FURNISH HOME,AHMEDABAD vs. THE ITO, WARD-3(3)(1) OLD WARD-3(3)(2), AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. Nos. 1439/Ahd/2025 & 1671/Ahd/2025 (िनधा�रण वष� / Assessment Year : 2017-18) बनाम/ Furnish Home Income Tax Officer U-ABC, Zanzar Flats, Nr. Ward 3(3)(1), Vs. NRI Tower, Judges Ahmedabad Bunglow Road, Bodakdev, [Old Income Tax Officer, Ahmedabad, Gujarat- Ward 3(3)(2), 380054 Ahmedabad] & Income Tax Officer Furnish Home Ward 3(3)(1), Ahmedabad Unit-ABC, Zanzar Flats, Nr. NRI Tower, Judges Bunglow Road, Bodakdev, Ahmedabad, Gujarat- 380054 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAAFF8703B (Appellant) .. (Respondent) Shri Mahesh Chhajed, A.R. Assessee by : Revenue by : Shri Arvind Kumbhare, Sr. DR 19/01/2026 Date of Hearing Date of Pronouncement 30/01/2026 O R D E R PER ANNAPURNA GUPTA, AM: The cross appeals have been filed by the Assessee and Revenue against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter

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referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”) dated 10.06.2025 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2017-18.

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most of the additions/disallowance made by the AO, confirming only the addition of cash deposits made in the bank account of the assessee that too partially, to the tune of Rs.6,96,360/- as opposed to Rs.26,96,360/- added by the AO on this account. The assessee also claimed set off of losses of Rs.2,00,985/- returned by it which, the Ld. CIT(A) held the same to be allowable for the purpose of determining the income of the assessee. However, he clarified that no carry forward of loss would be permitted under Chapter VI of the Act.

“1. The order passed by the Ld. CIT (A) is against law, equity & justice. 2. The Ld. CIT(A) has erred in law and on facts in upholding the addition made U/S 68 of the Act by the Ld. A.O. of Rs.6,96,360/- for cash deposit in bank. 3. The appellant Craves liberty to add, amend, alter or modify all or any grounds of appeal before final appeal.”

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“(a) The Ld. CIT(A) has erred in law and on facts in granting partial relief of Rs. 20,00,000/- on the addition of Rs. 26,96,360/- u/s 68 for cash deposits by accepting additional evidence unsubstantiated claims of cash availability from business and sales and bank withdrawals, failing to verify their direct linkage and genuineness, and ought to have confirmed the entire amount as unexplained. (b) The Ld. CIT(A) has erred in law and on facts by deleting the addition of Rs. 51,00,241/-u/s 68 for cheque credits, relying solely on confirmations, PANs, ITRs, and ledger entries without independent verification of creditworthiness or genuineness, ignoring the AO's valid doubts about possible accommodation entries. (c) The Ld. CIT(A) has erred in law and on facts by deleting the addition of Rs. 42,35,881/- u/s 69 for import payments and customs duty, accepting book entries and documents like invoices and challans without ensuring the source of funds or business purpose, thereby failing to uphold the Assessing Officer's finding of unexplained investment. (d) The Ld. CIT(A) has erred in law and on facts by allowing the business loss of Rs. 2,00,985/- based solely on audited financials, without examining the underlying expenses' genuineness or business nexus, and failed to provide the AO an opportunity to rebut additional evidence, violating Rule 46A and principles of natural justice. (e) The appellant craves leave to add, alter and/or to amend all or any the ground before the final hearing of the appeal.”

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relied on the remand report of the AO while challenging the deletion of the addition made by the AO and the Ld.Counsel for the assessee has relied on the assesses submissions made before the Ld. CIT(A) as also his findings in support of his order of the Ld. CIT(A) deleting disallowances and also challenging the confirmation of disallowance/addition made by the AO.

