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Facts
The assessee, a jewellery trader, filed a return for A.Y. 2017-18. The Assessing Officer made additions of Rs. 72,02,700/- under section 68 for unexplained cash deposits made during the demonetization period, and Rs. 1,51,473/- by disallowing 20% of expenses, citing lack of proper documentation and abnormal increase in sales/cash holding. The CIT(A) dismissed the assessee's appeal ex-parte due to non-compliance after multiple opportunities.
Held
The Tribunal observed that it was unclear if the CIT(A) had communicated the consequences of non-compliance to the assessee before dismissing the appeal for default. Therefore, the Tribunal restored the matter back to the file of the CIT(A) for fresh adjudication after providing a proper opportunity of being heard to the assessee. The appeal was allowed for statistical purposes.
Key Issues
Applicability of Section 68 and 115BBE for cash deposits during demonetization; validity of disallowing 20% of expenses; and whether the CIT(A) erred in dismissing the appeal ex-parte without providing proper opportunity.
Sections Cited
Section 250, Section 143(3), Section 68, Section 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW ‘B’ BENCH, LUCKNOW
O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. CIT(A), NFAC under section 250 of the Income Tax Act, 1961 dated 22.05.2025, wherein the ld. CIT(A) had dismissed the appeals of the assessee against the orders of the ld. Assessing Officer passed under section 143(3) of the Act for the A.Y. 2017-18 on 30.12.2019. The grounds of appeal
1. 1. 1. 1. 1. 1. are as under:- “1. On the facts and circumstances of the case the Ld. CIT(A) vide order u/s 250 having DIN and order no. has erred in ITBA/NFAC/S/250/2025- 26/1076375435(1) confirming the addition made by the AO to the tune of Rs. 72,02,700/- on account of cash deposited in bank account out of the sale proceeds alleging the same to be income chargeable to tax under section 68 of the Income Tax Act, 1961.
2. That the Learned CIT(A) erred in confirming the addition of ₹ 1,51,473/- made by the Learned Assessing Officer by disallowing 20% of expenses is arbitrary and without justification, despite the fact that all expenses are duly recorded in audited books and supported by valid vouchers.
3. That the Learned CIT(A) erred in confirming conclusion made by the Learned Assessing Officer that only a sum of 28,50,000/- out of the total cash deposits of ₹1,00,52,700/- made during the demonetization period Anant Kumar A.Y. 2017-18 pertains to legitimate sales, based merely on certain mathematical assumptions and calculations, without appreciating the complete facts and supporting documentary evidence submitted by the Appellant.
4. That the learned CIT(A) erred in confirming the action of the Learned Assessing Officer in invoking the provisions of Section 68 of the Income Tax Act, 1961 while making additions, without appreciating that the said provisions are not applicable in cases where the assessee has deposited cash in the bank account, duly recorded in the regularly maintained books of accounts. In the present case, since the cash deposits were duly disclosed and accounted for, the invocation of Section 68 is unjustified and legally untenable.
5. That the learned CIT(A) also erred in confirming the action of the Learned Assessing Officer in applying provisions of Section 115BBE of the Act in the facts and circumstances of the case of Appellant and determining the tax-liability as per the aforesaid Section without appreciating that provisions of Section 68 were not applicable in the facts of the case and, therefore, provisions of Section 115BBE of the Act could not be invoked.
6. That the learned CIT(A) did not provide a proper opportunity of being heard and passed the ex parte order in haste, which is unjustified.
Because the appellant craves leave to add or amend the grounds of appeal
before the appeal is heard and disposed off.”
2. The facts of the case are that a return was filed by the assessee on 25.11.2017 declaring a total income of Rs. 10,48,410/-. The case was selected for scrutiny and an assessment was completed under section 143(3) of the Income Tax Act by making an addition of Rs. 73,54,173/- of which additions under section 68 were made of Rs.72,02,700/- on account of SBN deposited during demonetization period and additions of Rs. 1,51,473/- were made by way of disallowance of certain expenditures @ 20% of such expenditures. During the course of assessment, the ld. AO noted that the assessee was the Proprietor of a firm namely M/s Bhagauti Prasad Anant Kumar Sarraf at Q/549, Kanoon Goyan, Post-Barabanki who was engaged in the retail trade of Jewellery, Gold, Silver & Diamond. He had disclosed a gross turnover of Rs. 2,32,63,268/- a gross profit of Rs.22,57,000/- and a net profit of Rs. 10,31,233/-. The assessee had made total deposits of Rs. 90,12,500/- in SBNs on various dates during the demonetization period. The assessee was required to furnish the details of purchases, sales, cash deposits etc., in prescribed tables and a daily cash summary for the period Anant Kumar A.Y. 2017-18 1.10.2016 to 31.12.2016. He was also asked to explain the reason for abnormal increase in cash deposit in comparison to the preceding year and to furnish the stock details for the financial year in question. The ld. AO records that in response to this, the assessee only submitted month-wise quantity of sale and purchase of Sona zewar, gold ornaments, silver ornaments month-wise for the F.Ys. 2015-16 and 2016-17. He did not submit the details of cash sales made during F.Y. 2015-16 or the daily stock register for the period October and November, 2016. Cash book was only submitted for the period 1.04.2016 to 31.12.2016. The cash book for the remaining period i.e. 1.01.2017 to 31.03.2017 was not furnished. From a perusal of the VAT returns from April to December, 2016, the ld. AO observed that the assessee had made purchases from registered parties amounting to Rs. 93,61,533/- and from unregistered parties of Rs. 61,58,405/-. No bills or vouchers were