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Facts
The assessee, engaged in jewellery trading, deposited demonetized currency representing cash sales. The Assessing Officer (AO) treated a significant portion of these cash deposits as unexplained cash credits under Section 68 of the Income Tax Act. The CIT(A) partly allowed the appeal, deleting a major part of the addition but sustaining a smaller amount.
Held
The Tribunal held that the AO's addition was based on conjecture and suspicion without sufficient evidence. The Tribunal noted that the assessee's books were audited, purchases were not doubted, and VAT returns were accepted. The Tribunal also highlighted that the cash sales were part of the normal business and the addition amounted to double taxation. Therefore, the AO's addition was deleted.
Key Issues
Whether cash sales, which are part of the regular business turnover and already accounted for, can be treated as unexplained cash credits under Section 68 of the Income Tax Act, especially when the AO's addition is based on suspicion and conjecture rather than evidence.
Sections Cited
68, 69A, 115BBE(1)(i), 253(3), 143(3), 269ST, 206C(ID), 145(3), 271AAC
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW BENCH ‘A’, LUCKNOW
Before: SHRI KUL BHARAT & SHRI ANADEE NATH MISSHRA
“1. The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order, which is unlawful, unjustified and against the principles of natural justice.
2. The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order without giving adequate opportunity of being heard.
3. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in invoking the provisions of section 69A of Income-tax Act when the initial addition was made by Ld. Assessing Officer u/s 68 of Income-tax Act. The addition of Rs.5,43,000/- sustained by Ld. Commissioner of Income-tax (Appeals) is erred in law and deserves to be deleted.
4. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in giving partial relief of Rs.1,42,25,466/- instead of Rs.1,47,68,466/- sought before him and sustained the addition of Rs.5,43,000/- only on the basis of suspicion, conjecture and surmise which deserves to be deleted.
The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing assessment order which is contrary to the facts and law. “1. The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order, which is unlawful, unjustified and against the principles of natural justice.
The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order without giving adequate opportunity of being heard.
, 359 & 452/Lkw/2020 Assessment Year:2017-18 3
The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in invoking the provisions of section 69A of Income-tax Act when the initial addition was made by Ld. Assessing Officer u/s 68 of Income-tax Act. The addition of Rs.7,68,466/- sustained by Ld. Commissioner of Income-tax (Appeals) is erred in law and deserves to be deleted.
The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in giving partial relief of Rs.1,40,00,000/- instead of Rs.1,47,68,466/- sought before him and sustained the addition of Rs.7,68,446/- only on the basis of suspicion, conjecture and surmise which deserves to be deleted.
5. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing assessment order which is contrary to the facts and law. “1. The learned CIT(A) has erred in law and on facts in deleting the addition of Rs.1,40,00,000/- made by the Assessing Officer on account of cash deposits during demonetization period on account of failure on the part of the assessee to prove genuineness of the cash credits transactions in his books of account to his satisfaction.
2. The learned CIT(A) has erred in law and on facts in deleting the addition of Rs.2,93,39,853/- made by the Assessing Officer u/s 68 of the Act on account of unexplained cash deposits during demonetisation period due to sales credited to its books of account to the extent unsupported by past trend.”
(A.1) The appeal filed by Revenue is beyond the time limit prescribed u/s 253(3) of the I. T. Act. An application dated 22/12/2020 was filed by Revenue requesting for condonation of delay in filing of the appeal. Giving detailed description of the facts and circumstances, which caused the delay in filing of the appeal, Revenue has submitted that reasons for late filing of the appeal were really beyond control and requested that the delay in filing the appeal may be condoned. In view of the foregoing, and being convinced , 359 & 452/Lkw/2020 Assessment Year:2017-18 4 with the reasons given by Revenue, the delay in filing of the appeal is condoned and the appeal is admitted for decision on merits.
