INCOME TAX OFFICER, JAIPUR vs. KRISHNA KANWAR, JAIPUR

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ITA 1488/JPR/2026Status: DisposedITAT Jaipur26 October 2026AY 2017-187 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the order of the CIT(A), dismissing the appeal filed by the Revenue. The Tribunal found that the CIT(A)'s order was well-reasoned. It was undisputed that the assessee maintained audited books of account, which were not rejected by the AO under Section 145(3). The assessee had provided substantial evidence, including ledger accounts showing cash sales that tallied with the VAT output ledger, denomination-wise details of cash deposits, bank deposit slips, and purchase bills from Indian Oil Corporation. The Tribunal agreed with the CIT(A) that the AO had not recorded any findings that the purchases were bogus or the sales were fictitious or inflated. The CIT(A)'s reliance on judicial precedents, including the Rajasthan High Court's decisions in CIT v. Jai Kumar Bakliwal and CIT v. Khandelwal Constructions, and the Supreme Court's decision in CIT v. P.K. Noorjahan, was found to be appropriate. These judgments emphasized that additions under Section 69A cannot be made merely on suspicion when books of account are maintained and not rejected, and that the provision is discretionary. The Tribunal noted that the addition of the entire gross deposits amounted to taxing turnover rather than profit, which is not permissible when books are not rejected. The assessee had discharged the primary burden by furnishing evidence, and the Revenue had failed to bring on record any material to disprove the books of account. Therefore, the addition made by the AO was not sustainable and was rightly deleted by the CIT(A).

What were the facts?

The Income Tax Officer (Appellant) filed an appeal against the order of the National Faceless Appeal Centre (NFAC), Delhi (CIT(A)) for Assessment Year 2017-18. The assessee, Krishna Kanwar, a war widow and authorized dealer of Indian Oil Corporation, declared a total income of Rs. 8,66,670/- based on audited financial statements. The Assessing Officer (AO) noticed a cash deposit of Rs. 1,05,00,000/- during the demonetization period (09.11.2016 to 30.12.2016). Despite the assessee providing bank statements, purchase and sale registers, and ledger extracts, the AO treated the entire deposit as unexplained money under Section 69A read with Section 115BBE of the Income Tax Act, 1961, and framed the assessment under Section 143(3). The CIT(A) deleted this addition, leading to the present appeal by the Revenue.

What were the issues?

1. Whether, on the facts and in law, the CIT(A) erred in deleting the addition of Rs. 1,05,00,000/- by relying on the assessee's books of accounts, audit report, and ledger extracts, despite the assessee failing to produce complete supporting evidence such as bills, vouchers, and GST/VAT returns to substantiate the genuineness of cash deposits made during the demonetization period. 2. Whether, on the facts and in law, the CIT(A) failed to appreciate that mere entries in books of account do not conclusively establish the genuineness of transactions, particularly when substantial cash deposits were made during demonetization, and the assessee could not satisfactorily establish the identity of customers and the genuineness of alleged cash sales. 3. Whether, on the facts and in law, the CIT(A) failed to appreciate that producing books of accounts and sale/purchase registers does not automatically explain the source of cash deposits, especially when the genuineness of alleged cash sales during demonetization was examined by the AO. 4. Whether, on the facts and in law, the CIT(A) erred in holding that addition under Section 69A cannot be made since the books of account were not rejected under Section 145(3), ignoring the settled legal position that Section 69A operates independently and addition can be made even when books are not rejected. Assessee's contentions: The assessee relied on the CIT(A)'s order, which highlighted that the books of account were audited, proper books were maintained, and financial statements gave a true and fair view. The assessee furnished ledger accounts showing cash sales, VAT output ledger, denomination-wise details of cash deposits, bank deposit slips, and purchase bills from Indian Oil Corporation. The CIT(A) noted that the AO did not find purchases bogus or sales fictitious, nor rejected the books under Section 145(3). The CIT(A) relied on Rajasthan High Court decisions in CIT v. Jai Kumar Bakliwal and CIT v. Khandelwal Constructions, and the Supreme Court decision in CIT v. P.K. Noorjahan, stating that addition cannot be sustained merely on suspicion and that Section 69A is discretionary. The CIT(A) also noted that the addition of gross deposits taxed turnover rather than profit, and in cases where books are not rejected, addition of entire receipts is not justified. Revenue's contentions: The Revenue relied on the assessment order, arguing that the assessee failed to produce complete supporting evidence like bills, vouchers, and GST/VAT returns to substantiate the genuineness of cash deposits. The Revenue contended that mere entries in books of account do not establish genuineness, especially during demonetization, and the assessee could not prove the identity of customers and genuineness of cash sales. The Revenue also argued that Section 69A operates independently of Section 145(3).

Which sections of the Income-tax Act were involved?

