ACIT vs Pearl International Services Pvt. Ltd.

“This appeal has been filed by the depar tment agai ns t the order pass ed by t he lear ned CIT(A ) for the Assessment Y ear 2017-18 dated 01.07.2025 vide whi ch the learned CIT(A ) has del et ed the additions made by t he lear ned Ass essi ng Officer u/s 68 r.w.s. 115BB E of t he Income Tax Act on account o f alleged unexplai ned cash deposited into the bank ac counts o f the ass essee during the demonetization peri od i.e. perio d from 08.11.2016 to 30.12.2016.

The facts in brief ar e that the ass essee is a company whic h is engage d in t he busi ne ss of a travel hous e duly register ed with IA TA a nd i s engage d i n the busi ness of selling ai r travel tick ets and ot her related services for vari ous airli nes t hrough the medium of vari ous sub-age nts s pread thro ughout the country. The learned Assessing Offic er i n Para-6 of his or der not ed t hat during the year under considera tion, the re was an abnormal i ncr eas e i n the cash d eposit duri ng the demonetizati on period as compare d to the cor respondi ng perio d of the immediate prec edi ng year. The learned Assessi ng Officer iss ued no tices t o the ba nks u/s 133(6) of the Income Tax Act and called f or the details of amo unts deposit ed in var ious banks duri ng the demonetizati on period.

The assesse e was put t o notice b y the le arned Assessing Officer about suc h cash deposits. In response t o such notice, assesse e submitt ed the details which are duly not ed/ext rac ted by the lear ned Assessi ng O ffice r in the Assessment O rder at Pages-4 to 7 of his or der. The details as was submitted to the learned Assessi ng Officer were as under:

Fi nancial Yea r	Tot al Cash Deposit in Banks -Whol e Year	Cas h Deposited from 01.04.2016 till 08.11.2016	Cas h Deposi ted duri ng 08.11.2016 to 30.12.2016
2015-16	50.61 Cr.	27.45 Cr.	8.57 Cr
2016-17	50.52 Cr.	40.08 Cr.	2.24 Cr.*

* Incl udes openi ng balanc e l yi ng at the cl osi ng hours on 08.11.2016 at about R s. 86 Lakhs,

Bas ed o n t he aforesaid fi gures extract ed, it would be not ed that the primary factual fi ndings of the l ear ned Assessi ng Office r as noted i n Para-6 based on whic h t he whol e iss ue seems to have ari sen are fact ually incorrectbecause the learned Assess ing Officer obser ved tha t cash d eposited by the assessee duri ng the demonetizati on period as compare d to the cor respondi ng similar period in the pr ecedi ng year are m uch hi gher . Whereas from the c hart given a bove it woul d be noted tha t t he cash deposited duri ng the demoneti zation period at Rs.2.24 Cr ores is just about 26% of the cas h which was deposit ed during the similar period i n the immedi at e precedi ng y ear . More over, it would be noted t hat out of the c ash deposit ed at Rs.2.24 Crores , about 86 lakhs was the cas h i n hand with t he as ses see on the date of declari ng demo netization by the Hon’ble Pri me Minister . This fact has be en acc epted by the l earned Assessing Officerand addi tion has been made only for the balanc e cash d eposited at Rs. 1.38 Cr ores . It has been demonstrate d on rec ord t hat all cash de posit ed was in new curre ncy notes whi ch was introduced by t he gov ernment w.e.f. 09.11,2016 i.e. the new not es of Rs.2,000/- deno minati on and Rs.500/- denomi nation whic h was deposited duri ng the de monetizati on peri od. Necessary certificates from t he b anks have also b een obtai ned and were submit ted to t he l earned Assessing Officer as well as with the l earned CIT(A ) which clearly establ is h that all the currency no tes deposited i n the banks aft er t he demonetizati on wer e i n new currenc y not es. It is precisely for t hese reas ons that t he sal es of the ass essee during the demonetizati on pe riod had sharply declined a s compared to the immediate preceding ye ar as woul d be noted from a bove char t. It would be not ed fro m t he above chart that whereas the cash sales duri ng the peri od under c onsideratio n till the dat e of announci ng dem onetizatio n i ncreased fr om Rs.27.45 Crores to Rs .40.08 Crores, an i nc rease of about 46%, t he same i.e. t he cash s ales declined by about 74% during the p eriod of demonetization as compar ed to t he si milar perio d in the c orrespondi ng earlier year. Therefore, as alre ady clar ifi ed abov e, the very basis of maki ng t he additi on was fact ually i ncorrect.

Moreover, all the cash deposited hav e bee n duly acco unted for in the books o f accounts and has b een rec ognized as the sales whic h fact has also b een accepted by t he Assessi ng Officer as no observation or adv erse fi ndi ngs have b een gi ven on t his issue i n the Assessment Order .

The co urts acr oss the country have held that when t he cash deposit ed during the demo netizati on period is duly explai ned and duly accounted for in the boo ks of acco unts of the company, no addition u/s 68 can be made. S ome o f the judgements of the H on’ ble Tri bunal /Courts are as under:

•

Vijay Kumar Jai n vs. ITO (ITA No.l730/DeV2024) - TDS-562-ITAT-2024 (Del hi)

“10.

The issue involved is esse nti ally a questi on of fact and dep ends on appraisal of all rel evant evidences on r ecord o n cumulativ e basis. As cont ended, it is a mat ter of r ecord that cash sales giving rise to cash deposits have bee n duly record ed i n the ‘statem ent of profit and loss ’ and the res ul ta nt profits have been admittedly declared i n the ret urn of income. The income thus arising from cash sal es has been duly subjected t o taxation

10.3

Having assessed a credit of re venue charact er as income, it is outs ide the ambi t o f t he AO to subject the s ame cr edit under different pr ovision i. e. section 68 yet agai n, inflicting doubl e whammy on t he assessee. Besides, the books of a ccounts and book res ul ts have been not rejecte d per se. N o defect has bee n poi nted out on t he declaratio ns made t owards purc has es , the closi ng stoc k and the profits either. The addi ti ons made have resulted a ssessme nt of cash sales t wi ce which is not permissible i n law.”

Similarly, i n the pres ent case, the Assess ee's cash sales were d uly reco rded in t he audited books and offered to ta x as par t of the total inc ome. Therefore , tr eati ng these receipts as unexplained under Secti on 68 cons titut es an imper missible "double taxation" o f rev enue that has already been a ss es sed.

•

Merchants C r edit Co-oper ative S oci ety L td., vs ITO (ITA No.329/Bang/2023)

“Ther e is no doubt that the ass essee has satisfied t he identity of the deposits, who are members of t he society a nd genui neness of the trans acti ons bec aus e the amount s have been deposited in the m embers acco unts only. If t he A O had any doubts t hat t he assessee has not satisfi ed t he i ngre dients of secti on 68, he coul d have as ked further details from t he assessee, but the AO has not done the s ame, which clearly sho ws that the assessee has di scharged its duty to satisfy t he requir ement of secti on 68. We further note that the SBNs have been deposit ed i n t he members acc ounts, accor dingl y, the assessee di d not get any ex tra benefit as observed by the AO i n his order at para No. 06 whic h was t reat ed as inc ome us 69A of the Act. In view of this, the provisions of section 68 is not appl icabl e in the present facts of the case and the AO without discussi ng i n det ail has made additi on u/s. 68 which is no t proper . Therefore t he additi on is del eted.”

Similarly, the ratio of t he afo rementioned case is squar ely applicable to the Asse ssee, as i t has discharged its primary onus by providi ng exha ustive PNR data, sys tem-ge nerat ed invoices, and bank -confirmed certificates , deposit slips. Since the L d. AO fail ed t o identify any specific defects in these r ecords, the additi on lacks fact ual a nd legal basis.

•

[2022] 140 taxmann.com 588 (Cha ndigar h - Trib.) IN THE ITA T CHANDIGARH B ENCH 'A' Smt. C haru Aggar wal v. D eputy C ommi ssio ner of Income-t ax “The cas h deposited post -demonetiz ati on by the assessee was out of the cash sal es which had been accepted by the Sales Tax/VAT Department and not doubt ed by the Assessi ng Offi cer, t here was s ufficie nt stoc k avai lable wi t h t he assess ee to make cash sales and t here was fes tive s eas on i n t he mont h of October 2016 prior to the maki ng of the cash de posit i n t he bank acc ount out of the sales. So, respectfully followi ng the orders by the various Hi gh Courts and the Co-ordinate B enche s of t he Tri bunal, it is vie wed tha t t he imp ugned a ddi ti on made by t he Asse ssi ng Officer and sustaine d by the Commissione r (Appeals) was not j ustifi ed , accordi ngly the same is deleted. [Par a 10.13]”

Applyi ng the same principl e to the facts of t he prese nt case, the Ld. AO has not disputed the existenc e of the Assessee's business or the genui neness of its re gul ar cash-based operations. Followi ng t his prec edent , deposits arisi ng from suc h undisputed sal es cannot be tr eated as unexplained merely due to their timi ng duri ng the dem onetizati on peri od.

