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Facts
The assessee deposited cash during the demonetization period, which the Assessing Officer (AO) treated as unexplained money under Section 69A of the Income Tax Act. The AO also estimated profit on alleged suppressed sales under Section 145(3) without rejecting the assessee's books of accounts. The Ld. CIT(A) upheld both additions.
Held
The Tribunal held that the cash deposits were duly accounted for in the books and represented sales proceeds, making Section 69A inapplicable and resulting in impermissible double addition. It further ruled that the profit estimation under Section 145(3) was unsustainable as the AO had not pointed out any defect or rejected the audited books of accounts. Consequently, both additions were directed to be deleted.
Key Issues
Whether cash deposits during demonetization, duly recorded in the books, can be added as unexplained money under Section 69A, and whether profit on alleged suppressed sales can be estimated under Section 145(3) without rejecting books of accounts.
Sections Cited
69A, 145(3), 143(3), 68, 69
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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 12.08.2024 for the AY 2017-18.
At the outset, we note that the appeal of the assessee is barred by limitation by 85 days. At the time of hearing the counsel of the assessee explained the reasons for delay in filing the appeal. The Ld. A.R did not raise any objection in condoning the delay. After hearing the rival contentions and perusing the materials available on record, we find that the delay is for bonafide and genuine reasons, hence, we condone the delay and admit the appeal for adjudication.
The facts in brief are that the assessee filed the return of income on 17.12.2017, declaring total income of ₹3,75,760/-. The assessee derived income from business and profession and other sources during the year. The case of the assessee was selected for scrutiny and statutory notices along with questionnaire were issued and duly served upon the assessee. The ld. AO during the course of assessment proceedings observed from the record that the assessee had deposited cash into two bank accounts with Syndicate bank, Rajarhat branch cash aggregating to ₹22,00,350/-. Accordingly, show cause notice was issued to assessee as to why the same should not be added u/s 69A of the Act. There was no compliance by the assessee and accordingly, the ld. AO made an addition of ₹20,63,763/- as unexplained money u/s 69A of the Act, after allowing the deduction of cash in hand as per cash book of ₹1,36,587/-. The ld. AO also noted that during the year the assessee has deposited into these bank accounts a sum of ₹2,87,71,678/-. However, as per the return of income and audited accounts, the total sales declared were only ₹2,05,27,375/- and if the cash deposited during the demonetization period is excluded then the suppressed turnover on the basis of total deposits in the bank accounts worked out to ₹60,43,953/- which was not disclosed by the
In the appellate proceedings, the ld. CIT (A) affirmed the order of the ld. AO when the assessee did not comply with the various notices issued. The ld. CIT (A) dismissed the appeal ex-parte.
The ld. A.R argued that infact the sales were duly recorded in the books of account and the profit earned during the year from the business was offered to tax and due taxes were paid. Therefore, at the very first place the invocation of section 69A is wrong as the same is not applicable to the case of the assessee. Therefore the Ld .A.R prayed that the addition so made under the wrong provisions of Act by misconstruing the provisions of law may be deleted by setting aside the order of Ld. CIT(A). The Ld. A.R submitted that undoubtedly the provisions of Section 69A were not applicable to the present case. In defense of arguments the Ld. A.R relied on the decision of Co-ordinate Bench in the case of JMK Exports vs. ACIT in for AY 2017-18 dated 26.03.2024. Further he submitted that sales were not doubted by the AO and therefore how there can be a double addition first by way of profit on such sales and thereafter by adding the entire amount of cash sales deposited during demonetization period by placing reliance on the decision of Co- ordinate Bench in the case of ITO vs. Joydeb Kundu in for AY 2017-18 dated 16.05.2023. The Ld. A.R therefore prayed that in view of aforesaid proposition and the case laws the order of Ld. CIT(A) may be set aside and the AO may be directed to delete the addition.
After hearing the rival contentions and perusing the materials available on record, we find that in this case the assessee has undisputedly deposited cash during demonetization period amounting to of ₹22,00,350/-, which were duly accounted for by the assessee in the books of account. We note that the cash was deposited out of the cash available in the cash book which was out of sales effected by the assessee in the normal course of business. We note that the assessee has shown these cash sales in the profit and loss account and computed the income accordingly. In our opinion, if the addition u/s 69A of the Act is allowed to be made as unexplained money which is not so as the said cash deposited were out of cash sales then it would result into double addition of the same income which is not permissible under the Act. We also note that the AO has not rejected the books of account and even sales were not doubted. Therefore, the action of the AO by adding the cash deposited during demonetization u/s 69A amounted to double addition which is not permissible under the Act. First by way of accepting the sales and secondly by way of making further addition towards cash deposits u/s 69A of the Act. The case of assessee finds support from the decision of Co-ordinate Bench in the case of ITO vs. Joydeb Kundu (supra) wherein the Hon’ble Bench has held as under:
“8. We have carefully gone through the material available on record and considering the rival submission made by the parties, in the present case both the authorities below accepted the fact that the amount received by assessee are nothing but sale proceeds in the course of business of the assessee. The addition has made only on the basis that after demonetization, the demonetization note could not have been accepted as valid tender. Since the
8. On the issue of wrong invocation of provisions of Section 69A the Act, we observe that the same is not applicable to the transactions recorded in the books of accounts maintained by the assessee. For the sake of convenience, the provisions of section 69A are extracted as below:
69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.] 8.1. A perusal of above section reveals that it deals with unexplained money in the form of bullion, jewellery or other valuable articles which are not recorded in the books of account if maintained by the assessee for any source of income and the assessee has not offered any explanation about nature and source of acquisition of money, bullion, jewellery or other valuable article but in the present case, the facts are quite clear that the assessee has shown the receipt of money from cash sales which has been duly accounted in the books of accounts. In the case of JMK Exports (supra) wherein the it has been held as under:
“19. In the facts of the present appeal, it is an admitted factual position that the disputed transactions are duly recorded in the books of accounts of the assessee. Therefore, at the very threshold the provisions of section 69 will not get attracted. In fact, learned Standing Counsel appearing for the Revenue
Secondly, the ld. AO has also made an addition of ₹2,22,417/- at the rate of 3.68% on account of suppression of sales amounting to ₹60,43,953/-, without rejecting the books of accounts u/s 145(3) of the Act. We note that the ld. AO has not pointed out any defect or deficiency in the books of the assessee or evidences filed by the assessee as the books were duly audited by the chartered accountant. In absence of any rejection of books of account u/s 145(3) of the Act , the addition made by the ld. AO by estimation of income on suppression sales cannot be sustained. Accordingly, the appeal of the
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 11.11.2025.