

addition of Rs.6,03,18,700/- by the AO, addition of 20%, i.e., Rs.1,20,63,740/- is

upheld and the balance addition is deleted. Hence, the grounds are partly

allowed.

ITA No.4800/MUM/2023 ITA No.186/MUM/2024 Mr. Divyesh Chandrakant Rathod 10. In the result, the appeal of the assessee is partly allowed.

ITA No.186/Mum/2024

the entire addition made by the AO may be sustained. We have already decided

the issue above and held that addition may be restricted to 20% of the impugned

cash deposit. Hence, the grounds are dismissed.

appeal of the revenue is dismissed.

Order is pronounced on 13.08.2026.

Sd/- Sd/- (SANDEEP GOSAIN) (BIJYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER

*Aniket Chand; Sr. PS MUMBAI Date: 13.08.2026 Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, MUMBAI 6. Guard File By Order

Assistant Registrar ITAT, MUMBAI