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Facts
The assessee declared Nil income but had business income and unabsorbed depreciation. The AO made an addition of ₹48,07,751/- on account of cash deposits during the demonetization period, which was confirmed by the NFAC.
Held
The Tribunal held that the addition made by the AO was a double addition as the cash sales were already part of the turnover accepted by the AO. The assessee had also provided sufficient evidence to prove the source of cash deposits.
Key Issues
Whether the addition made on account of cash deposits was justified, or if it amounted to double addition, and if the assessee had sufficiently proved the source of the deposits.
Sections Cited
143(3), 68, 115JB
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Income Tax Appellate Tribunal, DELHI BENCH “SMC”: NEW DELHI
O R D E R
The appeal in AY 2017-18 arises out of the order of the ld. National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. NFAC’, in short] in Appeal No. ITBA/NFAC/S/250/2025- 26/1076266773(1) dated 17.05.2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 dated 28.12.2019 (hereinafter referred to as ‘the Act’) by ITO, Ward-17(1), Delhi (hereinafter referred to as ‘ld. AO’).
The only effective issue to be decided in this appeal is as to whether NFAC was justified in confirming the addition made by ld AO on account of cash deposits in the sum of ₹48,07,751/- in the facts and circumstances of the instant case.
I have heard the rival submissions and perused the material available on record. The return of income for assessment year 2017–18 was filed by the assessee on 10.10.2017 declaring Nil income even though the assessee declared business income of ₹22,76,339/- . The assessee had unabsorbed depreciation brought forward from AY 2014–15 and the same was set off to the extent of business income, which resulted into Nil income being filed by the assessee in the return. However, the assessee declared book profit of ₹7,80,204/- u/s 115JB of the Act and paid taxes thereon. The assessee furnished the entire computation of income, audited financial statements, tax audit report together with its annexures before the ld AO. The ld AO noticed that the assessee is mainly engaged in the business of manufacturing and trading of rice and had deposited cash amounting to ₹61,45,000/- in its bank account during the demonetization period. The assessee was asked to explain the source of the same. The assessee explained that cash deposits were made out of cash sales of ₹3,60,000/- in October 2016, Rs. 48,08,800/- from 01.11.2016 to 08.11.2016 and out of opening cash balance as on 31.10.2016 of ₹13,37,249/-. The ld AO, however, did not agree with this contention and proceeded to make addition u/s 68 of the Act of ₹48,07,751/- on account of cash deposits after giving credit of cash balance of ₹13,37,249/- as on 31.10.2016 available as per books. The ld AO, however, agreed in para 8 of his order that assessee had indeed shown cash sales and held that merely routing the same through sales and payment of VAT cannot preclude the ld AO to draw an inference that the cash sales were deliberately shown to cover the introduction of unaccounted cash in the books of account during the year under consideration. This action of the ld AO was upheld by the ld CIT(A).
It is not in dispute that the assessee had indeed shown cash sales and is part of the total turnover disclosed by it in the return of income and in the audited profit and loss account. The following points are undisputed and indisputable: –
a. The assessee had shown cash sales for month of October 2016 from 01.11.2016 to 08.11.2016 and the same is part of total sales disclosed by the assessee in the sum of ₹72.33 crores in the profit and loss account. b The purchase made by the assessee has not been doubted by the revenue. c. The total sales made by the assessee (both cash as well as credit sales) has not been doubted by the revenue. d. The assessee had sufficient stocks to effect the said cash sales and generate cash as an independent source to prove the cash deposits. e. To the extent of sales made by the assessee, corresponding reduction in stock had been duly made. f . Sales made by the assessee, both cash as well as credit had been duly subjected to VAT and the VAT authorities had accepted the turnover declared by the assessee. g. The assessee has furnished month-wise, purchase and sales, both cash as well as credit for the year under consideration as well as for the immediately preceding year. The assessee had also furnished the details of cash received from its sundry debtors in the month of September and in the month of October, totaling to ₹11,73,000/-, which are prior to the demonetization period, the details of which are enclosed in page 102 of the paper book, indicating the name and address of the debtors from whom money has been received together with the mobile numbers. h. The assessee has furnished the complete cashbook, showing the month wise movement before the ld AO. i. There is no negative cash balance on any day that has been alleged by the ld AO.
Further, I find that the ld AO had accepted the return of income by the assessee, which included this cash sales also. Hence, separately, making an addition on account of cash deposits in the sum of ₹48,07,751/- would only result in double addition. Hence, the addition made on account of cash deposits deserves to be deleted on that count itself. Further, I hold that the assessee had indeed proved the source of cash deposits by clearly establishing that the source emanated from the books of account and the cashbook regularly maintained. None of the books of account have been rejected by the ld AO. In these facts and circumstances, there is no case made out by the revenue for making an addition on account of cash deposit separately. Accordingly, the addition made is hereby directed to be deleted. Further, I also find that Hon’ble Madras High Court in the case of of SMILE Microfinance Limited vs ACIT in WP (MD) No. 2078 of 2020 and WMP (MD) No. 1742 of 2020 dated 19-11-2024 had held that the provisions of section 115BBE of the Act which enhanced the rate of tax could be made applicable only from 01.04.2017, relevant to assessment year 2018-19 onwards and not earlier. Accordingly grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 27/08/2025.