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Facts
For AY 2017-18, the assessee filed a NIL income return. The Assessing Officer made additions for unexplained cash deposits (Rs.34.96 lakhs), disallowance of import and export expenses (Rs.2.18 crores, under Section 69C), and disallowance for sundry creditors (Rs.2.09 crores, under Section 68). The CIT(A) partly allowed the appeal, deleting the additions for import/export expenses and sundry creditors, but upheld the unexplained cash deposit.
Held
The Income Tax Appellate Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s deletion of additions related to import/export expenses (under Section 69C) and sundry creditors (under Section 68). The Tribunal allowed the assessee's cross-appeal, deleting the addition of Rs.34.96 lakhs for unexplained cash deposits during demonetization, finding it justified by recorded cash sales and VAT returns.
Key Issues
Whether the CIT(A) erred in deleting additions for unexplained expenditure (under Section 69C) and unsecured loans (under Section 68); and whether the addition for cash deposits during demonetization was justified.
Sections Cited
115JB, 143(2), 142(1), 250, 69C, 68
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Income Tax Appellate Tribunal, “A” BENCH KOLKATA
Before: Shri Rajesh Kumar & Shri Pradip Kumar Choubey
order
: November 12, 2025 ORDER
Per Pradip Kumar Choubey, Judicial Member:
1. The captioned appeals and the cross-appeal, one filed by the revenue and the other by the assessee are directed against the order both dated 24.04.2025 of the National Faceless Appeal Centre [‘CIT(A)’] passed under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2017–18 respectively. Since, the issues involved in both the appeals are common and relate to & Arthur Turnkey Projects Ltd the same assessee, therefore, these appeals have been heard together and are being disposed of by this consolidated order.
2. Brief facts of the case are that the assessee filed its return of income for the assessment year 2017-18 declaring total income Rs.Nil and book profit u/s 115JB of Rs.6,16,244/-. The return was selected for scrutiny through CASS. Notices u/s 143(2) and 142(1) of the Act was issued and duly served upon the assessee. the Assessing Officer in the assessment order has made an addition of Rs.34,96,000/- as unexplained cash deposits during the demonetisation period, disallowance of import and export expenses of Rs.2,18,82,543/- and disallowance u/s 68 of the Act on account of difference in opening and closing balance of sundry creditor of Rs.2,09,38,259/-.
Aggrieved by the said order, the assessee filed an appeal before the CIT(A) wherein the appeal of the assessee has been partly allowed on the addition of Rs.2,18,82,543/- and Rs.2,09,38,259/- but dismissed the appeal of the assessee in respect of addition of Rs.34,96,000/-.
Being aggrieved and dissatisfied, the department has come in appeal vide and the assessee filed the appeal in ITA No.1193/Kol/2025. We first deal with filed by the revenue. 5. – The revenue has filed the present appeal before us by raising the following grounds:
The ld. DR submitted that the assessee was non-cooperative before the Assessing Officer and the assessee was not able to prove regarding the purchases from sundry creditors as genuine. He further submitted that the ld. CIT(A) erred in accepting the assessee’s purchases which require more examination. Therefore, he prayed that the matter may be remitted back to the file of the Assessing Officer with a direction to reexamine the purchases, sales and sundry creditors.
Contrary to that, the ld. AR vehemently opposed the above contention of the ld. DR and supports the impugned order thereby submitting that there is no infirmity in the order of the ld. CIT(A). His submission is that the import purchases by the assessee for F.Y 2016-17 was Rs.7,83,07,326.84/- whereas the import purchases during the earlier year that is FY 2015-16 was Rs.1,44,13,693.78/-. The ld. AR further submits that the assessee company has submitted relevant details of import and export expenditure which comes to Rs. 2,94,78,525/- out of which major amount consisting of custom duty paid of Rs.2,10,59,855/- and the assessee duly submitted copies of & Arthur Turnkey Projects Ltd ledger indicating custom duty paid, bill of lending expenditure, clearing and forwarding charges, shipping expenses and air freight expenses along with relevant bills. In respect of addition of Rs.2,09,38,259/- u/s 68 of the Act, the ld. AR submit that the sole reason for the Assessing Officer for doubting the creditors is the increase in the value of creditors. His submission is that the assessee was engaged in purchase transactions with various parties and transactions were conducted in the ordinary course of business which are duly supported by proper documentations and correspondence entries in the books of accounts. He further submits that the closing balances of the creditors comprised amounts carried forward from opening balances as well as new liabilities arising from purchases made during the year and the total closing balances of creditors of Rs. 30,76,54,557.14/-, creditors to the tune of Rs. 28,51,71,546.56/- is coming from the opening balances of the creditors itself. The ld. AR contends that the Assessing Officer has not disputed or disallowed any of the purchase transactions undertaken by the assessee during the relevant assessment year and all the purchases were duly recorded by the assessee in its books of accounts and also the sales corresponding to these purchases, as duly reflected in the books of account of the assessee.