“6.1 Addition of Rs.26,96,360/- u/s 68-Cash Deposits in Bank 1. Nature of the Issue: The Assessing Officer (AO) made an addition of Rs.26,96,360/- under Section 68 of the Income-tax Act, 1961, in respect of cash deposits made by the appellant into its HDFC Bank account. The AO concluded that the appellant failed to provide a satisfactory explanation regarding the nature and source of these deposits and that the evidentiary support offered during assessment was insufficient to establish the legitimacy of the funds. Consequently, the cash deposits were treated as unexplained cash credits in the hands of the appellant. 2. AO's Observations in Remand Report: In the remand proceedings, the AO reiterated the original stance, emphasizing that the appellant had not substantiated the origin of the deposited cash with reliable and verifiable documentary evidence. Although the appellant had shown withdrawals aggregating to Rs.21,00,000/- in its cash book on various dates (15/07/2016, 22/07/2016, 29/07/2016, 17/08/2016, 06/09/2016, and 14/09/2016), these entries corresponded to "CHQ PAID" transactions in the HDFC Bank statement, and there was no specific evidence, such as cheque counterfoils or encashment slips, to prove that these were indeed self-withdrawals in cash. The AO argued that merely showing such entries in the books does not discharge the onus under Section 68, especially when the narrative of repeatedly withdrawing cash only to redeposit it lacks commercial logic or

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economic necessity. The AO, therefore, recommended that the explanation be rejected and the entire addition be sustained. 3. Appellant's Submission: During appellate proceedings, the appellant submitted a comprehensive set of documents, including copies of the cash book, bank book, VAT returns, monthly sales registers, and a certificate from HDFC Bank. The said certificate stated that the entries marked as "CHQ PAID" in the bank statement represented self-issued cheques withdrawn by the appellant in cash. The appellant contended that the firm had recorded substantial cash sales during the relevant period, which were duly reported in its VAT returns and reflected in the sales ledger. These, combined with cash withdrawals from the bank, established a legitimate cash trail explaining the source of deposits. It was further argued that taxing such deposits would lead to double taxation, as the sales income had already been accounted for in the appellant's books and tax filings. 4. Analysis and Decision: Upon careful consideration of the assessment order, the remand report, and the appellant's submissions, the following emerges: i)The appellant has recorded total withdrawals of Rs.21,00,000/- in the cash book, corresponding to six transactions over a period of two months. These are claimed to be cash withdrawals intended for business needs and subsequently redeposited into the bank. ii) The narration "CHQ PAID" in the bank statement, however, does not conclusively prove that these were cash withdrawals. The absence of cheque numbers, withdrawal slips, or documentary trail weakens the verifiability of the explanation, iii)While the bank certificate submitted during appellate proceedings clarifies that the said entries pertain to self- withdrawals, no third-party or contemporaneous external corroboration (such as teller-confirmed encashment or cheque images) was filed to support the claim. iv)No day-wise or transaction-wise reconciliation was submitted linking specific withdrawals or sales proceeds to the exact deposits in the bank account. The explanation of withdrawing cash and later redepositing it despite already having opening cash balance appears economically inefficient and lacks prudence. appears v)Nevertheless, the appellant's books of account are audited. The VAT returns substantiate the occurrence of cash sales. The AO has not disputed the genuineness of the sales, nor has the AO invoked

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Section 145 to reject the books. These factors lend partial credibility to the appellant's claim of cash availability. In light of the above, a balanced and judicial view is warranted. While the full explanation fails to meet the evidentiary threshold for the entire sum, it would be unjust to ignore the available records and tax-paid turnover reflected in statutory returns. Therefore, I consider it reasonable to accept the appellant's explanation to the extent of Rs.20,00,000/-, being adequately supported by the aggregate of declared cash sales and claimed cash withdrawals. The remaining Rs.6,96,360/-, for which no direct evidence or cash trail has been provided, is accordingly treated as unexplained cash credit under Section 68 of the Act and is confirmed.”

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books of accounts of the assessee. Having noted these facts, he has gone on to hold that taking a balanced and judicial view, he accepts the assessee’s explanation of cash deposited in the bank account being out of withdrawals and cash sales to the tune of Rs.20 Lakhs while the remaining, he treats as unexplained on account of no direct evidence or cash trail being provided.

