A R Hose Private Limited vs ACIT, Circle 1(1)

PER S. RIFAUR RAHMAN, AM :

This appeal is filed by the assessee against the order of Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 04.06.2025 for the Assessment Year 2012-13.

Brief facts of the case are, assessee filed its return of income for the year 2017-18 on 30.01.2017 declaring income of Rs.37,51,960/-. The case was selected for scrutiny under CASS. Accordingly, notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served on the assessee. In response, ld. AR of the assessee attended and submitted relevant information through e-portal from time to time.

Assessee is in the business of manufacturing Hose Pipes. During assessment proceedings, the AO observed that there is an abnormal increase in cash deposits during demonetization period as compared to average rate of cash deposit during pre-demonetization period. The AO observed that on perusal of documentary evidences submitted by the assessee, he found that Rs.34,96,000/- was deposited during demonetization period in the form of Specified Bank Notes (SBN). The assessee has submitted cash deposited on 18.11.2016 of Rs.10 lakhs, on 19.11.2016 of Rs.14,96,000/- and on 28.11.2016 of Rs.10 lakhs. With regard to source of the above cash deposit, assessee has submitted cash withdrawal as under :-

After analyzing the various details submitted by the assessee, the AO analysed the revenue from previous and during current year, the assessee has deposited Rs.34,96,000/- cash during demonetization period. However, he further observed that assessee had a balance of Rs.46,77,752/- as on 08.11.2016. As per the cash ledger submitted by the assessee, he observed that there were certain credit of cash balances from 10.08.2016 to 25.09.2016, 10.02.2017 to 12.02.2017, 07.03.2017 to 17.03.2017. He observed that cash book cannot have credit balances. Therefore, he rejected the books account maintained by the assessee and came to conclusion that the cash book maintained by the assessee is manipulated and after monitoring cash outflows and cash inflows, he noticed that peak credit of balance of Rs.14,38,197/- and peak debit balance of Rs.47,09,494/- and he came to the conclusion that assessee has at least Rs.14,38,197/- as unaccounted income in the form of cash during the year. Accordingly, he proceeded to make the addition of cash deposit during demonetization period and peak credit balance as per the cash book and proceeded to make the addition of Rs.49,34,197 u/s 68 of the Act.

Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions before him. After considering the detailed submissions which are reproduced at pages 10 to 14 of the impugned order, ld. CIT (A) rejected the submissions made by the assessee with the observation that assessee has not furnished any fresh evidence or documents which were not filed before the AO. Accordingly, he dismissed the grounds raised by the assessee.

Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :-

At the time of hearing, ld. AR of the assessee brought to our notice page 3 of the assessment order which is the cash deposited by the assessee during demonetization period and also source of the same which was explained before the AO. Further he brought to our notice page 5 of the assessment order wherein AO has not only made the addition of peak credit. Ld. AR of the assessee brought to our notice cash withdrawn by the assessee which has direct link with the cash deposited by the assessee during demonetization period. He submitted that AO cannot proceed to make peak credit in the present case.

On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities and particularly he brought to our notice page 13 of the appellate order in which ld. CIT (A) has observed that all the relevant details submitted before the AO and no new material was filed before the ld. CIT (A) and not even in the present appellate proceedings.

Considered the rival submissions and material placed on record. We observed that assessee has withdrawn cash of Rs.37,50,000/- prior to declaration of demonetization and assessee has deposited cash of Rs.34,96,000/- on 18.11.2016, 19.11.2016 and 28.11.2016 in the form of SBN. Since there was immediate cash withdrawal made by the assessee and also the cash deposit made by the assessee out of SBN. Since there is a direct link with the cash withdrawal and cash deposits, the addition made by the AO to the extent has already been explained by the assessee. Accordingly, the addition made by the AO of Rs.34,96,000/- is deleted.

Coming to the peak credit addition made by the AO, we observed that the AO has noticed that there were certain debit balances in its cash book, therefore, he came to the conclusion that cash book maintained by the assessee is not proper. Accordingly, he rejected it. We noticed that the case of the assessee was selected only for cash deposit made by the assessee during demonetization. There is no scope for this kind of addition. Further we observed that there is no other material brought on record by the AO to substantiate his claim to reject the books of account. Merely because there are certain debit balances in cash book, it does not make whole books of account to be rejected. Accordingly, the addition made by the AO u/s 68 is accordingly deleted.

Furthermore, the addition made by the AO u/s 68 of the Act when all the details are already brought on record, there is no additional cash discovery by the AO other than the cash deposited by the assessee during demonetization period therefore, we are inclined to allow grounds raised by the assessee.

In the result, the appeal filed by the assessee is allowed.