SHIVINDER PAL SINGH CHAHAL,NEW DELHI vs. ACIT CIRCLE-43(1), NEW DELHI

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ITA 3248/DEL/2023Status: DisposedITAT Delhi21 October 2026AY 2017-187 pages

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

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the addition of Rs. 26,35,000/- on account of cash deposited during the demonetization period was not justified. The Tribunal found that the AO's reliance solely on the alleged unusual surge in cash sales was insufficient, especially when the assessee had provided material evidence such as stock and sales statements, VAT returns, month-wise cash sales and deposits, and copies of bills. The Tribunal noted that the assessee demonstrated a growth in both credit and cash sales compared to the previous year, negating the allegation of an abnormal increase. The Tribunal concluded that making an addition on mere suspicion was not justified, given the nature of the assessee's business and the corresponding increase in sales during the festival season. Regarding the addition of Rs. 7,52,667/- on account of the difference in purchases, the Tribunal held that the assessee complied with Accounting Standard 11 and Section 145(2) of the Act by using the exchange rate on the date of payment for foreign creditors. The Tribunal found no mismatch requiring further reconciliation, as the difference arose from the timing of valuation. Consequently, the grounds were decided in favour of the assessee.

What were the facts?

The assessee, Shivinder Pal Singh Chahal, filed his return of income for Assessment Year 2017-18 declaring a total income of Rs. 1,46,11,610/-. The Assessing Officer (AO) made additions of Rs. 26,35,000/- on account of cash deposits during the demonetization period, treating them as unexplained income under Section 68 of the Income Tax Act, 1961. The AO also added Rs. 7,52,667/- on account of a difference between purchases shown in the ITR and the invoice value from CBEC data, invoking Section 69C. The assessee's appeal before the National Faceless Appeal Centre (NFAC) Delhi was dismissed, confirming the AO's additions. The assessee then filed an appeal before the Income Tax Appellate Tribunal (ITAT).

What were the issues?

The Income Tax Appellate Tribunal (ITAT) had to decide the following issues: 1. Whether the addition of Rs. 26,35,000/- on account of cash deposited during the demonetization period, treating it as unexplained income under Section 68 of the Income Tax Act, 1961, was justified. - Assessee's contention: The assessee argued that cash sales were duly reflected in the books, and the profit from these sales was offered to tax. They provided stock registers, sales statements, VAT returns, month-wise cash sales and deposits, and copies of bills and entries to support their claim. They also demonstrated a growth in credit sales and compared cash sales with the previous year's festival season to argue against an abnormal increase. - Revenue's contention: The revenue, through the AO and confirmed by the NFAC, contended that there was an unusual surge in cash sales during the demonetization period without a satisfactory explanation or documentary proof, suggesting the cash was used to adjust unaccounted cash. 2. Whether the addition of Rs. 7,52,667/- on account of the difference in purchases shown in the ITR and the invoice value from CBEC data, invoking Section 69C of the Income Tax Act, 1961, was justified. - Assessee's contention: The assessee asserted compliance with Accounting Standard 11, stating they were entitled to debit the actual amount paid to foreign creditors. They argued that the valuation difference arose due to the timing of valuation and that they used the exchange rate on the date of payment, which is permissible under Section 145(2). - Revenue's contention: The revenue, through the AO and confirmed by the NFAC, pointed to a difference between the purchases quoted in the ITR and the total invoice value of purchases from CBEC data, deeming the unreconciled amount as unexplained expenditure.

Which sections of the Income-tax Act were involved?

Section 68,Section 69C,Section 145(2),Section 271AAC,Section 115BBE,Section 234B,Section 234C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCHES, NEW DELHI

Before: ANUBHAV SHARMAAND SHRI MANISH AGARWAL

Pronounced: 21.10.2026

INCOME TAX APPELLATE TRIBUNAL, DELHI BENCHES, NEW DELHI BENCH: G BEFORE ANUBHAV SHARMA, JUDICIAL MEMBERAND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA 3248/DEL/2023 (निर्धारणवर्ा/AssessmentYear:2017-18) SHIVINDER PAL SINGH ACIT CIRCLE-43(1) CHAHAL CIVIC CENTRE, MINTO A-502, VINAYAK APART ROAD Vs. VINAYAK APARTMENT PLOT NEW DELHI-110002, DELHI NO. 36, SECTOR-10 DWARKA, NEW DELHI-110075, DELHI अपीलधर्थीAppellant प्रत्यर्थी Respondent

Permanent Account Number of ACYPC1011D Assessee:

