MOHD. NAUSHAD ANSARI (PROP. GULSAN SEV FOODS),AHMEDABAD vs. THE ITO, WARD-5(3)(3), AHMEDABAD

2.2 The assessee explained that the cash deposited during the demonetisation period was accumulated out of past cash sales, personal cash savings, and money kept aside for family contingencies including his younger brother’s marriage. He further narrated that his father, who was operating the business in his absence, passed away in Saudi Arabia on 20.08.2016 during a Haj pilgrimage, and that due to these exceptional family circumstances, cash remained in hand. The Assessing Officer, however, rejected the assessee’s explanation, observing that the assessee failed to explain the sources of the said cash deposits during the demonetisation period. Relying on judicial precedents including Roshan D. Hathi v. CIT (107 ITR 938) and Kelekhan Mohd. Hanif v. CIT (50 ITR 1), the AO held that the assessee failed to discharge the onus under section 68 of the Act and made an addition of Rs.28,54,000/- treating it as unexplained cash credit. The said amount was taxed under section 115BBE of the Act, and penalty proceedings under section 271AAC(1) were separately initiated.

2.3 Aggrieved by the above addition, the assessee preferred an appeal before the CIT(A), NFAC. During the appellate proceedings, the assessee reiterated that the cash deposits were fully recorded in the books of account as cash sales and were supported by the financial statements, cash book and bank statements. He also submitted the audit report in Form 3CB and 3CD and reiterated that the books of account had not been rejected by the Assessing Officer under section 145(3). However, the CIT(A), NFAC confirmed the addition observing that the assessee had failed to produce independent evidence in support of the alleged cash sales or cash in hand. The CIT(A) relied on the balance sheet as on 31.03.2017 to note that the closing cash in hand was only Rs. 1,02,963/-, and observed that the claim of deposit of Rs. 28.54 lakhs lacked credibility. The CIT(A) further held that the assessee failed to discharge the burden of proof under section 68 and confirmed the addition made by the AO.

1. That on facts, and in law, the learned NEAC has grievously erred in confirming the addition made u/s 68 of the Act in respect of cash deposited in the appellant's bank account and in taxing the same u/s 115BBE of the Act.

2. That on facts, and in law, it ought to have been held that the entire cash deposit is in respect of cash sales made by appellant and duly reflected as cash sales in appellant's accounts.

3. That on facts, and in law, the addition made amounts to double addition as the entire cash deposit is already reflected as cash sales in appellant's accounts. 4. The appellant craves liberty to alter, amend any ground of appeal.

4.1 The learned AR further submitted that the assessee had furnished the audit report in Form 3CB and 3CD, and it is not the case of the Assessing Officer that the books of account maintained by the assessee were either defective or incomplete or that the same were rejected by invoking the provisions of section 145(3) of the Act. In the absence of rejection of books, it was contended that the entries recorded in the regular books of account ought to have been accepted, particularly when the cash deposits in the bank accounts had corresponding entries in the cash book, and the sales were duly reflected in the trading account.

4.2 The AR specifically invited our attention to page no. 23 of the assessee’s paper book, being the copy of the assessee’s reply dated 21.12.2019, wherein a detailed comparative summary of cash inflow and outflow for F.Y. 2015–16 and F.Y. 2016–17 was placed on record, evidencing a consistent pattern of cash deposits being made in the bank accounts during the course of business. It was further submitted that the nature of the assessee’s business, being retail trade in food items, inherently involved cash transactions and regular banking of sale proceeds, and the cash deposited during the demonetisation period was no different in nature or pattern. The AR submitted that the explanation was unjustly disregarded, and that there was no material brought on record to support the conclusion that the cash deposits were unexplained or that the entries in the books were fictitious or inflated. The AR also contended that the entire amount of cash deposited was reflected in the regular books of account and considered in the computation of taxable income, and therefore, the addition made under section 68 results in double taxation of the same sum.

6.1 From the perusal of the reply dated 21.12.2019 filed by the assessee before the Assessing Officer (placed at page 23 onwards of the paper book), it is evident that the assessee had furnished extensive quantitative and financial details in support of its explanation. The assessee furnished month-wise details of opening cash in hand, cash sales, cash deposits, and cash withdrawals for each month from April 2016 to November 2016, which substantiate that the assessee was regularly depositing cash in the bank throughout the year and the pattern of such deposits was consistent with earlier financial years. The data tabulated in the assessee’s reply (page 23– 24 of the paper book) reveals that for F.Y. 2015–16, the assessee had deposited cash of Rs. 62,79,375/- in the bank, while for F.Y. 2016–17 (upto 08.11.2016), the total cash deposit stood at Rs. 83,61,950/-. Similarly, comparative data of cash demonstrating a consistent and growing scale of business operations was also submitted to Assessing Officer during the course of assessment proceedings. The assessee had also furnished comparative ratios of percentage increase in cash sales and cash deposits over the preceding year, detailed month-wise cash flows, and bank-wise breakup of old and new currency deposits, which go to support the claim that the impugned cash was not a sudden or one-off influx of unaccounted income but rather a continuation of regular business practice. It is not the case of the Department that any part of the cash sales was unverifiable or fictitious or that the corresponding stock position or gross profit rates were inconsistent with past trends.

6.2 We further note that the books of account maintained by the assessee were duly audited and supported by Form 3CB and 3CD, and it is not in dispute that the same were never rejected by invoking section 145(3) of the Act. In such circumstances, where books of account are maintained in the regular course of business and are not rejected, the entries made therein, including those in the cash book and ledger, cannot be brushed aside without any contrary evidence. In the absence of rejection of books, the sales recorded in books supported by cash receipts cannot be disregarded merely on the basis of suspicion.

6.3 We also find merit in the assessee’s contention that the entire amount of cash deposited was reflected in the regular books of account and considered in the computation of taxable income, and therefore, the addition made under section 68 results in double taxation of the same sum. In absence of any specific finding by the AO that the sales were fictitious or that the cash deposits were not backed by cash on hand, invoking section 68 of the Act was uncalled for.

6.4 We also find that the reliance placed by the Assessing Officer and upheld by the CIT(A) on judicial precedents is misplaced in the present factual matrix particularly when assessee has made detailed submission. Therefore, the ratio of the aforesaid cases cannot be mechanically applied to disregard such detailed evidentiary material. In a fact-intensive enquiry under section 68, precedents must be applied contextually and not in isolation from the evidentiary record before the authority.

6.5 In view of the foregoing discussion, and in the absence of any material to demonstrate that the cash sales were bogus or that the books of account were not reliable, we find that the explanation offered by the assessee is satisfactory and supported by material evidence. The addition made under section 68 and taxed under section 115BBE is therefore unsustainable in law and on facts.

6.6 Accordingly, we hold that the addition of Rs.28,54,000/- made by the Assessing Officer and confirmed by the CIT(A) is liable to be deleted.

Order pronounced in the Court on 30th July, 2025 at Ahmedabad.