Section 69A,Section 115BBE,Section 145(3),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JAIPUR “A” BENCH, JAIPUR

Before: SMT. ANNAPURNA GUPTA & SHRI KULDIP SINGH

IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR “A” BENCH, JAIPUR (PHYSICAL HEARING) BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI KULDIP SINGH, JUDICIAL MEMBER ITA No: 1488/JPR/2026 Assessment Year: 2017-18

Income Tax Officer Krishna Kanwar Jaipur. A-7, FF-25, Priha Plaza, (Appellant) Vs Transport Nagar, Jaipur. PAN: AJKPK5778N (Respondent)

Assessee Represented: Sh. Abnoop Bhatia, C.A. Revenue Represented: Sh. Abhimanyu Singh Yadav, Addl.CIT Date of hearing : 13-10-2026 Date of pronouncement : 26-10-2026 ORDER PER : KULDIP SINGH, JUDICIAL MEMBER:-

The Appellant, Income Tax Officer by filing the present appeal, sought to set aside the impugned order dated 03.03.2026 passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ‘CIT(A)’] qua assessment year 2017-18 on the grounds inter- alia that:- “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.1,05,00,000/- relying upon books of accounts, audit report and ledger extracts furnished by the assessee without appreciating the facts that the assesse failed to produce complete

I.T.A No. 1488/JPR/2026 Page No 2 Krishna Kanwar

supporting evidences such as bills vouchers, GST/VAT Returns and other conclusive evidence to substantiate the genuineness of cash deposits made during demonetization period.

2.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that mere entries in books of account do not conclusively establish genuineness of 2 transactions, particularly when substantial cash deposits were made during demonetization period and the assessee could not satisfactorily established the identity of customers and genuineness of alleged cash sales.

3.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that mere production of books of accounts and sale & purchase register does not automatically explain the source of cash deposits, especially when the genuineness of the alleged cash sales during demonetization was rightly examined by the AO.

4.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that addition under section 69A cannot be made since the books of account were not rejected under section 145(3), ignoring the settled legal position that section 69A operates independently and addition can be made even when books are not rejected.

5.

The appellant craves leave to add alter, amend OR withdraw any ground of appeal at the time of hearing.”

2.

Briefly stated, facts necessary for consideration and adjudication of the issued at hand are : The assessee being a war widow is into the business of LPG distribution as an authorized dealer of Indian Oil Corporation in the name and style of M/s Vikram Krishna Indane. The assessee filed her return of income declaring total income at Rs. 8,66,670/- on the basis of audited financial in Form 3CB/3CD. The Assessing Officer on noticing that there was a cash deposit to the tune of Rs. 1,05,00,000/- in the

I.T.A No. 1488/JPR/2026 Page No 3 Krishna Kanwar

account by the assessee during demonetization period 09.11.2016 to 30.12.2016, issued show cause notice to furnish various details including bank statement, purchase and sale registered, ledger extracts, demonization wise break-up her deposit in audit report. On failure of the assessee to produce GST/VAT return, bills and vouchers proceeded to treat the entire cash deposit of Rs. 1,05,00,000/- as unexplained money u/s 69A r.w.s. 115BBE of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and thereby framed the assessment u/s 143(3) of the Act. 3. Assessee carried the matter before the Ld. CIT(A) by way of filing appeal, who has deleted the addition by allowing the appeal. Being aggrieved with the impugned order passed by the Ld. CIT(A), Revenue has come up before the Tribunal by way of filing the present appeal. 4. Ld. DR for the appellant/Revenue relied upon by the assessment order. 5. We have heard Ld. ARs for the assessee and Ld. DR for the Revenue and perused the record available on file. 6. Undisputedly, the assessee who is running LPG distribution outlet being an authorized dealer of Indian Oil Corporation in the

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name and style of M/s Vikram Krishna Indane. It is also not in dispute that during the demonetization period i.e. from 09.11.2026 to 30.12.20216, the assessee has deposited cash amount of Rs. 1,05,00,000/- in the bank. It is also not in dispute that while making addition of Rs. 1,05,00,000/- as unexplained money u/s 69A, the Assessing Officer has not rejected the books of account u/s 145(3) of the Act, which are duly audited in Form 3CB/3CD. It is also not in dispute that in the business of retail LPG distribution, most of the business is carried out in cash, particularly when the assessee is carrying on its business in the rural area. 7. In the backdrop of the undisputed facts, when we examine the impugned order passed by the Ld. CIT(A), it is well reasoned order deleting the addition made by the AO. Operative thereof is extracted for ready perusal as under:- “In the present case, the assessee is a regular business concern engaged in LPG distribution with substantial turnover. The audit report furnished under section 44AB confirms that proper books of account were maintained and audited. The audit report also certifies that the financial statements give a true and fair view of the state of affairs of the assessee. The fact that the books were audited has not been disputed by the Assessing Officer. The assessee has furnished ledger accounts showing cash sales during the demonetization period. The VAT output ledger corresponding to such sales has also been produced. The denomination-wise details of cash deposits specifying old currency and other notes were also placed on record. Bank deposit slips evidencing actual deposit of cash into bank accounts were furnished. Purchase

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bills from Indian Oil Corporation evidencing procurement of LPG stock were also produced.

