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Judgment
Per Raj Kumar Chauhan, Judicial Member:
The appeal is directed against t he order dated 28.06.2025 of Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as the “CIT(A)/NFAC”], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] whereby the addition of 1,26,46,025/- made u/s 68 r.w.s. 115BBE of the Act in the assessment order dated 29.12.2019 was deleted.
Aggrieved by the im pugned orde r, the Revenue is in appeal and raised the following grounds of appeal:
“1.That on t he fact s and hi the circumstances of th e case and in law, the Ld. CIT(A) ha s erred in del eting the addi tion of Rs. 1,26,46,02 5/-made by the Assessing Offi cer u/s 68 of the Inco me-tax A ct, 1961 as unexplained cash c redits, without appreciating the findings of the AO that there was abnormal increase in ca sh sal es and cash in hand immedi at el y preceding the demonetization period.
2.That the Ld . CI T(A) has erre d in la w and on fact s i n holding that the expl anation of the a ssessed regarding cash sales and stock liquidati on during t he demoneti zation period was sati sfa ctory, without appreciating that the assessor fail ed to furni sh verifiable evid ence of such cash sal es and th e g enuinen ess of transactions.
3.That the Ld. CIT(A) has erred in ignoring the fact that trevenu e’ se assesses had abnormall y high cash sal es in September-Octob er 2016 an d corresponding high cash in hand of Rs. 1.46 crores (against the no rmal pattern), whi ch was cl earl y inconsi st ent with past records and hence rightl y t reat ed a s unexpl ained by the AO.
4.That the Ld. OT(A) has erred in law in holding that the addition mad e by AO was based onl y o n "arithm etic cal culation' wh erea s th e AO had given detailed reasons support ed by abnormal variations in sal es an d cash depo sits during the relevant period.”
Facts in brief as cull ed out from the proceedings of the authorities are that the assessee has filed return of income for A.Y. 2017-18 on 07.11.2017 declaring total income of Rs.5,54,650/-. The case was select ed for scruti ny in CASS on account of cash deposits during demonetization period and subsequently notice u/s 143(2) issued on 13.08.2018 followed by notice u/s 143(1) issued on 22.04.2019. Assessment u/s 143(3) of the Act was passed by the AO at the assessed income of Rs.1,32,00,675/- by making an addition of Rs.1,26,46,025/- on account of unexplained cash credit u/s 68 of the Act.
To the issue raised by the Assessi ng Officer in the notice u/s 142(1) along with questionnaire, the assessee has replied and gave its justification for the increase in cash amount which is find mentioned in para 4.2 of the impugned order. The learned Assessing Officer did not accept the explanation simply on the ground that due to abnormal sale resulting into cash generation holding that the assessee was havi ng a cash generation capacity onl y to the tune of Rs.27 - R s.28 lacs. Hence, Rs.1,26,46,025/- report ed in cash in his books of account was added as income of the pre vious year from the unexplained/unverified sources as per section 68 of the Act.
Aggrieved by the assessment order, assessee filed appeal before the learned CIT(A) who while considering t he explanation and the legal precedents referred and relied by the assessee has deleted the addition so made on the ground that the appellant has explained that the overall cash deposited duri ng the year is not abnorma l and further the reason for i ncrease in cash sales during month of September and October, 2016 was also explained by t he appellant. It was further observed by the learned C IT(A) that the Assessing Officer has not rej ected the said explanation of the appellant and the appellant has also explained that the sale figures of the Financial Year 2016-17 has been duly depicted in the VAT returns filed by the appellant and t he said VAT returns wereduly filed and there were no adve rse action of the VAT authority in this regard.
We have heard learned AR and the learned DR. The learned AR at the very outset submitted that the ground raised by t he Re venue i n the appeal has no worth as the issue raise d in the grounds in the appeal were al ready addressed sufficiently by t he learned CIT(A) by his decision and the explanation given by the Assessee before the AO as well as before the learned CIT(A) was found reasonably justified and convinci ng. It i s further argued that since the purchase has not been disputed hence the sales cannot be rejected and further that the books of accounts of the assessee wherein, the transactions resulting into cash sales were duly reflected has also not been rej ected and in the absence of rejection of books of accounts and also there is no ille gality or error found in VAT returns of the assessee, thus, the addition made by t he AO was not justified as the same was based on surmises and conjunctures. It is further argued that the contentions raised before the Assessing Officer and the e xplanation gi ven by t he assessee in response to the questionnai re and the notice u/s 142(1) were also not rejected by the AO. It is, the refore, submitted that the impugned orde r is legall y justified and the appeal is liable to be dismissed.
The learned departm ental representative on the other hand argued that the explanation give n by assessee was not justified as there was abnormal sale shown in comparison to the pre vious years, therefore, the learned AO has rightly rejected the explanation and for that reasons the impugned order suffers from illegality and perversity and the same is accordi ngly liable to be set aside and the grounds raised in the appeal are required to be allowed.
We have considered the rival submissi ons and the material on record. In order to understand the reasoning gi ve n by the learned C IT(A) for deleting the addition, we find it necessary to extract the relevant portion of the impugned order from para 5 onwards extracted below as under:
“I have consid ered the fa ct s of th e case an d w ritten su bmi ssions of the appellant a s against the observat ions/findi ngs of t he AO in the assessment order f or the year under consideration. The cont entions/ submissi ons of the appel lant are being di scussed and decided as under:
5.1The ground no. 1, 3 and 4 are relat ed to the addition of Rs. 1,26,46 ,025/- under Section 68 read with Section 115BBE.
5.2The AO noted that maximum amount of closing cash hand was during the month Febru ary 2016 w hich wa s Rs. 67,87,441/-. But assessee company has decl ared cash i n hand in the month of Oct ober 2017 (month end b efore demonetarizat ion mo nt h) amounti ng to 1,46,22 ,116/-whi ch i s abnormal increase of cl osing cash in h and. Similarl y cash sal e was maximum in the month of January 2016 amounting to Rs. 81,44,053/- but in the month of October assessee compan y has declared the cash sales amount ing to R s.1,54,10,24 5/ -which i s al so abnormal increase in t he cash sal es.
The cont enti on of assessee was dul y consid ered but not accept ed due to abnormal sal e total un explained/unverified cash deposit ed is wo rked out (Rs 1,54,02,000/-) cash dep osit ed -27,55,975/- (on perusal of chart furn ish by assessee total cash d eposited in F.Y. 2015-16 i s Rs. 3,30,71,705/- on di viding by 12 it i s = Rs. 27,55,975 which means a ssessee is having ca sh generation capa cit y to the t une of Rs. 27-28 la cs) Rs. 1,26 ,46,025/- is added as income of the previous year f rom unexplained/ unverified sources as per section 68 of Income Tax Act. 1961.
Hence, t he Assessing Officer con sidered the cash d eposit abo ve the normal cash sal es a s unexpl ai ned.
The appellant explai ned that w e took the deci sion to shift the pro duction at anoth er wheat flour mill for grinding and pa ckaging fro m this existing unit . Du e to this reshuffli ngs of busin ess model in the month of Sep & Oct-16, w e have to liquidate /minimi ze our st ock as well as increase our sal es too so, on t his lin e we decide d t hat as navratra &di wali mont h was going on & it i s peak season for Wheat, Atta, Maida &Suzi we sold the stock on a di scounted price so that our
bra nd "Shree Rashbhog" Capture the market and w e can squa re off our sto ck as much as possibl e Due to this stock minimi zat ion process which was happ ened i n the month of S ep & Oct 2016. Due to thi s, we were abl e to achi eve highest numb er of sales in those months and due to this we had a good amount of cash in han d in month of Oct-16 i .e. amounting Rs. 145 L akhs A pprox. we were unabl e to deposit only once in O ct'16 a s shown in our Bank Stat ement too, as we were quite occupied in Squaring off Goods & Market as w e ha ve to va cat e the premi ses as a result o ur Cash in hand got accumulat ed in Oct'16 and deposit the sa me in Bank in Nov16 & De c'16 which includes those currencies whic h was legal tender li ke 100, 50 Rupees Not es. Page 15 of 19 T he Source of c ash recei ved during the yea r 2016-2017 is explained as und er:
Particul ars FY 2016-17 FY 2015-16 Coll ection from Debtors 1,81,24,511 20,710,524 Ca sh sal es 1,90,07 ,771 15,784,661 Ca sh Withd rawal Others 34,68,000 4,976,000 Others 80,000 - Total Cash Receipt s 40,680,282 41,471,185 Ca sh Deposit ed in Ban k 28,982,880 33,071,705 % Cash Depo sit ed in Bank with respect total Cash receipt 71.25 % 79.75% % C hange in Cash Deposit ed (- )8.50 % - It i s stat ed that during the FY 2016-17 d eposited cash into bank of Rs. 28,982,880/- as compa red to Rs 33,071,705/ duri ng th e FY 20 15-16, So there i s decrease in cash d eposit d uring the financial year 2016-17 as compared to previous year 2015-16 by 8.50 % that means there are no such abnormal cash depo sit during demoneti zat ion period, it's regular nature of busin ess whi ch happened every year
Particul ars FY 2015-16 FY 2016-17 Variances Ca sh Sal es (In cluding ca sh coll ection from debtors) 36,495,185 37,132,282 (+)1.75% Ca sh Deposit ed 33,071,705 28,982,880 (- ) 12.36% Ca sh Deposit % 90.62 % 78.05 % The main source of cash deposit by the assessee during the rel evant assessment year in bank accounts i s cash sal es & C ash coll ection fro m debto rs whi ch i s lower than f ro m the preceding assessment year which is decrease by 12.36% of cash depo si ted by the assessee in FY 2015-16.