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assessee, all substantiate and evidence the explanation of the assessee. The Ld.CIT(A), we have noted, agrees that it would be unjust to ignore the available records and the tax paid turnover reflected by the assessee. However, we find that while confirming the remaining addition of Rs.6,96,360/-, the Ld. CIT(A) arbitrarily notes and find no direct evidence or cash trail to have been provided by the assessee as the reason for confirming the addition. We fail to understand what direct evidence or cash trail the Ld. CIT(A) was seeking when in the earlier part of his order, he agrees that it would be unjust to ignore the available records and the tax paid turnover of the assessee. Having found the assessee’s explanation and evidences to have sufficiently established the source of cash deposited in the bank account of the assessee and finding no merit in the reasoning of the Ld. CIT(A) for confirming the addition made on this account to the tune of Rs.6,96,360/-, we hold that the entire additions made on this account was grossly unjustified and direct deletion of the entire addition made to the income of the assessee u/s.68 of the Act amount to Rs.26,96,360/-. The order of the Ld. CIT(A) deleting the addition to the tune of Rs.20 Lakhs is, therefore, confirmed while his order confirming addition to the tune of Rs.6,96,360/- is held to be incorrect. The ground raised by the assessee in its appeal in ITA No.1439/Ahd/2025 in Ground No.1 is allowed while the ground raised by the Revenue in its appeal in ITA No.1671/Ahd/2025 in Ground No.1 is dismissed.

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account of the assessee, the Ld. CIT(A) has dealt with the same at para 6.2 of his order as under:

“6.2 Addition of Rs.51,00,241/- u/s 68 - Cheque Credits 1. Nature of the Issue: The Assessing Officer (AO) made an addition of Rs.51,00,241/- under Section 68 of the Income-tax Act, 1961, on the ground that certain cheque credits appearing in the appellant's bank account were unexplained. The credits primarily comprised of (i) capital contributions from partners, (ii) receipts from a customer entity, namely Das Hari Hotels Pvt. Ltd., and (iii) refund of earlier advances given to third parties. In the absence of a detailed explanation at the time of original assessment, the AO proceeded to treat the entire amount as unexplained cash credits and added it to the total income. 2. Appellant's Submission: In the course of appellate proceedings, the appellant furnished comprehensive details to substantiate the nature and source of these cheque credits: i) Partner Contributions (Rs.12,00,000/-): The appellant submitted PAN copies, Income Tax Returns (ITRs), and capital account statements of the partners in support of their identity and financial capacity. The amounts received were credited to the firm's books as capital contribution, and the corresponding payments were routed through banking channels. ii) Receipts from Das Hari Hotels Pvt. Ltd. (Rs.25,00,241/-): These were supported by a detailed ledger of the customer, matching bank entries and sales invoices. The appellant showed that the receipts were against regular sales duly reflected in the books and supported by VAT returns. iii) Refund of Advances (Rs.14,00,000/-): The appellant had earlier advanced funds to certain suppliers/customers, which were later refunded via cheque. The ledger accounts of the relevant parties, bank statements, and confirmation letters were submitted to demonstrate the return of advances. Each transaction was routed through identifiable banking channels and properly reflected in the audited books of accounts. The appellant argued that it had duly discharged its onus under Section

