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Facts
The Revenue appealed against the CIT(A)'s order deleting additions made by the AO. The AO had questioned cash sales during the demonetization period, treating cash deposits as unexplained income under Section 68, and also challenged capital introduction under the Pradhan Mantri Garib Kalyan Deposit Scheme (PMGKDS).
Held
The Tribunal upheld the CIT(A)'s decision, finding that cash deposits were adequately explained as sales of jewellery recorded in books and confirmed by creditors. The capital introduction was also deemed valid as taxes were paid under the PMGKDS scheme, and the AO had not provided sufficient evidence to the contrary.
Key Issues
Whether cash deposits during demonetization represented unexplained income, and whether capital introduced under PMGKDS was sufficiently explained.
Sections Cited
68, 115BBE, 143(3), 263, 133A, 145, 46A
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Income Tax Appellate Tribunal, DELHI BENCHES ‘A: NEW DELHI.
Before: SHRI SATBEER SINGH GODARA & SHRI S.RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
The Revenue has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)-3, Noida [“Ld. CIT (A)”, for short] dated 04.03.2025 for the Assessment Year 2017-18.
None appeared on behalf of the assessee. We proceeded to adjudicate the issue with the assistance of ld. DR of the Revenue.
At the time of hearing, ld. DR of the Revenue brought to our notice relevant facts on record and submitted that during assessment proceedings, the AO observed that a survey under section 133A of the Income-tax Act, 1961 (for short ‘the Act’) was conducted on 18.03.2017. During the year under consideration, assessee has declared income and the same was assessed to tax u/s 143(3) of the Act on 29.12.2019.
The AO observed that the matter under consideration was set aside by the Pr.CIT, Noida vide order dated 29.12.2019 to redo the assessment after conducting an enquiry on the issue of cash deposit in the bank account and non-verification of purchase and sales. Accordingly, assessee was asked to substantiate the cash deposit of Rs.1,45,00,000/- during demonetization period and source of cash declared by the assessee of cash sales during the same period. The AO observed that assessee has furnished bills of purchase. However, they were not for the period October and November 2016, according to the AO, assessee has failed to furnish confirmations of major parties from whom purchases were made and sales made during demonetization period are questionable. Based on the above observation, the AO proceeded to make the addition u/s 68 read with section 115BBE. Further he observed that assessee has introduced additional capital during the year to the extent of Rs.52.01 lakhs. In response, assessee submitted that assessee has introduced Rs.50 lakhs as capital. After considering the submissions of the assessee, AO rejected the same and observed that assessee has furnished Form 1 as evidence of declaration made, further he observed that declaration was made on 30.03.2017 and undisclosed income was deposited during the period 24.07.2017 to 29.03.2017 and Form 2 in the form of certificate against the declaration was received by the assessee on 01.05.2017. Since the declaration was made on the last day of the year, he wondered how the capital was introduced for the year against the declaration made. Accordingly, he also made another disallowance of Rs.50 lakhs u/s 68 of the Act.
Aggrieved with the above order, assessee preferred an appeal before the ld. CIT(A) and filed detailed submissions before ld. CIT (A) – 3, Noida. Before ld. CIT (A), assessee has submitted the detailed submissions. Ld. CIT (A) called for the remand report. The original submissions, remand report and the response to the remand report of the assessee are placed at pages 6 to 31 of the appellate order.
