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Facts
The assessee, engaged in hosiery manufacturing and trading, faced an addition of Rs. 20,77,504/- under Section 68 for cash deposits of Rs. 23,78,000/- made during the demonetization period, initiated by a notice under Section 148. The Assessing Officer treated these deposits as undisclosed income, a decision upheld by the Ld. CIT(A).
Held
The Tribunal determined that the assessee had demonstrated, through their books of accounts, that the cash deposits originated from regular business sales, which were duly recorded and offered to tax. It held that re-taxing these sales realizations would constitute double taxation, which is unsustainable in law. Consequently, the addition sustained by the CIT(A) was directed to be deleted.
Key Issues
Whether cash deposits made during demonetization, claimed to be from regular business sales recorded in books, constituted unexplained income liable for addition under Section 68, or if it amounted to double taxation.
Sections Cited
148, 68, 145(3)
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आयकर अपीलीय अिधकरण,च"डीगढ़ "यायपीठ “एस.एम.सी” , च"डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCHES, “SMC” CHANDIGARH HEARING THROUGH: PHYSICAL MODE "ी िव"म "सह यादव, लेखा सद"य BEFORE: SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ िनधा"रण वष" / Assessment Year : 2017-18 Rajeev Dua Prop. M/s Ram बनाम JAO The ITO Milap Hosiery, Ward 2(1) Wait Ganj, Ludhiana, Punjab- Ludhiana 141008 "ायी लेखा सं./PAN NO: ABAPD3082E अपीलाथ"/Appellant ""यथ"/Respondent िनधा"रती क" ओर से/Assessee by : Shri Sudhir Sehgal, Advocate राज"व क" ओर से/ Revenue by : Dr. Ranjit Kaur, Addl. CIT, Sr. DR सुनवाई क" तारीख/Date of Hearing : 12/08/2025 उदघोषणा क" तारीख/Date of Pronouncement : 19/08/2025 आदेश/Order
PER VIKRAM SINGH YADAV, AM
This is an appeal filed by the Assessee against the order of the Ld. CIT(A)/NFAC, Delhi dt. 27/01/2025 pertaining to A.Y 2017-18.
In the present appeal, the Assessee has raised the following grounds of appeal:
“1. That the Ld. CIT(A), NFAC, Delhi has erred in confirming the order of the Assessing Officer, thereby, confirming the addition of Rs. 20,77,504/- u/s 68 on account of deposit in the business related bank account.
2. That the Ld. CIT(A) has erred in not accepting the bonafide contention of the assessee that the cash as deposited in the regular bank account of the assessee was on account of sale proceeds of hosiery items and realization from trade debtors, duly recorded in the books of accounts.
That the Ld. CIT(A) has erred in not considering the fact that the books of accounts of the assessee have not been rejected u/s 145(3) and, as such, the addition of Rs. 20,77,504/- as confirmed by the CIT(A), is against the facts and circumstances of the case.
That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.”
3. Briefly the facts of the case are that the assessee filed its return of income declaring total income of Rs. 2,98,640/-. Subsequently, basis information that there are cash deposits in the bank account maintained by the assessee to the tune of Rs. 23,78,000/- during the demonetization period, notice under section 148 dt. 31/03/2021 was issued. Thereafter, notices were issued calling for the necessary information and documentation. After taking into consideration the submissions filed by the assessee, the AO made an addition of Rs. 20,77,504/- under section 68 of the Act for the reason that the assessee has failed to explain the nature and source of such deposits and were treated as income from undisclosed sources.
4. Against the order of the AO, the assessee carried the matter in appeal before the Ld. CIT(A) who has since sustained the said order of the AO. Against the order of the Ld. CIT(A), the assessee is in appeal before us.
