Income Tax Officer, Ward-17(1) vs Mohan Mart Pvt. Ltd.

PER MANISH AGARWAL, A.M.:

The captioned appeal is filed by the Revenue against the order dated 29.09.2025 passed by Ld. Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 30.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18.

Brief facts of the case are that the assessee is engaged in the business of dry fruits, spices and Kirana merchant under the name and style of M/s. Mohan Mart Pvt. Ltd. at Khari Baoli, Delhi. The return of income was e-filed on 07.11.2017. The case of the assessee was selected under scrutiny for the reason of abnormal increase in cash deposits during demonetization period in the bank account in SBN of INR 68,89,000/-. The claim of the assessee was that the cash was deposited out of the sales made before the demonetization period. However, the AO has not accepted the claim by making comparison of the cash sales made in the year under appeal and during the preceding year and made the addition of the said amount u/s 69A of the Act as unexplained money. Besides this, AO observed that during the course of assessment proceedings, certain inquiries were carried out from the creditors by issue of notice u/s 133(6) of the Act and in certain cases, remained uncompiled with. At pages 12 & 13 of the assessment order in para 9.1, the AO has made a table wherein he has identified those parties. The AO observed that books of accounts of the assessee have not depicted the true nature of business and therefore, invoked the provisions of section 145(3) of the Act and made the addition of INR 1,10,01,368/- by estimating the GP rate @ 18% on the gross turnover of INR 6,11,18,716/- as against the G.P rate @ 2.36% declared during the year under appeal.

Against the said order, the assessee filed an appeal before Ld. CIT(A) where assessee has filed additional evidences under Rule 46A of the Income Tax Rules, 1962 (the Rules) which were send to the Ao for remand report. After considering the submissions and the remand report, the ld. CIT(A) vide impugned order dated 29.09.2025 has deleted the additions made.

Aggrieved by the order of Ld. CIT(A), Revenue is in appeal before the Tribunal by taking various Grounds of appeal mentioned in the appeal memo.

Grounds of appeal Nos. 1 to 4 raised by the Revenue are with respect to the deletion of additions made u/s 69A of the Act of INR 68,69,000/- on account of deposited in SBN during the demonetization period.

Before us, Ld. Sr. DR for the Revenue vehemently supported the order of AO and submits that AO has compared the cash sales made in the year under appeal and of immediately preceding year and observed that there was abnormal trend of turnover in the month of October 2016 as compared to immediately preceding year during the corresponding period. Ld. Sr. DR further submits that out of total cash sales of INR 67.67 Lakhs, almost 80% sales were made on October, 2016 and no sales were reported in August & September 2016 which is quite abnormal. Ld. Sr. DR further submits that it appears that the entire exercise was done to camouflage the undisclosed cash in the garb of cash sales and therefore, requested for the restoration of the addition made by the AO.

On the other hand, Ld.AR for the assessee submits that during the course of appellate proceedings, the assessee has filed all the relevant details such as copy of cash book, bank statement, VAT returns, cash sales register, party-wise register, purchase and sales details, and stock details. Ld.AR further submits that in the Remand Report, AO has failed to point out any defects in such details. He further submits that ld. CIT(A) after considering the additional evidences filed, has rightly deleted the additions by observing that due to Diwali Festival, there was a sharp increase in the sale of dry fruits which fact cannot be ignored and therefore requested for the confirmation of the order of ld. CIT(A).

Heard the contentions of both the parties at length and perused the material available on record. It is observed that the assessee has made cash deposit in SBN of INR 68.89 Lakhs in various bank accounts, namely, AXIS Bank; Canara Bank; HDFC bank during the period of demonetization. The immediate source of the said cash was claimed to have been made out of cash sales made and bank withdrawals from time to time which were duly recorded in the books of accounts and the cash balance available in the cash book as on 08.11.2016 was deposited by the assessee during the demonetization period. The assessee further filed all the necessary details to support the contentions comprising of cash book, bank statements, VAT returns, cash sales and party-wise sales etc. It was not the case of the Revenue that sales have been shown by the assessee in absence of corresponding stock in hand. Further, the sales have been accepted as such though the income was estimated by applying G.P. rate however, the said estimation was made on the total turnover which include the turnover of INR 67.67 Lakhs of cash sales alleged as bogus. Ld. CIT(A) after considering these facts, has deleted the addition by making following observations in para 7.2 to 7.5 of the impugned order:-

Before us, Revenue has failed to controvert the findings of Ld. CIT(A) by placing any contrary material on record. Once the sales have been accepted and there were material to hold that such sales was bogus, the cash accumulated out of such cash sales cannot be held as unexplained money u/s 69A of the Act. In view of the above discussion and the facts of the case, we find no reason to interfere in the order of Ld. CIT(A) deleting the addition made. Accordingly, Grounds of appeal Nos.1 to 4 raised by the Revenue are dismissed.

Ground of appeal Nos. 5 to 7 raised by the Revenue are with respect to the deletion of addition of INR 1,10,01,368/- made by AO by invoking the provision of section 145(3) of the Act.

Before us, Ld. Sr. DR for the Revenue submits that during the course of assessment proceedings, AO has issued summons u/s 133(6) of the Act to various parties in order to verify the genuineness of the purchase made by the assessee. As per Ld. Sr. DR, AO has concluded that few parties had not responded to the notices issued or they were returned unserved. Ld. Sr. DR further drew our attention to the facts that purchases to the extent of INR 54,12,379/- made from M/s. Ganesh Trading Company was out of opening balance which fact has not been verifiable. Accordingly, Ld. Sr. DR submits that AO has rightly invoked the provision of section 145(3) and estimated the income by applying 18% G.P. rate on the declared turnover of INR 6,11,18,716/- which deserves to be upheld.

On the other hand, Ld.AR vehemently supported the order of Ld. CIT(A) and submits that during the course of appellate proceedings, the assessee has filed all the details with respect to the parties to whom notice u/s 133(6) of the Act and they were sent to the AO for his comments however, no specific defect was pointed out by the AO in the Remand Report. He referred the chart reproduced at page 26 to 28 of the order of Ld. CIT(A) wherein ld. CIT(A) has discussed the evidence filed by each of the party from whom purchases made were doubted by the AO. Ld.AR submits that once the assessee has discharged the burden of justifying the purchases by filing all the details and the AO has failed to point out any discrepancy in the same, the sole basis for invoking the provision of section 145(3) of the Act has been duly rebutted by the assessee thus merely for the fall in GP, no estimation of income could be made. therefore the ld. AR requested for the confirmation of the order of ld. CIT(A) deleting the trading addition made.

Heard the contentions of both the parties at length and perused the material available on record. It is observed that during the course of assessment proceedings, AO has issued summons to various parties from whom purchases were made and it was observed by the AO that either the notices were returned unserved and no compliances were made. It is observed that during the course of appellate proceedings, assessee has filed additional evidence including the confirmations of the parties and their other particulars were filed as additional evidences. All these details were sent to AO for Remand Report however, as could be observed from the Table available at page 26 to 28 of the appellate order, AO has not made any specific comment so as to doubt the existence/supply of the material from the respective parties therefore Ld. CIT(A) was of the view that books of accounts of the assessee cannot be rejected and he deleted the addition.

On careful consideration of the facts, it is observed that thought the assessee has been able to file the confirmations of the parties from whom purchases have been made. However, the fact remained that in the case of M/s. Ganesh Trading Company, there was specific observation of the AO that there were certain defects in the confirmations filed which are given in para 9.9 of the assessment order. It is further observed that the assessee has shown advance to M/s. Ganesh Trading Company however, its name was not appeared in the Balance Sheet under the head “Advances against purchases”. From the perusal of the appellate order, it is observed that assessee has failed to give any justifiable explanation on this issue even before the ld. CIT(A) even though the ld. CIT(A) has accepted the trading results declared by the assessee. Under these circumstances and considering the fact that assessee had failed to rebut all the deficiencies pointed out by the assessing by placing on record proper justification therefore, in our considered opinion order of Ld. CIT(A) in holding the books of accounts maintained by the assessee as correct cannot be accepted. Accordingly, we confirmed the invocation of provisions section 145(3) of the Act.

Now coming to the estimation made, it is observed that the AO has estimated the income of the AO by applying 18% G.P. rate of turnover which is very high looking to past history of the assessee where G.P. rate of 7.57% was declared on turnover of INR 3,63,92,084/- in 2014-15; INR 11,06,97,984/- in 2015-16 and GP rate @ 2.36% on the turnover in the year under appeal. It appears that the assessee has declared decreasing results though there was substantial increase in turnover.

Considering the overall facts of the case and the circumstances, it would be fair and reasonable to take the past history of the assessee as the best guide to estimate the income and accordingly the average G.P. rate of 03 years i.e. AY 2015-16, 2016-17 & 2017-18 which comes to 4.51% is hereby, applied and the addition to this extent is hereby, confirmed. Accordingly, AO is directed to re-compute the trading addition by taking the G.P. @ 4.51 % on the total turnover of the assessee. The Grounds of appeal No.5 & 7 raised by the Revenue are partly allowed.

In the result, appeal of the Revenue is partly allowed.