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Facts
The assessee's appeal relates to the addition of Rs. 74,91,000/- for AY 2017-18, confirmed by the CIT(A), on account of cash balance accumulated out of alleged undisclosed sources. The assessee claimed it was from regular business and debtors. Another addition of Rs. 1,66,389/- was made on account of credit to the capital account, received from the assessee's mother.
Held
The Tribunal held that the addition of Rs. 74,91,000/- was based on surmises and conjectures as the Assessing Officer did not doubt the assessee's cash book balance and accepted other cash deposits. The addition of Rs. 1,66,389/- was deleted as the identity, genuineness, and creditworthiness of the transaction with the mother were established.
Key Issues
Whether the cash deposits during demonetization were unexplained, and whether the addition made by the AO was justified without doubting the assessee's books and other accepted deposits. Also, the genuineness of the capital credit from the mother.
Sections Cited
68, 115BBE, 250, 143(3)
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Income Tax Appellate Tribunal, PUNE BENCHES “B” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
Assessment Year: 2017-18 Parag Pritinath Dunung, V The Income Tax Officer, 1529, CWard, Laxmipuri, s. Ward-1(2), Kolhapur. Kolhapur – 416119. PAN: AAYPD2686B Appellant/ Assessee Respondent / Revenue Assessee by Shri Nikhil S Pathak and Shri Mayuresh Doshi – AR’s Revenue by Shri Vinod Pawar – DR Date of hearing 06/05/2025 Date of pronouncement 27/05/2025 आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
1. This is an appeal filed by the Assessee against the order of ld.Commssioner of Income Tax(Appeal)[NFAC] passed under section 250 of the Act, dated 20.11.2024 for the A.Y.2017-18. The Assessee has raised the following grounds of appeal :
1. On the facts and in the circumstances of the case and in law, the Ld.CIT (A) is not justified in confirming the addition of Rs 74,91,000/- u/s 68 on account of cash balance accumulated out of undisclosed sources without appreciating that the assessee has explained cash balance accumulated from the regular business in the books of accounts.
2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) is not justified in confirming the addition of Rs 74,91,000/- only on the basis of theory of preponderance of probability.
3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) is not justified in confirming the addition of Rs 1,66,389/-u/s 68 on account of amount credited to capital account which has been received from mother of the assessee.
The appellant craves, to consider each of the above grounds of appeal
without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal.” Legal Ground 1] The assessee submits that in case, if any addition is warranted on account of unexplained cash deposit in bank account, the learned A.O. has erred in levying tax @60% without appreciating that the amendment enhancing the tax rate @ 60% u/s 115BBE was introduced subsequently hence, the said amendment was not applicable to the case of the assessee.” Submission of ld.AR :
2. Ld.AR for the Assessee filed a paper book. Ld.AR submitted that Assessee is having a proprietary concern. Assessee is in the business of FMCG, Dealership of Rasna, Cadbury and also in the business of Sugar. During the year, Assessee’s turnover was of Rs.32,81,44,237/-, for A.Y.2016-17 Turnover was of Rs.26,90,38,834/-. There were cash deposits during the year. Similarly, during the period of Demonetization i.e.09.11.2016 to 31.12.2016 there were cash deposits of Rs.2.06 crores. The Assessing Officer has held that Cash Deposits of Rs.74,91,000/- which were of specified bank notes as Non-genuine. Assessing Officer made an addition of Rs.74,91,000/- stating that Assessee failed to submit source of the said cash deposits. The Assessing Officer has not challenged the remaining cash deposits made during the Demonetization Period. Assessing Officer has not doubted the purchases and sales. Assessee’s business is mainly in cash, which is evident that for earlier years also there were substantial cash deposits. Assessing Officer without rejecting books of accounts, cannot make addition of only a part amount of Rs.74,91,000/- out of total deposits of more than Rs.2 crores, during the Demonetization Period. All the details were filed during the assessment proceedings, which is evident from Paragraph 6 of the Assessment Order. Ld.AR took us through the paper book to demonstrate that the details as called-for were filed. Ld.AR submitted that hence addition may be deleted. Ld.AR for the Assessee relied on the order of ITAT Pune in Ashabai Shriram Patil Vs. DCIT in vide order dated 07.11.2024. Ld.AR without prejudice submitted that Section 115BBE is applicable from 01.04.2017. Ld.AR relied on the order of The Madurai Bench of Madras High Court of S.M.I.L.E Microfinance Limited vs. ACIT in W.P.(MD) No.2078/2020 vide order dated 19.11.2024.
