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Facts
The assessee, a retailer of poultry feeds, deposited cash during the demonetization period. The Assessing Officer (AO) added a sum of Rs. 1,00,23,684/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961, based on an estimation of sales during the demonetization period. The CIT(A) upheld the AO's order.
Held
The Tribunal noted that the assessee's books of accounts were audited and showed cash deposits out of cash sales, which were offered to tax. Allowing the addition would result in double taxation, as the income was already offered for tax. The AO did not dispute the sales or reject the books of accounts. Relying on judicial precedents, the Tribunal found the AO's estimation to be based on conjecture and not supported by evidence.
Key Issues
Whether the addition of cash deposits during demonetization period as unexplained cash credit under Section 68 is sustainable when the sales were accepted and offered to tax, and the addition would lead to double taxation.
Sections Cited
68, 69A, 143(3), 250
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Income Tax Appellate Tribunal, “PATNA BENCH”,PATNA
Sanoj Kumar Singh, Prop. M/s S.K. Poultry Feeeds, Bari Ishupur, Hajipur, Vaishali (Bihar) - 844101 [PAN: BEFPS4309A] ..……..…...……………....Appellant vs. Income Tax Officer, Ward-1(3), Vaishali................................ Respondent Appearances by: Assessee represented by : Shri D.V. Pathy, Sr. Adv. Shri Hiresh Karan, Adv. Department represented by : Shri Ashwani Kr. Singhal, JCIT on behalf of Md. A H Chowdhary, CIT(DR) Date of concluding the hearing : 28.11.2025 Date of pronouncing the order : 05.01.2026 O R D E R
Per Rajesh Kumar, AM
The present appeal filed by the assessee arises from order dated 10.06.2025passed u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”) by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereafter “the Ld. CIT(A)].
The only issue raised in grounds of appeal against the confirmation of addition of Rs. 1,00,23,684/- by the Ld. CIT(A) as made by the AO un- der Section 68 of the Act in respect of unexplained cash credit qua the cash deposit during demonetization period.
Sanoj Kumar Singh 3. The facts in brief are that the assessee is a retailer carrying on the business of Poultry Feeds in the name and style of M/s S K Poultry. The return of income was filed on 28.09.2017 showing total income at ₹ 12,96,410/-. The case of the assessee was selected for scrutiny under CASS and notice under Section 143(2) and 142(1) of the Act along with questionnaire were duly served upon by the assessee. The Assessing Of- ficer called upon to furnish the complete source of cash deposit during the year. The assessee submitted before the Assessing Officer that the as- sessee is a trader in poultry feed and has been maintaining proper books of accounts. Whatever cash was deposited into the bank was out of cash available in the cash book which is ultimately out of cash sales effected by the assessee during the year. However, the Assessing Officer computed the disallowance at Rs. 1,00,23,684/- and added the same under Section 68 of the Act as unexplained cash credit u/s 68 of the Act. The Assessing Officer computed the disallowance merely on an estimation basis, the As- sessing Officer noted that total turnover/sales of the assessee during the year were Rs. 5,07,59,673/- out of which the assessee has deposited cash to the tune of Rs. 1,87,00,900/- during the year meaning thereby that the average deposit per month worked out to Rs. 15,58,408/-. The Assessing Officer noted during the demonetization period, the assessee deposited 1,31,40,500/- and after allowing deduction of two months av- erage cash as calculated above which comes to Rs. 31,16,816/-, the net the addition of Rs. 1,00,23,684/- was made.
In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by upholding the order of Assessing Officer by passing very cryptic order which is extracted as under:
“6.1 The grounds of appeal, assessment order and submission of the appellant have been carefully considered as under: 6.2 The appellant's submission with respect to the bank statements and cash deposits during the demonetization period has been verified. The appellant had produced the ledger of cash book for the period 01.04.2016 to 08.11.2016, beyond which the cash book details have not been provided.