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68 by establishing the identity of the creditors, genuineness of the transactions, and creditworthiness of the parties. 3. AO's Observations in Remand Report: In the remand report, the AO did not provide any contrary evidence or specific rebuttal to the documentation furnished. The AO merely stated that the "nature of receipts is not clear, without issuing any further notice under Section 133(6) or invoking Section 131 to summon the concerned parties. No adverse material was brought on record to disprove the appellant's claims or to contradict the veracity of the documents submitted. 4. Analysis and Decision: From the records, it is evident that the appellant has submitted complete documentation covering all three essential limbs required to explain cash credits under Section 68: identity of the person, genuineness of the transaction, and creditworthiness of the creditor. The capital contribution by partners is a routine business feature and stands explained through PAN, ITRs, and bank statements. Judicial precedents consistently hold that once the partners are identified and they confirm the transaction in their own tax filings, the firm cannot be penalized for the source of funds in the hands of the partners (CIT v. Lovely Exports Pvt. Ltd. [2008] 216 CTR 195 (SC)). In respect of receipts from Das Hari Hotels Pvt. Ltd., the entries are fully backed by sale invoices, VAT declarations, and customer ledger matching the bank statement. The AO's failure to dispute the sales itself weakens the basis for treating the receipt as unexplained. Similarly, the refund of advances is supported by complete documentation. There is no finding by the AO that such advances were non-genuine or that the funds were routed through accommodation entries. In the absence of any inquiry or counter-evidence from the AO during remand proceedings, the additions appear to be based on suspicion rather than tangible material. It is settled law that suspicion, however strong, cannot take the place of proof. TAX DEP Accordingly, in view of the complete discharge of onus by the appellant and no rebuttal by the AO, I hold that the entire addition of Rs.51,00,241/- is unwarranted and is hereby deleted in full.”

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“6.3 Addition of Rs.42,35,881/- u/s 69-Imports and Customs Duty 1. Nature of the Issue: The Assessing Officer (AO) made an addition of Rs.42,35,881/- under Section 69 of the Income-tax Act, 1961, on the ground that certain import payments and customs duty expenses recorded in the appellant's books represented unexplained investments. It was alleged that the appellant failed to satisfactorily explain the nature and source of these payments, and accordingly, the AO treated the entire amount as not recorded or properly accounted for in the books of account, 2. Appellant's Submission: In the course of appellate proceedings, the appellant submitted a comprehensive explanation backed by documentary evidence to justify the import transactions and customs duty payments. The following documents were placed on record: i) Import invoices raised by M/s ANR International Ltd., the foreign supplier:

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ii) Bill of Entry and packing lists, indicating the details of goods imported, quantity, value, and customs reference numbers; iii) Bank statements from HDFC Bank, clearly showing remittance of funds to the foreign supplier via banking channels; iv)Customs duty challans reflecting the amount paid at the port towards clearance of the imported goods; v)Relevant entries in the purchase ledger and inventory records that reflected the value of goods received and accounted for; vi) Audited financial statements, showing the purchases and related duty expenses duly incorporated in the books. The appellant submitted that the payments were fully banked, duly accounted for, and related to import of stock-in-trade used in the regular course of business. It was further emphasized that once the transaction is recorded in the regular books and supported by documentary trail, invoking Section 69-meant for unrecorded investments-was wholly inapplicable. 3. AO's Observations in Remand Report: In the remand proceedings, the AO did not dispute the authenticity of the import invoices, the remittance through bank, or the customs clearance documents. However, the AO merely stated that the "purpose" of these entries was not clear, without issuing any notice to the supplier, disputing the import value, or suggesting that the purchases were bogus. No discrepancy was pointed out either in the quantitative details of stock or in the valuation of inventory. 4. Analysis and Decision: Section 69 of the Act is attracted only where an investment is made and not recorded in the books of account maintained by the assessee. In the present case, the appellant has conclusively demonstrated that: i) The import payments were made through verifiable banking channels to an identified foreign supplier; ii) The goods were physically received, customs duty paid, and goods cleared against proper documentation;