Submission of ld.DR : 3. Ld.DR for the Revenue relied on the order of Assessing Officer(AO) and ld.CIT(A). During the hearing, we specifically asked ld.DR that when cash deposits of Rs.2 crores made during the Demonetization Period is accepted by the Assessing Officer, then how only Rs.74,91,000/- cash deposits made in the form of specified notes is treated as unexplained! The ld.DR could not answer.
Findings & Analysis : 4. We have heard both the parties and perused the records. The Assessee filed Return of Income for A.Y.2017-18 on 10.11.2017, within the due date. Assessee had also filed online declaration of cash in the specified format. Assessee’s case was selected for scrutiny. The Assessing Officer passed an order u/s.143(3) of the Act, on 29.12.2019. The relevant paragraph 6, 7, 8, 9 and 10 are reproduced as under : “In response to the above, the assessee furnished his submission electronically such as explanation regarding deposit of cash in bank accounts maintained with the Gadhinglaj Urban Co-op. Bank Ltd., Laxmipuri Kolhapur branch & the Bank of Baroda, Shahupuri Kolhapur branch during the demonetisation period including SBNs, comparative chart of cash deposits made in the bank for the current year & last year, cash sales made for the current year & last year, month-wise cash sales & cash deposits for the current & last year, month-wise purchases & sales, confirmations of unsecured loans, introduction of capital, details of expenses etc. and other details as called for as per questionnaire.
The assesses is an individual carrying on business of purchase & sale of sugar on wholesale basis under the name & style Mis. P. P. Dunung & Company Purchases of sugar are made from Sugar Mills. The assessee has also obtained dealership of Cadbury for Kolhapur city. Besides this, the assessee is also distributor of other FMCG products such as tomato ketchup, jams & powdered drink of Mis. Rasana & Adinath Agro.
8. In regard to sources of cash deposits in SBNs of Rs.74,91,000/-, it is explained that the same are out of cash balance in books of accounts as on 08/11/2016 of Rs.81,76,341/-which is due to cash received from debtors against sales of trading stocks.
9. I have carefully gone through the explanation put forth by the assessee However, the explanation of the assessee that cash balance in books of accounts as on 08/11/2016 of Rs.81,76,341/- is out of cash received from debtors against sales of trading stocks, is found to be not acceptable based on the following findings/observations
The increase in the turnover of the assessee in comparison with the turnover of immediate previous year is abnormally high. The turnover of the assessee for the A.Y 2016-17 is Rs.26.35 crores, whereas, the same is Rs. 32.81 crores for the AY 2017-18. The increase is whooping of 24.50%
It is seen from the comparative chart for the A.Y 2016-17 that the average cash balance of the assessee during the F.Y. 2015-16 is just in the range of Rs 10,00,000/-only. To be precise, the cash balance for October, 2015 is Rs.8,06,274/- and in November, 2015 it is Rs 9,09,438/- However, the cash balance as on 31.10.2016 is claimed at Rs.66,93,575/- and as on 08.11.2016 it is claimed at Rs.81,76,341 It is not understood as to what makes the assessee to hold on to such a huge cash balance as on the date of demonetization, particularly in the background that he had been regularly dealing with bank depositing depositing his daily collections on day-to-day day-to-day basis. The cash balance seems to be built up just to somehow explain the source of cash deposited during demonetization which otherwise is not explainable.
The cash balance as on 08 11 2016 is Rs 81,76,341/-. If average cash balance of Rs.10 lakhs is reduced from the cash balance in hand shown of Rs. 81.76,341/-which is excessive and unreasonable, it comes to Rs.71.76 lakhs and the cash deposits of the assessee in SBNs during demonetization is Rs.74.10 lakhs. This itself is sufficient to prove that the assessee has deliberately manipulated his books and shown the built up of cash balance till the date of demonetization to somehow explain the source of cash deposits during demonetization.
10.1 In my considered opinion, the assessee has miserably failed in explaining the source of cash deposits. He claims the source to be collection from debtors but except giving the names of the debtors, the assessee has not come forward and given the ledger accounts of such debtors showing when the sales were made and against receivable how the cash was collected. Further, in no case any confirmation from debtors has been filed. The details filed are so late that it did not allow any independent enquiry to be made to verify the claim of the assessee. I am therefore of se opinion that the cash balance with the assessee as on 08.11.2016 which was accumulated out of undisclosed sources, has been introduced by him under the guise of cash collection from debtors before 05.11.2016 to somehow justify the source. The explanations offered by the assessee in this respect are simply not acceptable as none of them stand the test of human probability. I therefore hold that the cash introduced by the assessee in his cash book as cash received from debtors is actually from unexplained sources and accordingly, the amount of Rs.74,91,000/- is treated as unexplained credit u/s. 68 of the Act to which the provisions of section 115BBE of the Act will apply whereby, the income will be taxed @ 60%.”
4.1 Thus, Assessing Officer has made an addition only of Rs.74,91,000/- which were deposited in the form of specified bank notes, during the Demonetization Period. We have perused the submission of the assessee. The turnover of assessee is as under : A.Y. Sales 2015-16 22,54,88,180.00 2016-17 26,90,38,834.00 2017-18 32,81,44,237.00 4.2 Thus, it can be observed that there is an increase in turnover from A.Y.2015-16 to A.Y.2016-17 to A.Y.2017-18. Therefore, Assessing Officer’s allegation that turnover has abnormally increased is baseless as there is an increase in turnover from A.Y.2015-16 to A.Y.2016-17 also. It is also a fact that the cash balance as per cash book as on 08.11.2016 was Rs.81,76,341/-. The Assessing Officer has not rejected the cash book. Assessing Officer has also not rejected the books of accounts maintained by assessee. It is also an admitted fact that Assessee is in the business of FMCG Goods and during A.Y.2017-18 November 2016 was festival season due to Diwali. Assessing Officer has not doubted the purchases and sales of the assessee. The total cash deposited in F.Y.2016-17 was Rs.15,10,61,250/-. The Assessing Officer has accepted the said cash deposits. The details of cash deposits during the year as under : (a) Total cash deposited in bank in FY 2016-17 Rs.15,10,61,000/- (b) Total cash deposited in bank from Rs.9,00,10,000/- 01.04.2016 to 08.11.2016 (c) Total cash deposited in bank from Rs.2,06,71,000/- 09.11.2016 to 31.12.2016 4.3 Thus, it can be observed that even after the Demonetization, there has been cash deposits in the bank. The Assessing Officer has accepted all these cash deposits. However, for the Cash Deposits in SBN of Rs.74,91,000/-, Assessing Officer has not accepted the explanation of the assessee and made addition. When cash balance as on 08.11.2016 was Rs.81,76,341/- in the Cash Book” which has not been doubted, there is no reason to doubt cash deposits at Rs.74,91,000/- made out of Rs.81,76,341/- in Bank. In the totality of the facts and circumstances of the case, the addition made by Assessing Officer is on surmises and conjectures. Therefore, we accordingly, direct the Assessing Officer to delete the addition of Rs.74,91,000/-. Accordingly, Ground Nos.1 and 2 raised by the Assessee are allowed.
In the result, Ground Nos.1 and 2 of the Assessee are Allowed.
Ground No.3 : 6. The Assessing Officer has made an addition of Rs.1,66,389/- which was credited to the capital of the assessee. The Assessee submitted that Assessee has received Rs.1,66,389/- on 31.08.2016 from his Mother Smt.Yashoda Devi through banking channel.
Assessee submitted copy of Bank Statement of Smt.Yashoda Devi. Assessee also submitted that his Mother gets Pension of her late husband who was a Judge. However, Assessing Officer has not accepted the explanation and made addition of Rs.1,66,389/-. In this case, Assessee has submitted the identity of the person i.e.Smt.Yashoda Devi Dunung. The amount was transferred from Smt.Yashoda Devi’s Bank Account to Assessee’s Account. Smt.Yashoda Devi gets Pension from Government. The Assessing Officer has not doubted any of these facts. Therefore, identify of the person, genuineness of the transaction and creditworthiness of the person is established, hence, we direct Assessing Officer to delete the addition of Rs.1,66,389/-. Accordingly, Ground No.3 raised by the assessee is allowed.
7. Ground No.4 is general in nature, does not need adjudication, therefore, dismissed as unadjudicated.
Assessee had also filed a Legal Ground that Section 115BBE is not applicable for A.Y.2017-18. Ld.AR relied on the decision of Hon’ble Maduri Bench of Madras High Court(supra).
8.1 Since we have decided the appeal of the assessee on merits and assessee has raised Legal Ground without prejudice, we do not intend to adjudicate the same. Accordingly, the legal ground raised by the assessee is dismissed as unadjudicated.
In the result, appeal of the assessee is Partly Allowed. Order pronounced in the open Court on 27 May, 2025.