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Judgment
PER RAMIT KOCHAR, AM:
This appeal in ITA No. 4647/Del/2025 for Assessment Year: 2017-18 has been filed by Revenue which has arisen form the learned CIT(A)’s appellate order u/s 250 of the Income-tax Act, 1961 (in short “1961 Act”) dated 09.05.2025 in DIN & Order No: ITBA/NFAC/S/250/2025-26/1076145600(1), which in turn has arisen from the assessment order dated 29.12.2019 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the 1961 Act(DIN & Order No. ITBA/AST/S/143(3)2019-20/1023381910(1)).
The Revenue has raised following Grounds of Appeal in the Memo of Appeal filed with the Income Tax Appellate Tribunal, Delhi Benches, New Delhi, reads as under:-
“1 Whether on the facts and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 3,67,16,726/- made by the AO u/s 68 of IT Act on account of unexplained cash sales and addition of Rs. 17,14,141/- on account of disallowance of purchases from M/s DKS Sales Pvt. Ltd. without appreciating the fact brought on record during the course of assessment proceedings.
2 Whether on the facts and in law, the Ld. CIT(A) has erred in not appreciating the fact that if the purchases had not been confirmed on the part of the assessee, then sales of such a high volume amounting to Rs. 3,84,30,867/-(36716726+1714141) remained unexplained during the course of assessment proceedings.
3.Whether on the facts and in law, the Ld. CIT(A) was right in deleting the addition u/s 68 by not appreciating the fact that though the assessee maintained books of account and entries relating the cash deposits are noted therein but the explanation offered by the assessee towards sources of cash deposits (cash sales) was not found to be satisfactory considering that the same was in violations to Notifications published by Central Government of India regarding acceptance of non-legal tender currency and therefore, the addition made u/s. 68 is justified.
4.Whether on the facts and in law, the Ld. CIT(A) was right in deleting the addition u/s 68 by not appreciating the fact that though the assessee did not offer satisfactory explanation towards sources of cash deposits (cash sales and therefore, the addition made by the Assessing Officer u/s. 68 is justified as held in Hyderabad in Spectra Equipment (P) Ltd. Vs. ITO [170 taxmann.com 343 (Hyderabad - Trib.)]
5.The appellant craves leave to add, amend and alter the grounds of appeal during appellate proceedings.”
The Brief facts of the case are that the assessee filed return of income on 02.11.2017 , declaring income of Rs.3,27,300/-. The case of the assessee was selected by Revenue for framing scrutiny assessment under CASS. Statutory notices incl. SCN were issued by the AO to the assessee.The assessee participated in assessment proceedings, details recorded in assessment order.The assessee has claimed to be doing business of trading of Milk partially on whole sale and partially on retail business. The case of the assessee was selected by Revenue for verification of abnormal increase in cash deposits during demonetization period. In response, the assessee submitted details of cash sales as under:
| S.No. | Month | Cash Sales (In Rs.) |
| 1 | April | 7,83,274 |
| 2. | May | 7,27,721 |
| 3. | June | 6,66,038 |
| 4. | July | 6,95,532 |
| 5 | August | 6,96,434 |
| 6. | September | 93,70,691 |
| 7 | October | 2,40,37,662 |
The table of cash deposited during demonetization period as culled out by the AO in assessment order, is reproduced hereunder:
| 2.1 | (a) Total Cash deposit in Bank in F.Y. 2015-16 | 20,000/- |
(b) Total cash deposit in Bank from 01.04.2015 to 08.11.2015 | 20,000/- | |
(c) Total cash deposit in bank from 09.11.2015 to 31.12.2015 | 0 | |
| 2.2 | (a) Total cash deposit in Bank in F.Y. 2016-17 | 3,75,99,860/- |
(b) Total cash deposit in Bank from 01.04.2016 to 08.11.2016 | 0 | |
(c) Total cash deposit in Bank from 09.11.2016 to 31.12.2016 | 3,75,99,860/- | |
| 2.3 | (a) Percentage increase between 2.2(a) and 2.1(a) | 99.95% |
(b) Percentage increase between 2.2(b) and 2.1(b) | Percentage decrease | |
(c) Percentage increase between 2.2(c) and 2.1(c) | 100% |
The assessee , inter-alia, was asked by AO to explain huge cash sales in the month of September/October, 2016, and consequently cash deposit in Bank account in SBN’s from to the tune of Rs. 3,75,00,000/- from 08.11.2016 to 18.11.2016 along with other details. In the SCN issued by the AO, it was AO observed by the AO that notices u/s 133(6) issued to various parties from whom purchases and sales were made also remained un-complied with. The assessee submitted its reply on 25.12.2019. The AO while framing assessment observed that Notice u/s 133(6) issued to M/s D K S Sales Private Limited from whom the assessee made purchases to the tune of Rs. 1,71,41,419/- , remained un-complied with. The AO observed that cash sales which were around Rs. 6,95,532/- in July, 2016 and Rs. 6,96,434/- in August, 2016, increased to Rs.93,70,691/- in September,2016 and Rs. 2,40,37,662/- in October, 2016. The AO also observed that cash sales till November, 2016 were never deposited in bank account , and the assessee kept Rs. 3,88,47,688/-in cash in hand, which has no rationale. The AO made addition of Rs. 3,67,16,726/- as income of the assessee u/s 68 r.w.s. 115BBE of the 1961 Act with respect to old currency notes i.e. SBN’s deposited in the bank during demonetization period while giving credit for highest cash sales of Rs. 7,83,274/- in the month of April, 2016.
