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Judgment
O R D E R
PER S.RIFAURRAHMAN,AM:
This appeal is filed by the Revenue against the order passed by the ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC) dated 04.11.2025 for the Assessment Years 2017-18 raising following grounds of appeal :-
“1.Whether on facts and circumstances. the CIT(A) has erred in deleting the addition ofRs.3,32,04,698/- made by the AO.
2.Whether on facts and circumstances of the case, the CIT(A) has erred in inferring from assessment proceedings and appellant succeeded in this appeal since the assessee was having cash in hand for Rs.21,95,500/- as on 01.11.2016 whereas the assessee had shown cash in hand for Rs.4,02,66,058/- as on 09.11.2016 in his books of accounts. Thus, the AO found abnormal cash in hand as on 09.11.2016 comparative to the cash in hand as on 01.11.2016. The assessee was given due benefit of sales/cash made/deposited on record-in the assessment order of the firm as the firm was having cash available with it for Rs.1,58,05,302/- (Rs.1,35,48,057/-plus Rs.21,95,500/- plus Rs.61745/- for additional sale). Thus difference' came out for Rs.3,32,04,698/- which remained unexplained and was treated as unexplained cash credit by the then A.O. and addition of Rs.3,32,04,698/- was made u/s 69A of the income tax act to the total income of the assessee. Version of the A.O has been discarded completely.”
Brief facts of the case are, assessee filed its return of income for the A.Y. 2017-18 on 09.09.2017 declaring total income of Rs.32,220/-. The return of income of the assessee was selected for Complete Scrutiny under CASS with the reason ‘large value cash deposit during demonetization period’. Accordingly, the AO issued notice u/s. 143(2) of the Income-tax Act, 1961 to the assessee on 24.09.2018.
During the course of assessment proceedings, the AO found that the assessee had deposited cash of Rs.4,90,10,000/- in its bank account during the demonetisation period. On perusal of submission made by the assessee, during the course of assessment proceedings, the AO found that it had made cash sales amounting to Rs.1,35,48,057/- during this period.
Further, the AO found that the cash in hand with the assessee as on 01.11.2016 was Rs.21,95,500/-. The AO observed that in the absence of exact cash in hand as on 08.11.2016, the cash in hand shown as on 01.11.2016 i.e. Rs.21,95,500/- can be accepted as a source of cash deposit along with sale proceeds from 09.11.2016 to 30.12.2016 i.e. Rs.1,35,48,057/-.
Furthermore, on perusal of the bank account statement, the AO found that cash deposits during the period 01.11.2016 to 08.11.2016 was Rs.11,00,000/-. The assessee had shown cash sales from the period 01.04.2016 to 08.11.2016 at Rs.3,22,38,449/-. On the basis of cash sales of Rs.3,22,38,449/- shown by the assessee pre-demonetisation period, the AO computed the average per day cash sale at Rs.1,45,218/- and for 8 days i.e. from 01.11.2016 to 08.11.2016, the cash sales was computed at Rs.11,61,745/-. In this way, the AO re-computed the total cash available with the assessee at Rs.1,58,05,302/- (Rs.1,35,48,057/- + Rs. 21,95,500/-+ Rs.61,745/-). Therefore, the AO held that the difference of Rs.4,90,10,000/- - Rs.1,58,05,302/- i.e. Rs.3,32,04,698/- remained unexplained and accordingly, he treated the said amount of Rs.3,32,04,698/- as unexplained cash credit and added to the total income of the assessee for the assessment year under consideration.
Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A). Before the ld. CIT (A), ld. AR submitted that Assessing officer has not passed speaking order in accordance with provisions of Section 143(3) of Income Tax Act, 1961. He submitted that Assessing Officer has not mentioned anywhere in the order that under which Section or provisions of the Act, the cash deposit made by the assessee is eligible for addition as unexplained cash credits. The addition made by AO is merely based on surmises and conjectures. There is failure on the part of AO to verify each and every aspect of income, which lead to the impair and unfair judgement, wherein the AO himself was unable to determine the provisions of income tax under which the addition of income is to be made. In this regard he, relied on the decision of ITAT, Delhi Bench in the case of Pushpa Devi Trust v. ITO [1988] 32 TTJ (Delhi) 274 wherein it is held that while making assessment under section 143(3), ITO is duty bound to record findings and should pass a speaking order.