Upon hearing submission of the counsels of the respective parties and on perusal of the material available on record, we find that the assessee is carrying on manufacturing of engineering and mechanical items and made imports of goods, specifically marbles from various international suppliers as part of its regular business operations and these imports were necessitated for the purpose of assessee's business and were executed in accordance with applicable laws and procedures governing international trade. It is important to mention here that the import purchases by the Assessee for this year i.e. F.Y 2016-17 was & Arthur Turnkey Projects Ltd Rs.7,83,07,326.84 whereas the import purchases during the earlier year i.e. F.Y. 2015-16 was Rs.1,44,13,693.78, thus, the increase in the import and export expenses during the year is on account of the increased import purchases made by the Assessee during the year under consideration. We further find that as part of the import process, the assessee was required to incur various expenses that are essential to ensure the smooth transportation, clearance, and delivery of goods and pay import duty for the imports made and these expenses have been duly accounted for under the head "Import and Export Expenses" in the books of account, the chart is as under:
Air freight 2436 Bill of lading expenses 14,112 Clearing and forwarding charges 7,16,140 Shipping expenses 76,85,982 Custom duty paid 2,10,59,855 Total 2,94,78,525/- 8.1 It is important to note here that the above expenses were directly attributable to the import activity and the major amount of the Import and export expenses consists of customs duty paid of Rs.2,10,59,855 during the year and the same is government payment which cannot be doubted. We further note that the payments made towards customs duty and shipping-related charges were mandatory which were supported by relevant documentary evidence, including invoices, shipping documents, and payment receipts. We find that the Assessing Officer has undertaken an ad-hoc calculation comparing the percentage increase in purchases to the increase in import and export expenses. We note that the Assessing Officer in his order has not discussed anything about custom duty paid through banking channels by the assessee and even the Assessing & Arthur Turnkey Projects Ltd Officer has not cast any doubt on the import and export expenditure booked by the assessee and also the assessee submitted copies of ledger of import and export expenses along with bills which clearly proves that the expenditure has been borne by the assessee during the year. We also note that the total expenditure of Rs.2,94,78,525 incurred under the head "Import and Export Expenses" is wholly and exclusively for the purpose of the assessee's business. The ld. CIT(A) has discussed this fact at length in his impugned order and held as under:
6.3 I have gone through the assessment order, written submission of the appellant along with the evidences submitted. The AO has mechanically applied the formula on total purchase during the previous FY(2015-16) and multiplied it with percentage increased of purchases for FY 2016-17. The AO has not discussed anything about custom duty paid by the appellant through banking channels and has not cast any doubt on the import and export expenditure booked by the appellant. The appellant had submitted copies of ledger of import and export expenses along with bills which clearly proves that the expenditure has been born by the appellant and there is a substance in his contention that the substantial portion of the imported goods were not sold during the year and hence, its affect is not captured in the corresponding increase in turnover.
8.2 Going over the above discussion, we do not find any infirmity in the order of the ld. CIT(A) regarding the addition of Rs.2,94,78,525/- and the order of the ld. CIT(A) on this issue is confirmed.