अपीलधर्थीद्वारा/Appellant represented by: Sh. K. Sampat, Adv. प्रत्यर्थीद्वारा/Respondentrepresented by: Ms. Beenu, Sr. DR सुनवाईकीतारीख/Date of conclusion of hearing: 27.07.2026 घोषणाकीतारीख/Date of pronouncement: 21.10.2026 आदेश / ORDER

PERANUBHAV SHARMA, JUDICIAL MEMBER: This appeal is preferred by the assessee against the order dated 26.10.2023 of the Ld. National Faceless Appeal Centre (NFAC) Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in DIN & Order No: ITBA/NFAC/S/250/2023-24/1057384923(1) arising out of the 1 assessment order dated 27.12.2019 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by ACIT, Circle – 43(1),Delhi for AY: 2017-18 and has raised following grounds; “1. determining taxable income at Rs. 1,79,99,280/- against returned income in a sum of Rs. 1,46,11,610/-;

2.

making an addition of Rs. 26,35,000/- on account of cash deposited in bank treating the same as unexplained by invoking section 68 of the Act;

3.

making an addition of Rs. 7,52,667/- treating the difference in purchases shown and the date of imports and exports received from CBEC by invoking section 69C of the Act;

4.

initiating penlaty proceedings u/s 271AAC r.w.s. 68 and 115BBE of the Act;

5.

changing interest u/s 234B and 234C of the Act;

2.

Heard and perused the records. The assessee filed his return of income for the A.Y. 2017-18 on 21.08.2017 declaring the total income at Rs.1,46,11,610/-. The case of the assessee was selected for scrutiny through CASS. After the issue of statutory notices, the AO began scrutiny proceedings. In response to the statutory notices, the assessee submitted necessary details and documents through ITBA portal. On perusal of the submissions filed by the assessee, it was noticed by the AO that assessee had effected cash sales to the tune of Rs.13,23,885/- for the period from April 2016 to October 2016. Thus the average monthly cash sales for the period of 7 months was Rs.1,89,123/-. However, assessee had submitted that total cash sales for the period of 8 days i.e. 01.11.2016 to 08.11.2016 was Rs.25,35,186/-. As per the AO, the assessee did not submit any reason before the AO for abnormal increase in cash sales during this period. In view of the above, the AO issued a show cause notice dated 23.12.2019 to the assessee. The AO records that assessee did not submit any relevant documentary proof before the AO to justify his claim regarding the high cash sales of Rs. 25,35,186/- effected during 01.11.2016 to 08.11.2016, such as names of parties to whom sales were made, the sales bills/ vouchers. The AO was of the view that the assessee had no satisfactory explanation w.r.t. the cash deposit made during demonetization period. Therefore, the amount of Rs.26,35,000/- deposited during demonetization period was considered as unexplained income for the year and the same was added back to the income of the assessee for A.Y. 2017-18.

2.1 During the course of assessment proceedings, the assessee was also asked by the AO to provide the reasons for difference in purchases shown in ITR and the invoice value as per the import export data provided by the CBEC. The AO records that assessee did not offer a credible explanation as to why there was a difference between purchases quoted in the ITR to the tune of Rs.7,96,30,389/- and information from CBEC, the total invoice value of purchases being Rs.8,03,83,056/-. Thus, the unreconciled amount of Rs.7,52,667/- was added to the income of the assessee on account of unexplained expenditure as envisaged in section 69C of the Income Tax Act, 1961.

3.

In appeal before ld. CIT(A), assessee challenged the action of the AO in making additions. As with regard to the addition of Rs.26,35,000/-. The ld. CIT(A) observed as follows;

6.1 Having considered the factual matrix of the case, I find that on perusal of the submissions filed by the assessee, it was noticed by the AO that assessee had effected cash sales to the tune of Rs.13,23,885/- for the period from April 2016 to October 2016. Thus the average monthly cash sales for the period of 7 months was Rs. 1,89,123/-. However, assessee had submitted that total cash sales for the period of 8 days i.e. 01.11.2016 to 08.11.2016 was Rs.25,35,186/-. The assessee did not submit any reason before the AO for abnormal increase in cash sales during this period. In view of the above, the AO issued a show cause notice dated 23.12.2019 to the assessee. The assessee did not submit any relevant documentary proof before the AO to justify his claim regarding the high cash sales of Rs.25,35,186/- effected during 01.11.2016 to 08.11.2016, such as names of parties to whom sales were made, the sales bills/ vouchers. The AO was of the view that the assessee had no satisfactory explanation w.r.t. the cash deposit made during demonetization period. Therefore, the amount of Rs 26,35,000/- deposited during demonetization period was considered as unexplained income for the year and the same was added back to the income of the assessee for A.Y. 2017-18. It is contention of the appellant that the assessee is maintaining stock register and sales have been duly reflected in the books and profit accruing from cash sales has been duly offered to tax. I find that there is unusual surge in cash sales during the demontization period clearly indicating that the assessee had artificially shown cash sales to adjust unaccounted cash available with him. Therefore, I do not see any infirmity in the order of the AO. Accordingly, the addition made by the AO of Rs.26,35,000/- on account of cash deposited during the demontization period is confirmed. Hence, the ground of appeal No.1 is Dismissed. 4. As with regard to the assessee’s challenge of the action of the AO in making an addition of Rs.7,52,667/- on account of un-reconciled figures of purchases. Ld. CIT(A) has held as follows;