Ca sh depo sit ed by the assessee during FY 2015-16 and FY 20 16-17 is in con sonance with the cash sal es mad e includi ng cash coll ect ion fro m debtors by t he assessee du ring t he respecti ve assessment years except nominal variation.
It is argu ed that the figures of cash depo sited whi ch are generated fro m sal e, cash availa ble with the appellant cannot b e doubt ed, when the books of account s are not rejected.
On this ba sis, it is submitted that having o nce accept ed th e bo oks, the AO was precluded from not a ccept ing that the cash wa s generated fro m the busin ess act ivities onl y. For t hi s proposi ti on, reliance is placed on
It is stat ed that t he sale figures of t he F.Y 2016-17 has been duly depi ct ed i n the VAT return s fi led by the appellant. The VAT returns are dul y filed and t here are no adverse actions of t he VAT authorit ies in that regard.
Decision
The Assessing Of fi cer has not accepted the expl anation of the appell ant due to abn ormal sal e total unexpl ained/unverifi ed cash deposited. It is observed that the appellant explained that th e overall cash deposit ed during the year is not abno rmal. The rea son for increase in cash sal es during the month of Sept emb er and Octo ber 2016 i s al so explained by the appellant. The Assessing Offi cer has not rej ected thi s explanation of the appel lant. The app ellant also explained that the sale figures of the F.Y 2016-17 has been duly depi ct ed i n the VAT return s fi led by the appellant. The VAT returns are dul y filed and t here are no adverse actions of t he VAT authorit ies in that rega rd. In the absence of rej ecting the explanation made by the appellant, th e addition made b y the AO si mpl y by making arit hmeti c cal culation is not found to be sustainabl e and del et ed.
Considering the overall facts and reply of the app ellant including the deci sions reli ed upon by the app ellant, the addition made by th e AO is not found to be sust ainable. The charging of tax as per p rovi sions of section 115BBE is consequential and need not b e adjudi cat ed when the additi on made u/s 68 i s not found to be su stainabl e. These ground s of appeal are therefore t reat ed a s allowed.”
It is evident from the aforesaid extract of the impugned order that the reasoning given by the learned CIT(A) is convincing and is based on correct appreciation of facts and t he explanation brought on record by the assessee. We note that the Assessing Officer has not accepted t he explanation of the appell ant due to abnormal sale total unexplained/unverified cash deposited. However, the overall cash deposited during t he year is not abnor mal. The reason for increa se in cash sales d uri ng the month of S ept ember and Oct ober 2016 i s al so expl ained by t he assessee. It is not ed that th e AO even has not rej ect ed this expl anation of the assessee. Thus, in the absence of rej ecti on of expl an ation made by the assessee, the addition made b y t he AO simpl y by maki ng arithmeti c cal cul ation i s not found to be sust ainabl e and therefore, t he same has ri ghtl y been del et ed by th e Ld. C IT( A), whi ch do es not need any interf erence on our part, hence, we uphold the same and accordi ngly, rej ect the groun ds r ai sed by the Revenue.
In the result, the appeal of the Revenue is dismissed