(B) In this case assessment order dated 28/12/2019 was passed by the Assessing Officer u/s 143(3) of the Act whereby the assessee’s total income was determined at Rs.1,68,44,046/- (rounded off to Rs.1,68,44,040/-) as against returned income of Rs.20,75,580/-. In the aforesaid assessment order, an addition of Rs.1,47,68,466/- was made u/s 68 of the Act. The aforesaid addition was made on account of cash deposits made by the assessee in the bank account. The assessee explained during the assessment proceedings that this cash deposits were made in the bank out of sale proceeds from the assessee’s business as jeweller. However, the Assessing Officer did not accept the assessee’s explanation and made the aforesaid addition of Rs.1,7,68,466/-. Aggrieved, the assessee filed appeal in the office of the learned CIT(A). Vide order dated 23/09/2020, the assessee’s appeal was partly allowed. The learned CIT(A) retained an addition of Rs.5,43,000/- and deleted the remaining addition of Rs.1,40,00,000/-. The learned CIT(A) held that the aforesaid addition of Rs.5,43,000/- was to be made u/s 69A of the Act and not under section 68. The relevant portion of the order of learned CIT(A) is reproduced below:
, 359 & 452/Lkw/2020 Assessment Year:2017-18 5 , 359 & 452/Lkw/2020 Assessment Year:2017-18 6 , 359 & 452/Lkw/2020 Assessment Year:2017-18 7 , 359 & 452/Lkw/2020 Assessment Year:2017-18 8 , 359 & 452/Lkw/2020 Assessment Year:2017-18 9 , 359 & 452/Lkw/2020 Assessment Year:2017-18 10 , 359 & 452/Lkw/2020 Assessment Year:2017-18 11 , 359 & 452/Lkw/2020 Assessment Year:2017-18 12 , 359 & 452/Lkw/2020 Assessment Year:2017-18 13 , 359 & 452/Lkw/2020 Assessment Year:2017-18 14 , 359 & 452/Lkw/2020 Assessment Year:2017-18 15 , 359 & 452/Lkw/2020 Assessment Year:2017-18 16 , 359 & 452/Lkw/2020 Assessment Year:2017-18 17 , 359 & 452/Lkw/2020 Assessment Year:2017-18 18 , 359 & 452/Lkw/2020 Assessment Year:2017-18 19 , 359 & 452/Lkw/2020 Assessment Year:2017-18 20 , 359 & 452/Lkw/2020 Assessment Year:2017-18 21 , 359 & 452/Lkw/2020 Assessment Year:2017-18 22 , 359 & 452/Lkw/2020 Assessment Year:2017-18 23 , 359 & 452/Lkw/2020 Assessment Year:2017-18 24 , 359 & 452/Lkw/2020 Assessment Year:2017-18 25 , 359 & 452/Lkw/2020 Assessment Year:2017-18 26 , 359 & 452/Lkw/2020 Assessment Year:2017-18 27 , 359 & 452/Lkw/2020 Assessment Year:2017-18 28 , 359 & 452/Lkw/2020 Assessment Year:2017-18 29 , 359 & 452/Lkw/2020 Assessment Year:2017-18 30 , 359 & 452/Lkw/2020 Assessment Year:2017-18 31 , 359 & 452/Lkw/2020 Assessment Year:2017-18 32 , 359 & 452/Lkw/2020 Assessment Year:2017-18 33 , 359 & 452/Lkw/2020 Assessment Year:2017-18 34 , 359 & 452/Lkw/2020 Assessment Year:2017-18 35 , 359 & 452/Lkw/2020 Assessment Year:2017-18 36 , 359 & 452/Lkw/2020 Assessment Year:2017-18 37 , 359 & 452/Lkw/2020 Assessment Year:2017-18 38 , 359 & 452/Lkw/2020 Assessment Year:2017-18 39 , 359 & 452/Lkw/2020 Assessment Year:2017-18 40 , 359 & 452/Lkw/2020 Assessment Year:2017-18 41 , 359 & 452/Lkw/2020 Assessment Year:2017-18 42 , 359 & 452/Lkw/2020 Assessment Year:2017-18 43 , 359 & 452/Lkw/2020 Assessment Year:2017-18 44 , 359 & 452/Lkw/2020 Assessment Year:2017-18 45 , 359 & 452/Lkw/2020 Assessment Year:2017-18 46 , 359 & 452/Lkw/2020 Assessment Year:2017-18 47 , 359 & 452/Lkw/2020 Assessment Year:2017-18 48 (B.1) Subsequently, rectification order u/s 154 of the Act was passed by the learned CIT(A), whereby the quantum of addition upheld was determined at Rs.7,68,466/- as against Rs.5,43,000/- in the aforesaid order dated 23/09/2020 of the learned CIT(A). The assessee filed separate appeals against aforesaid orders dated 23/09/2020 and 24/09/2020 of the learned CIT(A) vide 359/Lkw/2020 respectively.
, 359 & 452/Lkw/2020 Assessment Year:2017-18 49 Revenue has also filed appeal against the order of the learned CIT(A) vide I.T.A. No.452/Lkw/2020. For the sake of convenience, the aforesaid three appeals filed in Income Tax Appellate Tribunal are disposed of through this consolidated order. The assessee has filed a paper book containing the following particulars:
, 359 & 452/Lkw/2020 Assessment Year:2017-18 50 , 359 & 452/Lkw/2020 Assessment Year:2017-18 51 From Revenue’s side also, written submissions dated 11/04/2025 and 21/10/2024 were filed.
(B.2) At the time of hearing, the representatives of both sides took us through the relevant portions of their submissions/paper book and drew our attention to the relevant material in support of their respective contentions.
, 359 & 452/Lkw/2020 Assessment Year:2017-18 52 (C) At the time of hearing, learned D.R. submitted that the assessee had failed to provide satisfactory explanation regarding the cash deposits made in the bank account. He contended that the learned CIT(A), in paragraph 12 of the order dated 23/09/2020, stated that there was some merit in the contention of the Assessing Officer as the appellant had disclosed abrupt jump in cash sales. However, the learned D.R. contended, learned CIT(A) arbitrarily deleted the addition to the extent of Rs.1,40,00,000/-, retaining addition only to the extent of Rs.7,68,466/-. He relied heavily on the assessment order.
(C.1) Learned A.R. for the assessee submitted that in view of satisfactory explanation provided by the assessee during assessment proceedings and during appellate proceedings before the learned CIT(A), the entire addition of Rs.1,40,00,000/- should have been deleted and the order of the learned CIT(A) to retain addition of Rs.7,68,466/- was arbitrary and without any basis. She submitted that the addition amounting to Rs.7,68,466/- sustained by the learned CIT(A) vide aforesaid order dated 24/09/2020 of learned CIT(A), read with aforesaid order dated 23/09/2020 of learned CIT(A), should also be deleted.
(C.2) We have heard both sides. We have perused the materials on record. It is not in dispute that the assessee is in the business of jewellery for many years. The learned CIT(A) has also noted that the books of account of the assessee were audited, and were without any qualifying remark of the auditors. The learned CIT(A) has also noted that VAT returns were filed by the assessee and no infirmity has been found by VAT Department in the assessee’s return. Further, the assessee had sufficient quantity of stock to explain the sales made in cash. The learned CIT(A) has also noted that the purchases made by the assessee were not doubted by the Assessing Officer. He has also noted that there was no provision of law which mandated the assessee to maintain ID records of sales made in cash below the amount of Rs.2,00,000/-. In the specific facts and circumstances of this specific case, we agree with the analysis and findings of the learned CIT(A) in paragraph 7-11 of the impugned order dated 23/09/2020 [already reproduced in , 359 & 452/Lkw/2020 Assessment Year:2017-18 53 foregoing paragraph (B) of this order]. The assessment order is based on conjecture, guesswork, suspicion and presumptions; and has failed to make a case for the addition of aforesaid amount of Rs.1,47,68,466/-. The Assessing Officer has referred to principle of human probabilities, as held by Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More 82 ITR 540 (SC) and Dumati Dayal vs. CIT 214 ITR 801 (SC). However, in the specific facts and circumstances of the present case; the principle cannot be applied against the assessee as it is quite probable that the assessee actually sold jewellery in cash and that such cash sales formed acceptable explanation for cash deposit made by the assessee. Therefore, appeal filed by Revenue is dismissed.
(C.2.1) The learned CIT(A) has sustained an addition of Rs.7,68,466/_ (erroneously mentioned as Rs.5,43,000/-) in impugned order dated 23/09/2020 but restricted as Rs.7,68,466/- in impugned order dated 24/09/2020) on estimate basis. However, there is no justification or basis for this estimation. The estimation is made in a summary manner, without any reasoning. We direct the Assessing Officer to delete this amount of Rs.7,68,466/- as there is no justification for this addition. In view of the foregoing, both the appeals are allowed.
(D) In the result, the appeals of the assessee are allowed and the appeal of Revenue is dismissed.
(Order pronounced in the open court on 29/07/2025)