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Facts
The Revenue appealed against the CIT(A)'s deletion of an addition of Rs. 2,99,91,813 made by the AO on account of unexplained cash credits. The assessee, engaged in trading, deposited this amount in old currency notes during the demonetization period, claiming it was from cash sales of chemicals and hosiery goods, disclosed in VAT returns.
Held
The Tribunal held that the CIT(A) was correct in deleting the addition. The assessee provided sufficient documentation, including VAT returns, sales records, and stock details, which were accepted by the VAT department and the AO. The cash sales were offered to tax, and adding them again as unexplained credit would amount to double taxation.
Key Issues
Whether cash deposits made during demonetization, claimed from cash sales and reflected in VAT returns, can be treated as unexplained cash credits when books of account are not rejected and sales are accepted.
Sections Cited
68, 145(3), 115 BBE
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Income Tax Appellate Tribunal, CHANDIGARH
Before: SHRI RAJPAL YADAV, VP & SHRI. KRINWANT SAHAY, AM
िनधा�रती की ओर से/Assessee by : Shri Sudhir Sehgal, Advocate राज� की ओर से/ Revenue by : Shri Vivek Vardhan, Addl. CIT, Sr. DR सुनवाई की तारीख/Date of Hearing : 05/05/2025 उदघोषणा की तारीख/Date of Pronouncement : 18.06.2025 आदेश/Order
PER KRINWANT SAHAY, AM:
This is an appeal filed by the Revenue against the order of the Ld. CIT(A)/NFAC, Delhi dt 15/03/2023 pertaining to Assessment Year 2017-18. wherein, the addition of Rs. 2,99,91,813/- have been deleted by the CIT(A), NFAC, Delhi on account of cash deposits in the bank account of the assessee.
The facts in brief as gathered from the order of the AO and CIT(A) are that the assessee is engaged in the business of trading in 2 365-c-2023 – Kapil Aggarwal, Ludhiana chemicals and Hosiery goods and filing the return on the basis of audited books of accounts and maintaining quantitative details. All the purchases and sales are fully vouched. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee had deposited Rs. 2,99,91,813/- during the demonetization period in old currency notes. When this query was raised, certain details were asked for. The assessee replied that the said cash had been deposited out of the cash sales during the year under consideration. Cash was realized out of the cash sales of chemicals and hosiery goods and for these cash sales, proper invoices had been raised as per books of accounts and such cash sales had also been disclosed in the VAT return filed with the department for the month of October and November 2016.
It was further argued that there was sufficient stock available with the assessee as per books of accounts. Opening and closing stock details were filed item wise. Copy of the sale account, sample copies of the sale bills, copy of purchase and sale registers and also GR Nos. of respective purchases was also furnished. It was further stressed that no discrepancy have been pointed out in the day-to-day maintenance of books of account. However, the AO had held the deposits of cash of Rs. 2,99,91,813/ in the regular bank account of the assessee to be unexplained cash credit u/s 68, since it was noticed by Assessing Officer that there was no cash sale in the previous year. The cash sale has been disclosed only between 1st October to 8th of November 2016 and no identity of the person to whom the cash sales have been disclosed, thus, the Assessing Officer concluded that the cash book is not reflecting true picture and on account of this unusual trend made the addition of Rs. 2,99,91,813/- u/s 68 as unexplained credit.
3 365-c-2023 – Kapil Aggarwal, Ludhiana
4. The assessee filed an appeal before the CIT(A) challenging the said addition as made by the Assessing Officer on account of unexplained credit u/s 68. It was further submitted that the detailed submissions were made before the CIT(A). Without pointing out any defect in day-to-day maintenance of books and also without pointing out any discrepancy in purchases and sales having been made out of the available stock, the said addition as made by the AO was not justified. It was further stated before the CIT (A) that the cash sale had duly been disclosed in the regular books of accounts and complete purchase and sale register depicting the invoices, detail of the amount and quantity of goods i.e. Hosiery cloth and chemicals had been furnished. No defects have been pointed out by the Assessing Officer and the books of assessee have been rejected u/s 145(3).