Sanoj Kumar Singh Further, the bank statement submitted during the period also establishes the fact that cash deposits is unusually high for the period 11.11.2016 to 28.11.2016. Subsequently for the period 01.12.2016 to 31.12.2016 as submitted by the assessee there are no substantial cash deposits. Further the appellant has also not produced any documentary evidence to prove that the said deposits were effected through sales. 6.3 The appellant has not discharged the onus of establishing the genuine- ness, creditworthiness and identity of such cash deposits during the de- monetization period. Hence the addition by the AO of Rs.1,00,23,684/- as unexplained cash credit u/s 68 of the Income Tax Act is upheld. 7.0 As a result, the appeal of the appellant is dismissed.”
After hearing the rival contention and perusing the material on rec- ord, we find that the assessee has deposited cash during demonetization period of Rs. 1,31, 40,500/-. We note that the total sales/turnover of the assessee during the year were Rs. 5,07,59,673/- and total cash deposits during year were Rs. 1,87,00,900/-. The Assessing Officer computed the average cash deposit per month at Rs. 15,58,408/- on the basis of total cash deposits of Rs. 1,87,00,900/-. The Assessing Officer observed that the cash deposits during demonetization period were to the tune of Rs. 1,31,40,500/- and after allowing two months average cash of Rs. 31,16,816/-, a net addition of Rs. 1,00,23,684/- was made. The Ld. CIT(A) has simply affirmed the addition by passing a very cryptic order. We note that the assessee’s books of accounts were duly audited by the tax auditor and no adverse interference was drawn. Further the cash which was deposited out of cash sales and cash in hand were duly shown in the books of accounts which have been offered to tax by show- ing the same in the Profit & Loss Account. Therefore, if the addition is al- lowed to be made under Section 68 of the Act in respect of cash deposits during demonetization period as made by the Assessing Officer, then the same would result into double taxation because the same income has already been offered tax by filing return of income. The Assessing Officer has not disputed the sales and not even rejected the books of accounts. Therefore, we are of the view that the order passed by the CIT(A) uphold- ing the order of Assessing Officer is incorrect and cannot be sustained.
Sanoj Kumar Singh 6. The case of the assessee is squarely covered by decision of Co- ordinate Bench in the case of ITO vs. Joydeb Kundu in for AY 2017-18 dated 16.05.2023 wherein the Hon’ble Bench has held as under:
“8. We have carefully gone through the material available on record and considering the rival submission made by the parties, in the present case both the authorities below accepted the fact that the amount received by assessee are nothing but sale proceeds in the course of business of the assessee. The addition has made only on the basis that after demonetization, the demonetization note could not have been accepted as valid tender. Since the sales proceeds for which cash was received are added u/s 69A of the Act which would amount to double taxation once as sale and another against as unexplained cash credit which is violate principles of taxation. The ld. AR further contended that Hon’ble ITAT of Kolkata in the case of ITO vs M/s. Senco Alankar in dated 27.06.2022 on an identical fact held as under:
“7. We have heard the rival submissions and carefully considered the material placed on record and gone through various judicial precedents relied upon by both the parties. At the outset, we find that the moot point for consideration is in respect of explanation furnished by the assessee regarding nature and source of cash deposit to the tune of Rs.1,95,03,291/- (Rs.3,87,69,800 – Rs.1,92,66,509) during the demonetization period which has been treated as deemed income of the assessee and added to the total income u/s. 69A of the Act as unexplained money. We find that written submissions and all the relevant documentary evidences were placed on record.