He further submitted before ld. CIT (A) that Assessing officer has alleged that the assessee had not filled the complete information/ documents in connection with cash deposits made during the demonetization period and the other queries raised in connection with completion of its pending assessment is beyond the facts and substantiate our submission of non application of mind during assessment by the assessing officer. He submitted that the assessing officer had served the notices to the assessee which were duly replied and the details of the same are placed at page 5 of the appellate order.
He further submitted that assessee has given the complete information as required by the assessing officer from time to time to complete its assessment and the assessee has duly complied with the notices issued to him and has given all the information/documents directed by assessing officer, with the request to inform the assessee about any further requirements of information or explanations. He submitted that the assessing officer in order to complete the assessment, worked in a hurry manner, resulting in a non speaking order with huge addition of Rs.3,32,04,698/- and it is to be quashed.He further submitted that the assessing officer has alleged that the exact amount of cash in hand as on 08.11.2016 cannot be derived which is beyond Imagination that the assessee is maintaining the regular books of accounts as per section 44AA of the Act and the cash transactions as well as cash balance as on 08.11.2016 cannot be verified.
He further submitted that the sources of alleged amount of cash deposit of Rs.4,90,10,000/- during the demonetization period is duly explained by the assessee. The said amount was deposited by them out of cash sales and the amount of cash received as advance from the customers. The assessee petrol pump is situated in Khanak, Tosham where most of the crushers are situated. He submitted that it is the usual customary practice for them & the transporters/ truck owners to give advance to the petrol pump owners and in turn the petrol pump owners make them available fuel for their vehicles/ concern as and when necessary. He further submitted that the assessee has received the amount of cash from various parties during the year which was deposited in their bank account and the advance received by the assessee was against the sale made by assessee. He submitted that it is pertinent to mention here that the assessee is a petrol pump dealer, the stock register of the assessee is properly maintained & verified by the parent company (IOCL). He submitted that the duly audited financial statement mentioning the quantitative details thereof was also submitted to the assessing officer and the complete list of the persons from whom the cash was received during the demonetization period is also placed before the ld. CIT (A).
He further relied on various judgments of Hon’ble High Courts before the ld. CIT (A) which are placed at pages 6 to 9 of the appellate order. He accordingly pleaded that the grounds may be allowed and the addition be deleted.
After going through the detailed submissions of the ld. AR of the assessee, ld. CIT (A) deleted the addition and allowed the grounds of appeal by observing as under :-
6.1.1In Ground no. 01, the appellant has challenged the addition of Rs.3,32,04,698/- made by the AO being unexplained cash deposited in the bank account during demonetisation period.
6.1.2During the course of assessment proceedings, the AO found that the appellant had deposited cash of Rs. 4,90,10,000/- in its bank account during the demonetisation period. On perusal of submission made by the appellant during the course of assessment proceedings, the AO found that it had made cash sales amounting to Rs. 1,35,48,057/- during this period. Further, the AO found that the cash in hand with the appellant as on 01.11.2016 was Rs. 21,95,500/-. The AO stated that in the absence of exact cash in hand as on 08.11.2016, the cash in hand shown as on 01.11.2016 i.e. Rs. 21,95,500/- can be accepted as a source of cash deposit along with sale proceeds from 09.11.2016 to 30.12.2016 i.e. 1,35,48,057/-.