The AO further disallowed 10% of the purchases (total purchases made Rs. 1,71,41,420/- made by the assessee from DKS Sales Private Limited) made by the assessee from DKS Sales Private Limited which led to additions to the income of the assessee to the tune of Rs. 17,14,141/- as there was no response from the said supplier to notice issued by the AO u/s 133(6) of the 1961 Act , which in-fact returned un-served.The AO duly informed about the aforesaid notice u/s 133(6) to the assessee.
Aggrieved, the assessee filed first appeal with ld. CIT(A), who allowed the appeal of the assessee, and deleted the additions as were made by the AO.
Now, it was the turn of the Revenue to be aggrieved by the appellate order passed by the ld. CIT(A), and Revenue has filed an appeal with the Tribunal. The ld. Sr. DR submitted that the assessee has deposited cash in SBN during demonetization period from 08.11.2016 to 18.11.2016, to the tune of Rs. 3,75,00,000/-. The assessee could not substantiate huge cash sales made just prior to demonetization announced by GOI , and infact the accounts were manipulated/camaflouged wherein the undisclosed income is introduced by way of cash sales. The ld. SR DR submitted that notice u/s 133(6) were sent by AO to the supplier DKS Sales Private Limited, but there was no response from the said supplier. Purchases could not be verified. The AO rightly made the additions were the contentions of ld. Sr. DR, and the ld. CIT(A) erred in giving relief to the assessee. The ld. Sr DR relied on the assessment order passed by the AO, and took us through both the assessment order as well ld. Appellate order passed by ld. CIT(A). The ld. Sr. DR relied upon the order passed by Hyderabad Tribunal in the case of Spectra Equipment Private Limited v. ITO , reported in (2025) 170 taxmann.com 343(Hyd. Trib.). Prayers were made to set aside the appellate order passed by ld. CIT(A), and confirm the additions as were made by the AO.
The ld. Counsel for the assessee relied upon the appellate order passed by ld. CIT(A). It was submitted that books of accounts were produced before the AO, and there was no discrepancy/defect noticed by the AO wrt the books of accounts produced by the assessee. It was submitted that the assessee is in diary business.It was submitted that during August-October,2016, there was increase in sales due to festivals in India . There is huge demand of milk and milk products from Halwai. The assessee opened new collection and distribution centres in Haryana/Rajasthan. There were increased cash sales. Our attention was drawn to order of ld. CIT(A). It was submitted by ld. Counsel for the assessee that the purchase/sale during demonetization were accepted by the AO. There were total purchases of Rs. 265 crores , while cash purchases were to the tune of Rs. 10 crores. It was submitted that confirmation from DKS Sales Private Limited was produced before the authorities below(Page 218/PB). There were both purchases and sales from/to the said party DKS. Payments were made through banking channel. Bank statements were produced. The assessee has filed paper book containing 219 pages, which is placed on record in file. The copy is also provided by assessee to Revenue. Prayers were made to confirm the appellate order passed by ld. CIT(A).