A perusal of the above evidences demonstrates that the cash deposits were not unrecorded money but were directly linked to the business operations of the assessee. The Assessing Officer has not recorded any finding that the purchases from IOCL were bogus. He has also not recorded any finding that the sales reffected in the books were fictitious or inflated. There is no rejection of books under section 145(3). There is also no material brought on record to show that the cash book entries were manipulated or fabricated...

The approach of the Assessing Officer appears to be premised on the inability to verify GST/VAT returns and vouchers to his satisfaction. However, inability to verify certain supporting documents does not ipso facto lead to the conclusion that the entire cash deposits represent unexplained income, especially when the primary books of account are maintained and audited.

The Hon'ble Rajasthan High Court in the case of CIT v. Jai Kumar Bakliwal has held that where the books of account are maintained and not rejected, addition under sections 68 or 69A cannot be sustained merely on suspicion. Similarly, in CIT v. Khandelwal Constructions, the jurisdictional High Court has observed that when sales are accepted and purchases are not disputed, treating the resultant cash as unexplained is legally unsustainable.

Further, the Hon'ble Supreme Court in CIT v. P.K. Noorjahan has held that even where the conditions of section 69A are satisfied, the provision is discretionary and addition is not automatic. The authority must exercise judicial discretion considering the facts and circumstances of the case. In the present case, the assessee's turnover for the year, as reflected in the audited financial statements, exceeds Rs. 6 crore. In the context of such substantial business volume, cash deposits of Rs. 1.05 crore during peak business season cannot be regarded as abnormal or disproportionate. The denomination-wise details of deposits correlate with the demonetization timeline. The ledger entries of cash sales during the relevant period show systematic recording of daily transactions. The VAT output ledger further corroborates that such sales were accounted for.

It is also noteworthy that the Assessing Officer has not carried out any comparative analysis with earlier years to show that the cash sales during the demonetization period were abnormally high. Nor has he computed peak credit or attempted to determine profit element embedded in such deposits. Instead, the entire gross deposits were added as income, which amounts to taxing turnover rather than profit.

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The settled legal position is that in the case of business receipts, even if certain defects are found in books, addition can at best be made by estimating profit element and not by treating the entire receipts as income. This principle has been consistently upheld by the Rajasthan High Court in several decisions including CIT v. Gotan Lime Khanij Udyog and CIT v. Kanhaiyalal Jangid, wherein it has been held that when books are not rejected and business receipts are recorded, addition of entire receipts is not justified.

In the present case, there is no rejection of books and no finding that the recorded sales are non-genuine. The assessee has discharged the primary burden by furnishing audit report, bank statements, purchase bills, sales ledgers, VAT details and denomination reconciliation. The burden thereafter shifts to the Revenue to establish that the explanation is false or unsatisfactory. No such material has been brought on record.

The mere observation that GST/VAT returns and vouchers were not produced to the satisfaction of the Assessing Officer cannot override the substantive evidences on record. The addition appears to be based on conjecture and suspicion rather than concrete material.

The Hon'ble Rajasthan High Court has repeatedly held that suspicion, however strong, cannot substitute evidence. In the absence of any material to disprove the books of account, the addition under section 69A cannot be sustained.”

8.

When the assessee has duly proved on record ledger account showing cash sales during the period under question, which tallies VAT output ledger, even denomination of the currency deposited in cash is also specified, and that old currency and other notes were the subject matter of the ledgers. When the Assessing Officer has not recorded any findings that purchases and sales by the assessee are bogus, which are otherwise duly reflected in the books of accounts, which are duly audited and which have not been rejected

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by the AO, addition made by the AO is not sustainable, hence rightly deleted by the ld. CIT(A). 9. So in these circumstances, we find no illegality or perversity in the impugned order passed by the Ld. CIT(E). 10. Resultantly, the appeal filed by the Revenue is hereby dismissed. Order pronounced in the open court on 26-10-2026.

Sd/- Sd/- (ANNAPURNA GUPTA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Jaipur Dated:- 26/10/2026. *Santosh. Copy of the order forwarded to: 1. The Appellant- 2. The Respondent- 3. CIT 4. CIT(A) 5. DR, ITAT, Jaipur. 6. Guard File By order, SANTOSH Digitally signed by SANTOSH KUMAR Asst. Registrar KUMAR MAURYA Date: 2026.10.27 09:54:46 MAURYA +05'30'

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