MANGILAL NEMICHAND JAIN,MUMBAI vs. ITO WARD 23(2)(6), EARNEST HOUSE

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.3379/Mum/2026 (Assessment year: 2017-18)

Mangilal Nemichand Jain vs ITO Ward 23(2)(6), Mumbai 194, Sheikh Momon Street 303 Earnest House Nariman Point Zaver Bazar, Mumbai-400002 Mumbai-400021 PAN:AAAPJ5642F APPELLANT RESPONDENT Assessee by : Shri M.S. Mathuria-Adv. Revenue by : Shri Pasale Naganath Bhimrao-(Sr.DR) Date of hearing : 21/05/2026 Date of pronouncement : 26/05/2026 O R D E R Per:Anikesh Banerjee (JM): The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2017-18, date of order 19.02.2026. The impugned order emanated from the order of the Ld. Income Tax Officer-23(2)(6), Mumbai (for brevity the ‘Ld. AO’) order passed under section 143(3) of the Act date of order 26.12.2019.

2 ITA No.3379/Mum/2026 Mangilal Nemichand Jain 2. The brief facts of the case are that the assessee filed the return by declaring total income Rs.18,80,380/-. the return was processed u/sec. 143(1) of the Act and the case was selected for scrutiny under CASS. The Ld. AO found that the assessee had deposited cash during the demonetization period amount to Rs.2,02,23,980/-. In compliance of the notice of the Ld. AO the assessee had submitted sale register, purchase register, stock register and cash book before the Ld. AO and the assessee has made the claim that during the demonetization he had managed to sell to more than 300 clients on 08.11.2016 after the announcement of the demonetization at 8 p.m. which is highly improbable as per the Ld. AO. The assessee is proprietary concerned and the trade name is M/s. Kanak Nidhi Bullion since last more than 40 years were carrying business of gold bar and coins and silver coins. The assessee is also registered under Maharashtra Value Added Tax Act 2002 and Central Sales Tax Act, 1956. The sales were duly declared the assessee in the return of income and also in the VAT return. But the Ld. AO had rejected the sale at the rate of 15% of total sales during demonitisation which comes to Rs.30,33,597/- and was added back with the total income of the assessee u/sec. 68 read with section 115BBE of the Act. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) rejected the appeal of the assessee. Being aggrieved assessee filed an appeal before us.

3 ITA No.3379/Mum/2026 Mangilal Nemichand Jain Rs.19,02,716/-. The assessee submitted the total cash book in supporting of cash deposits, registers, cash sale for the impugned assessment year. It is admitted fact that the assessee had sold the goods and catered the 300 customer on 08.11.2016 after due declaration of the demonetization. So, the assessee had made the cash sale to the customers in this duration and from these respective sales the assessee deposited the cash in the bank. The Ld. AO without rejecting the books of accounts suomotu disallowed 15% of the sale amount to Rs.2,02,23,980/- which comes to Rs.30,33,597/- is unjustified. The observations of the Ld. AO in para no.12 is reproduced as below: “12. The assessee's reply is perused, considered and placed on record. However the same is only partially acceptable. It is true that assessee could provide sales register, purchase register, stock register, and cash book. However, these documents have been provided during the course of scrutiny assessment proceedings in F.Y. 2019-20 i.e. after lapse of more than two years from the end of the F.Y. 2016-17. The fact that these documents especially cash book can be manipulated cannot be ruled out. Considering the facts of the case as well as the peculiarity of F.Y. 2016-17 pertaining to A.Y. 2017-18 due to demonetization and the assessee's claim that he managed to sell to more than 300 clients on 08.11.2016 after the announcement of demonetization at 8.00 PM is highly improbable. Hence, whether the assessee actually had the cash in hand due to sales upto 08.11.2019 оr otherwise can't be completely ruled out. To safe guard the interest of revenue it is proposed to add 15% of cash sales on 08.11.2016 i.e. 15% of 2,02,23,980/- (Cash sales on 08.11.2016 as per sales register submitted by the assessee) which works out to Rs. 30,33,597/- is added to the total income of the assessee as unexplained cash credits u/s. 68 of the IT Act, 1961. The Total Income assessed is taxed u/s 115 BBE of the Act at the rate of 60%. Penalty proceedings u/s 271 AAC of the Act in respect of unexplained income is initiated separately.”

4 ITA No.3379/Mum/2026 Mangilal Nemichand Jain “4. I have heard the parties and perused the record. The facts that the deposit made into the bank account is from out of the books of accounts and the said deposits have been duly recorded in the books of account are not disputed. It is the submission of the assessee that it had received advance money from walk in customers for sale of jewellery over the counter and the amount so received was duly recorded in the books of account. The said amount alongwith other cash balance available with the assessee was deposited into the bank account after announcement of demonetization by the Government of India. He also submitted that the assessee has raised sale bills against the said advances in the name of respective customers. Since the transaction was less than Rs. 2.00 lakhs, it was stated that the assessee did not collect complete details of the customers. Thus, it is seen that the advance amount collected from customers, the sales bill raised against them etc., have been duly recorded in the books of account. The impugned deposits have been made from cash balance available with books of account. I also notice that the Assessing Officer has not rejected the books of account. When cash deposits have been made from the cash balance available in the books of account, in my view, there is no question of treating the said deposits as unexplained cash deposit as opined by the Assessing Officer.”

5 ITA No.3379/Mum/2026 Mangilal Nemichand Jain 7. We heard the rival submissions and considered the documents available on record. The assessee is a regular filer of income tax returns and is engaged in the business of trading in gold and silver bars/coins. During the impugned assessment year, the assessee had effected cash sales on 08.11.2016 after the announcement of demonetization of SBNs. The assessee had recorded sales amounting to Rs.2,02,23,980/- during the period from 8:00 PM to 12:00 Midnight on 08.11.2016 and had catered to around 300 customers. It is an undisputed fact that the assessee had duly recorded the impugned sales in the regular books of accounts and also disclosed the same in the returns filed under the VAT Act. The Ld. AO had substantially accepted the sales effected by the assessee after the announcement of demonetization. However, without rejecting the books of accounts and without bringing any adverse material on record, the Ld. AO arbitrarily made an ad hoc addition at the rate of 15% of the cash sales and added the same to the total income of the assessee. We do not find any rational basis or justification for such ad hoc disallowance of 15% of the cash sales. No comparative study, market analysis, discrepancy in stock records, or any incriminating material has been brought on record by the revenue authorities to justify such partial disallowance. The books of accounts of the assessee were admittedly not rejected by the Ld. AO. Therefore, in absence of rejection of books of accounts under the provisions of the Act, the Ld. AO could not have suo motu estimated and added back a portion of the sales merely on presumptions and conjectures regarding alleged manipulation of the cash book. We further find that the identical issue has been considered by the Coordinate Bench of ITAT Mumbai in the case of R.S. Diamonds India Pvt. Ltd. (supra) and also by the Coordinate Bench of ITAT Bangalore in the case of Anantpur Kalpana (supra), wherein it was held that ad hoc additions on

6 ITA No.3379/Mum/2026 Mangilal Nemichand Jain demonetization cash sales without rejection of books of accounts and without any cogent evidence are arbitrary and unsustainable in law. Respectfully following the aforesaid judicial precedents, we hold that the ad hoc disallowance of sales at the rate of 15% made by the Ld. AO is arbitrary, without any legal basis, and bad in law. Accordingly, we set aside the impugned appellate order and direct the deletion of the addition amounting to Rs.30,33,597/-. Thus, the grounds raised by the assessee stand allowed.