5. It was further contended before the CIT(A) that the Assessing Officer on one hand has accepted the book result of the assessee and sales and on the other hand made the addition of the unexplained cash credit in respect of cash deposited in the regular bank account of the assessee. The Assessing Officer failed to appreciate that such cash deposit was out of sale as reflected in the books of accounts. It was further argued that date wise stock detail had also been submitted and entire sales were made out from the regular stock in hand. The requisite stock was available and even the detail of purchases with invoices, purchase & sale register, detail of transport in respect of purchases, made had been furnished. The assessee relied on number of judgments of the High Courts and different Benches of the ITAT, that once the books of accounts have not been rejected u/s 145(3), no addition could be made on account of the unexplained cash deposits in the bank account and for that reliance was made on the 4 365-c-2023 – Kapil Aggarwal, Ludhiana judgment of Delhi High Court in the case of PCIT Vs Akshit Kumar in dated 17.11.2019 and some other judgments of 'Chandigarh Bench' of the ITAT. It was also stressed before the CIT(A) that before assessment even certain information was called for by the Income Tax Officer (Intelligence) vide letter, dated 12.12.2016 which was replied by the assessee. The same has been reproduced from page 29 to page 34 of the order of CIT(A).
It was further argued that returns of VAT had been filed with the relevant department and merely on account of the fact that during last year, there were no cash sales cannot justify the addition as made by the AO. The Ld. CIT (A) after considering that the books of accounts have been accepted and also that no defects have been pointed out in the purchases and sales and stock tally has been maintained by the assessee. Since the Assessing Officer has accepted the sales as reflected in the audited books of accounts and the cash has been deposited out of such sales in the regular bank account of the assessee, thus, the stock got reduced by the sales and appropriate G.P have been disclosed. Thus, under such circumstances, no addition could be made on account of unexplained cash credit. The CIT(A) held that no addition could be made on account of such facts and circumstances and also held that since the source of cash deposits is out of cash sales and no evidence of unaccounted income is there. Merely on the basis of past history, the addition of cash deposits in the bank account could not be made. Thus, accordingly, the CIT(A), deleted the addition.
The department has filed an appeal against the above said order of CIT(A) and the grounds of appeal as raised by the department are as under:-
5 365-c-2023 – Kapil Aggarwal, Ludhiana "1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC, Delhi has erred in deleting the addition of Rs. 2,99,91,813/- made by the Assessing Officer in respect of unexplained cash credits in bank account of the assessee u/s 68 of the Income Tax Act, 1961 during the period of demonetization.
2. The Ld. CIT(A) has erred in not appreciating the facts that there was no cash sales in the previous years and in the current year cash sales started only from 1st Oct.,2016to 08.11.2016.
3. The Ld. CIT(A) has erred in not appreciating the facts that the sale of cloth was shown by the assessee only in Oct., 2016 and there was no sales of cloth either on credit or in cash in the last three years.
The Ld. CIT(A) has erred in ignoring the facts that the sales made by the assessee to the persons who all are unidentifiable and the amount of cash sales in each case in below the threshold limit of Rs. 2.00 Lakhs.
The Ld. CIT(A) has erred in ignoring the facts that the cash in hand as on 01.10.2016 was only Rs. 30,940/-, which rose to Rs. 2,94,65,238/- as on 08.11.2016, which was not deposited by the assessee in between the period from 01.10.2016 to 08.11.2016, when there was no business exigency.
6. The Ld. CIT(A) has erred in ignoring the facts brought on records by the Assessing Officer at page 7 and 8 of the Assessment order particularly that the assessee has withdrawn a sum of Rs. 10,000/- from Indian Overseas Bank ,on 11.11.2016 when he was having cash in hand of Rs. 2,94,65,238/- 7. That the Ld. CIT(A) erred on facts and law by not considering the Apex Court judgment in case of CIT Vs. Durga Prasad More 85 I.T.R. 540(SC) and followed in the case of Sumati Dayal Vs. CIT 214I.T.R. 801(SC). 8. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off."
6 365-c-2023 – Kapil Aggarwal, Ludhiana 8. The Ld. CIT (DR) relied on the order of AO and argued about the sustaining of addition of Rs. 2,99,91,813/- u/s 68 on account of cash deposits, since there was no cash sale in the previous year or upto 30.09.2016, thus, there was doubt and suspicion on account of cash sale from 01.10.2016 to 08.11.2016. The ld. DR further argued that the sales have been made to all the unidentified parties, thus, the genuineness of cash sales is highly doubtful. He also argued that the cash sales have been shown just to built-up cash. Merely that such cash sales have been disclosed in the VAT return would not justify the cash deposits in the bank account. The Ld. DR relied upon the judgment of CIT Vs Durga Parshad and Sumiti Dayal cases as per order of Assessing Officer. The Senior DR argued that the Assessing Officer was justified in making the addition on account of unexplained cash credit.
The Ld. Counsel of the assessee argued before us that the assessee has been maintaining regular books of accounts, which are duly audited. All the purchases and sales are fully vouched, complete purchase and sale register have been maintained along with the quantitative details. Opening and closing stock list have also been filed. He further argued that there is no bar in making the cash sales as per the various cash laws, the Assessing Officer has not rejected the books of account, the sales and purchases along with opening and closing stock have been accepted. There was no justification in making the addition of the cash sales during demonetization period as it would amount to double addition.
It was further argued that the sales have been reflected in the VAT returns which is a Govt, department. It monitors the sales made by the assessee and such sales have been accepted by the VAT
7 365-c-2023 – Kapil Aggarwal, Ludhiana department. It does not give any reason to other department to doubt the sales as made by the assessee. The reliance was placed in the judgment of Chandigarh Bench of the ITAT in the case of Shiva Exports, reported in 28 SOT 512, in which, it has been held that if one Govt, department has accepted certain fact then without making any enquiries or brining any material on record, no doubt could be raised on such sales made by the assessee. The assessee relied on a number of judgments of Chandigarh Bench of the ITAT for the same preposition, where the cash deposited during demonetization period was held to be genuine all such cases once there was requisite stock of purchases available with the assessee and out of such stock, the sales had been made. No addition could be made on account of unexplained credit with regard to the cash sales during demonetization period. Reliance was placed on the following judgments:- i) DCIT Vs Moolji Diamonds/in dated 23.04.2025, dated. 23.04.2025 ii) DCIT Vs M/s Triputa Balaji Exim Pvt.Ltd., in dated 17.01.2025 iii) Judgement of ITAT, Chandigarh Bench in the case of M/s Fashion Zone in ITA No. 331/Chd/2023, dated 20.03.2024. iv) ACITVs Mahendra Kumar Agarwal, reported in (2023) 104 ITRTrib. 455 (Jaipur) v) Judgement in the case of ACIT Vs Chandra Surana, reported in (2023) 104 ITR Trib. 503 (Jaipur). vi) Judgement in the case of Mahesh Kumar Gupta, reported in(2023) 151 Taxmann.com 339 (Jaipur-Trib.). vii) ITO Vs Aakriti Jain, in vide order, dated 14.08.2024 (Chandigarh Bench).
8 365-c-2023 – Kapil Aggarwal, Ludhiana viii) Manuj Jain HUF Vs PCIT, in vide order, dated 13.02.2024 (Chandigarh Bench). ix) Rachit Aggarwal Prop. Ashok Kumar Gupta &Co. Vs ITO (2024) 162 Taxmann.com 49 (Chd. Trib.).
Copies of all the judgments have been placed in the Paper Book and, thus, it was stressed that the said issue is covered by the above said judgments.
We have considered the order of AO/CIT(A) arguments of Senior CIT (DR) and Ld. Counsel of the assessee. Facts are clear from the order of AO/CIT(A). It is borne out from record that complete details/submissions as desired by the Assessing Officer during the course of assessment proceedings were filed. The Assessing Officer has accepted the purchases as reflected in the audited manufacturing and Trading Account against which corresponding sales have been made and such sales have also been accepted. The Assessing Officer has also not raised any doubt with regard to the opening stock as on 1.4.2016, purchases and sales and closing stock as on the 31.03.2017. Purchase and sale registers for the different periods have also been submitted and no adverse view has been taken by Assessing Officer.
All the sales as made during the year and particularly during demonetization period have been accepted by the VAT department and also by the Assessing Officer. Once the VAT department, which is concerned with the verification of sales, have accepted such sales, then under such circumstances, such sales cannot be doubted without bringing any adverse finding. The assessee has placed before
9 365-c-2023 – Kapil Aggarwal, Ludhiana us copy of the VAT assessment order u/s 29 of the Punjab VAT 2005. Once such sales have been accepted by the VAT department and by the Assessing Officer also, such sales cannot be doubted. The corresponding purchases and opening stock and the closing stock as on 31.03.2017 have also not been doubted. The assessee has also furnished purchase and sale register for different periods of the year, the stand of the assessee right, from the beginning viz-z-viz starting from enquires made by the ITO (Intelligence) has been the same. There is no bar in making cash sales as per decided on this issue. Case laws of the Chandigarh Bench of the ITAT in the case of 'Akriti Jain' are relevant to the facts and circumstances of the case as finding given in the case of Akriti Jain is very much relevant to the issue in hand, which is being reproduced:- "We have also heard the rival submissions of the parties and perused the material available on record. The Id. Counsel for the Assessee has explained the source of such cash deposits and it has also explained that such cash sales are subject to VAT where VAT has been collected and deposited with the Government treasury. In support of her explanation, the Assessee has furnished the documents of the relevant period of VAT returns, copy of trading and profit and loss accounts and balance sheets, which are duly audited. We find that the Assessing Officer has accepted the cash sales and the Assessing Officer has also accepted the VAT collected and deposited in the Government account. Even the Assessing Officer has accepted the VAT returns filed by the Assessee and accepted by the Indirect Taxes Department. Therefore, it clearly shows that the Assessing Officer has not doubted the availability of cash in the hands of the Assessee. Once availability of cash in the hands of assessee is accepted, then deposit of such cash in bank account cannot be rejected.
10. Lastly, we find that accepting the cash sale by the Assessee offered to tax, and then addition of same cash deposited in the bank, will amount of double taxation and the same is clearly unsustainable in the law and cannot be 10 365-c-2023 – Kapil Aggarwal, Ludhiana justified. Therefore, we find that the explanation offered by the Assessee is genuine, reasonable and duly supported by the documentation, books of account and audited accounts of the Assessee. Therefore, we find no reason to disturb the findings of the Id. CIT(A). Accordingly, Departmental appeal on this issue is dismissed."
Similarly, finding in the judgment of 'Fashion Zone' by the Chandigarh Bench of the ITAT as cited supra is very much relevant to the issue in hand as under: - "We have heard the rival submissions and perused the material available on record. The assessee has deposited a sum of Rs 48 lacs on 13/11/2016 and a sum of Rs 2 lacs on 22/02/17 in its bank account maintained with Axis Bank. The source of such cash deposits has been explained by the assessee as out of its cash sales so undertaken and it has also been explained that such cash sales are subject to VAT where VAT has been collected and deposited with the government treasury. In support of its explanation, the assessee has furnished the cash book containing the entries towards the cash sales, bank statement for the relevant period, VAT returns, copy of trading and profit/loss account and balance sheet which are duly audited. No defect has been pointed out by the AO in terms of availability of stock or in any of the documentation so submitted by the assessee or in the books of accounts. Therefore, merely the fact that certain cash deposits have been made by the assessee during the period of demonization and such deposits are on a higher side considering the past year figures cannot be basis to hold the explanation so made by the assessee as unsustainable and treat the cash sales as bogus and bringing the cash deposits 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 alone and without any further examination which points out any defect or manipulation in the documentation so submitted or in terms of availability of requisite stock in the books of accounts, the sales so undertaken 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 Id 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
11 365-c-2023 – Kapil Aggarwal, Ludhiana duly supported by the documentation and books of accounts and the addition so made by the AO and confirmed by the Id CIT(A) is hereby directed to be deleted."
Similarly, some other judgement of Jaipur Bench and the Delhi High Court as relied upon by the Ld. CIT(A) are quite apt. We find that the ld. CIT(A) has looked into all the relevant aspects of the case. He has perused all the documents and, thus, his findings on this issue is very logical and as per law. Therefore, we find no reason to interfere in the findings given by the ld. CIT(A). Thus, the action of the ld. CIT(A) of deleting the addition made by the Assessing Officer is sustained. As the addition made by the Assessing Officer u/s 68 has not been confirmed, so there is no question of taxation in this case u/s 115 BBE.
In the result, Revenue’s appeal is dismissed. Order pronounced in the open Court on 18.06.2025.