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iii) The value of imports and duties were duly entered in the purchase ledger, stock register, and audited accounts, iv) The bank statement, bill of entry, and import invoice align with each other both in value and in timing: v)No discrepancy has been found in the valuation of closing stock or in profit computation that would suggest inflation or manipulation. Once the transaction is embedded in the books, supported by bills, stock records, and banking proof, there is no basis for invoking Section 69. The AO has not pointed out any instance of suppression, overstatement, or fabrication of expenses. The vague remark in the remand report that the "purpose is not clear" is insufficient to justify a serious statutory presumption of unexplained investment. It is also noted that no effort was made by the AO to issue notice under Section 133(6) or Section 131, nor was there any rejection of books under Section 145. In light of the above, and in the absence of any adverse finding on the appellant's accounting or stock maintenance, the addition of Rs.42,35,881/- under Section 69 is entirely unjustified and is hereby deleted in full.” 14. A perusal of the above would reveal that addition was made on the ground that certain import payments and custom duty expenses recorded in the assessee’s books represented unexplained investment. The assessee explained the nature of these investments duly backed with evidences stating that they were on account of imports from one M/s. ANR International Ltd. and submitted copies of import invoices raised by the said party. Bill of entry and packing lists, bank statements showing remittance of funds to the foreign supplier, customs duty challans reflecting the amount paid at the port towards clearance of the imported goods, relevant entries in the purchase ledger and inventory records reflected the value of goods received and accounted for and the audited financial statement showing the purchase and related duty expenses duly incorporated in the

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books. The AO, in remand proceeding, did not dispute the authenticity of the documents submitted by the assessee, but merely, stated that purpose of these entries was not clear. The Ld. CIT(A) found the assessee to have sufficiently explained the investment made by it by way of purchase of goods imported and payment of duty thereon and found no reason with the AO for having rejected the explanation of the assessee, while deleting the addition made by the AO.

“6.4 Disallowance of Business Loss - Rs.2,00,985/- 1. Nature of the Issue: The Assessing Officer (AO) disallowed the claim of business loss amounting to Rs.2,00,985/- on the sole ground that the appellant had not filed the original return of income under Section 139(1) of the Income-tax Act, 1961. The AO took the view that, in the absence of a valid return, the loss could not be accepted or carried forward. 2. Appellant's Submission: During the appellate proceedings, the appellant clarified that while the original return could not be filed within the due date owing to

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unavoidable circumstances, the loss claimed was based on regular business activity during the year. In support of its claim, the appellant submitted: i) Audited financial statements and tax audit report prepared in accordance with Section 44AB; ii) Detailed profit and loss account, balance sheet, and ledger extracts; iii) Books of account that were produced during the assessment proceedings and verified by the AO; iv)No discrepancies or adverse remarks noted by the AO in the examination of such books; v)A submission that the loss was a genuine business loss, not a notional or artificial adjustment. The appellant relied on judicial pronouncements which state that genuine loss, even if not eligible for carry forward, must still be considered while computing the correct income for the assessment year. 3. Analysis and Decision: The AO has not disputed the genuineness of the business loss, nor has there been any rejection of books of account under Section 145(3). The audited accounts submitted by the appellant reflect the business activity and corresponding net loss for the year. No findings have been recorded by the AO suggesting that the loss is fictitious or artificially inflated. There is also no indication that any particular expenditure or income item was disallowed or adjusted. It is a settled principle that a loss incurred during the year, when supported by books of account and financial statements, must be allowed in the computation of total income. While Section 80 of the Act restricts the carry forward of loss in the absence of a return under Section 139(1), such restriction does not apply to the determination of the current year's income or loss. The disallowance made by the AO, solely on the procedural lapse of non- filing a return, overlooks the fact that assessment under Section 143(3) has been completed on the basis of books produced and examined. Accordingly, since the loss is genuine, book-supported, and verified, and in the absence of any finding to the contrary, the

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disallowance of Rs.2,00,985/- is not sustainable and is hereby deleted. The loss is allowed for the purpose of determining the income for the year. However, it is clarified that no carry forward of this loss shall be permitted under Chapter VI of the Act, in view of the limitation under Section 80.

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Ground No.4 raised by the Revenue in its appeal in ITA No.1671/Ahd/2025 is accordingly dismissed.

This Order pronounced on 30/01/2026

Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 30/01/2026 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant ��यथ� / The Respondent. 2. संबंिधत आयकर आयु� / Concerned CIT 3. 4. आयकर आयु�(अपील) / The CIT(A)- �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad