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Facts
The assessee challenged the disallowance of Rs. 30,77,800 concerning cash deposits made during the demonetization period. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] did not accept the assessee's explanation that these deposits were from the realization of old debtors and cash sales, leading to an addition to income. Another disallowance of Rs. 2,48,000 related to an advance given to Jackson Hotel was also disputed.
Held
The Tribunal found merit in the assessee's contention that the audited accounts were not rejected by the AO and no adverse comments were made regarding the correctness of these accounts. The Tribunal noted that the Revenue had not rebutted the facts regarding the realization of debtors and the sale of a car. The Tribunal agreed that the advance paid to a third party would not partake of the character of the assessee's income.
Key Issues
Whether the demonetized cash deposits were out of explained sources (realization of debtors and cash sales), and whether the disallowance of an advance given to a hotel was justified.
Sections Cited
145(3), 43B, 69A, 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JABALPUR BENCH “SMC”, JABALPUR
Before: SHRI KUL BHARAT
PER KUL BHARAT, VICE PRESIDENT.:
This appeal, by the assessee, is directed against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC)- Delhi, dated 22.02.2024, pertaining to the assessment year 2017-18. The assessee has raised the following grounds of appeal: -
“1. That Ld. AO in the assessment order framed has disallowed Rs.30,77,800.00 out of cash deposits in bank during the demonetization period on the pretext and notion and disregarding cash book and audited accounts submitted that opening cash on date of demonetization (08.11.2016) is Rs.1,12,700/- and remaining are SBN received during demonetization from debtors of earlier sales which is contradictory and against facts as the compliance to cash transactions 2016 and cash book of the assessee submitted before the Ld. AO clearly reveals that opening cash of Rs.1,12,700/- is of 01.04.2016 and cash in hand as on date of demonetization is of Rs.32,00,442/- *(Rs.29,36,298/- of Jabalpur H.O & Rs.2,64,144/- of Bhopal Branch) which includes notes not demonetized and out of which the said Rs.30,77,800.00 of old currency notes held in hand of 08.11.2016 including car sale amount were deposited during demonetization period after 08.11.2016. 1.2. That the Ld. AO. Has disregarded the assessee reply that cash deposits in SBN (Specified Bank Notes during demonetization relates to realization from debtors of earlier sale including cash sales prior to demonetization period for which Books of Accounts, edgers, Cash Book were submitted as a proof by disregarding the same it has been inferred in the assessment framed that assessee reply of Currency Notes realize from Debtors from earlier sales pertains to receipt of Id currency notes during demonetization which has been deposited which against audited books accounts and against prudency and liable to be quashed. 1.3 That also previously in cash being under scrutiny in the Transaction. Compliance year 2016 on online Portal assessee complied with Cash transactions Report 2016 and for every amount deposited in SBN Name of the Debtors have been give which when correlated with audited Books of Account clearly reveals that the said SBN have been received previously t Demonetization. 1.4 That all Audited Books, financial Statements o' current and previous year are produced to verification which have been verified in the assessment proceedings but contrary to the facts as per auditee accounts addition has bee made that SBN has been received and deposited during demonetization’s: or calling of all assessment records assessee has submitted RTI Applications o further substantiate his ground that all records were verified but still for the sake of addition contrary view has been taken. 1.5 That at the Appellate stage when the above facts were contended the First appellate Authority has held that these are additional fact claimed for the first time including that of opening cash in hand on date demonetization and cannot be entertained that the appellate authority has failed to appreciate that all these submissions were part of assessment proceedings therefore the first appellate authority order is against facts as per law, that when the assessee has filed evidences of TDS and Entry Challan under Rule 46A hen this contention could have been very well entertained on the principles of natural justice to avoid any injustice as per law to the assessee. 