7.1 Having considered the factual matrix of the case, I find that during the course of assessment proceedings, the assessee was also asked by the AO to provide the reasons for difference in purchases shown in ITR and the invoice value as per the import export data provided by the CBEC. The assessee did not offer a credible explanation as to why there was a difference between purchases quoted in the ITR to the tune of Rs.7,96,30,389/- and information from CBEC, 4 the total invoice value of purchases being Rs.8,03,83,056/-. Thus, the unreconciled amount of Rs.7,52,667/- was added to the income of the assessee on account of unexplained expenditure as envisaged in section 69C of the Income Tax Act, 1961. The assessee has not been able to reconcile the same during the appellate proceedings. Accordingly, the addition made by the AO of Rs.7,52,667/- on account of un reconciled figures of purchases is confirmed. Hence, the ground of appeal No.2 is Dismissed. 8. As with regard to the first issue arising out of substantive ground no. 2, though ld. DR has relied the findings of ld. CIT(A) we find that ld. tax authority has primarily made addition only on the basis of alleged unusual surge in the cash sales during demonetization period which to our mind alone cannot be a basis of making addition when otherwise material evidence like stock and sales statement and VAT returns are part of the assessee’s evidence and also filed before us from page No. 34-86 of the paper book. Assesse has also provided month wise cash sales and cash deposits from 01.04.2016 to 31.03.2017 and copies of bills and entries. Such evidence should have been examined and the veracity challenged to allege that the cash deposited was liable to be considered deemed income u/s 68.

9.

On the contrary, ld. counsel has demonstrated that for the period November, 2015 credit sales were of Rs.62,58,123/- and for the month November, 2016 it was Rs.102,70,238/- which shows there was a growth of 64% in credit sales for the corresponding period as a whole. It is also demonstrate that in October and November, 2015 cash sales was Rs.14,34,060/- and in October, November 2016 the cash sales Rs.28,39,186/-. Thus, comparing the cash sales with the previous year festival season the allegation of abnormal increase in cash sales is not sustainable. In fact, not only cash sales but even credit sales have increased this year as a credit sales in previous were Rs.9,05,62,003/- and the credit sales in the current year at Rs.11,87,48,409/- showing growth of 31%.

10.

In the light of this discussion, we are of the considered view that making addition on mere suspicion, alleging unusual surge in cash sales in not justified. The nature of business of assesse is primarily dealing in providing cosmetic package solutions to various manufacturers in India. This being an item of household if there is corresponding increase in sales during festival the reason could not have been discarded. Thus, we are inclined to sustain the ground No. 2. 11. Coming to ground No. 3 ld. counsel has drawn our attention to provision of accounting standard asserting that as for accounting standard 11 assesse was entitled to debit the actual amount made for payment to foreign creditors which department alleges that notified rates used by custom department be used for making the valuation of expenditure. Thus, it appears that the issue has been examined by the department on variance in the time of valuation resulting into the alleged difference of Rs.7,52,667/- as assesse has shown purchase value of Rs.7,96,30,389/- on the basis of exchange rate on the date of payment while as per department it should have been Rs.8,03,83,056/- on the basis of CBEC information.

12.

In the light of aforesaid as the assesse complied with the accounting standard as applicable u/s 145(2) of the Act, there appears to be no mismatch requiring further reconciliation. The ground is accordingly decided in favour of the assesse. 13. As a consequence the aforesaid determination of grounds the appeal is allowed.

Order pronounced in the open court on 21.10.2026

Sd/- Sd/- MANISH AGARWAL ANUBHAV SHARMA ACCOUNTANT MEMBER JUDICIAL MEMBER Delhi Dated: 21.10.2026 Rohit, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent SHASHI Digitally signed 3. CIT by SHASHI KANT KANT 4. CIT(Appeals) PANDEY Date: 2026.10.26 5. DR: ITAT PANDEY 04:02:37 -07'00' ASSISTANT REGISTRAR ITAT DELHI

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