produced for purchases made from unregistered parties and therefore, the ld. AO could not verify the purchases from unregistered parties. Regarding abnormal increase in cash deposits, the assessee maintained that he always held the large amount of cash as majority sales were made in cash. Furthermore, there was no prohibition in keeping cash. Furthermore, it was also submitted that the assessee purchased various old jewellery from customers for which payment was required to be made in cash. It was submitted that major part of Barabanki district was rural and customers felt comfortable taking cash against sale of old jewellery. New jewellery was also purchased in cash. It was further submitted that the cash deposits continued right uptil March, 2017 and in fact were more than the demonetization period. Therefore, the contention that sales had been inflated just to make deposit in SBNs was not justifiable. Furthermore, he submitted that sales of jewellery were affected due to marriage seasons, festivals etc,. Therefore, the cash deposits and sales made during demonetization was justifiable according to the nature and size of his business. The ld. AO was not convinced. He held that the assessee had not been able to justify details of purchases made in cash alongwith bills and vouchers; that he had low cash balance as on 1.04.2016 which demolished the very foundation of the assessee’s arguments; that there had been a huge Anant Kumar A.Y. 2017-18 increase in cash holding between the period 26.10.2016 to 8.11.2016 which was against the pattern seen in the assessee’s business; there could be no comparison between the period of demonetization which was only 50 days and subsequent periods that were in excess of three months; the argument that sale of jewellery was dependent on marriages and festive seasons did not explain the sudden increase in cash reserves. The ld. AO also obtained the stock and summary from the assessee and noted that the total sales during the year 2016-17 had increased viz a viz the immediate previous year and more so during the demonetization period. He compared the sales of the present year with the previous year and came to a conclusion that there was a 480% increase in sales in the present financial year as compared to the previous financial year. He also noted that there was a 500% decrease in sales between April to September, when compared to the previous year. Thus, after noting a downward trend in the business, there had been abnormal increase just prior to the period of demonetization. The ld. AO concluded that the assessee had abnormally increased its sales so as to account for cash deposits in SBNs in his bank accounts and to include unaccounted money into his books. He held that in the light of various Court decisions, the provisions of section 68 were attracted in the case of the assessee and accordingly he made an addition of Rs. 72,02,700/- after allowing for a cash deposit of Rs. 28,50,000/- as deposits out of regular sales, which he completed on the basis of the past history of the assessee. Subsequently, he also made addition of Rs.1,51,473/- after examining the books of accounts and finding that some of the expenses were not properly vouched and were made in cash.
3. Aggrieved with this order, the assessee went before the ld. CIT(A). The ld. CIT(A) noted the arguments of the assessee as given in Form No.
35. He also noted the observation of the ld. AO. Thereafter, he listed out the opportunities that he had given to the assessee for compliance and pointed out that despite six opportunities, the assessee had not made compliance. Accordingly, the ld. CIT(A) held that since no material had been brought on record, he was unable to consider the matter on merit. He further held that the assessee was not interested in Anant Kumar A.Y. 2017-18 pursuing the present appeal as he had not furnished any written submission in support of his grounds. In the circumstances, after relying upon decisions of the Hon’ble Supreme Court in the case of CIT vs. B.N. Bhattacharjee and Ors (1979) 118 ITR 461 (SC), the Hon’ble Madhya Pradesh High Court in the case of Estate Of Late Tukojirao Holkar vs Commissioner Of Wealth-Tax (1997) 223 ITR 480 (MP) and the decision of the ITAT in M/s Chabra Land and Housing Limited (1025/1027/CHD/2025), he dismissed the appeal of the assessee for want of pursuit.
Aggrieved with this order, the assessee filed an appeal before us. When the case was taken up for hearing, none was present on behalf of the assessee. Sh. R.R.N. Shukla, ld. Addl CIT (hereinafter referred to as the DR) assisted the Bench in the matter. He took us through the grounds of appeal
filed by the assessee and pointed out that it was the assessee’s contention that the provisions of section 68 could not be applied to the assessee because the assessee had already declared the cash deposited in the bank account from the entries made is the books of account with regard to sales. However, the ld. Addl CIT DR pointed out that the ld. AO had duly shown in his assessment order as to why the claims could not be believed and since the assessee had not made any compliance before the ld. CIT(A) or not furnished any evidence before the ld. CIT(A), the ld. CIT(A) had no option but to confirm the said additions. He accordingly prayed that the addition had to be confirmed because the provisions of section 68 could be invoked even where the assessee could not reply or could not give a satisfactory reply. With regard to the disallowances made on account of addition of 20% of certain expenses that had been made by the AO, he pointed out that it was the plea of the assessee that all expenses had been duly recorded in the audited book and supported by valid vouchers, but he pointed out that the AO had observed that the payments had been made by cash and were self-vouched-therefore, they were not amenable to verification. He, therefore, pleaded that the addition deserve to be confirmed.
5. We have duly considered the facts and circumstances of the case. We note that the five of the six notices issued by the ld. CIT(A) had been issued long before 5