7.1 The foremost point which invites our attention is the computation method adopted by the AO in arriving at this figure of Rs.1,95,03,291/- which is nothing but based on a hypothesis to arrive at estimated probable sales value that could have been made on 08.11.2016 between the time window from 8.30PM to 12 midnight and the entire day. As discussed above, Ld. AO has made certain assumptions on the logistics and the conduct of business transactions/operations to arrive at this probable sale value estimation. We find that the assumptions so made by the Ld. AO are devoid of any scientific basis and third party comparable which gives credibility to such an estimation. All these assumptions and calculations carry AO’s own figment of imagination. We note that the assessee has countered all the assertions and assumptions made by the AO by submitting the details from its audited books of accounts and stock registers by providing all the relevant details from time to time. We note that the assessee had given all the explanations which are reasonable and there is no other material except for the estimation of probable sales value done by the Ld. AO for the purpose of treating the deemed income as unexplained money in the hands of the assessee. We also note that assessee has duly recorded in its books of accounts all the sales made on the date of announcement of demonetization in the time window available on that day which has been credited in the P&L Account. It is also noted that the assessee had stock in hand to meet the sales demand, all of which is duly recorded in the stock register furnished before the authorities below. It is also noted that there is no specific discrepancy pointed out in respect of the books of account, more particularly when the purchases have not been doubted in the assessment. Ld. AO has noted that details of customers on the invoices raised during the time window on the date of announcement of demonetization were not recorded on the invoices for some of the Sanoj Kumar Singh instances wherein the details were recorded, summons were issued to those customers, most of which remained unreplied. We note that all the sales were cash sales and in case of cash transactions of sale, delivery of goods is taken against the cash payment and it is hardly necessary for the seller to bother about the name and address of the purchaser.
7.2 We further observe that the assertion of the ld. AO on the mere possibility of assessee earning considerable amount out of cash sales on the date of announcement of demonetization is a pure conjecture on the part of the AO and is based on surmises, speculating on the approach adopted by the assessee. Rather, the estimation approach of arriving at probable sales value by the Ld. AO cannot be rationally inferred to justify the addition so made. Thus, we find that the Ld. AO indulged in suspicion, conjecture and surmises and acted without any evidence and upon a view of facts which cannot reasonably be entertained. It is a settled position of law that in making the assessment, the AO is not entitled to make a pure guess and make an assumption without reference to any evidence or any material at all. It has been consistently held by various Hon’ble Courts that there must be some matter more than their suspicion to support the assumption made u/s. 143(3) of the Act. We find force from the decision of Hon’ble Apex Court in the case of Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC) wherein it was held as under – “The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the Income-tax Officer and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved in the high denomination noted, - this also was a pure conjecture or surmise on the part of the Income-tax Officer. It is, therefore, clear that the Tribunal in arriving at the conclusion it did in the present case indulged in suspicion, conjectures and surmises and acted without any evidence or upon a view of the facts which could not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found, or the finding was, in other words, perverse and this court is entitled to interfere.”
7.3 Ld. Counsel pointed out that assessee had all the capabilities, infrastructure, manpower, process and procedures to handle and deal with high volume of customers during small time window available to it. For comparability of the circumstances which existed on the day of demonetization announcement, he pointed to the occasion of Dhanteras which is a festival wherein similar kind of high traffic volume of customers happens for the purchase and sale of gold/bullion/jewellery, it being an auspicious day for making such investments. It was placed on record that on the day of Dhanteras which fell on 28.10.2016 i.e. prior to the day of announcement of demonetization, sales bills to the tune of 229 numbers were generated while dealing with those many customers which was also during the smaller time window available on that day depending on the muhurats. It was also pointed out that the VAT returns filed by the assessee for the year under consideration have not been revised in any manner so as to reflect any kind of adjustment or accommodation made in the accounted data of the assessee. All these facts and explanations were placed before the lower authorities, copies of which are placed in the paper book at page 19 to 28 and 52 to 75.
Keeping in view the above mentioned peculiar facts and circumstances of the case, the guess work adopted by the ld. AO in arriving at probable sales value and the judicial precedents relied upon, we find no reason to interfere with the factual findings given by Sanoj Kumar Singh the Ld. CIT(A) in deleting the addition of Rs.1,95,03,291/- made by the ld. AO. Accordingly, the appeal of the revenue stands dismissed.”
Considering the facts of the case in the light of the above decisions, we are of the view that the order passed by the AO is not sustainable un- der the law that the addition would result in double taxation of the same sales which is not permissible under the Act as has been discussed here- inabove. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Consequently, we set aside the order of Ld. CIT(A) and direct the Assessing Officer to delete the addition.
In result, appeal of the assessee is allowed.
Order pronounced on 05.01.2026 Sd/- Sd/- (Rajesh Kumar) (Duvvuru RL Reddy) Accountant Member Vice President Dated: 05.01.2026 AK,Sr. P.S. Copy of the order forwarded to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. CIT(DR)