Loading judgment…
Facts
The assessee, a trader in medicines and surgical equipment, filed a return declaring income. The case was selected for scrutiny due to significant cash deposits during the demonetisation period. The Assessing Officer treated the entire cash deposits as unexplained and also rejected the books of accounts, estimating GP.
Held
The Tribunal held that the cash deposits were largely explained by business transactions and were not excessive. However, the rejection of books of accounts was upheld due to non-furnishing of required details. The GP addition was directed to be re-worked at a lower rate.
Key Issues
Whether cash deposits during demonetisation were unexplained income and if books of accounts were rightly rejected for estimating GP.
Sections Cited
143(3), 68, 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI NARENDRA PRASAD SINHA
O R D E R PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi (in short “the CIT(A)”) dated 17.03.2025 for the Assessment Year (A.Y.) 2017-18 in the proceeding under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
(Assessment Year: 2017-18) Ashokkumar Vishindas Dhingwani vs. ITO Page 2 of 9 2. The brief facts of the case are that the assessee had filed his return of income on 16.11.2017 declaring income of Rs.6,54,120/-. The assessee is trading in Medicines, Surgical and Scientific Equipments under the proprietary concern Anand Pharma. The case was selected for scrutiny to examine the cash deposits during the demonetisation period. As per the information available with the Assessing Officer, the assessee had made total cash deposits of Rs.2,42,91,500/- in the bank accounts during the entire F.Y. 2016-17, out of which cash deposits of Rs.1,42,40,000/- was made during the demonetisation period from 08.11.2016 to 30.12.2016 in the bank account No.004111500004554 maintained with Nutan Nagric Sahakari Bank (NNSB). In the course of assessment, the Assessing Officer was not satisfied with the explanation of the assessee regarding the source of cash deposits. Hence, he treated the entire cash deposits of Rs.2,42,91,500/- as unexplained and not generated from the business activities of the assessee and accordingly made the addition under Section 68 of the Act. Further, the Assessing Officer also rejected the books of accounts of the assessee and estimated the gross profit (GP) @ 10% of the purchases. Accordingly, addition of Rs.88,50,999/- was made on account of GP addition. The assessment was completed under Section 143(3) of the Act on 26.12.2019 at total income of Rs.3,98,92,040/-.
Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the Ld. CIT(A) which was decided by the impugned order and the appeal of the assessee was partly allowed. The Ld. CIT(A) while reducing the GP addition from 10% to 8%, had confirmed the addition made on account of cash deposits in the bank account.
The assessee is now in second appeal before us. The following grounds have been taken in this appeal: -
“1.1 The order passed by U/s.250 passed on 17.03.2025 for A.Y. 2017-18 by NFAC, [CIT(A)], Delhi (for short CIT(A)" upholding the addition towards profit to the extent of 8%-of on purchases i.e. Rs.70,80,800/- and addition of Rs.2,42,91,500/- towards cash deposits in Bank accounts of the entire F.Y. 2016-17, thus aggregating to Rs.3,13,72,300/- is wholly illegal, unlawful and against the principles of natural justice.
2.1 The Id. CIT(A), has grievously erred in law and or on facts in not considering fully & properly the explanations, books of accounts, & other evidence produced before both the lower authorities and thereby confirming the impugned additions mechanically without passing a reasoned order.
3.1 The Id. CIT(A) has grievously erred in law and or on facts in upholding the rejection of books of accounts u/s.145(3). though no defects of deficiency were found by AO in remand proceedings and thereby confirming impugned addition to the extent of R. 8% of the total purchases i.e. Rs.70,80,800/-.
3.2 That the in the facts and circumstances of the Id. CIT(A), ought not to have upheld the rejection of books of accounts u/s. 145(3), though no defects of deficiency were found by AO in remand proceedings and thereby confirming impugned addition to the extent of R. 8% of the total purchases i.e. Rs.70,80,800/-
4.1 The Id. CIT(A) has grievously erred in law and or on facts in upholding the addition of Rs.2,42,91,500/- towards cash deposits in Bank accounts of the entire F.Y. 2016-17, though the same were fully explained and SBN notes deposited during the demonetization period was only Rs.16,69,000/- out of the total cash deposits of Rs.29,11,000/- in this period as per certificate issued by Nutan Nagrik Sahakari Bank Ltd.
4.2 That the in the facts and circumstances of the Id. CIT(A), ought not to have upheld the addition of Rs.2,42,91,500/- towards cash deposits in Bank accounts of the entire F.Y. 2016-17.
5.1 Without prejudice to the above and in the alternative, the Ld. CIT(A) ought to have allowed benefit of telescoping in case the impugned additions were to be confirmed.
(Assessment Year: 2017-18) Ashokkumar Vishindas Dhingwani vs. ITO Page 4 of 9 It is, therefore, prayed that the additions upheld by the CIT(A) to the tune of Rs.3,13,72,300/- may kindly be deleted.”
Shri S N Divetia, Ld. AR of the assessee, submitted that the Assessing Officer was not correct in making the addition for cash deposits of Rs.2,42,91,500/- made in the bank account during the entire F.Y. when the case was selected for scrutiny to examine the cash deposits during the demonetization period only. He explained that the information available with the Assessing Officer regarding cash deposits of Rs.1,42,40,000/- during the demonetisation period was not correct. The assessee had made cash deposits of Rs.29,11,000/- only during the demonetisation period, out of which a deposit of Rs.16,69,000/- was in the form of SBNs. He explained that the cash deposits in the bank account were regular feature of the business of the assessee and there was no abnormal increase in the cash deposits during the demonetisation period. Therefore, no addition on account of cash deposits in the bank account was called for. In this regard, the Ld. AR has drawn our attention to various replies filed before the Assessing Officer as well as before the Ld. CIT(A), which according to him, were not considered by the lower authorities in right perspective.
5.1 As regarding GP addition, the Ld. AR submitted that the Revenue was not correct in rejecting the books of accounts only for the reason that the stock register was not maintained. He submitted that in the line of business carried out by the assessee, it was very difficult to maintain day- to-day stock register. The Ld. AR submitted that no other defect was found in the books of accounts and the GP of 2.2% disclosed during the current year was almost comparable with GP of 2.37% disclosed in the preceding year. He further submitted that the total sale for this year was (Assessment Year: 2017-18) Ashokkumar Vishindas Dhingwani vs. ITO Page 5 of 9 marginally higher than that of the preceding year. He explained that against the marginal decline in GP during the current year, the GP of 8% as sustained by the Ld. CIT(A), was too high in the line of business carried out by the assessee.
Per contra, Shri Rameshwar P. Meena, Ld. DR, supported the orders of the lower authorities. He submitted that in the list of persons from whom the cash were received, PAN was not mentioned and, therefore, the veracity of the cash sales was not reliable. He further submitted that the assessee did not furnish all the details as required by the Assessing Officer in the course of assessment proceedings. Therefore, the Assessing Officer had rightly rejected the books of account of the assessee and made the addition by estimating the GP. Regarding the addition on account of cash deposits, the Ld. Sr. DR relied upon the order of the lower authorities.
We have carefully considered the rival submissions. The case was selected for scrutiny to examine the cash deposits of Rs.1,42,40,000/- in NNSB account of the assessee during demonetization period. In the course of assessment, the assessee had submitted that the cash deposit in NNSB during the demonetisation period was Rs.29,11,000/- only. The AO has mentioned that the assessee did not furnish the bank statement. If so, nothing prevented the Assessing Officer to call for the bank statement directly from the bank. As per the information available with the Assessing Officer, the cash deposits in the bank account during the demonetisation period was Rs.1,42,40,000/-. On the other hand, the assessee had stated that the cash deposits of Rs.29,11,000/- only was made during the demonetisation period. The Assessing Officer, therefore, (Assessment Year: 2017-18) Ashokkumar Vishindas Dhingwani vs. ITO Page 6 of 9 should have obtained the bank statement from the concerned bank and verified the actual cash deposits made by the assessee during the demonetisation period. A copy of the bank statement of NNSB has been brought on record in the paper-book filed. The assessee has also filed a certificate from the NNSB that cash deposit of Rs.29,11,000/- only was made in the bank account during the period from 10.11.2016 to 30.11.2016. Considering the fact that total cash deposit of Rs.2,42,91,500/- was made during the entire year, the cash deposit of Rs.29,11,000/- during the demonetisation period cannot be held excessive.
The Assessing Officer has treated the entire cash deposit of Rs.2,42,91,500/- during the year as income from undisclosed sources. The assessee’s explanation that the cash deposits were made out of cash sales, was rejected by the Assessing Officer. However, no reason has been given in the assessment order as to why the cash deposits in the bank account cannot be treated as generated from business activities of the assessee and how the cash deposit was derived out of undisclosed sources. A copy of the purchase register as well as the sales register was filed by the assessee along with his reply dated 22.11.2019. The assessee vide letter dated 02.12.2019 had explained that the cash was deposited out of cash sales made during the year which was appearing in the sales register. The assessee had also filed a statement of total cash receipt during the year as per which the cash of Rs.2,58,26,187/- was received during the year. This date-wise list contained the name of the parties, their VAT registration as well as bill no. The contention of the Revenue is that the cash receipt was not reliable in the absence of PAN of the concerned parties. It is found that none of the cash sales/cash (Assessment Year: 2017-18) Ashokkumar Vishindas Dhingwani vs. ITO Page 7 of 9 receipts were in excess of Rs.2 lakhs per transaction and, therefore, it was not mandatory for the assessee to obtain their PAN. The assessee has also filed a comparative chart of cash deposits and cash sales for the F.Ys. 2015-16 and 2016-17 from which it is found that neither the cash sales nor the cash deposits made during the year, were excessive. Considering the fact that cash sales was a regular feature of the business of the assessee and the cash deposits were made throughout the year, which were comparable with the cash sales of earlier year, there was no reason to disbelieve the cash deposits being out of business transactions. Therefore, the Assessing Officer was not correct in rejecting the explanation of the assessee and treating the cash deposits being not generated from the business activities of the assessee. Further, considering the fact that the cash deposits of Rs.29,11,000/- only was made in the bank account during the demonetisation period, no addition for cash deposit was called for at all. The Assessing Officer in his remand report dated 08.11.2024 had acknowledged that the cash deposit made by the assessee during the demonetisation period was acceptable. Accordingly, the addition of Rs.2,42,91,500/- on account of cash deposits is deleted as the same is found to be derived out of business activities of the assessee. The ground taken by the assessee is allowed.
As regarding the rejection of books of accounts, the Assessing Officer has given a finding that complete details of purchase were not furnished. The assessee had furnished only name and address of the parties but copy of the bills was not furnished as required. Further, the details of lenders, their confirmation, sundry debtor confirmations, details of the current liabilities and their current confirmation etc. were also not furnished. The assessee has not explained the reasons for non-furnishing (Assessment Year: 2017-18) Ashokkumar Vishindas Dhingwani vs. ITO Page 8 of 9 of these documentary evidences as required by the Assessing Officer. The contention of the assessee is that the books of accounts cannot be rejected for non-maintenance of stock register. The non-maintenance of stock register was only one of the defects noted by the Assessing Officer. The assessee has not explained the reason for non-furnishing of other details and documents viz. bills and vouchers, supporting documents and confirmations as required by the Assessing Officer. Considering these defects, the action of the Assessing Officer in rejecting the books of account of the assessee is upheld. At the same time, neither the Assessing Officer nor the ld. CIT(A) has given any basis for GP addition of 10% added or 8% upheld by them. Neither the GP rate disclosed by any other assessee engaged in the similar line of business has not been brought on record as a comparable case. Further, the assessee’s trend of GP of the past years has also not been analysed. We, therefore, don’t find any basis for the GP addition as made by the Revenue. Considering the fact that the assessee had disclosed GP of 2.37% in the immediately preceding year, it will be reasonable to estimate the GP for the current year at 2.50%. Accordingly, the Assessing Officer is directed to re- work the profit of the assessee by applying the GP rate of 2.50%. The ground taken by the assessee is partly allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on this 17th November, 2025.