ANKIT GARG,DELHI vs. ITO,WARD-35(3), DELHI

Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions which were reproduced by the ld. CIT (A) at pages 4 to 15 of the impugned order. After considering the details submitted by the assessee, he observed that in comparison to previous financial year, assessee has made huge cash deposit increased upto 931%Further, it is also observed that cash sale in the F.Y. 2016-17 increased up to 8172% in comparison to F.Y. 2015-16 and cash sale in F.Y. 2015-16 was only of Rs.1,50,000/- against cash sale of Rs.1,24,07,740/- in F.Y. 2016-17. Since the cash deposit during the year is abnormal compared to previous financial years, he rejected the submissions of the assessee and proceeded to sustain the addition made by the AO with the following observations :- “4.1.3 The matter has been examined. On verification of the written submission as well as relevant details/documents, it is seen that the appellant had claimed that he was engaged in the business of manufacturing, trading, sales of socks, fabrics and hosiery etc. during the year under consideration and deposited the cash from sale proceeds of goods withdrawal but did not furnish any documentary evidences in support of business activities such as sale bills, transportation bills, item of goods, etc. In fact, the appellant failed to furnish the details/documents during the assessment as well as appellate proceedings, which are vital for ascertaining the involvement of business activities and deciding the issue whether the cash deposits pertain to business receipts or not. Perusal of assessment order, it is noticed that the AO had detailed discussed about the cash deposited during the scrutiny proceedings because of the case was selected to examine the "abnormal increase in cash deposit during the demonetization period as compared to the pre-demonetization period and lower amount disallowed u/s 40(a)(ia) in ITR in comparison to Tax Audit Report". In the instant case, it is noticed that the cash deposit during the demonetization period increase up to 931% as compared to cash deposit in the previous year F.Y. 2015-16 in the same period. Further, it is also observed that cash sale in the F.Y. 2016-17 increased up to 8172% in comparison to F.Y. 2015-16 and cash sale in F.Y. 2015-16 was only of Rs.1,50,000/- against cash sale of Rs.1,24,07,740/- in F.Y. 2016-17. In this regard, the appellant did not furnish comparative chart / balance sheet of preceding year as well as succeeding year before the AO as well as appellate authority. In the present case, the AO has also observed from the cash book that cash sale to the tune of Rs.5,81,020/- instead of Rs.58,11,020/- during the year. During the assessment proceedings, the appellant has also claimed to made purchase of Rs.26,91,200/- from Unique Enterprises (PAN: AJAPG1418M) having registered address at C-7/142, Ground Floor, Sector 8, Rohini, Delhi-110085. To verify the said transaction, the AO deputed an inspector namely Shri Sanjay Kumar to carry out necessary enquiries at the said address. Shri Sanjay Kumar, inspector visited the said premise on 27.12.2019 and found it locked. As gathered some information by him during enquiry, the AO noticed that the said shops usually remains closed and no actual business activities are carried out from that address. The AO found that the books submitted by the appellant are self-managed to introduce his own unaccounted money under the guise of cash sale, heavy cash accumulated etc. In the instant case, it is also a fact that the appellant has made total cash deposited at Rs.1,23,97,000/- whereas disclosed total income of Rs.6,82,560/- . Besides, mere furnishing of Profit & Loss Account, Balance sheet& computation of total income does not prove the source of cash deposits relates to trading activities. Also, the appellant failed to show that such huge quantum of cash was deposited in earlier occasion being engaged in business activity. In the instant case, the appellant fails to prove that the source of cash deposits was made from sale proceeds. Therefore, the explanation of the appellant about source of cash deposit during financial year 2016-17 is not reasonable. This view got supported by the decision of the Hon'ble Supreme Court in the case of Sumati Dayal [214 ITR 801 SC] and Durga Prasad More [(1971) 82 ITR 540 SC]wherein it was held that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. 4.2 In the case of Roshan Di Hatti Vs CIT(SC)107' ITR 938 and Kale Khan Mohammad Hani Vs CIT (SC) 50 ITR 1, Hon'ble Supreme Court held that the onus of proving the source of a sum of money found to have been received by an assessee is on him. When the nature and source of a receipt, whether it be of money or other property, cannot be satisfactorily explained by the assessee, it is open to the Revenue to hold that it is the income of the assessee and no further burden lies on the Revenue to show that the income is from any particular source. 4.3 In the case of K.R.S. Suresh Vs ITO, ITAT Chennai, in & 1459 (Mds) of 20121 [2013] 37 taxman.com 259 (Chennai Trib), confirmed the additions made by the Assessing Officer towards unexplained cash credits as they were not proved with sources for such deposits by the assessee. After considering the above facts, it is clearly established that the appellant has completely failed to explain the source of cash deposits in bank account with credible documentary evidences. Therefore, I do not find any infirmity in the action of the AO in making addition of Rs.1,23,97,000/- on a/c of unexplained cash deposit u/s 68 of the Act and levy of tax u/s 115BBE of the Act. Thus, these grounds of appeal

