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Facts
The assessee, a firm engaged in trading, filed its return for AY 2017-18. The Assessing Officer made an addition of ₹2,97,30,000/- on account of unexplained cash deposits during the demonetization period, which was later deleted by the CIT(A). The issue is whether the CIT(A) was justified in deleting this addition.
Held
The Tribunal held that the addition made by the AO on account of cash deposits was a double addition since the cash sales were already accepted and part of the total income. The assessee had also proved the source of cash deposits from its regularly maintained books of account and cashbook, which were not rejected by the AO. Therefore, the addition was directed to be deleted.
Key Issues
Whether the addition on account of cash deposits during demonetization as unexplained cash credit is justified, especially when cash sales are accepted and the source is explained from books of account.
Sections Cited
143(3), 68, 115BBE
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Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
AY 2017-18, arises out of the order of the ld National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 16.07.2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 25.12.2019 by the Assessing Officer, ACIT/DCIT, Circle-45(1), New Delhi (hereinafter referred to as ‘ld. AO’).
The only effective issue to be decided in this appeal is as to whether NFAC was justified in confirming the addition made by ld AO on account of cash deposits in the sum of ₹2,97,30,000/- in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the materials available on record. The return of income for assessment year 2017–18 was filed by the assessee on 24.10.2017 declaring total income of Rs 22,52,520/-. The assessee is a firm engaged in trading business of all type of dairy products, kirana goods/ items, confectionery, soaps and detergents, shampoos and other toiletry goods. The assessee has been maintaining regular books of accounts comprising of ledger, cash book, sale and purchase vouchers and proper stock register. These books of accounts are duly audited. Quantitative details of the stocks were also provided in the return of income filed by the assessee along with the tax audit report. All the sales made by the assessee were either in cash or in credit and were subject to Delhi VAT Act and Central Sales Tax Act. Similarly all purchases made by the assessee were after paying due VAT / CST thereupon. The assessee was holding total cash balance as on 8.11.2016 of Rs 2,45,37,486/- in its books. Out of which, a sum of Rs 2,45,00,000/- were in specified bank notes of currency of Rs 1000 and Rs 500 notes, which were deposited in two instalments on 10.11.2016 of Rs 1,30,00,000/- and on 11.11.2016 of Rs 1,15,00,000/-. Further the assessee deposited cash in regular currencies from 2.12.2016 to 28.12.2016 to the tune of Rs 52,30,000/-. Admittedly, the cash deposit of Rs 52,30,000/- was not made by the assessee in specified bank notes. The assessee has furnished from time to time before the ld AO the following documents:-
a) Copies of all bank statements b) Details of closing stock and bills of items forming part of closing stock along with details of day to day inventories c) Confirmation of creditors and debtors d) Details of cash deposited during demonetization period with sources of same cash deposited in the same period during FY 2015-16 and 2017-18 together with the justification for cash deposit. e) Month wise details of sales and purchases. f) Day wise purchase register along with payment details for the month September 2016 to November 2016. g) Details of expenses incurred in cash or by cheque. h) Details of cash received from debtors. i) Details of record of cash sales and cash deposited in various formats as asked for. j) Details of purchases with confirmations. k) Cash book for the financial years 2015-16 and 2016-17. l) Copy of DVAT and CST returns.
1. The ld AO noticed that assessee had deposited cash amounting to ₹2,97,30,000/- in its bank account during the demonetization period. During the period 9.11.2015 to 31.12.2015 i.e. corresponding period in immediately preceding year, the assessee had deposited cash of Rs 7,00,000/-. During the period 9.11.2017 to 31.12.2017 i.e. corresponding period in immediately succeeding year, the assessee had deposited cash of Rs 5,00,000/-. The assessee was asked to explain the source of the same. The assessee explained that cash deposits were made out of available cash balance as per books, cash sales and cash received from debtors etc. The ld AO however did not agree with the contentions of the assessee and proceeded to make addition u/s 68 of the Act of ₹2,97,30,000/- on account of cash deposits made during the demonetization period as unexplained cash credit u/s 68 r.w.s. 115BBE of the Act. This addition was deleted by the ld CIT(A).
It is not in dispute that the assessee had indeed shown cash sales of Rs 6,83,50,255/- during the financial year 2016-17 and is part of the total turnover disclosed by it in the return of income and in the audited profit and loss account. The following table would be relevant to understand the business model of the assessee:- Asst Year Total Sales Cash Sales % of Cash sales to total sales (Rs) (Rs) 2013-14 170013895 41770830 24.57 2014-15 184658331 79895432 43.27 2015-16 170704188 50845501 29.78 2016-17 258332873 68350255 26.45 2017-18 261696759 78695070 30.07 4.1. Similarly the trend of cash deposits made by the assessee would also justify the stand of the assessee herein as under:- Asst Year Total Sales Cash deposits % of Cash dep. to total sales (Rs) (Rs) 2013-14 170013895 40650000 23.90 2014-15 184658331 77152705 41.78 2015-16 170704188 50153400 29.38 2016-17 258332873 69705000 26.98 2017-18 261696759 76152820 29.10 4.2. It could be seen from the above tables, the cash deposits made are almost closer to the cash sales made by the assessee year on year.
The following points are undisputed and indisputable: –
a. The assessee had shown cash sales for the whole period 1.4.2016 to 31.3.2017 and the same is part of total sales disclosed by the assessee in the sum of ₹26.16 crores in the profit and loss account. b The purchase made by the assessee has not been doubted by the revenue. c. The total sales made by the assessee (both cash as well as credit sales) has not been doubted by the revenue. d. The assessee had sufficient stocks to effect the said cash sales and generate cash as an independent source to prove the cash deposits. e. To the extent of sales made by the assessee, corresponding reduction in stock had been duly made. f . The assessee has furnished month-wise cash withdrawals, cash deposits cash sales, cash utilization together with opening and closing cash balance for the year under consideration as well as for the immediately preceding year. g. The assessee has furnished the complete cashbook, showing the month wise movement before the ld AO. h. There is no negative cash balance on any day that has been alleged by the ld AO. Page | 5
6. Further, we find that the ld AO had accepted the return of income by the assessee, which included this cash sales also. Hence, separately, making an addition on account of cash deposits in the sum of ₹2,97,30,000/- would only result in double addition. Hence, the addition made on account of cash deposits deserves to be deleted on that count itself. Further, we hold that the assessee had indeed proved the source of cash deposits by clearly establishing that the source emanated from the books of account and the cashbook regularly maintained. None of the books of account have been rejected by the ld AO. In these facts and circumstances, there is no case made out by the revenue for making an addition on account of cash deposit separately. Accordingly, the addition made is hereby directed to be deleted. Accordingly grounds raised by the assessee are allowed. Further, we also find that Hon’ble Madras High Court in the case of SMILE Microfinance Limited vs ACIT in WP (MD) No. 2078 of 2020 and WMP (MD) No. 1742 of 2020 dated 19-11-2024 had held that the provisions of section 115BBE of the Act which enhanced the rate of tax could be made applicable only from 01.04.2017, relevant to assessment year 2018-19 onwards and not earlier. Accordingly, we find no infirmity in the order of the ld CIT(A) granting relief to the assessee and hence the grounds raised by the revenue are dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 11/03/2026.