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Facts
The assessee, proprietor of Jeeva Garments, filed a return declaring a total income. The case was selected for limited scrutiny to verify large cash deposits. The Assessing Officer (AO) made additions based on cash receipts from two parties, M/s. Eastman Exports Global Clothing and M/s. Future Lifestyle Fashions Ltd., contending that the ledger accounts did not reflect cash payments or confirmations were not provided.
Held
The Tribunal held that the AO exceeded the scope of limited scrutiny and made additions under Section 68 of the Act without proper justification and without confronting the assessee. The Tribunal found that the cash receipts were from sale proceeds, duly recorded, and income was offered for tax, and additions cannot be made merely due to non-submission of accounts by the other party.
Key Issues
Whether additions under Section 68 of the Act are justified when cash receipts are from sale proceeds, duly recorded, and income is offered for tax, and the AO exceeds the scope of limited scrutiny.
Sections Cited
143(3), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2017-18 arises out of the order of Learned Commissioner of Income Tax (NFAC), Delhi [hereinafter “CIT(A)”] dated 15.07.2025 in the matter of assessment framed by the Assessing Officer [AO] u/s. 143(3) of the Income-tax Act, 1961 (hereinafter “the Act”) dated 18.12.2019.
The assessee is Proprietor of Jeeva Garments and has filed the return of income declaring a total income of Rs.17,20,140/-. The return was selected for limited scrutiny under CASS to verify large cash deposits in the bank accounts during the year. The assessee explained the source of cash deposits through the cash book, stating that the deposits made during the demonetization period were out of earlier withdrawals from the same bank account, which were intended for payment of Deepavali bonus and subsequently re-deposited during the demonetization period. However, the Assessing Officer (A.O)
1. made enquiries in respect of two parties, namely M/s. Eastman Exports Global Clothing, Tirupur, and M/s. Indus League (Future Lifestyle Fashions), Bangalore, through whom certain sales transactions and cash receipts were recorded. The A.O observed that there was a cash receipts of Rs.10,00,000/- shown from M/s. Future Lifestyle Fashions Ltd., Bangalore, but since the said party did not respond to the notice issued for furnishing a copy of the ledger account of the assessee, the A.O made an addition of Rs.10,00,000/- u/s. 68 of the Act. The A.O further made an addition of Rs.45,00,000/- in respect of cash received shown to be received from M/s. Eastman Exports Global Clothing, Tirupur, in the ledger account, on the ground that the ledger account received from the said party did not reflect any cash payments. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). However, the Ld. CIT(A) dismissed the appeal.
The Ld. Authorized Representative (A.R) of the assessee submitted that the case was selected for limited scrutiny to verify the cash deposits in the bank account, and the assessee had duly explained the source of such deposits through the books of account as the source of cash deposit has been sale receipt and duly offered for tax. However, the A.O exceeded the scope of limited scrutiny by making additions u/s. 68 of the Act in respect of cash receipts arising out of sales made to M/s. Eastman Exports Global Clothing, Tirupur, and M/s. Future Lifestyle Fashions Ltd., Bangalore. The Ld. A.R contended that the A.O made the addition under section 68 without confronting the assessee with the ledger account received from M/s.
Eastman Exports Global Clothing, Tirupur. Similarly, the addition of Rs.10,00,000/- relating to M/s. Future Lifestyle Fashions Ltd., Bangalore, was made merely on the ground that the said party did not furnish a confirmation. The Ld. A.R submitted that the assessee had a turnover of Rs. 8,17,09,789 /- including the two parties in respect of which addition has been made and the income has been duly offered as per books of account. Therefore, when the A.O had accepted the turnover and books of account, making an addition of the sale amount under section 68 of the Act was not justified. In support of these contentions, the Ld. A.R relied on the decision of the Hon’ble Gujarat High Court in CIT v. Vishal Exports Overseas Ltd. in Tax Appeal No. 2471 of 2009, dated 03.07.2012.
On the other hand, the Ld. Departmental Representative (D.R) relied on the orders of the lower authorities.
We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of garment export and has reported a turnover of Rs. 8,17,09,789/-. The case was selected for limited scrutiny under CASS to verify large cash deposits in the bank account. The A.O has made additions in respect of cash receipts of Rs.10,00,000/- from M/s. Future Lifestyle Fashions Ltd., Bangalore, recorded in the cash book on the ground that the above party has not responded to the notice issued to submit the ledger account of the assessee in their books of account. Similarly the A.O made addition of Rs 45,00,000 /- in respect of cash receipt shown from sale to M/s. Eastman Exports Global Clothing, Tirupur, as the ledger account submitted by the party does not show cash payment of Rs.45,00,000/-. The A.O has made the addition without confronting the assessee with the ledger account received from M/s. Eastman Exports Global Clothing, Tirupur. The assessee has explained that it had received cash towards sales of goods and all transactions were duly recorded in the books of account. We find that the case was selected for limited scrutiny only to verify large cash deposits in the bank account. The A.O has not discussed the bank statement or the deposits in the bank account which are not explained, but has made addition u/s 68 of cash receipt of Rs 45,00,000 on 31.03.2017 against sale in the case of M/s Eastman Exports Globe Cloth and cash of Rs 10,44,399/- on 30.06.2016 in the case of M/s Indus League Division of Future Lifestyle Fashion recorded in the books of account. The A.O has gone beyond the scope of the reasons for which the case was selected for scrutiny. Even, otherwise on merit we do not find any justification for making the addition u/s 68 of the Act, when cash receipts are out of sale proceeds and duly recorded in books of account and income has already been offered for tax. Merely because the other party has not submitted the copy of account or there is mismatch in the ledger account submitted by the other party, addition u/s 68 of the Act cannot be made without providing opportunity to the assessee to explain the mismatch. We, therefore reverse the order of Ld CIT(A) and direct the A.O to delete the addition. Accordingly, the additions made under section 68 of the Act are deleted.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on 13th day of November, 2025 at Chennai.