During the course of hearing, the Ld. AR submitted that the assessee is in business of manufacturing and trading of hosiery goods which is a cyclical business wherein the production started in the month of April and sales started from July to mid of December and the peak season of sale is August to November. It was made that during the year under consideration, there were total cash deposits to the tune of Rs. 42,35,000/- in the bank account maintained by the assessee and out of which, the AO has held that the deposit to the tune of Rs. 23,78,000/- deposited during the period 09/10/2016 to 30/12/2016 as unexplained without considering the fact that there are other regular cash deposit which have been made throughout the year which are out of regular business receipts of the assessee which have been duly accounted for and declared in the return of income. It was submitted that during the assessment proceedings, the assessee filed copy of the cash book and on the perusal of the cash book, it is evident that there are regular receipt and deposit out of the sales made in the regular course of business. It was submitted that similar fact pattern is there in the earlier Financial Year wherein the cash receipt from the regular sales have been deposited in the bank account of the assessee. It was submitted that during the course of assessment proceedings, the assessee submitted details regarding the cash sales made by the assessee alongwith realization of debtors during the year. It was submitted that the assessee had sufficient stock out of which the sales were made during the year and all these transactions are duly accounted for in the books of account which have not been rejected by the AO. It was submitted that it is a settled position that where there is a sufficient stock with the assessee and sales are made in cash, no addition on account of cash deposit out of the cash sales can be made alleging the same to be unexplained and reliance was placed on various Coordinate Benches decisions including the decision of Coordinate Chandigarh Bench decision in case of DCIT vs. Fashion Zone (ITA No. 331/Chd/2023 dt. 20/03/2024) wherein the Coordinate Bench has held as under:
In the above said case the assessee has furnished the cash book containing the entire towards the cash sales, bank statement for the relevant period, VAT returns, Copy of trading and Profit and loss account and balance sheet which are duly audited. No defect has been pointed out by the AO in the terms of availability of stock or in any of the documentation so submitted by the assessee or in the books of account. Therefore, merely the fact that certain cash deposits have been made by the assessee during the period of demonetization and such deposits are on the higher side considering the past year figures cannot be basic to hold the explanation made by the assessee as unsustainable and trade this cash sale as bogus and bringing the cash deposit to Tax u/s 68 of the Act. The comparative figures for past years can no doubt provides a starting point for further examination and verification but basis such comparative analysis along and without any further examination which point out any defect or manipulation in the documentation so submitted or in the terms of availability of requisite stock in the books of account, the sales so under taken by the assessee, which is duly recorded in the books of accounts cannot be rejected and treated as bogus. Therefore, we agree with the contention of the Ld. AR that where the cash sales duly offered to tax have been accepted, bringing the realization of sale proceeds in cash to tax will amount to double taxation and the same is clearly unsustainable in law and cannot be upheld. In view of the same, we find the explanation of the assessee as genuine and reasonable duly supported by the documentation and books of accounts and the addition so made by the AO and confirmed by the Ld. CIT(A) is hereby directed to be deleted
It was further submitted that the sales so recorded in the books of account have already been reported as part of the VAT return and copy thereof have been duly placed on record before the AO as well as before the Ld. CIT(A). It was accordingly submitted that where the sales so reported are not in dispute, the addition on account of the cash deposit being realization of sales will resulted in double addition and same cannot be sustained in the eyes of law. It was accordingly submitted that necessary relief be provided to the assessee by deleting the addition so made by the AO and sustained by the ld CIT(A).
The Ld. Sr. DR has been heard who has submitted that during the demonetization period, there are cash deposits to the tune of Rs. 23,78,000/- which are on higher as compared to the earlier financial year. It was submitted that the AO has compared the cash deposits during the F.Y. 2015-16 and cash deposit during the F.Y. 2016-17 and has further analyzed monthly cash balances and after giving credit of the opening cash balance as on 01/08/2016, the addition of Rs. 20,77,504/- has been made in the hands of the assessee as the assessee failed to satisfactory explained the nature and source of cash deposits. She accordingly, relied on the order of the AO as well as that of the CIT(A).