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Facts
The assessee, engaged in the business of selling fish, appealed against an order confirming an addition of Rs. 4 lakhs and disallowing depreciation on a lorry. The addition of Rs. 7,46,500 related to cash deposits during demonetization, and the Rs. 4 lakh addition was for the purchase of a lorry and its body building.
Held
The Tribunal held that the cash deposits of Rs. 7,46,500 were accounted for as sales in the audited books and could not be treated as unaccounted income. Regarding the lorry purchase, the Tribunal found no inflation of asset cost or unaccounted income, and the cash payment was duly accounted for and returned.
Key Issues
Whether cash deposits during demonetization and payments for a lorry purchase, supported by audited accounts and bank transactions, constitute unaccounted income or inflated asset costs.
Sections Cited
143(3)
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Income Tax Appellate Tribunal, “SMC” BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI
This appeal is filed by Perumal Karthik (the assessee/appellant) for the assessment year 2017-18 against the appellate order passed by the Addl./JCIT(A) [ld. CIT(A)] dated 27.2.2025 wherein the appeal filed by the assessee against the assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [the Act] dated 21.12.2019 was dismissed.
The issue before us is that the assessee also challenged the addition of R.7,46,500, but the finding of the ld. CIT(A) was with respect to the addition of only Rs.4 lakhs.
The brief facts of the case show that assessee is engaged in the business of dealer in fish, filed his return of income on 26.3.2018. The return of the assessee was picked up for scrutiny. The AO noted that assessee has deposited a sum of Rs.9,51,000 during the demonetisation period out of which Rs.9,09,500 is in the demonetised currency. The assessee submitted his cash book showing the closing balance and opening balance during this period. As the ld. AO found that assessee has opening balance as on 8.11.2016 of Rs.2,36,184, he proposed to make the addition of Rs.7,46,500.
The assessee submitted that he is an illiterate businessman and carrying on majority of sale of fish in cash. He was not aware about the concept of demonetisation. The ld. AO rejected the contention of the assessee and found that assessee should not have accepted the above sum and therefore he made an addition of Rs.7,46,500. The AO further asked the details of addition to the lorry as fixed assets for which assessee has made payment of Rs.13 lakhs for purchase of lorry. The source of such payment was shown through bank account. The ld. AO noted that an amount of Rs.4 lakhs has been received back by the assessee from the body builder in his Canara Bank a/c and therefore he was of the view that assessee has inflated the cost of purchase of the asset and has claimed excessive depreciation, therefore he disallowed
7.5% of Rs.4 lakhs out of the depreciation claim and further made an addition of Rs.4 lakhs as inflated value of the assets. The total income of the assessee was assessed at Rs.18,76,280 by assessment order passed u/s. 143(3) of the Act by order dated 21.12.2019.
The assessee approached the ld. CIT(A) who passed an order on 27.2.2025. He confirmed the addition of Rs.4 lakhs. However, there was no finding with respect to the addition of Rs.7.46 lakhs as per ground No.1 and also on the disallowance of depreciation. In para 4.5, he held that the AO was justified in the addition of Rs.11,76,500 and the appeal was dismissed.
The assessee is in appeal before me. The ld. AR referred to the paperbook filed of 155 pages and also relied on the decision of the coordinate Bench in in the case of Aura Jewels dated 24.2.2025 and also in the case of Shri Raju Rajesh in dated 19.12.2024. The ld. AR submits that the cash deposit in the bank account of the assessee is out of the sale proceeds which has not been believed by the AO. Further the addition of Rs.4 lakhs on account of inflated cost of assets and also disallowance of depreciation thereon is devoid of any merit. He stated that the ld. CIT(A) has passed the order without considering even the grounds of appeal and therefore is not sustainable.
The ld DR supported the orders of the ld Lower authorities.
I have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The assessee being an individual, filed his return of income on 26.3.2018 wherein on the total sales of Rs.2,72,79,490 assessee has shown a Net Profit of Rs.6,33,702 and offered the income of Rs.6,99,783 as total income. The amount of cash deposit in the bank account is on account of sale of fish. Assessee has submitted the audited accounts along with the tax audit report wherein assessee has provided the complete detail of purchase and sales. Assessee has submitted the month-wise sale of fish amounting in all to Rs. 2,72,79,490/-. The cash book of the assessee was also produced before the AO. In the cash book, the cash deposited in the bank account is also mentioned. The ld. AO on verification of the same did not find out any defect in the books of account. It is also not shown that the amount of cash deposited in the bank account did not arise from the sale of fish. Therefore the addition made in the hands of the assessee of Rs.7,46,500 deserves to be deleted for the simple reason that it has already been accounted as sales, cash has been recorded as received on sale of goods in the cash book and from the cash book the amount of cash is deposited in the bank account. Merely because the amount is deposited in the bank account during the demonetisation period, cannot become unaccounted income of the assessee when the audited accounts produced before the AO could not be discarded. Accordingly the above sum could not be treated as unaccounted income of the assessee. The order of the ld. CIT(A) on this issue did not discuss anything, he did not even mention a line about the ground and confirmed the addition. In view of this, the addition made in the hands of the assessee of Rs.7,46,500 is deleted and the orders of the ld. lower authorities are reversed on this ground.
The second issue relates to the addition of Rs.4 lakhs on account of purchase of lorry and body building expenditure. As the assessee had paid a sum of Rs.4 lakhs for the body building of the lorry which was received back from Grace Fabrication to the extent of Rs.4 lakhs, it was held to be unaccounted income of the assessee. The assessee has produced a copy of the lorry account wherein the assessee has spent Rs.19,16,567 for purchase of lorry on term loan from Canara Bank. The lorry was purchased from TVS Iyengar & Sons . Ltd. Amount paid for body building was paid of Rs.5 lakhs on 6.12.2016 to Grace Fabrication and Body Builders. On the above lorry, assessee has claimed depreciation of Rs.1,43,743. The claim of the assessee is that the appellant has advanced amount of Rs. 4 lakhs in cash on 30.10.2016. As assessee has paid by cheque an amount of Rs 5 lakhs, so the amount originally paid in cash of Rs 4 lakhs were returned back. This is because of loan obtained by the assessee from bank. The ld. AO did not give sufficient opportunity to explain the cash payment. The payment of cash can be seen as per the uploaded cash book during the scrutiny proceedings. In the cash book produced before us, I find that assessee has paid the above sum on 31.12.2016 as per page 107 of PB and same was received back. Therefore there is no inflation of the actual cost of the asset. The ld. CIT(A) without examining the details confirmed the same. On verification of the accounting entries, I find
that the addition made by the AO of Rs.4 lakhs is not the unaccounted income of the assessee and no cost of asset is inflated. Accordingly the addition of Rs.4 lakhs is directed to be deleted and consequently depreciation disallowed also requires to be deleted. Accordingly the orders of the ld. lower authorities are reversed and appeal of the assessee on the ground of addition of Rs.4 lakhs and disallowance of consequent depreciation is allowed.
In the result, the appeal filed by the assessee is allowed.
Pronounced in the open court on this 27th day of October, 2025.