S. A. GARMENTS,TIRUPUR vs. ITO WARD 1(4), TIRUPUR

आदेश / O R D E R

PER MANU KUMAR GIRI, JM:

This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") dated 12.10.2025 for Assessment Year (AY) 2017-18. 2. Brief facts of the case are that the assessee is a partnership firm engaged in the business of manufacturing/trading of garments. For

ITA No.3569/Chny/2025 (AY: 2017-18) S A Garments Vs ITO W 1(4) :: 2 :: the Assessment Year under consideration, the assessee filed its return of income on 31.10.2017 declaring a total income of Rs.3,25,800/-. The case was selected for complete scrutiny under CASS and notice u/s. 143(2) of the Income-tax Act, 1961 (‘Act’ in short) was issued on 26.09.2018. During the course of assessment proceedings, the Assessing Officer observed from the information received from the banks u/s. 133(6) that the assessee had deposited cash in Specified Bank Notes (SBNs) during the demonetisation period aggregating to Rs.29,00,000/-, comprising Rs.25,00,000/- deposited in Bank of Baroda account and Rs.6,32,550/- deposited in HDFC Bank account. The assessee explained that the said deposits were made out of available cash balance as on 08.11.2016 amounting to Rs.39,82,015/- and cash generated from regular business transactions including cash sales and cash withdrawals from bank accounts. The assessee submitted that the source of cash balance was attributable to opening cash balance of Rs.1,27,545/- as on 24.10.2016, cash withdrawals from HDFC Bank aggregating to Rs.21,45,700/- between 24.10.2016 and 08.11.2016 and cash sales aggregating to Rs.18,64,380/- during the period from 25.10.2016 to 05.11.2016. The assessee further submitted that the Assessing Officer had accepted the books of account and returned income and had not rejected the books u/s. 145 of the Act. However, the Assessing Officer rejected the explanation and treated the entire cash deposits of Rs.29,00,000/- as unexplained money u/s. 69A of the Act and taxed the same u/s. 115BBE.The Assessing Officer observed that during the demonetisation period the assessee deposited SBNs amounting to Rs.29,00,000/- in its bank accounts.

ITA No.3569/Chny/2025 (AY: 2017-18) S A Garments Vs ITO W 1(4) :: 3 :: The Assessing Officer issued a show-cause notice proposing addition u/s. 69A. In response, the assessee submitted that the cash deposits represented cash sales and available cash balance. However, according to the Assessing Officerthe assessee produced only a partial cash book for the period 01.10.2016 to 08.11.2016 and not the entire cash book, the certificate issued by the Chartered Accountant certifying cash balance of Rs.39,82,015/- as on 08.11.2016 was not acceptable in the absence of proper cash book and supporting evidence and the assessee failed to establish the availability of cash in hand with proper evidence. The Assessing Officer held that since the assessee could not satisfactorily explain the source of cash deposits made during the demonetisation period, the entire amount of Rs.29,00,000/- represented unexplained money u/s. 69A and was liable to tax u/s. 115BBE of the Act. Accordingly, addition of Rs.29,00,000/- was made to the total income. 3. Aggrieved by the assessment order dated 30.12.2019 passed u/s. 143(3), the assessee preferred an appeal before the Commissioner of Income Tax (Appeals)/NFAC, who confirmed the addition. The CIT(A) confirmed the addition made by the Assessing Officer. The CIT(A) observed that though the assessee claimed to have cash balance of Rs.39,82,015/- as on 08.11.2016, the assessee failed to conclusively substantiate the same with independent and reliable evidence. The CIT(A) held that the opening cash balance of Rs.1,27,545/- was supported only by petty cash book, which was considered an in- house document and not sufficient independent evidence. The claim regarding cash withdrawals of Rs.21,45,700/- from HDFC Bank was

ITA No.3569/Chny/2025 (AY: 2017-18) S A Garments Vs ITO W 1(4) :: 4 :: not substantiated with bank statements or supporting documentary evidence.The CIT(A) held that the sales invoices produced by the assessee were self-generated documents and lacked independent corroboration. It was further observed that invoices merely mentioned “by cash” and “by road”, no third-party confirmations from customers were furnished, the tax audit report described the nature of business as “manufacturing industry” and not “trading”, the audit report did not contain details of trading turnover. The CIT(A) therefore concluded that the assessee failed to discharge the burden cast upon itu/s. 69A to satisfactorily explain the nature and source of the cash deposits. Relying upon the decision of the Hon’ble Supreme Court in Kale Khan Mohammad Hanif v. CIT [50 ITR 1 (SC)], the CIT(A) upheld the addition of Rs.29,00,000/- and dismissed the appeal. The assessee has now preferred further appeal before this Tribunal. 4. The ld.AR for the assessee submitted that the authorities below erred in treating the cash deposits as unexplained despite the existence of sufficient cash balance in the books of account. The principal submissions of the assessee are as under: a. The assessee had sufficient cash balance of Rs.39,82,015/- as on 08.11.2016, out of which the deposits of Rs.29,00,000/- were made; b. The source of cash balance stood explained throughopening cash balance, cash withdrawals from HDFC Bank aggregating to Rs.21,45,700/-, and cash sales of Rs.18,64,380/- during the festival season; c. The Assessing Officer never called upon the assessee to produce the entire cash book during assessment proceedings. Nevertheless, the complete cash book from 01.04.2016 to 31.03.2017 was furnished before the CIT(A);