•

[2024] 169 taxmann.com 220 (Cha ndigar h - Trib.) IN THE ITA TCHANDIG ARH BENCH 'B ' Inco me-tax Offic er v. Shr ee B alaji Pr oce ssors*

“It is a matter on record t hat regar ding allegation of bogus sales, nothing has been brought on rec ord by the Assessi ng Officer. The Assessing Officer has accepted all t he purchas es alo ng with openi ng and closing stock of t he assessee . Then on what basis sales out of such stoc k/ purchases may be reject ed without any pr oof brought on r ecord. Thus , the above findi ngs given b y t he Commissioner (Appeals) on this issue i n his order is ver y muc h justified and needs no inte rfer ence. Acc ordingly, revenue’s appeal on thi s ground is hereby dismissed. [Para 14]”

Similarly, i n the present cas e, the Ld. A O accept ed t he Assessee’s openi ng cas h balance and audited books . Ther efore, the sales generated through these accept ed busi ness recor ds cannot be rej ected o r treated as unex plained credi ts witho ut conc ret e evidenc e to disprove the Ass essee ’s explanation it is respectfully submitt ed.

Further reliance i s plac ed i n the followi ng cases:

 Ags ons Gl obal Private Limit ed vs. ACIT (ITA No . 374/2016)

 Hariso ns Diamonds Pvt. Ltd. [TS -150-ITA T-2024(DEL  D.L. H eera Bhai Jewellery Arcade Pvt . Ltd. [TS -223-ITAT-2024(D EL)]

 Hari Om Retail Private Lt d [TS -630-ITA T-2024(DEL )]

 Posi na Jaya Lakshmi Rajahmundry Vs Inc ome T ax Officer (2024-TIOL -1098- ITAT -VIZA G)

 DCIT Vs t he Rifle Factory Co -Operative S ociety L td (2024-TIOL-1108-ITAT- KO L)

The learne d CIT(A ) on appreci ati on of all the fact s and fact ual positi on has deleted this addition. The learned CIT(A)’s order is based on the correct appreciation of t he facts as existed i n this case whic h order is prayed t o be upheld.”

“It has been amply demonstrated t hat al l the all egations of the learne d Assessi ng Of ficer i n maki ng t he additi ons pertai ning t o the cash deposit all egedly duri ng t he demonetizati on period are base d merely on conj ectures and s urmis es . It has been demo nstr ated that i n the nat ure of busi nes s carri ed o ut by the assessee large amo unt of cash is bei ng c ollected and deposited year after year. As an example, a compa rati ve st udy has also bee n submitted wherei n it has been d emonstrat ed that duri ng the y ear under consideratio n pre-monetizati on cash deposit i n abo ut 7 mont hs was Rs.40.08 Cr or es i .e. an average of mor e than Rs.5.5 Cror es per mo nth whereas duri ng the demonetizati on period i.e. from 9th November to 31st Dece mber, 2016 cash deposited was Rs.2.24 C rores i .e. a bout Rs. 1 .25 Crores per month. Similarly, it has been explai ned that duri ng the same perio d i n the correspondi ng pr evious yea r cash deposit was Rs.8.57 C ror es as agai nst Rs .2.24 Crores duri ng the ye ar under considerati on. Ther efor e, by no standar ds t he allegati ons made by the l earned A ssessi ng Officer that the ass es see deposi ted unexplained hi gher cash during the demo netization period can be sustai ned, it is res pectfully submi tted. In fact, s uc h o bservatio ns based on which additions have been made are fact ually incorrect.

I obs erve that t he AO has made a comparison of the cash deposits for the previ ous year with t hat of the year under ref erence, as well as for the demonetizati on period with the ma tching per iod o f the previous year.”