GAJANAN ARUN KALAMBE,YAVATMAL vs. ITO WARD 1, YAVATMAL, YAVATMAL

PER KHETTRA MOHAN ROY, AM:

This appeal by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi (for short “CIT(A)”), dated 24/09/2024 passed under section 250 of the Income Tax Act, 1961 (for short, “Act”) which is arising out of assessment order passed u/s. 147 r.w.s. 144 r.w.s.

ITA No. 304/NAG/2025 (Gajanan Arun Kalambe) 144B of the Act dated 26.03.2022, for the Assessment Year 2017-18.

ITA No. 304/NAG/2025 (Gajanan Arun Kalambe) 4. Being aggrieved, assessee carried the matter to the Ld. CIT(A). Before the Ld. CIT(A) assessee filed additional evidence u/s. 46A of the Act. He filed written submissions and stated that cash deposited to the tune of Rs. 46,81,000/- in Vidarbha Konkan Gramin Bank and Rs. 1,08,69,800/- in Malkapur Urban Co-op. Bank. To explain the source of cash deposits, assessee submitted the documents viz. Audited Finance Statements, computation of income, bank statements of Vidarbha Konkan Gramin Bank & Malkapur Urban Co-op. Bank, sales and purchase registers. He contended that cash deposited in the bank account is on account of cash received from the farmers, who have purchased seeds and fertilizers from the assessee’s shop. The submission of the assessee was remanded to the Ld. AO, who furnished his remand report vide letter dated 12.06.2024 and requested the Ld. CIT(A) to dismiss the appeal of the assessee. Ld. CIT(A) held that the assessee’s explanation that the cash deposits were out of business receipts from sale of fertilizers and pesticides was not supported by credible evidence. The audit report was furnished belatedly after a lapse of several years and was 3

ITA No. 304/NAG/2025 (Gajanan Arun Kalambe) treated as unreliable. The appellant failed to produce complete purchase bills, stock records, or other supporting documents, and only selective and defective invoices were submitted, which did not inspire confidence. Further, no consistent compliance history was found as returns and audit reports were not filed for multiple years, rendering verification of turnover and stock impossible. Ld. CIT(A) further, on perusal of purchase invoices, held that pattern of the bills is same and bills of M/s. Kiran Krushi Seva Kendra are without signature. The documents submitted by the assessee failed to meet the benchmark of credibility. Accordingly, the CIT(A) held that the explanation on account of business receipts was an afterthought and a colourable device to explain unexplained cash deposit. The cash deposits remained unsubstantiated, and therefore, the addition of Rs.1,55,50,800/- made by the Ld. AO u/s. 68 was confirmed by him primarily on the ground of circumstantial evidences and human conduct without making any minimalist inquiry.

ITA No. 304/NAG/2025 (Gajanan Arun Kalambe) 5. Aggrieved, assessee is in appeal before this Tribunal. Learned counsel for the assessee furnished before us a paper book running into 236 pages and submitted that cash deposits pertain to cash received on account of sales receipts and in this line of business, generally the sales are to be farmers and agriculturists, this is the reason why the component of cash sales is on higher side. He further submitted that cash deposits made in the bank account have been ultimately utilized for the purchase of agricultural products only. Ld. AO has considered all the submissions made by the assessee in his remand report and did not question on the sanctity or veracity of any of the documents. Learned counsel submitted that the act of the Ld. AO in taxing the entire gross receipts is against the spirit of the income tax Act which provides taxation only on the income in accordance with section 4 and 29 of the Act and not on gross receipts.

ITA No. 304/NAG/2025 (Gajanan Arun Kalambe) Therefore, the addition made u/s 68 deserves to be confirmed, and the appeal of the assessee is liable to be dismissed.

ITA No. 304/NAG/2025 (Gajanan Arun Kalambe) where a sum is found credited in the books of account and the assessee fails to satisfactorily explain the nature and source thereof. The assessee has discharged its onus but revenue has failed to controvert the same. In the present case, the deposits are part of circulating business receipts in a organized manner, and there is no finding that on standalone basis that there are loans, share capital, or accommodation entries. Therefore, invoking section 68 on the cash deposited in bank is legally unsustainable, particularly when the same is subsumed in turnover. It is a settled law that the entire sales/receipts cannot be treated as income. Only the profit element embedded therein can be brought to tax. The Hon'ble Gujarat High Court in the case of CIT vs. President Industries (2002) 258 ITR 654 (Guj.) held that entire sales cannot be added as income; only profit element is taxable. The same view has been fortified by the Hon'ble Allahabad High Court in the case CIT vs. Kailash Jewellery House (2010) 328 ITR 243 (All.) wherein it has been held that addition of entire sales as unexplained income is not justified. No doubt, assessee failed to produce complete books of account and supporting 7

ITA No. 304/NAG/2025 (Gajanan Arun Kalambe) evidences. However, such failure may justify rejection of books of account u/s 145 and estimation of income, but does not justify taxing the entire gross receipts as unexplained income. Considering the totality of facts and circumstances, we hold that the addition of ₹1,55,50,800/- made u/s 68 is unsustainable and liable to be deleted. The ground taken up in this lis in assailing the addition is vindicated and fortified by assessment order u/s. 147 r.w.s. 144B dated 27.02.2023 for A.Y. 2018-19 wherein identical circumstances returned income of Rs. 288290/- was accepted without any demur against turnover of Rs. 1.09 crores. However, to meet the ends of justice, the Ld. AO is directed to estimate the income by applying a reasonable net profit rate on the turnover, considering the nature of business and past results, after giving due opportunity to the assessee while giving effect to this order. Thus, the grounds of appeal raised by the assessee are allowed in view of the directions supra.

ITA No. 304/NAG/2025 (Gajanan Arun Kalambe) 8. In the result, appeal filed by the assessee is allowed pro tanto in line with the observations and directions contained above.

Order pronounced on 24.04.2026 under Rule 34 of Income Tax (Appellate Tribunal) rules 1963

sd/- sd/- PAWAN SINGH KHETTRA MOHAN ROY JUDICIAL MEMBER ACCOUNTANT MEMBER

Nagpur: Dated: 24/04/2026

vr/-

Copy to:

Senior Private Secretary ITAT, Nagpur