1.6 hat also appellate authority order that cash of SBN has not been deposited in one stroke is against facts as during demonetization banks were also. stressed and overworked with high footfall and Bank Managers here cash were heavy were advising to deposit in splits regular business customers, also as assessee as establishment at Jabalpur and Branch at Bhopal therefore the cash has been deposited in more than one go. 1.7 That surprisingly in the First appellate Proceedings in the Remand Report Ld. AO has come with a chart depicting therein month wise Cas Sale and Cash Deposits and excess cash deposit have ash sale wherever applicable. That first of all his ground is not basis o addition in the assessment framed and legally was liable to be rejected but still the assessee to show his genuine intentions in the Rejoinder prepared and submitted the month wis columnar break up chart from the audited books 0’ account depicting therein month wise Total Sales along with breakup of cash sale, credit sale, month wis credit sale realization and advances received and cash deposited in bank with depiction of opening and closing cash in hand and also the fact that the Diwali was on 30.10.2016 and assessee being into decorative lights business due to the collection of cash till 30.10.20216 and thereafter ill 07.11.2016 when the demonetization was sudden! announced. Thus, assessee cash deposits of SBN(s) is in with above facts, festive season and audited books, but the same has no: been taken cognizance and adjudicated in the first appellate proceedings which is against law and state facts on record. 1.8 Shat First Appellate Authority Order is silent an on speaking to the legal issues raised by the assessee during appellate proceeding. pertaining to applying the provisions of Section 69A rws 115BBE being inconsistent as per law, Thus, the Appellate Order has no adjudicated the issues raised by the assessee and is liable be quashed as per fact and law. 1.9 Section 69A talks about explained money found in possession of the assessee which is not recorded in the books of account can be added back but the recorded money as per this section and legal pronouncements in his context cannot be added ack. Here the Ld. A.O. has 1ot rejected the books oi account u/s 145(3) of the Ac: and has not made the addition for the source oi credit entry (from which sources the cash has been received, although proved to the A.O.) which is bad in la and liable to be deleted. Thus, the AO has accepted Opening Stock, Purchase, Sales and Closing Stock on he Books of Accounts (BOA) therefore addition made cannot be sustained a er law and is liable to b quashed, 1.10 That the assessee hereby relies upon the submission made during assessment and appellate proceedings, Documents, Audited Book of Accounts, Audited financial Statements a Cash Book submitted in the assessment proceeding including all other relevant documents and replies which clearly reveals cash in hand as on date of demonetization on 08.11.2016 is of Rs. 32,00,442/- (Rs. 29,36,298/- of Jabalpur H.O. & Rs. ,64,144/- of Bhopal Branch) including SBN and on SBN out of which the said Rs. 30,77,800.00 of old currency notes held in hand of 08-11-2016 were deposited during» demonetization period after 08.11.2016. That on basis of facts and strength documentary evidences addition made assuming SBN are received after and during demonetization is liable to be deleted and quashed in toto.
Disallowance of Advance Given to Jackson Hotel 2.1 That the Ld. A.O. is disallowing the same assuming it to be book entry and Jackson hotel has denied he business transaction, that his is an advance in Balance Sheet in assessee book forming part of balance sheet and not Income oi *expenditure, then what is the benefit to the assesses if the said entry is shown as book entry as Debit in balance sheet in assesses books, it will be more or less depletion of assessee own funds, 2.2 That the assessee for amount deposited of Rs. 2,48,000.00 as on 31.03.2017 under advances given to Jackso hotel has furnished during the assessment proceeding. before the Ld. A.O. the audited ledger account of the hotel which depicts that Rs. 00,000.00 is an opening balance as of 01.04.2016 an s. 48,000/only has been further given to the Hotel through 2 cheques in the current financial year (which has been accepted in the assessment proceeding /so), and in support of the same assessee has also furnished his bank statemen: issued by the bank which clearly establishes that said cheque(s) have been clears by the bank statement in favor of Jackson Hotel as depicted in the ban statement issued by the bank with narration and clearings dates, but against such genuine facts and third part bank documentary evidences submitted enters. 2,48,000.00 which includes Rs. 2,00,000.00 opening balance pertaining o earlier year has been added which is outside the jurisdictional purview. That the said disallowance has no: been booked as an expense therefore on facts and as pe law the disallowance is liable to be amended. 2.3 That when cheques have been cleared in favor Jackson Hotel as evidence from statement issued by bank and there is no benefit the assessee if it is show as debit book entry in balance sheet and no claimed as an expense then the reasons for denial by Jackson Hotel are best known to them for which the assesse should not suffer, but a specific notice giving details of cheques should have been given to Jackson hotel enquiring whether this specific cheque has been uncashed in their hotel bank account or not instead o' asking for business transactions with the assessee by the Ld. A.O.
