ITO-9(2)(1), MUMBAI, AAYAKAR BHAVAN MUMBAI vs. EMPYREAN SPECIALITY SUGAR AND BIOMASS LIMITED, MUMBAI

आदेश / ORDER

PER SANDEEP GOSAIN, JUDICIAL MEMBER:

This appeal is filed by the Department/Revenue against the order of Ld. CIT(A)-National Faceless Appeal centre (NFAC), Del vide DIN: ITBA/AST/S/143(3)/2019-20/1023394603(1) dated 20-Jun-2025 for the Assessment Year 2017-18. The Department has raised the following grounds of appeal:

3. We have heard the counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that the case of the assessee was selected for scrutiny to verify the abnormal increase in cash deposits during the demonetisation period. During the course of assessment, after having sought an explanation with regard to the source of cash of Rs. 1,04,26,500 deposited during the demonetisation period, the AO made additions, which were deleted by the Ld. CIT(A).

post-demonetisation period. The above cash sales were summarised as under:

6.1 The above figures goes to prove that cash sales were a regular and essential part of the assessee's business and that the assessee had cash in hand on the date of demonetisation. It is important to mention here that during the period from September to October 2016, the assessee had deposited Rs. 19,99,500 out of cash sales made by it and the cash in hand available with it. These cash deposits, made prior to demonetisation and emerging from the same source, i.e., cash sales, were duly accepted by the AO and no such additions on account of cash sales were made to the income of the assessee. Thus, the AO had accepted that cash sales were a regular and integral part of the business of the assessee.

"4.4.3 However, on perusal of the assessment order, it is observed that the AO has compared the sales of this current year with sales of the previous year and also issued 133(6) notices to all six parties to whom the appellant had made cash sales. With respect to this, the AO has received reply from all six parties but not convinced with the reply of such parties and also other submission of the appellant, the AO made an addition of Rs. 1,04,26,500/-

4.4.4 During the appellate proceedings, the appellant has tried to show the source of the cash deposits by submitting the P & L account, balance sheet and account statement of the appellant, cash book etc. on perusal of the same, it is observed that the cash sales during the previous Fy 2015-16 is Rs.8.02 Crores whereas cash sales in the current Fy 2016-17 is Rs.2.59 Crores only. Further, it is noticed that out of the said Rs.2.59 Crs, predemonetization and post-demonetization sales are Rs. 1,06,37,000/- and Rs. 1,53,37,646/-respectively. The analysis of cash sales reveal that cash sales in the immediately preceding year were much higher than the year under appeal. Further, the appellant has shown cash sales prior to demonetization period & also earlier years which clearly proves that the appellant has cash in hand on the date of demonetization.

4.4.5 Though the AO has anaysed the reply of the six parties and also compared the sales with the previous year but failed to bring any concrete evidence to prove conclusively that the appellant has shown bogus sales to accommodate his unaccounted income which has been deposited during demonetization period. Considering the evidences submitted during the appellate proceedings and analysis of the same, it is observed that the claim of the appellant found to be acceptable. Hence, the AO is directed to delete the addition made of Rs. 1,04,26,500/- as unexplained money. The appellant succeeds on these grounds of appeal and allowed in favour of the appellant."

explained the source of the cash deposits as being cash sale proceeds forming part of its business turnover and which were duly recorded in its books of account. Thus, in our view, the same cannot be treated as unexplained cash credit and is, therefore, beyond the ambit of Section 68 of the Act.

 Coordinate Bench of ITAT, Mumbai in the case of ITO vs. Ashok Amritlal Nayak [ITA No. 3485/Mum/20251, the relevant extract of which is reproduced as under:

"7. The addition made by the Assessing Officer was under section 68 treating the sales as unexplained credits. However, once the nature of the credit is disclosed as sales forming part of business turnover and such sales are duly reflected in the books, the same cannot again be treated as unexplained cash credit. Section 68 contemplates a situation where a sum is found credited in the books and the assessee fails to satisfactorily explain its nature and source. In the present case, the nature and source of the credit are disclosed as business receipts. Taxing the gross sales themselves as income would amount to bringing to tax the entire turnover, which is impermissible in law."

 CIT Vs Vishal Export Overseas Ltd [TA No. 2471 of 2009) (Guj HC)

"5....... The Tribunal however, upheld the deletion of Rs. 70 lakhs under section 68 of the Act observing that when the assessee had already offered sales realisation and such income is accepted by the Assessing Officer to be the income of the assessee, addition of the same amount once again under section 68 of the Act would tantamount to double taxation of the same income.

 CIT Vs Kailash Jewellery House [TA No. 613/2010] (Del HC)

"The Tribunal also observed that it is not in dispute that the sum of Rs 24.58.400/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. It is in these circumstances that the Tribunal observed that the cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. The findings of the Commissioner of Income-tax (Appeals) and the Tribunal, which are purely in the nature of the factual findings, do not require any interference and, in any event, no substantial question of law arises for our consideration.

 Anantpur Kalpana vs. ITO JITA No. 541/Bang/20211

"9. I have carefully considered the rival submissions. Both the AO and CIT(A) accepted the fact that the cash receipts are nothing but sale proceeds in the business of the assessee. The addition has been made only on the basis that after demonetization, the demonetized notes could not have been accepted as valid tender. Since the sale proceeds for which cash was received from the customers was already admitted as income and if the cash deposits are added under section 68 of the Act that will amount to double taxation once as sales and again as unexplained cash credit which is against the principles of taxation. It is also on record that the assessee was having only one source of income from trading in beedi, tea power and pan masala and therefore provisions of section 115BBE of the Act will have no application so as to treat the income of the assessee as income from other sources. Hon'ble Kolkata Tribunal in the case of CIT Vs. Associated Transport Pvt. Ltd. reported in 84 Taxman 146 on identical facts took the view that when cash sales are admitted and income from sales are declared as income, wherein the Hon'ble Tribunal found that the assessee had sufficient cash in hand in the books of account of the assessee, that there was no reason to treat the cash deposits as income from undisclosed sources. The Hon'ble Vishakapatnam Tribunal in the case of ACIT Vs. Hirapanna Jewelers in ITA No. 253/Viz/2020 on identical facts held that when cash receipts represent the sales which the assessee has offered for taxation and when trading account shows sufficient stock to effect the sales and when no defects are pointed out in the books of account, it was held that when Assessee already admitted the sales as revenue receipt, there is no case for making the addition w/s 68 or tax the same u/s 115BBE again. I am of the view that in the light of the facts and circumstances of the present case, the addition made is not sustainable and the same is directed to be deleted."

tallies with the opening balance of cash for A.Y. 2017-18 i.c. Rs. 17,89,499.82/-. Relevant extract of the same is reproduced as under:

15. During the year under consideration, the assessee had incurred total labour expenses of Rs. 26,86,000/- and in the impugned assessment order, the A.O. had disallowed labour expenses to the extent of Rs. 11,69,521/-.

"34. We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself). the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits.

a. Expenditure is not of the nature as described in sections 30 to 36 of the Act;

b. Expenditure is of revenue in nature not of capital in nature;

c. Expenditure is not personal expense of the assessee;

d. Expenditure has been laid down or expended wholly and exclusively for the purposes of business or profession of the assessee;

e. Expenditure has not been incurred for any purpose which is an offence or which is prohibited by law.

4.5 Ground no. 6: Addition of labour and travelling expenses w/s.37(1).

4.5.1 The AO has proportionally considered the proportion of labour expenses to sales, for the A.Y.2017-18 to the A.Y. 2106-17, and the excess labour expenses of Rs. 11,69,521/- is disallowed and added back to total income u/s 37(1) of the act. In this regard the appellant submitted that, during the said year under consideration, the appellant company had purchased refine jaggary of Rs.4.47 Cr & un-refine jaggary of Rs.1.70 Cr. For un-refine jaggary, the production process requires additional labour to be deployed and hence labour expenses to be incurred as compared to processing refine jiggery. But the AO has compared the claim of the expenses with previous year and disallowed without any conclusive evidences. From the submission of the appellant, it is observed that the appellant has deployed more manpower for processing and wages will increase due to inflation also. Considering the above submission of the appellant and perusal of records, the AO is directed to delete the addition made of Rs. 11,69,521/- as disallowance of labour expenses claimed by the appellant. The appellant succeeds on this ground of appeal and allowed in favour of the appellant.

4.6 Ground no. 7: Addition of travelling expenses u/s 37(1).

4.6.1 The AO has proportionally considered the proportion of travel expenses to sales, for the A.Y 2017-18 to the A.Y 2106-17, and the excess travel expenses of Rs.5.91.913/- is disallowed and added back to total income u/s 37(1) of the act. In this regard the appellant submitted that. it is evident that in most businesses/ industries, Traveling Expenses never directly proportionate to the Sales Turnover, the same may regularly fluctuate vis-à-vis the Sales Turnover achieved, since these are more specific and purpose based expenses being incurred. In the present case, the said travel expenses have been incurred on train travel and cars hired for making visits to nearby towns/villages and cities for procurement purposes as also for visiting the mandis for purposes of sales. But the AO in the assessment order has compared the claim of the expenses with previous year and disallowed without any conclusive evidences. Considering the above submission of the appellant and perusal of records, the AO is directed to delete the addition made of Rs.5,91,913/- as disallowance of travelling expenses claimed by the appellant. The appellant succeeds on this ground of appeal and allowed in favour of the appellant."

Order pronounced in the open court on 11.06.2026.

Sd/- Sd/- GIRISH AGRAWAL SANDEEP GOSAIN ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 11.06.2026 RY, Sr. PS

Copy to:

ITO-9(2)(1), MUMBAI, 6TH FLOOR, 622, AAYAKAR BHAVAN, 1 MUMBAI-400020, MAHARASHTRA EMPYREAN SPECIALITY SUGAR AND BIOMASS LIMITED, UNIT NO.49 2ND FLOOR, BUILDING NO.C, 2 ,RAJ IND.COMMERCIAL PREMISES COOP SOCIETY, MAROL, MUMBAI-400059, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE