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Facts
The assessee deposited Rs. 43.83 lacs in cash during the demonetization period. The Assessing Officer (AO) accepted only 10% of these deposits as being out of cash sales and added the remaining Rs. 39.45 lacs to the assessee's income under section 69A read with section 115BBE, doubting the source of funds. The Commissioner (Appeals) upheld the AO's decision.
Held
The Tribunal noted that the assessee's business involved cash sales reflected in VAT returns, and the turnover was not doubted. The assessee also provided a cash flow statement demonstrating sufficient cash balance to cover the deposits. The Tribunal held that additions cannot be made on mere presumptions and that the AO had not found any defects in the assessee's books.
Key Issues
Whether the addition of cash deposits during demonetization amounting to Rs. 39.45 lacs was justified without defects in the books or demonstrable evidence against the assessee's claim of source from sales.
Sections Cited
69A, 115BBE, 147
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, CHANDIGARH
Before: HON’BLE SHRI LALIET KUMAR, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 arises out of an order of learned Commissioner of Income Tax (Appeals), NFAC [CIT(A)] dated 14-05-2025 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s 147 of the Act on 28-09-2021. The sole grievance of the assessee is confirmation of addition of cash deposits during demonetization period for Rs.39.45 Lacs. Having heard rival submissions and upon perusal of case records, our adjudication would be as under.
The assessee being resident individual is stated to be engaged in business under his proprietorship concern M/s Amar Plywood. It transpired that the assessee deposited cash of Rs.43,83,500/- during demonetization period. To verify the sources of the same, the case was subjected to scrutiny. It further transpired that the assessee had deposited cash of Rs.2 Lacs during corresponding period of earlier year. The total deposits in AY 2016-17 were Rs.39.85 Lacs as against deposits of Rs.64.84 Lacs in this year. The total cash sales in earlier year were Rs.45.74 Lacs whereas cash sales in this year were Rs.63.09 Lacs. The Ld. AO tabulated month-case closing cash-in- hand. The cash-in-hand as on 08-11-2016 was Rs.43.76 Lacs. The assessee deposited heavy cash of Rs.38 Lacs on 10th & 11th November. The cash sales during October, 2016 were Rs.26.17 Lacs whereas cash sales from 01-11-2016 to 08-11-2016 were Rs.16.65 Lacs. On these indices, Ld. AO doubted the claim of the assessee and concluded that the cash deposits of Rs.38 Lacs on two consecutive dates i.e., 10th & 11th November could not be accepted to be made out of sales. Finally, out of total cash deposits of Rs.43.83 Lacs, 10% of the deposits were accepted to be out of cash sales and the remaining amount of Rs.39.45 Lacs was added to the income of the assessee u/s 69A r.w.s. 115BBE.
During first appeal, the assessee stated that it was dealing in wooden products which are sold mostly in cash. The cash deposits were out of cash sales and recoveries from debtors. During September, 2016 also, deposits were made for Rs.12.90 Lacs. The sales were subjected to VAT and all the sales were duly reflected in the VAT returns. The addition was made only on doubts. However, Ld. CIT(A) endorsed the action of Ld. AO against which the assessee is in further appeal before us.
It is quite clear that the assessee is dealing in plywood etc. which is used in construction activities. As per trade practice, most of the sales are carried out in cash only. The same is evident from the fact that the total deposits in AY 2016-17 were Rs.39.85 Lacs as against deposits of Rs.64.84 Lacs in this year. The same stood justified by the fact that total cash sales in earlier year were Rs.45.74 Lacs whereas cash sales in this year were Rs.63.09 Lacs. The sales turnover has not been doubted and the sales have been offered to tax. Such sales have been reflected in the VAT returns also. No defect has been found in the books of the assessee. The assessee has furnished month-wise cash flow statement which would amply demonstrate that the assessee had sufficient cash balance as on 08-11-2016 to make impugned deposits. It is trite law that no addition could be made on mere presumptions. Therefore, finding substantial merits in the arguments of Ld. AR, the impugned adhoc addition of Rs.39.45 Lacs as made by Ld. AO stand deleted. The Ld. AO is directed to re-compute the income of the assessee.
The appeal stand allowed. Order pronounced on 06th April, 2026.