ITA No.3569/Chny/2025 (AY: 2017-18) S A Garments Vs ITO W 1(4) :: 5 :: d. The books of account were never rejected u/s. 145 and no defects were pointed out in the books; e. Once cash was recorded in regular books of account, addition u/s. 69A could not be made; f. The CIT(A) erred in rejecting the explanation merely because the audit report mentioned “manufacturing industry”. Manufacturing activity was undertaken only for the purpose of sale of garments and therefore cash sales could not be disbelieved on that ground; g. If the alleged cash sales were to be treated as bogus, corresponding consequences ought to follow either byreduction of turnover/income, or increase in closing stock. However, no such exercise was carried out by the Assessing Officer; h. The assessee highlighted that the profit ratio during the relevant year had actually declined compared to earlier year, which disproved the allegation of bogus sales; i. Reliance was placed on the following judicial precedentsJagson International Ltd. v. DCIT [174 Taxmann.com 851]and Shravan Singh Parmar v. ITO [170 Taxmann.com]; j. It was further submitted that the authorities below failed to appreciate that cash sales are normal in textile and garment business, especially during festival season; Accordingly, the assessee prayed for deletion of addition of Rs.29,00,000/- or alternatively remand of the matter for fresh examination. 5. The ld. DR appearing for the Revenue supported the orders passed by the Assessing Officer as well as the CIT(A). It was submitted that the assessee failed to discharge the burden cast under section 69A of the Income-tax Act to satisfactorily explain the source of cash deposits made during the demonetisation period. It was contended that during the course of assessment proceedings, the assessee failed to produce complete books of account and had produced only a partial cash book. Therefore, the Assessing Officer

ITA No.3569/Chny/2025 (AY: 2017-18) S A Garments Vs ITO W 1(4) :: 6 :: was justified in rejecting the explanation offered by the assessee regarding the availability of cash balance. The ld. DR further submitted that the alleged cash balance as on 08.11.2016 was not substantiated through reliable and independent evidence. The assessee’s claim regarding cash withdrawals from HDFC Bank was also not supported by production of bank statements or any corroborative documentary evidence. With regard to the alleged cash sales, it was argued that the assessee relied only upon self-generated invoices and failed to furnish confirmations from purchasers or any independent evidence to establish genuineness of the transactions. It was further pointed out that the tax audit report described the nature of business as “manufacturing industry” and did not disclose any trading turnover, thereby creating serious doubt regarding the genuineness of the alleged cash sales claimed by the assessee.The ld. DR submitted that mere entries in self-maintained cash book cannot conclusively establish genuineness of cash availability unless supported by independent corroborative evidence. It was therefore argued that the assessee had failed to establish the identity, genuineness and creditworthiness of the transactions and consequently the addition made under section 69A was rightly made by the Assessing Officer and correctly confirmed by the CIT(A). 6. We have heard the rival submissions, perused the orders of the lower authorities and carefully gone through the material available on record. The solitary issue involved in the present appeal relates to the addition of Rs.29,00,000/- made u/s. 69A of the Act towards cash deposits made during the demonetisation period.

ITA No.3569/Chny/2025 (AY: 2017-18) S A Garments Vs ITO W 1(4) :: 7 :: 7. The undisputed facts borne out from record are that the assessee is engaged in the business of manufacturing/trading of garments and had deposited a sum of Rs.29,00,000/- in its bank accounts during the demonetisation period. The explanation of the assessee before the lower authorities was that the deposits were made out of available cash balance as on 08.11.2016 amounting to Rs.39,82,015/-, generated from opening cash balance, cash withdrawals from bank and cash sales effected in the normal course of business. We find from the assessment order that the Assessing Officer rejected the explanation of the assessee primarily for the reason that the assessee did not produce the entire cash book during the course of assessment proceedings and further failed, according to the Assessing Officer, to substantiate the availability of cash in hand with proper evidence. The ld. CIT(A), while confirming the addition, proceeded on the basis that the assessee had failed to conclusively substantiate the opening cash balance, cash withdrawals and cash sales through independent evidence and also observed that the tax audit report described the nature of business as “manufacturing industry” and not “trading”. 8. On a careful consideration of the facts and material available on record, we are unable to sustain the findings of the lower authorities. It is an admitted position that the Assessing Officer has not rejected the books of account maintained by the assessee u/s. 145 of the Act. The trading results declared by the assessee have been accepted and no adverse inference has been drawn with regard to purchases, sales, stock or turnover disclosed in the regular books of account. Once the books of account are accepted and no defect is pointed out therein, the cash balance reflected in

ITA No.3569/Chny/2025 (AY: 2017-18) S A Garments Vs ITO W 1(4) :: 8 :: such books cannot be disregarded merely on the basis of suspicion or conjectures. We further find that the assessee had produced before the ld. CIT(A) the complete cash book for the period from 01.04.2016 to 31.03.2017. The cash flow statement placed on record clearly demonstrates that the assessee had sufficient cash availability as on 08.11.2016. The assessee had explained the source of cash balance through opening cash balance, cash withdrawals from HDFC Bank aggregating to Rs.21,45,700/- and cash sales aggregating to Rs.18,64,380/- during the relevant period. Insofar as the observation of the lower authorities regarding cash withdrawals is concerned, we find merit in the contention of the assessee that the Revenue has not disputed the existence of withdrawals from the bank account. The bank accounts themselves were examined by the Assessing Officer on the basis of information obtained u/s. 133(6) of the Act. Once withdrawals are reflected in the books of account and there is no material brought on record by the Revenue to establish that such withdrawals were utilized elsewhere, the same cannot be ignored while considering the availability of cash balance with the assessee. Similarly, the rejection of cash sales merely on the ground that invoices were self- generated documents is not justified in the facts of the present case. The assessee is engaged in the garment/textile business where cash sales are a common business practice, particularly during festival season. The Revenue has neither rejected the sales recorded in the books nor disturbed the turnover declared by the assessee. No discrepancy has been pointed out in purchases, stock register or quantitative details maintained by the assessee. If the Revenue doubted the genuineness of the sales, then consequential

ITA No.3569/Chny/2025 (AY: 2017-18) S A Garments Vs ITO W 1(4) :: 9 :: effect ought to have been given either by reducing the turnover or by enhancing the closing stock. However, no such exercise has been carried out by the Assessing Officer. We also find substance in the contention of the assessee that the gross profit/net profit ratio for the relevant financial year had in fact declined as compared to the earlier year. Had the assessee introduced bogus cash sales merely to explain the demonetisation deposits, there would have been abnormal increase in profit margin. The comparative figures placed before us do not support the allegation that the assessee had artificially inflated cash sales during the demonetisation period. The objection raised by the ld. CIT(A) that the tax audit report described the nature of business as “manufacturing industry” and not “trading” also does not advance the case of the Revenue. Manufacturing activity and sale of manufactured garments are integral parts of the same business activity. Merely because the audit report mentions manufacturing activity, the cash sales recorded in the books cannot be disbelieved, particularly when the turnover disclosed by the assessee has been accepted by the Department. At this stage, it would also be relevant to refer to the legal position governing section 69A of the Act. The provisions of section 69A apply where money, bullion, jewellery or other valuable article is found to be owned by the assessee and such asset is not recorded in the books of account, if any, maintained by the assessee. In the present case, the impugned cash deposits are duly supported by entries in the regular cash book maintained by the assessee. Therefore, once the cash stood recorded in the books of account maintained in the ordinary course of business, invocation of section 69A itself becomes legally unsustainable. The co-ordinate

ITA No.3569/Chny/2025 (AY: 2017-18) S A Garments Vs ITO W 1(4) :: 10 :: Benches of the Tribunal, including the Chennai Benches, have consistently taken the view that when cash deposits during demonetisation period are duly supported by entries in regular books of account and no defects are found in the books, addition u/s. 69A cannot be sustained merely on the basis of suspicion. In the case of Jagson International Ltd. vs. DCIT [174 Taxmann.com 851], it was held that when the books of account were not rejected and no deficiencies were found in the cash book, the Revenue could not disbelieve the availability of cash balance as on 08.11.2016. Similarly, in Shravan Singh Parmar vs. ITO [170 Taxmann.com], it was held that once the source of cash deposit stands explained through books of account and cash book, the same cannot be treated as unexplained money u/s. 69A of the Act. In the present case also, except raising suspicion regarding the cash sales and availability of cash balance, the Revenue has not brought any cogent material on record to establish that the cash deposits represented unaccounted income of the assessee. It is trite law that suspicion, however strong, cannot take the place of evidence. Considering the totality of the facts and circumstances of the case, we are of the considered opinion that the assessee has satisfactorily explained the source of cash deposits made during the demonetisation period through books of account, cash book, bank withdrawals and business receipts. Therefore, the addition of Rs.29,00,000/- made u/s. 69A of the Act and sustained by the ld. CIT(A) is liable to be deleted. Accordingly, the addition of Rs.29,00,000/- is deleted and the grounds raised by the assessee are allowed.

ITA No.3569/Chny/2025 (AY: 2017-18) S A Garments Vs ITO W 1(4) :: 11 ::

Order pronounced in the open court on 13th day of May, 2026 at Chennai. Sd/- Sd/- (प�ावती एस) (मनु कुमार िग#र) (PADMAVATHY S) (MANU KUMAR GIRI) लेखा सद#या/ACCOUNTANT MEMBER $या�यक सद#य/JUDICIAL MEMBER चे$नई/Chennai, &दनांक/Dated: 13th May, 2026. SNDP, Sr. PS आदेश क� ��त'ल(प अ)े(षत/Copy to: 1. अपीलाथ�/Appellant/Assessee 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF