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Facts
The assessee filed a return of income for AY 2017-18. A survey was conducted, and information regarding cash deposits during the demonetization period was obtained. The Assessing Officer (AO) made an addition of Rs. 2,81,46,500/- as undisclosed income, which was later restricted by the CIT(A) to 2% of this amount.
Held
The Tribunal held that treating cash deposits as unexplained on the basis of books of account without legally rejecting them is not permissible. The impugned orders of the AO and CIT(A) were set aside as unsustainable.
Key Issues
Whether the CIT(A) erred in restricting the addition made by the AO and whether the cash deposits were sufficiently explained by the assessee's books of account and VAT returns.
Sections Cited
69A, 133A, 143(3), 250
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Income Tax Appellate Tribunal, “C” BENCH, DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI VIMAL KUMAR
filed by the assessee are against the order dated 10.01.2025 of the Ld.
Commissioner of Income Tax (Appeals), Delhi (hereinafter referred to as ‘ld.
CIT’) u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of Assessment Order dated 30.12.2019 of the Ld. Assessing Officer/the Income Tax Officer, Ward - 30(5), Delhi (hereinafter referred to as ‘Ld.AO’) u/s 143(3) of the Act for Assessment Year 2017-18.
Brief facts of the case are that the assessee filed return of income on 06.11.2017 declaring income of Rs.10,02,910/-. The notice u/s 143(2) of the Act dated 07.09.2018 was issued. The case was selected under scheme of compulsory scrutiny since survey u/s 133A of the Act was conducted on P a g e | CO 85/Del/2025 Raghav Goel (AY: 2017-18) 21.03.2017 on the basis of information regarding deposit of cash amounting to Rs.5,81,46,500/- in its bank during demonetization period. During survey assessee admitted that he would voluntarily declare Rs. 3 crore in PMGKY, 2016 and he assured that he will submit declaration later. The cheques for 49.9% tax and 25% deposit in PMGKY were handed over. The assessee did not declare Rs.2,81,46,500/- (Rs.5,81,46,500/- Minus Rs.3,00,00,000/-) on the pretext that is was his genuine sale. The assessee vide questionnaire dated 25.11.2019 and 23.12.2019 was asked as to why balance amount of Rs.2,81,46,500/- be not taken as undisclosed income u/s 69A of the Act. The assessee filed replies but failed to lead evidence to justify cash of Rs.2,81,46,500/-. On completion of proceedings ld. AO vide order dated 30.12.2019 made addition of Rs.2,81,46,500/-.
Against the order dated 30.12.2019 of Ld. AO the assessee filed appeals before the ld. CIT(A) which was partly allowed vide order dated 10.01.2025 and the addition was restricted to 2% of Rs.2,81,46,500/- which comes to Rs.5,62,930/- u/s 69A of the Act.
Being aggrieved the department of revenue and the assessee preferred above captioned appeal and Cross Objections, respectively.
P a g e | CO 85/Del/2025 Raghav Goel (AY: 2017-18)
“1. Whether on facts and circumstances of the case, the Ld. CIT(A) erred in restricting the addition of Rs. 2,81,46,500/- u/s 69A of the Act made by the Assessing Officer to Rs.5,62,930/- (2% of Rs. 2,81,46,500/-) by not appreciating the fact that the assessee was given ample opportunity during the assessment proceedings to submit satisfactory reply regarding the source of cash deposit during the demonetization period but assessee failed to do so.
Whether on facts and circumstances of the case and in law, the Ld. CIT (A) erred in allowing the appeal of assessee even though assessee failed to discharge its onus of evidence to prove that the impugned cash deposits resulted from business transactions and those transactions contained merely an element of 2% commission.
The appellant reserves right to add, amend or alter the grounds of appeal on or before the date of the disposal of appeal.”
5.1 The Cross Objection of assessee are as follows:
“1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in sustaining the addition of Rs.5,62,930/- u/s 69A of the Act out of the sales made by the assessee which have been duly recorded in the books of accounts maintained by him.
On the facts and circumstances of the case, the Ld. CIT(A) erred in sustaining the addition of Rs.5,62,930/- under Section 69A of the Act, where the Learned AO framed the assessment order without issuing any P a g e | CO 85/Del/2025 Raghav Goel (AY: 2017-18) show cause notice and such assessment shall be non est (invalid) since it is not made in accordance with procedure laid down in the Act.”
Ld. Departmental Representative submitted that ld. CIT(A) erred in restricting the addition to 2% of Rs.2,81,46,500/- by not appreciating the fact that the assessee despite ample opportunities during assessment proceedings failed to submit satisfactory reply regarding source of cash deposit during demonetization period. The assessee failed to discharge the onus of proof.
Ld. Authorized Representative for assessee submitted that the accounts book records, the sales invoices/ bills, cash book for the entire accounting period in which the cash balance pertaining to cash sales was duly depicted, the stock/inventory records were duly verified by the survey team with the VAT returns (Page 106-213 of Paper book) and stock records maintained in the books of account (also verified by Tax Auditor - Pg 231 Paperbook) and no discrepancy was found with regard to the stock/inventory therein, and further, it is pertinent to state that the sales figures of the month of November, 2016 can be duly verified with the VAT returns filed by the assessee. The VAT returns are also not revised and there are no adverse actions of the VAT/GST authorities in that regard. (All original VAT returns
P a g e | CO 85/Del/2025 Raghav Goel (AY: 2017-18) attached at Page 106-213 of Paper book) and further, all the VAT returns have been accepted by the Ld. AO after due verification and no adverse inference has been formed by the Learned AO with respect to the VAT returns furnished by the assessee. Therefore, the cash in hand (pertaining to Sales) as deposited by the assessee is part of the audited books of accounts of the assessee which have duly been accepted without any adverse findings.
The Ld. AO hurriedly raised his queries, received the replies and with a predetermined mind held that the information submitted was not satisfactory.
The Ld. AO failed to point out any specific defect in the records and documents of the assessee. In this regard, reliance is placed on the following decisions: i. Sugriv Aggarwal Vs. ITO, Ward 44(5), AY: 2017- 18 ii. Pilani Industrial Corporation Limited Vs. ACIT, Circle-21(2), Delhi (ITAT, Delhi) (ITA No. 1606/Del/2023)
From the examination of record, in the light of aforesaid rival contention, it is crystal clear that ld. CIT(A) vide order dated 10.01.2025 restricted addition to 2% of Rs.2,81,46,500/- which comes to Rs.5,62,930/- u/s 69A of the Act.
P a g e | CO 85/Del/2025 Raghav Goel (AY: 2017-18) 9. The assessee had submitted accounts and book records, sales invoice bills, cash book in entire accounting period in which the cash balance pertaining to cash sales was duly depicted, the stock/inventory records were duly verified by the survey team with the VAT returns (Page 106-213 of Paper book) and stock records maintained in the books of account (also verified by Tax Auditor - Pg 231 Paperbook) and no discrepancy was found with regard to the stock/inventory therein, and further, it is pertinent to state that the sales figures of the month of November, 2016 can be duly verified with the VAT returns filed by the assessee. The VAT returns are also not revised and there are no adverse actions of the VAT/GST authorities in that regard. (All original VAT returns attached at Page 106-213 of Paper book) and further, all the VAT returns have been accepted by the Ld. AO after due verification and no adverse inference has been formed by the Learned AO with respect to the VAT returns furnished by the assessee. Therefore, the cash in hand (pertaining to Sales) as deposited by the assessee is part of the audited books of accounts of the assessee which have duly been accepted without any adverse findings.
P a g e | CO 85/Del/2025 Raghav Goel (AY: 2017-18) 10. Furthermore, it is submitted that it is not the case of that assessee has made cash deposits only during November & December. The assessee has submitted before the Ld. AO also, that rather much more cash was deposited in the months prior to demonetisation as compared to demonetisation itself:
P a g e | CO 85/Del/2025 Raghav Goel (AY: 2017-18) Therefore, it can be evidently seen(from the Credit side of the above Ledgers) even in September and October, more cash was deposited in Bank Accounts than the demonetisation period, therefore, the contention of the Ld. AO is without any cogent/corroborative material, solely on conjecture and surmises.
The Ld. Counsel for the assessee relied the order of the Coordinate Bench in the case of Pilani Industrial Corporation Limited (supra) the relevant part of the decision is reproduced as under:
“8. From examination of record in light of abovesaid rival submissions, it is crystal clear that the Assessing Officer relied on figures given by the assessee on basis of cash deposits amounting to Rs. 3,84,81,913/- during the course of demonetization period from 09.11.2016 to 31.12.2016 and observed that corresponding previous year the cash deposit out of sales was Rs. 3,19,32,724/- on basis of which cash deposits of Rs. 65,49,189/- was declared as not explained satisfactorily. It is a matter of fact that the above figures were taken from the table on the basis of statement of profit and loss by the assessee. The statements were duly verified by independent auditors report.
Hon’ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 has held that when entries in books of account in regard to cash balances were held to be genuine, there was no escape from conclusion that assessee had offered reasonable explanation as to source of all high denomination notes which it encashed on 19th January 1946 and it was not open to ITAT to accept genuineness of those books and accept assessee’s explanation in part and P a g e | CO 85/Del/2025 Raghav Goel (AY: 2017-18) reject same in regard to balance sum. It was observed that the ITAT in arriving its conclusion indulged in suspicions, conjectures and surmises and acted without any evidence or upon a view of facts which could not reasonably be entertained or finding was perverse which could not be sustained and Supreme Court was entitled to interfere with such findings and therefore the addition was deleted.”
In view of the above material facts and well settled principle of law treating the cash deposits as unexplained cash on basis of books of account without rejecting the same legally is not permissible. Therefore, impugned orders dated 10.01.2025 of ld. CIT(A) and 30.12.2019 of ld. AO being unsustainable are set aside. Accordingly, grounds of appeal of revenue are rejected and cross objections of the assessee are accepted.
In the result, the appeal of the department of revenue is dismissed and Cross Objection filed by the assessee is allowed.
Order pronounced in the open court on 03.02.2026
Sd/- Sd/- (S Rifaur Rahman) (Vimal Kumar) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 03.02.2026 Rohit, Sr. PS