Elcon Impex Pvt. Ltd. vs ACIT, Circle-9(2)

PER SHRI ANUBHAV SHARMA, JUDICIAL MEMBER:

This appeal is preferred by the assessee against the order dated 20.11.2025 of the Ld. National Faceless Appeal Centre, Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in DIN & Order No: ITBA/NFAC/S/250/2025-26/1082802530(1) arising out of the assessment order dated 21.12.2019 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by Circle-9(2), Delhi for AY: 2017-18.

On hearing both sides we find that assesse is engaged in the business of retail trade of liquor by running liquor shop in Delhi having L-10 license and admittedly the purchase and sale price of the liquor in Delhi is fixed, regulated and controlled by the excise department. Assessee’s return of income declaring income of Rs.56,27,940/- was taken up for scrutiny assessment and the assessment has been completed by making addition of Rs.1,50,50,000/- u/s 68 of the Act on account of doubting the cash deposit during the demonetization period on 09.11.2016 to 31.12.2016 and the same has been sustained by ld. CIT(A) for which assesse is in appeal and has raised following grounds:

The whole case canvassed in ld. Counsel for assesse is that the sales reported to VAT authorities has been a source of deposit of the cash in duly reported under the income of the company. The accounts being duly audited have not been disturbed by the department. Ld. DR on the other hand has relied the impugned findings of the ld. Tax authorities below.

We have given a thoughtful consideration to the material on record and we find that primarily the allegation of the department is that the cash in hand balance of the assesse company has approximately grown 3 times from Rs.52,71,919/- as on 30.04.2016 to Rs.1,50,51,083/- as on 08.11.2016 without any plausible explanation or reasonable justification. Ld. Tax authorities have doubted the reason for assesse to hold cash in hand which has been doubted and the plea that for security reasons assesse was keeping cash in hand has been discarded.

Admittedly, the AO has not rejected the books of account of the assesse and we find that during the course of assessment proceedings the assesse had furnished complete details and supporting documents relating to its opening stock, purchase, sales, closing inventory and quantitative details thereof and the ld. AO has accepted the trading results of the assesse company. No discrepancy whatsoever has been pointed out in any of the financials of the assesse or audited books that sales of the assesse are of the nature of liquor which are duly regulated by the excise department and also by the VAT authorities. There is no material on record either in the form of any inquiry being conducted by the AO or otherwise coming up from the books of the assesse that assesse was not having the requisite stock of the liquor which were sold and the proceeds made part of the revenue from operation sales of products which have been reflected in the audited financial statements and included in the total income of the assesse. It comes up from the impugned order that ld. CIT(A) has sustained the reasoning of AO by making observation that assesse has not furnished copy of stock register and copy of cash book for the month of October and November before ld. CIT(A) to justify the claim that he had sufficient stock in hand to justify sale in cash. However, it remains unexplained, if at all, assesse was called upon specifically at any stage in the assessment proceedings or in appellate stage to satisfy the tax authorities in this aspect. The whole case made out by ld. AO and sustained by ld. CIT(A) is on the basis that as prudent business practice assesse would not have kept cash sales while having the cash in hand so as to be deposited during the demonetization period. However, based on the aforesaid discussion we are of the considered view that what is important for the ld. Tax authorities is to understand nature of trade of the assesse and which to our mind is a controlled trade to which excise authorities and the other authorities under law are supposed to ensure that the sales correspond to the stocks reported. Thus, to our mind the rejection of assessee’s explanation on basis of principle of prudence and conduct is not justified.

We, thus, sustain the corresponding grounds on merits and allow the appeal of the assesse. The impugned assessment order is quashed.