At the time of hearing, ld. AR of the assessee submitted as under :- • The assessee deposited cash in bank accounts during the demonetization period, fully arising from genuine business sales as recorded in audited books of account. • The books were produced, scrutinized, and not rejected by the Assessing Officer; the entire turnover, including cash deposits, is tax-compliant and reported. • Profits from all sales, including those represented by the cash deposits, have already been assessed to tax; any further addition leads to impermissible double taxation. • There is complete consistency and reconciliation among the stock, VAT records, and creditors' ledgers; no discrepancies or adverse findings were noted during assessment or appeal. • All purchases from suppliers, including those queried by the AO, are substantiated by bills, account statements, and VAT records. • The AO's reliance on the Inspector's adverse report is unwarranted. The Inspector's inquiry did not comply with the due procedural standards prescribed under Order 5 of the CPC-there was no formal verification, identification, or testimony by the Inspector, nor was the assessee afforded any opportunity to respond, counter, or cross-examine the findings. Furthermore, the assessment order was passed on the very next date without giving the assessee any prior notice or opportunity to know or reply to the contents of the order, thereby violating principles of natural justice and the mandatory procedural safeguards under the CPC. • The business's cash surge in the relevant year was due to expansion/change in location, not to any fiction or manipulation, and was explained with documentation.

With regard to the issue that no addition without rejection of books of account, ld. AR relied on the decision of Hon'ble Delhi High Court in the case of PCIT v. Pancham Realcon Pvt. Ltd. in wherein Hon’ble High Court reinforced that "no addition under Section 68 can be made without rejecting the books of account or proving explanation unsatisfactory. The mere presence of cash deposits in the bank, matching with regular business turnover and supported by documentary evidence, does not justify addition. Further, double taxation of income already offered and assessed is illegal and unsustainable."

Further with regard to the issue of cash sales could not be treated as undisclosed income and provisions of section 69A cannot be invoked when the assessee has already declared the source for cash deposit in the books of account and the lower authorities without there being any material to support on their contrary view, the provisions of section 68 or 69A cannot be invoked, cash sales are accepted and subsequent deposit of the said cash in a bank account cannot be treated as deposits made out of any undisclosed income, making addition u/s 68 unsustainable and addition so made is illegal as it results in double taxation of income already assessed to tax, ld. AR of the assessee relied on the following decisions :- (i) Hon’ble Delhi High Court in the case of CIT vs. Kailash Jewellery House in (ii) ITAT, Delhi in S. Balaji Mech-Tech Private Ltd. vs. ITO, Ward 22(1) – (iii) ITAT, Delhi in Pillani Industrial Corporation Ltd. vs. ACIT – (iv) ITAT, Mumbai in ACIT vs. Ramlal Jewelers Pvt. Ltd. – ITA No.1600/Mum/2023; (v) ITAT, Delhi in Kulbhushan Sahtani vs. ITO in ITA No.4066/Del/2024; 8. On the other hand, ld. DR of the Revenue brought to our notice impugned order of the first appellate order and submitted that the cash deposit made by the assessee during the current financial year is very abnormal as observed by ld. CIT (A) compared to previous year. Therefore, he submitted that he relies on the detailed findings of the lower authorities for making the above addition of cash deposits.