Furthermore, on perusal of the bank account statement, the AO found that cash deposits during the period 01.11.2016 to 08.11.2016 was Rs. 11,00,000/-. The appellant had shown cash sales from the period 01.04.2016 to 08.11.2016 at Rs. 3,22,38,449/-. On the basis of cash sales of Rs. 3,22,38,449/- shown by the appellant pre-demonetisation period, the AO computed the average per day cash sale at Rs. 1,45,218/- and for 8 days i.e. from 01.11.2016 to 08.11.2016, the cash sales was computed at Rs. 11,61,745/-. In this way, the AO re-computed the total cash available with the appellant at Rs. 1,58,05,302/- (Rs. 1,35,48,057/- plus Rs. 21,95,500/-plus 61,745/-) . Therefore, the AO held that the difference of Rs. 4,90,10,000/- less Rs. 1,58,05,302/- i.e. Rs. 3,32,04,698/- remained unexplained and accordingly, he treated the said amount of Rs. 3,32,04,698/- as unexplained cash credit and added to the total income of the appellant for the assessment year under consideration.
6.1.3During the course of appellate proceedings, the appellant furnished its detailed submission and contending the observations made by the AO in the assessment order. The appellant submitted the copy of its reply submitted before the AO in response to notice u/s. 142(1) of the Act dated 07.08.2019 & 12.12.2019. It stated that the source of alleged amount of cash deposit of Rs. 4,90,10,000/- during the demonetization period was duly explained by it before the AO. It stated that the said amount was deposited out of cash sales and the amount of cash received as advance from the customers.
The appellant contended that the amount of sale as claimed by it was already offered to tax by reflecting the same in its trading and profit and loss account and accordingly, the impugned addition had been taxed twice, firstly the same was treated as sales and secondly the same was treated as unexplained cash credits. This clearly tantamount to double taxation of income, which is impermissible.
The appellant has relied upon various judicial pronouncements. The written submission of the appellant has been discussed in Para 5 in detail.
6.1.4From the submission of the appellant discussed above, I find that the observation made by the AO for treating the cash deposited in the bank account of the appellant during the demonetisation period as unexplained cash credit, has been duly countered by the appellant.
The fact born out from record indicates that the appellant was running a petrol pump. From the nature of business of the appellant, cash sale of the appellant can’t be denied. The appellant has stated that it had deposited cash in its bank account out of its sale proceeds. On perusal of notice u/s. 142(1) of the Act dated 12.12.2019, it is seen that the AO had asked the appellant to furnish the details of cash sales and cash deposited in its bank account for the F.Y. 2015-16 & 2016-17 in a particular format provided by him.
In point no. 4 of the said notice, the AO had asked the appellant to furnish the day wise cash sales and cash deposits from the period 09.11.2016 to 30.12.2016 in the following format :
Date Opening cash in hand Cash sales Cash deposits in bank Cash withdrawals Closing cash in hand 1 2 3 4 5 6 The appellant furnished the reply in compliance to notice dated 12.12.2019. On perusal of the same, it is seen the appellant had shown cash in hand of Rs. 4,02,66,058/- as on 09.11.2016. However, in the assessment order, the AO has not raised any issue on such cash in hand shown by the appellant.
On perusal of profit & loss account of the appellant, it is seen that the total sales of Rs. 16,62,42,242/- has been shown by the appellant during F.Y. 2016-17 including the cash sales and the same has been accepted by the AO.
However, in para 2 of the assessment order, the AO has mentioned as under:
“In the absence of exact cash in hand as on 08.11.2019, the cash in hand shown as on 01.11.2019 i.e. Rs. 21,95,500/- can be accepted as a source of cash deposit along with sale proceeds from 09.11.2019 to 30.12.2019 i.e. 1,35,48,057/-“
On perusal of assessment order, it is very much surprising to notice that the AO has not asked the appellant to produce the cash book and mere mentioned that in absence of exact cash in hand as on 08.11.2019, the cash in hand shown as on 01.11.2019 can be accepted as source of cash deposit.