We have considered rival contentions and perused the material on record. The Tribunal is the last fact finding authority . Tribunal has wide statutory powers to pass such orders as it thinks fit (Section 254(1) of the 1961 Act)(Section 363(1) of the Income-tax Act, 2025). The assessee has reported huge sales of Rs. 265.41 crores during the year under consideration(Page 76/Audited P& L A/c-Page 76/PB) . It is observed that the assessee has claimed to be dealing in milk , milk solids, chaach, dahi, rice, chana , dal etc. (Page 102/PB/Tax Audit Report). Most of these items are highly perishable, and requires chillers, refrigerators and other Cooling equipments. Incidentally, the total fixed assets(Net Block) held by the company are to the tune of minuscule amount of Rs. 48,948.30 as at year end (Gross Block-Rs. 84,218.56-Page 82/PB-Audited Financial Statements) . Being milk, milk solids, chaach, dahi highly Perishable items, we have observed that there are no sales returns during the year nor are there any purchase returns. Further, there are no expenses booked for spoilage etc which is usually associated with perishable goods. Interestingly, the opening stock at the beginning of the year was Rs. Nil, so did closing stock at year end was Rs. Nil, while the turnover of the assessee is Rs. 265.41 crores. These are some unusual findings vis-à-vis business carried on by the assessee and the scale of business operations. Incidentally, the assessee’s major client to whom sales to the tune of Rs. 235.43 crores were made is Kwality Limited, which is presently under insolvency/liquidation facing multiple regulatory investigations, owing to various alleged frauds committed by it. Thus, the infrastructure available for achieving these huge scale of operations more so keeping in view nature of industry does not inspire confidence, and requires deeper inquiry . Proceeding further, it is observed that the assessee has shown cash sales during the year under consideration to the tune of Rs. 755.77 lacs , while in the immediately preceding year, the cash sales were to the tune of Rs.60.51 lacs. It is also observed that there were sales proceeds realised in cash to the tune of Rs. 4,47,90,005/- from 01.04.2016 to 08.11.2016 , as detailed below:
| Monthwise | Total Sales | Relisation of sales proceed in | Realisation of sale through |
| cash | banking channel | ||
| April, 2016 | 18,22,53,333 | 7,83,274 | 18,14,70,059 |
| May, 2016 | 21,90,00,512 | 7,27,721 | 21,82,72,791 |
| June, 2016 | 21,36,26,713 | 6,66,038 | 21,29,60,675 |
| July, 2016 | 23,07,54,228 | 6,95,532 | 23,00,58,696 |
| August, 2016 | 22,43,33,228 | 6,96,434 | 22,36,36,794 |
| September, 2016 | 29,69,79,560 | 93,70,691 | 28,76,08,869 |
| October, 2016 | 21,59,72,447 | 2,40,37,662 | 19,19,34,785 |
November till 08.11.2016 | 6,11,31,311 | 78,12,653 | 5,33,18,658 |
| Total | 1,64,40,51,332 | 4,47,90,005 | 1,59,92,61,327 |
Thus, as could be seen that since September, 2016 till 08.11.2016, there has been exorbitant increase in cash sales. The cash sales were hovering around Rs. 6.5-8 lacs per month from April to August, 2016, but suddenly increased to Rs. 93,70,691/- in September, 2016, Rs. 2,40,37,662/- and Rs. 78,12,653/- from 01.11.2016 to 08.11.2016. These are the period just prior to demonetisation announced on 08.11.2016 by GOI. The assessee sought to explain this spurt in cash sales to festival seasons as well to opening of new collection and sales centres in Haryana/Rajasthan. This requires inquiry as well comparative patterns over the years, to arrive at conclusive determination on touchstone of preponderance of probabilities. The total cash deposit made from 08.11.2016 to 18.11.2016 was Rs. 3,75,00,000/-. Thus, it is claimed that it mainly consisted of the cash sales claimed by the assessee from September, 2016 to 08.11.2016. The total cash deposited in the bank was Rs. 20,000/-from 01.04.2015 to 08.11.2015. The total cash deposits in Bank from 01.04.2016 to 08.11.2016 was Rs. Nil, while total cash deposits in SBN’s from 08.11.2016 to 18.11.2016 was Rs. 3,75,00,000/- ( total cash deposits from 08.11.2016 to 31.12.2016 was Rs. 3,75,99,860/- ). The assessee sought to explain this spurt in cash sales to festival seasons as well to opening of new centres in Haryana/Rajasthan. The claim of the assessee does not inspire confidence, but however requires proper enquiry and verification, before the same is accepted. It is observed that the ld. CIT(A) while granting relief to assessee did not verified the contentions of the assessee nor made any enquiry with respect thereto, as to how there has been huge spurt in cash sales just before demonetisation . The ld. CIT(A) merely accepted the claim of the assessee without any verification. Even , filing of GST returns for quarter ending September 2016 , prior to demonetisation or post demonetisation was not seen by ld. CIT(A). It was also not verified by ld. CIT(A) whether the sales invoices are supported by goods movement, transport bills, lorry number, eway bill number etc. The ld. CIT(A) was obligated to make enquiry and ought to have verified the same. Thus, keeping in view facts and circumstances of the case and in the interest of justice and fairness to both the parties, we are inclined to set aside the appellate order passed by ld. CIT(A), and restore the matter to back to the file of ld. CIT(A) for denovo adjudication of the appeal of the assesseee on merits in accordance with law. Since, the other addition of purchases made by the assessee also have co-relation with the working model of the assessee, we are restoring the matter back to the file of ld. CIT(A) for denovo adjudication. The ld. CIT(A) shall given opportunity of being heard to the assessee in accordance with principles of natural justice. The evidence filed by the assessee shall be admitted by ld. CIT(A) and adjudicated on merits in accordance with law. Needless to say that power of ld. CIT(A) are co-terminus with the powers of the AO. The appeal filed by Revenue is allowed for statistical purposes. We order accordingly.
In the result, the appeal of the Revenue is allowed for statistical purposes.