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Facts
The assessee, a vegetable vendor, had significant cash deposits and salary income. The Assessing Officer (AO) added these amounts to the assessee's income, treating them as unexplained money, as the assessee failed to provide sufficient evidence for the vegetable business and its income, and also due to non-compliance during assessment proceedings.
Held
The Tribunal upheld the relief granted by the CIT(A) to the assessee. The addition of 2% of the cash deposits as income was deemed justified, considering the nature of transactions and the low profit ratio of the business. The Revenue's appeal was dismissed.
Key Issues
Whether the addition of cash deposits and salary income as unexplained money is justified, and if so, to what extent, considering the assessee's explanation and evidence.
Sections Cited
144, 69A, 115BBE, 147, 143(3)
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Income Tax Appellate Tribunal, DELHI BENCH‘G’: NEW DELHI
The instant appeal filed by the assessee is directed against the order dated 12/12/2023 passed by the National Faceless Appeal Centre (NFAC), Delhi arising out of the assessment order dated 26.03.2022 passed by the AO under Section144 of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) for Assessment Year 2017-18.
The matter relates to cash deposit to the tune of Rs.2,56,75,105/- in the current account and salary income of Rs.1,23,539/- by the assessee.
The brief facts of the case are that the assessee is a Vegetable Vendor. The assessee’s business initially was controlled and managed by his father until 14.12.2016 when Govt. of India introduced changes of policy of exports which subsequently put an in-definite stoppage on Assessee’s business of exporting tomatoes with neighboring international state, Pakistan. All the remittances got blocked and goods in transit were destroyed at Atari Border, Pakistan, consequently incurring loss to the Assessee in the relevant year under consideration and also compelling the Assessee to take a job as data entry operator to make ends meet. In fact, during the course of assessment proceedings, the assessee duly explained that he was having business of Vegetable selling and cash payments were made to the farmers and sales was also made in cash. However, such explanation rendered by the assessee was not found to be acceptable in the absence of any evidence of vegetable business, the Ld. AR made addition of the entire amount of sales of Rs.2,56,75,105/- and also the salary income of Rs.1,23,539/- in the hands of the assessee. Such addition was made under section 69A of the IT Act further to be taxed under Section 115BBE of the IT Act on unexplained money. Since, the assesse could not submit the response on the date of hearing on 24.03.2022, the same was further added to the income of the assessee for non-compliance and non-cooperation during the assessment proceedings. It is evident from the documents placed before us that the assessee is running business of wholesale vegetable in the name and style of M/s Sanchit Enterprises. This business includes sales and purchase of wholesale vegetables to various parties in different states in India and export was also made including Pakistan. The assessee, since, has not offered this income and the salary income the same was found to have escaped assessment during the year under consideration and notice, therefore, was issued under Section 147 of IT Act. Such reassessment was culminated in making addition as aforesaid which was in turn deleted by the First Appellate Authority. Hence, the instant appeal before us.
Heard both the parties and perused the relevant materials available on record. While dealing with the matter and granting relief to the assessee, the Ld. CIT(A) passed orders as follows:
“7.2.2 The Ld. A.O. confronted this issue to the appellant. During the assessment proceedings, the appellant explained that he was doing business of vegetable selling and as the cash payments are made to the farmers and the sales are also made in cash. The Ld. A.O. did not accept the explanation of the appellant and made addition on the ground that the appellant has failed to furnished evidence of vegetable business. During the appellate proceedings, the appellant has made his written submissions on 21.11.2023. In his submissions, the appellant furnished that he could not response to the notices issued by A.O. due the technical glitches in the system. He further submitted that the reply dated 31.12.2021 (in response to notice issued on 21.12.2021) did not considered by the A.O. The appellant further submitted that his sales are in cash and the cash deposits are made in his various bank accounts located in different cities in different states. The appellant also enclosed copy of form No. 3CB of a person dealing in vegetable business, in which the profit ratios are given. The appellant has not explained that why the return could not be filed in time. I have gone through the order of the A.O and submissions of the appellant and noticed that appellant has failed to submit the requisite document before the A.O. so why the Ld. A.O. has added entire cash deposit shown in the bank account with ICICI Bank, in the income of the appellant. After examination of the said bank account of the appellant, it is noticed that there are regular deposits and withdrawal of cash and payments made to certain persons from this bank account. The bank account is a current account in the name of M/s Sanchit Enterprises. From this, it appears that this is a commercial bank account and the cash deposit are regular and are in small denominations. On the other hand, the so called audit report of the appellant is also not acceptable as return was also not filed by him. The profit shown in the said audit report can also not be acceptable as no supporting documents are provided. Since, this account also contains clearing entries the peak cash credit can also not be worked out. Similarly, the maximum cash availability with the appellant on a given date cannot be taken as his income for the year, as the cash deposits were made from the different part of the country. I have noticed that the appellant has given a reference of a case where 0.17% net profit ratio to the sales is shown, which is very low. Keeping in view of the nature of transactions in the bank account of the appellant 2% (of cash deposit) net profit is attributed to his income of the year. The same is worked out at Rs.5, 13,502/-. The appellant is allowed relief of Rs.2,52,85, 142/- (25675105-513502).
Before us, the bank account of the assessee, details of daily sales and cash deposits, documents related to cash deposits made in his bank accounts from different cities of different states are duly furnished. Such deposits, relevant to mention, are in small dominators. According to the Ld. CIT(A) the maximum cash availability with the appellant on a given date cannot be taken as his income for the year as the cash deposits were made from different parts of the country. On the basis of the reference made by the assessee where net profit ratio to the sales in identical business was shown as 0.17% which was found to be very low and keeping in view the nature of transactions in the bank account of the assessee 2% of the net profit has been attributed to the income of the assessee and addition, therefore, to the tune of Rs.5,13,502/- i.e. 2% of the deposits made by the Ld. CIT(A), in our considered opinion under the present facts and circumstances of the matter is found to be justified.
We note that the judgment referred by the Ld. DR in the case of Pankaj Gupta vs. PCIT passed by Orrisa High Court reported in [2025] 174 taxmann.com 747 (Orissa) is not found to applicable in the instant case as no source of acquisition of money was not found to have been furnished by the assessee therein. The facts of the case of the assessee, therefore, is found to be entirely different having no manner in application in the case in hand. Thus, having regard to the entire aspects of the matter, documents placed by the assessee before the Ld. CIT(A) and the reason assigned on by the Ld. CIT(A) in making addition of 2% on cash deposits made by the assessee is found to be just and proper so as not to warrant any interference. Hence, the appeal preferred by the Revenue is found to be devoid on any merit and thus, dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 29.08.2025.