SWARAJ ENTERPRISES,MUMBAI vs. INCOME TAX OFFICER, WARD 20(3)(1), MUMBAI, MUMBAI

Briefly stated, the assessee is engaged in the business of in retail as well as wholesale sale of Mobile Cards. The case of assessee was selected for limited scrutiny under CASS for verification of cash deposits during the demonization period. Accordingly, statutory notices under section 143(2) and 142(1) of the Act were issued along with questionnaires calling for necessary details. In response to the said notices the assessee firm did not furnish any explanation or submissions, except xerox copy of its bank statement. The ld. AO observed that the assessee is engaged in the business, as distributor of telecom industry and FMCG. As per details, the assessee had deposited cash to the tune of Rs. 3,04,56,680/- in its bank account with Corporation Bank, Vile Parle (E), Mumbai, out of which as sum of cash for Rs. 1,75,56,460/- was deposited on various dates falling within the demonization period in Specified Bank Notes (SBN). Details were sought by the ld. AO, for justification of such huge cash deposit in SBNs, but the assessee squarely failed to furnish, therefore, cash deposit in SBNs during the demonization period was considered as unexplained cash credit within the meaning of section 68 of the Act and added to the total income of the assessee.

To challenge the aforesaid findings of ld. CIT(A), assessee is in present appeal before us.

At the outset, the ld. AR of the assessee submitted that all the relevant information were furnished by the assessee before the ld. CIT(A) and no further information so as to substantiate the claim of assessee were ever called from the assessee. The ld. CIT(A) has taken a view that the sale of assessee includes the sale of Mobile Phones also which is never a fact evident from any record or submission of the assessee and in fact the assessee never made a statement to be in the business of selling of Mobile Handsets. The ld. AR, 5 Swaraj Enterprises submitted a copy of the trading and P&L A/c as on 31.03.2017, duly audited by the Chartered Accountant (CA), showing therein Vodafone sale amounting to Rs. 28.36 crore and cost of sales including purchases from Vodafone Essar and Vodafone Mpesa amounting to Rs. 20.44 crore and 6.94 crore, respectively. It was the submission that the assessee’s only business was of selling of Sim Cards only and since last eight (8) years the assessee was in the same business. The ld. AR further argued that all the information and evidence which are deemed necessary are furnished by the assessee before the First Appellate Authority (FAA), however an estimated disallowance of 25% was deleted and remaining had been sustained by the ld. CIT(A), with no show cause to the assessee. Under such facts and circumstances the order of ld. CIT(A) is liable to be set-aside and the sale of assessee, which was in accordance with the RBI Guidelines for which the cash was deposited in SBNs during the demonization period, deserves to be treated as legitimate and explained sales of the assessee, thereby the cash deposited by the assessee shall be treated as explained cash credit within the meaning of section 68 of the Act, the addition, therefore, made by the ld. AO is liable to be struck down.

Per contra the ld. Sr. DR representing the revenue submitted that the assessee was non-compliant before the ld. AO, necessary details were not furnished by it, further before the ld. CIT(A) also, assessee furnished self- serving documents with lot of discrepancies in facts and figures, which are Swaraj Enterprises duly recorded by the ld. CIT(A) and have made an estimated disallowance after giving a relief of 25% treating the same as payment received from legitimate transactions of sale by the assessee. In background of such facts and circumstances the order of ld. CIT(A) was reasonable and justified, deserves to be upheld.

We have considered the rival submissions and perused the material available on record. Admittedly in present case, ostensibly, the assessee firm has made cash deposits in its bank account regularly during the year as well as during the demonization period. Before the ld. AO, necessary information was not furnished by the assessee, however before the ld. CIT(A) the assessee has submitted various details regarding turnover along with reconciliation and bank statements, etc. On perusal of the assessee’s reply dated 21.06.2025 to Ld. CIT(A) at paragraph no. 3, it is stated by the assessee, itself that the assessee is engaged in supply of Telephone Sim Card and sale of Mobile Phones / wholesale business, where cash sales is a common phenomenon, where no digital payment platform was there. Such deceptive assertion of the assessee led the ld. CIT(A) to observe that the sale of assessee comprises of sale of Sim Cards and mobile phones, whereas the details pertaining to each category of sale of products was not furnished by the assessee before the ld. CIT(A). Further, there were some discrepancies in the facts and figures produced before the ld. CIT(A), as compared to figures submitted before the ld. AO. In view of Swaraj Enterprises such anomalies the ld. CIT(A) found it appropriate to grant a relief of 25% to the assessee on account of its genuine and explained sale for which the cash was deposited during the demonization period. Before us, it was the claim by ld. AR that the assessee is totally involved in the business of sale of Mobile Sim Cards only and the assessee was never involved in the business of sale of Mobile handsets, however such a claim by ld. AR before us goes against its submissions before the ld. CIT(A) dated 21.06.2025. It seems that the proper and requisite details necessary of adjudication were not furnished by the assessee before the First Appellate Authority. Also, the ld. CIT(A) has not deemed it fit to enquire into further to find arrive at a rational decision, neither the evidence furnished by the assessee were examined and verified by the ld. CIT(A) by referring those to the ld. AO in terms of provisions of Rule 46A of the Income Tax Rules, 1963 (the Rules).

In backdrop of such facts and circumstances, we find that the claim of assessee may have some justification, however in absence of proper explanation with the support of credible evidence, the authorities below were unable to arrive at a logical conclusion.

Basis aforesaid facts and our observations, we are of the considered opinion that this matter need thorough examination and verification of facts, consequently, we set-aside the matter to the file of ld. CIT(A) for fresh Swaraj Enterprises examine of the issue with proper enquiries, the assessee would be at liberty to furnish all the necessary explanations and evidences to substantiate its claim qua the genuineness of the disputed cash deposits during the demonization period.

Needless to say, reasonable opportunity of being heard shall be provided to the assessee during the set-aside of the appellate proceedings, which the assessee shall avail and comply without fail. The case be decided in accordance with the mandate of law.

In result, the appeal of assessee is allowed for statistical purposes.