Considered the rival submissions and material placed on record. We observe from the record that the assessee had declared all the cash sales in the books of account, same was duly audited. The tax authorities have not rejected the books and it is not the case of Revenue that these are not recorded in the books of account. The relevant documents submitted by the assessee contain stock reconciliation, stock movements, VAT records and no discrepancies were recorded by the authorities below. No discrepancies were recorded with regard to purchases. All the purchases and stock movements were accepted by the authorities below.

The Assessing Officer sent an Inspector to verify one of the creditors and because of negative report, he completed the assessment with the belief that all the cash sales relevant for cash deposits are non-genuine and proceeded to make the addition u/s 68 of the Act. The Assessing Officer had not even bothered to give opportunity to the assessee to report such negative findings by the Inspector.

In our considered view, there are chances that during the demonetization period the regular customers may have choose to buy the spare parts and bearing by making payment by cash so that their excess SBN is transferred. We noticed that the credit sales has come down during this period and the sales of the assessee is more or less maintained during this period. Therefore, it shows that the changes in the patterns recorded in the sales are not abnormal.

Whether the recording of cash sales which is already declared in the books of account will attract the deeming provisions of sec. 68 or 69A of Act. We observed that the assessee has declared all the cash transactions in its books of account and merely because the cash deposits are more during the demonetization period, whether the CIT(A) can invoke the provisions of section 69A of the Act. As per provisions of the section, it is necessary that the assessee be found with the money, the same is not recorded in the books accounts maintained by it for any source and not offers any explanation or such explanations are not found to be satisfactory to the AO. In this case, the assessee has already declared the cash sales in its books of account and offers the explanation as cash sales, which the lower authorities has accepted it as regular business transactions because they have not rejected the book results and brought to tax the total sales declared by the assessee in its books. Since the cash were already recorded and explanation is already part of the book results, there is no avenue for the CIT(A) to reject such explanations. This expression "explanation is found not satisfactory to the AO" is purely relates to the money found with the assessee which are not recorded in the books of account. In this case, the above expression has no relevance since the assessee had already declared the cash sales in its books. In the similar situation, the coordinate bench has held in the case of J.R. Rice India (P) Ltd as under: ''At the cost of repetition, to the extent of sales made, the stock position is also correspondingly reduced by the assessee which goes to prove the genuineness of the claim of the assessee. On examination of the cash book of the assessee, it is found that the assessee had cash balance of Rs. 55.94 lakhs as on 8-11 2016, i.e., the date on which demonetization was announced, which sufficiently explains the source of deposit of Rs. 52.60 lakhs in specified bank notes. Apart from this, the assessee had duly furnished the month wise details of sales, month wise details of purchase, corresponding freight charges incurred month wise, month wise power and fuel expenses and month wise selling expenses in the form of rebate and discount. The assessee also furnished the quantitative details of goods month wise for rice, sugar, chana dal and wheat flour before the Assessing Officer. All these facts clearly go to prove the genuineness claim made by the assessee that cash deposits of Rs.52,60 lakhs has been made out of cash balance available with the assessee and, hence, there is absolutely no case made out by the revenue for making addition under section 68." • ITAT (Delhi) in Pilani Industrial Corporation Limited & ACIT, Circle-21(2) (ITA No. 1606IDeIl2023): The Tribunal held that "treating cash deposits as unexplained exclusively based on entries in the books without rejecting them is lawfully prohibited". "10. From perusal of above material fact especially treating the cash deposit as unexplained cash on basis of books of account without rejecting the same is legally not permissible as per ratio of judgment in Lalchand Bhagat Ambica Ram's case (supra). Therefore, the impugned orders dated 18.12.2019 and 31.03.2023 are not legal and sustainable and deserve to be set aside.

No other point was argued.

In the result, the appeal of the assessee is allowed. Both the impugned orders are set aside.”

Respectfully following the above decisions, we are inclined to delete the addition made u/s 68 of the Act.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 14th day of November, 2025.