Even if, the AO had asked the appellant to produce the cash book and the appellant didn’t produce the same, the AO should have rejected the books of account of the appellant. From the assessment order, it is found that the AO did not reject the books of accounts of the appellant and has not brought anything contrary on record to show that cash sales is not the source for the cash deposited during demonetization period. The appellant has explained source for cash deposits out of sale receipts. This shows that the AO has not doubted or rejected the books of account of the appellant. If cash deposited in the bank account is duly reflected in the books of account, its source has been explained as cash sales and books of account has been accepted by the AO, then the said cash deposited cannot be treated as unexplained cash credit.
The appellant relied upon the judicial pronouncement of the Hon’ble High Court of Gujarat in the case of Principal Commissioner of Income-tax v. Vishal Exports Overseas Ltd [2024] 164 taxmann.com 286 (Gujarat), wherein the Hon’ble High Court held that where Assessing Officer made addition on account of unexplained cash deposit in bank on ground that assessee did not have sufficient cash balance and there was no conclusive proof as to how such huge amount came into possession of assessee in form of cash, since cash was duly accounted for in cash book and audited bank accounts, impugned addition was to be deleted.
Further, in this regard, reliance is place on the decision of the Hon’ble ITAT Jaipur Bench ‘A’ in the case of ACIT vs. Chandra Surana in IT APPEAL NO. 166 (JP.) of 2022, wherein it has been held as under:
“ Section 68 of the Income-tax Act, 1961 - Cash credits (Sales transactions) - Assessment year 2017-18 - Assessee was engaged in business of sale of gold jewellery and ornaments -Assessing Officer completed assessment of assessee by making certain addition by holding that certain amount of cash deposited by assessee in his bank account during demonetization period was nothing but undisclosed income of assessee which was under garb of cash sales - He therefore, held that cash deposited was liable to be added under section 68 and taxable @60% under provision of section 115BBE - On appeal, Commissioner (Appeals) deleted addition - It was found from records that assessee had maintained regular books of account, bills, vouchers and day-to-day stock register having complete quantitative details of cash sale transactions of jewellery and cash sales and receipts were duly supported by relevant bills which were produced in course of assessment proceedings and sales were made out of stock-in-trade - Whether thus, all such scenario indicated that assessee had duly substantiated its claim from documentary evidences and also with facts - Held, yes - Whether further, provisions of section 68 would not be applicable on sale transactions recorded in books of account as sales were already part of income which was already credited in P&L account - Held, yes - Whether therefore, there was no occasion to consider same as income of assessee by invoking provisions of section 68 and addition was rightly deleted by Commissioner (Appeals) - Held, yes.”
Furthermore, the Hon’ble ITAT Visakhapatnam Bench in the case of Assistant Commissioner of Income Tax, Central Circle - 1, Visakhapatnam v. HirapannaJewellers in IT (Appeal) No. 253 (Viz) of 2020 [2021] 128 taxmann.com 291 (Visakhapatnam - Trib.), held as under:
Section 68 of the Income-tax Act, 1961 - Cash credit (Bank deposits post demonetization) - Assessment year 2017-18 -Assesses firm was engaged in business of jewellery trading - A survey under section 133A was conducted at business premises of assesses by Deputy Director (Investigation) In which he found that assesses deposited huge sum In high denominations of specified bank notes post demonetization - Assesses had explained source of cash deposits as cash sales and advances received against sales - However, Assessing Officer held that said amount was unexplained cash credits representing unaccounted money brought in to business in guise of jewellery sales, and, accordingly, made addition under section 68 on account of said cash deposit - It was noted that assessee had explained source of said amount in question as sales, produced sale bills and admitted same as revenue receipt as well as offered it to - There was no defect in purchases and sales and same were matching with inflow and outflow of stock - Audit report under section 44AB and financial statements clearly showed reduction of stock position matching with sales which clearly showed that cash generated represented sales -Assessing officer accepted sales and stocks - He had not disturbed closing stock which had direct nexus with sales -Both Assessing Officer and DDIT (Inv.) did not find any defects in books of account, trading account, P&L account and financial statements of assessee - Whether, on facts, impugned addition made under section 68 was to be deleted -Held, yes [Paras 7, 7.2 and 9]
Furthermore, reliance is placed on the decisions of Hon’ble ITAT, Chennai in the case of Mr. Ganapathy Palaniyappan in ITA No.: 557/Chny/2022 dated 04.01.2023, Hon’ble ITAT, Visakhapatnam in the case of Sri Tatiparti Satyanarayana in ITA No. I.T.A.No.76/Viz/2021 dated 16.03.2022, Hon’ble ITAT, Bangalore in the case of M/s. Manasa Medicals in ITA No. 552/Bang/2022 dated 31.10.2022, wherein decision was made in favour of the appellant on the similar issue of cash deposits in demonetized currency.