8.3 Coming to another addition of Rs.2,09,38,259 u/s 68 of the Act, we find that the sole reason for the Assessing Officer of doubting the creditors is the increase in the value of creditors. It was important to mention that the assessee was engaged in purchase transactions with various parties and transactions were conducted in the ordinary course of business which are duly supported by proper documentations and correspondence entries in the books of accounts. We further find that the closing balances of the creditors comprised amounts carried forward from opening balances as well as new liabilities arising from purchases & Arthur Turnkey Projects Ltd made during the year. It is not in dispute that the total closing balances of creditors were Rs.30,76,54,557.14/- which is evident from pages 14 to 16 of the order of the ld. CIT(A) itself and it is needless to reproduce the same again. We also find that out of the said closing balances of Rs.30,76,54,557.14/-, Rs. 28,51,71,546.56/- is coming from the opening balances of the creditors itself. We note that Assessing Officer has not disputed or disallowed any of the purchase transactions undertaken by the assessee during the relevant assessment year and all the purchases were duly recorded by the assessee in its books of accounts and also the sales corresponding to these purchases were duly reflected in the books of account of the assessee, which was not controverted by the Assessing Officer. The ld. CIT(A) has discussed this fact at length after considering various judicial pronouncements in his impugned order and finally held as under:
7.3 I have gone through the assessment order, written submission as well as the evidences submitted by the appellant, the AO has had disallowed the decrease of sundry creditors for trade in a very superficial manner and without bringing anything concrete in his assessment order neither has he casted any doubt on purchase parties nor has brought anything on record which could substantiate his findings in the assessment order. The AO has accepted both the purchases and the resultant sales as genuine but has casted apprehensions on the genuineness of the trade creditors arising from these vary purchases without giving any specific reasons. If purchases are being disallowed to the extent of Rs. 2,09,38,259/- , what will happen to the corresponding sales being shown. The corresponding purchases were admitted and payments made to sundry creditors continuing from earlier years were accepted by the AO which in itself means genuinety of payments of these creditors. Where purchases made from sundry creditors had been duly accounted for and were part of trading account and neither debit side nor credit side of trading results had been disturbed nor books of accounts had been rejected, then no addition on account of sundry creditors could be made.
8.2 Going over the above discussion, we do not find any infirmity in the order of the ld. CIT(A) regarding the addition of Rs.2,09,38,259/- and the order of the ld. CIT(A) on this issue is confirmed. & Arthur Turnkey Projects Ltd 9.
– The ld. AR challenges the very impugned order thereby submitting that the ld. CIT(A) did wrong in ignoring that the assessee submitted detail of individuals to whom it has made cash sales amounting to Rs.35,41,847/- from 17.10.2016 to 04.11.2016. The ld. AR contended that the assessee disclosed the cash sales in VAT returns and Assessing Officer has neither disputed the turn over disclosed by the assessee nor has raised any objection with regard to the payment of taxes on such sales. He placed the following case laws in support of this contention:
Jitendra Kumar Tahilramani vs. ITO [2025] 171 taxmann.com 229 (Jaipur-Trib)
ACIT vs. Ramlal Jewellers (P) Ltd. [2023]154 taxmann.com 584(Mumbai-Trib)
9.1 Contrary to that, the ld. DR supports the impugned order.
9.2 Upon hearing submission of the counsels of the respective parties and perused the material available on record, we find that the assessee has submitted the details of the case sales made by the assessee which is as under:
ITA No.1724/Kol/2025 & Arthur Turnkey Projects Ltd 9.3 It is pertinent to mention here that the case sales have duly been disclosed in the VAT returns and the copy of the same was filed and the applicability of VAT liabilities arising on such sales have been duly discharged in accordance with the statutory provisions. The Assessing Officer Assessing Officer did not dispute the turnover disclosed by the assessee. We have gone through the judicial pronouncements and find & Arthur Turnkey Projects Ltd that in the case of Jitendra Kumar Tahilramani vs. ITO (supra), the Coordiante Jaipur Bench of the Tribunal has held that “Where assessee, engaged in trading of gold and diamond jewellery deposited cash of Rs.50 lakhs during demonetization period in his bank accounts and claimed that said cash was proceeds of cash sales, since assessee furnished all sales invoices with complete year cash book, names, addresses and telephone numbers of person to whom cash sales were made, such sales could not be considered as unexplained money and that too when profit derived from those sales proceeds was already taxed as part of sales”. Further, in the case of ACIT vs. Ramlal Jewellers (P) Ltd. (supra), the Coordiante Jaipur Bench of the Tribunal has held that “once the assessee's books of accounts were accepted by the AO and no specific defects were pointed out in the stock records or purchases, the corresponding cash sales could not be treated as bogus”. Going over the above discussion and considering the judicial precedents, we find that the addition of Rs.34,96,000/- made on account of cash deposits during demonetization period is not justified and the same is hereby deleted. filed by the revenue is dismissed and the appeal of the assessee being is allowed.
Kolkata, the 12th November, 2025.