3. Disallowance of Rs. 16,099/- (5300 + 10798) of TDS and Entry Tax 3.1 That in the Appellate Order it has been held that AO is directed to verify the records and if the stand of the appellant on this issue is found to be correct, necessary relief may be granted as per law. That ground of the appellant partly allowed. That the proofs of TDS Rs. 5300.00 and Entry Tax deposit Rs. 10,798.00 was submitted during assessment proceedings but were not taken on record, therefor assessee on basis of said documents hereby prays for allowing of the same in the present proceedings before the Honourable.”
Page 4 of 7 2. Briefly stated facts are that in this case the assessee filed his return of income declaring total income at Rs.64,850/-. Subsequently, the case was selected for scrutiny. Accordingly, a notice u/s 143(2) of the Income Tax Act, 1961 (“Act”, for short) was issued and served upon the assessee. The Assessing Officer during the course of assessment proceedings noted that during the period of demonetization, the assessee had deposited cash of Rs.35,66,980/-. It was stated that the amount was deposited is out of realization from outstanding debtors. It was further submitted that a part of cash deposit is out of the cash sales made by the assessee. However, this explanation by the assessee was not accepted by the Assessing Authority and he made an addition of Rs.30,77,000/- and he further made addition of Rs.2,48,000/- in respect of a payment made to one party which denied of having received such amount. Thus, the Assessing Officer made further addition of Rs.2,48,000/- and assessed the income of Rs.34,06,750/-. Aggrieved by this order, the assessee preferred appeal before the Ld. CIT(A) who partly allowed the appeal of the assessee. Thereby, he sustained major additions except the disallowance made u/s 43B of the Act for want of supporting evidence. Now the assessee is in appeal before this Tribunal.
The assessee has taken multiple grounds, however, these grounds challenges primarily two major additions.
Apropos to the ground nos. 1 to 1.10 of the appeal, Shri G. N Purohit, Sr. Advocate, vehemently argued that the authorities below have failed to appreciate the facts of the case in right perspective. He submitted that all the details were given before the lower authorities. He took me through the paper book to buttress the contention that the action of the authorities below is Page 5 of 7 not justified in making the impugned addition. He contended that admittedly the accounts of the assessee is duly audited and the cash was received prior to demonetization period.
On the other hand, the Ld. the Ld. Departmental Representative (DR) supported the orders of the lower authorities and submitted that the assessee failed to furnish any supporting evidences with regard to the realization of the debtors.
In his rejoinder, Ld. Sr. Counsel for the assessee drew my attention to the various pages of the paper book demonstrating that the sale was affected and outstanding debtors were realized. He contended that the reduction in debtors is a testimony to the fact that the sales effected in the past were realized during the year. Moreover, the AO has not made any adverse remarks regarding accounts of the assessee.
I have heard the rival submission and perused the material available on records. It is noted by the Ld. CIT(A) that the assessee had claimed realization of debtors amounting to Rs.29,02,800/- and sale consideration of car of Rs. 1,70,000/-. It is also noted that the opening cash balance was Rs.1,12,699/- as on 01.04.2016 and cash balance as on 08.11.2016 was Rs.29,36,298/- and also the cash received as a sale consideration of car amounting to Rs.1,75,000/-. Therefore, it was contended that the assessee had deposited the amount out of explained sources. The explanation of the assessee was rejected on the ground that no cash book or supporting documentary evidence was filed to substantiate the claim. It was further observed that the cash was not deposited in a single instance but in piecemeal, and moreover, the assessee failed to furnish any documentary evidence regarding confirmation from Page 6 of 7 the debtors. In this regard, the Ld. Sr. Counsel for the assessee submitted that the accounts of the assessee have not been rejected by the Assessing Officer. The financial statements as on 31.03.2016 and 31.03.2017 were duly filed before the lower authorities. It is pointed out that the authorities below have not made any adverse comment on the correctness of such accounts of the assessee. Therefore, the audited statement of account having been accepted, the impugned addition made by the lower authorities is not justified. I find merit into the contention of the assessee that the books are audited and no adverse comment has been made. The Revenue has not rebutted about the factum of realization of debtors and sale of car by the assessee. Moreover, I am in the agreement to the Ld. Counsel that the advance paid to the third party and duly credited into its account would not partake character of assessee’s income. Under these facts, I hereby direct the Assessing Officer to delete the impugned addition Grounds of appeal of the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 30/09/2025.