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Facts
The assessee, a trader in agricultural commodities, made cash deposits totaling Rs. 39,95,000/- in his bank account during the demonetization period in AY 2017-18, including Rs. 20,00,000/- in Specified Banking Notes (SBNs). The Assessing Officer treated the entire amount as unexplained income under Section 68, and the CIT(A) partly confirmed the addition of Rs. 20,00,000/-.
Held
The Tribunal observed that the assessee's business involved substantial cash sales, and regular cash deposits were a consistent practice across multiple assessment years, corroborated by VAT returns. The CIT(A) erred by confirming the addition of Rs. 20,00,000/- in SBNs without verifying the assessee's submissions regarding the regular nature of his business and cash transactions. Consequently, the addition was found liable for deletion.
Key Issues
Whether the cash deposit of Rs. 20,00,000/- in Specified Banking Notes during demonetization constitutes unexplained income under Section 68, considering the assessee's historical cash-based business operations and verifiable sales.
Sections Cited
143(3), 147, 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: DR. BRR Kumar & Shri T. R. Senthil Kumar
ITA No: 1735/Ahd/2025 Assessment Year: 2017-18 Late Harshdrai The ITO Dalichand Diora Ward-1(9), Through his legal heir Vs Bhavnagar and widow Smt. Malavikaben Harshadrai Diora Main Bazar, Palitana, Bhavnagar-364270, (Respondent) Gujarat PAN: ABRPD5197P (Appellant) Assessee Represented: Shri B.R. Popat, A.R. Revenue Represented: Shri Rohit Aasudani, Sr. D.R. Date of hearing : 12-11-2025 Date of pronouncement : 17-11-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Assessee as against the appellate order dated 16.07.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the reassessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2017-18.
A.Y. 2017-18 Page No 2 Late Harshadrai Dalichand Diora Through His Legal Heir and widow Smt. Malviaben harshadrai Diora vs. ITO
The Grounds of Appeal
raised by the assessee are as follows:
1. The learned CIT(A) erred in law and on facts in confirming the addition to the extent of Rs.20,00,000/- originally made by the AO. Considering the totality of the facts and the provisions of law, as interpreted by the Judicial and Constitutional Authorities, he ought to have deleted even this part of the addition
2. The learned CIT(A) erred in law and on facts in confirming the action of the AO in invoking the provisions of section 68 of the Act, which was in respect of the money found deposited in the Bank Account
3. The learned CIT(A) erred in law and on facts in passing the appellate order in the name of the deceased, wherein the name of his legal heir was already registered on the portal of the department
Brief facts of the case is that the assessee is an individual engaged in the business of trading in agricultural commodities from a small town of Palitana, Bhavnagar District of Gujarat. Major portion of the sales in cash due to sale of agricultural commodity to farmers. For the Asst. Year 2017-18, assessee filed his Return of Income which was accepted. Thereafter it came to the notice of the Department that assessee made cash deposits of Rs. 39,95,000/- in his bank account during demonetization period.
In response, the assessee filed Return of Income and also explained the cash deposits made during demonetization with the Specified Banking Notes (SBN) of Rs. 20,00,000/- on 12-11-2016 and balance amount by regular currency (Non-Specified Banking Notes). The assessee also explained that the cash deposit made on 12-11-2016 is the trading of agricultural commodities which was realized in cash. However the assessing officer has not accepted the above submissions of the assessee and made addition of Rs.39,95,000/- as unexplained income in the hands of the assessee u/s. 68 of the Act and demanded tax thereon.
A.Y. 2017-18 Page No 3 Late Harshadrai Dalichand Diora Through His Legal Heir and widow Smt. Malviaben harshadrai Diora vs. ITO
4. Aggrieved against the re assessment order, assessee filed appeal before Ld. CIT(A) who has partly confirmed the addition of Rs.20,00,000/- by a detailed appellate order.
We have heard rival submissions and perused the materials available on record. Ld. Counsel submitted before us a comparative chart of cash deposits in bank accounts during the current Asst. Year and immediately preceding two assessment years and demonstrated cash deposit is being made in the bank accounts is the regular system of followed by the assessee:
Month A.Y.15-16 A.Y. 16-17 A.Y. 17-18 April 2718500 2660000 3714150 May 3207000 1820000 2313430 June 1650000 2120800 2422530 July 2651000 1855000 2601200 August 952000 790540 1877065 September 1591295 1550000 1960925 October 1257560 1535700 2420000 November 1660000 1555170 3273830 December 2134225 2120000 2085595 January 2750000 1931120 2930434 February 1802270 2196125 2357995 March 1523375 1850000 2866383 Total 23897225 21984455 30823537 A.Y. 2017-18 Page No 4 Late Harshadrai Dalichand Diora Through His Legal Heir and widow Smt. Malviaben harshadrai Diora vs. ITO 5.1. Further perusal of the cash flow statement filed in the Paper Book out of the total sales of Rs.3.47 crores, a sum of Rs.3.23 crores was realized in cash which is constituting 93.09% of the total sales by the assessee. The Department also is not in dispute that there is any other source except the cash sales by the assessee and realization from debtors. Further the cash sales effected is cross verifiable from the annual VAT returns furnished by the assessee which was accepted by the Commercial Tax Department of the State Government. All this clearly proves that deposit of cash in the banking account regularly has been the normal practice adopted by the assessee considering the nature of business activities carried out by the assessee not only for the present Asst. Year but also in the earlier Asst. Years. Without verifying the above submissions of the assessee, Ld. CIT(A) confirmed the addition of Rs.20,00,000/- being cash deposit in Specified Banking Notes on 12-11-2016 which is liable to be deleted.
In the result, the appeal filed by the Assessee is hereby allowed.