The Hon’ble ITAT Delhi Bench ‘E’ in the case of Mohit Sukhija Vs. NFA inIT Appeal No. 4661 (DELHI) of 2024 [(2025) 175 taxmann.com 94 (Delhi -Trib.)] has held that the Assessing Officer cannot invoke provisions of sections 68 or 69A when assessee has already declared source for cash deposits in books of account.
In view of the above discussion, after duly considering the assessment order framed, the facts of the case and the issues involved, the addition of Rs.3,32,04,698/- made as unexplained cash credit by the Assessing Officer is deleted. The grounds of appeal filed by the appellant are allowed.”
At the time of hearing, Ld DR brought to our notice detailed findings of AO and submitted that the assessee had made substantial cash deposits during the demonetization period and not substantiated the same with the source of cash to the satisfaction of the AO. He supported the method adopted by the AO to make the additions. He objected to the relief granted by the Ld CIT(A).
On the other hand, Ld AR relied on the decision of Ld CIT(A) and also brought to our notice the detailed submissions made before Ld CIT(A).
Considered the rival submissions and material placed on record.We observed that during the year under consideration, the assessee deposited cash of Rs. 490,10,000/-in its bank account during demonetization period. It was noticed that the assessee had made cash sales of Rs.135,48,057/-during the same period and had closing cash balance of Rs.21,95,500/- as on 01.11.2016. In absence of exact cash balance as on 08.11.2016, the AO adopted the method of calculating the average cash sales from 01.04.2016 to 30.10.2016 and he computed the same at Rs.11,61,745/- of sales per day. On the basis of above, he determined the cash available with the assessee during 01.11.2016 to 08.11.2016 at Rs.158,05,302/-. According to the AO the difference amount of Rs.3,32, 04,698/-remained unexplained. However, before Ld CIT(A), the assessee submitted that the assessee had explained the details of cash deposits made during the demonetization period before AO vide its letters dated 07.08.2019 and 12.12.2019, the stated details are that cash deposited were out of cash sales, cash in hand and cash received as advance from the customers. He observed that the assessee has proper source for cash deposits for the reason that the assessee is running a petrol pump and also observed that the assessee had submitted the cash balance as on 09.11.2016 of Rs.4,02,66,058/- but AO had not raised any issues with the same. He further observed that the assessee had declared total sales of Rs.16,62,42,242/-, including cash sales, which was accepted by the AO. It is noticed that the AO had not rejected the books of account and adopted the method of calculating the average cash sales pre-demonetization period and determined the sales for the period 01.11.2016 to 08.11.2016, without even calling for cash book. Therefore, it was found that the details submitted before AO was proper disclosure of source of cash deposited in the bank. Once the details are borne out of books, the same cannot be treated as unexplained cash credit. In this regard, Ld CIT(A) had relied on the decision of ITAT Jaipur bench in the case of Chandra Surana (supra) wherein it was held that provisions of section 68 would not be applicable on sale transactions already recorded in books of account as sales are part of income which was already declared and credited in the books of account/ profit and loss statement. Similar view was expressed in the case of Hirapanna Jewellers (supra), Ganapathy Palaniyappan (supra). Manasa Medicals (supra) and Mohit Sukhija (supra). Therefore, after considering the detailed findings of Ld CIT(A) on this issue, we do not see any reason to disturb the same. In the result, grounds raised by the revenue are dismissed.
In the result, appeal filed by the revenue is dismissed.