After considering the detailed submissions of the assessee and remand report, ld. CIT (A) deleted the addition by observing as under :-
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We observed that after considering the additional evidences submitted by the assessee, enquiries were conducted u/s 133 (6) of the Act and the relevant responses of the parties were forwarded to the AO for his comments, the same is reproduced at para 4.3 of the appellate order. In response to the above report, the AO has responded back which is also reproduced at para 4.4 of the appellate order. After considering the assessment order, remand report and response to the remand report by the assessee, ld. CIT (A) allowed the ground relating to cash deposit during demonetization period with the observation that the source of the deposit in the bank account is adequately explained being sale of jewellery and same have been recorded in the regular books of account, thus section 68 is not applicable at all and no case is made out that assessee is found to be owner of the money which is not recorded in the books of account and rather assessee has valid explanation that there was available cash in hand out of the sale of jewellery. Accordingly, he deleted the addition. With regard to introduction of capital by the assessee, ld. CIT (A) held as under:-
Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :-
1. Whether on facts and circumstances of the case and in law, the Ld. CIT (A)-3, Noida has erred in deleting the addition of Rs.1,45,00,000/-- made u/s 68 of the Income Tax Act, 1961 on account of cash deposit during the demonetization period, without appreciating the facts that the assessee during the course of assessment proceedings failed to prove documentary evidences that the deposits represented the amount of sale of jewellery.
2. Whether on facts and circumstances of the case and in law, the Ld. CIT(A)-3, Noida has erred in deleting the addition of Rs.1,45,00,000/- made u/s 68 of the Income Tax Act, 1961, on account of cash deposit during the demonetization period, disregarding the findings of the AO given in the assessment order with regard to unreasonable high cash sales claimed by the assessee during the demonetization period in comparison to cash sales for the same period during the last 3 years.
3. Whether on facts and circumstances of the case and in law, the Ld. CIT (A)-3, Noida has erred in deleting the addition of Rs.50,00,000/- made by the Assessing Officer as unexplained capital introduction. despite the fact that the said amount was introduced in the books or the assessee prior to the date of declaration under the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 and thus remained unexplained at the time or its introduction.
4. Whether on facts and circumstances of the case and in law, the Ld. CIT (A)-3, Noida has erred in law by admitting the additional evidence filed under Rule-46A of the Income Tax Rules-1962, without referring the reasonable cause which prevented the assessee to produce the same during the assessment proceedings.”
9. After considering the submissions of the ld. DR, we observed that assessee has deposited cash during demonetization period and it has recorded the sales during the same period which was also properly recorded in their books of account. Ld. CIT (A) has issued 133(6) notices to various parties from whom assessee has purchased gold and jewellery. Based on the confirmation, ld. CIT (A) has found that the purchases were genuine and the same report was shared with the AO. After considering the remand report from the AO, ld. CIT (A) found that the information submitted by the assessee is just and proper. Since the purchases found to be genuine, the ld. CIT (A) found that the assessee has sold the same jewellery during demonetization period and there is enough material to show that the assessee has source for making cash deposit during demonetization period, accordingly he deleted the same. After considering the detailed findings of the ld. CIT (A), we do not see any reason to disturb the same.
10. With regard to Ground No.4 raised by the Revenue that ld. CIT (A) has admitted the additional evidences without following Rule 46A of the Income-tax Rules, 1963 (for short ‘the Rules’), we observed from the record that no doubt ld. CIT(A) has admitted additional evidences, however proceeded to make enquiry of the notices u/s 133(6) to various parties and found that the purchases made by the assessee are genuine. He also gave an opportunity to the AO. After giving opportunity to the AO, he has power to decide the issue, therefore, in our considered view, there is no violation of Rule 46A of the Rules. Accordingly, ground no.4 and ground nos.1 & 2 raised by the Revenue are dismissed.
11. With regard to ground no.3, we observed that assessee has introduced the capital no doubt at the fag end of the year under consideration. However, it has filed the relevant form under Pradhan Mantri Garib Kalyan Deposit Scheme (PMGKDS), 2016. Ld. CIT (A) has reproduced the relevant deposits in its bank account from 24.03.2017 to 29.03.2017 and declaration made under PMGKDS 2016 scheme on 30.03.2017. From the above facts, ld. CIT (A) found that the assessee has already paid taxes on the cash deposits under PMGKDS 2016 scheme and the contention of the assessee found to be correct. After considering the detailed findings of the ld. CIT (A), we do not see to disturb the same. Ground No.3 is dismissed.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this 23rd day of January, 2026.