Kavit Manchanda vs ACIT

PER S. RIFAUR RAHMAN, AM :

This appeal is filed by the assessee against the order of Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 25.07.2025 for the Assessment Year 2017-18. raising following grounds of appeal :-

At the outset, ld. AR of the assessee brought to our notice brief facts of the case. He submitted that the case was selected for scrutiny under the CASS, primarily to verify the large cash deposits made during the demonetization period. He submitted that during the course of assessment proceedings, AO observed that the assessee had deposited substantial cash into her bank accounts during the aforementioned period and these deposits were found to be disproportionately high when compared with the historical pattern of cash transactions reported by the assessee in earlier financial years. Consequently, the AO issued notices seeking an explanation regarding the nature and source of these cash deposits, directing the assessee to substantiate her claim with credible documentary evidence. He submitted that in response, the assessee submitted that the cash deposits represented proceeds from cash sales pertaining to her business activities, primarily carried out in the months of October 2016 and the first week of November 2016. She claimed that cash sales during this short window amounted to Rs.1,10,23,175/-, which constituted more than 50% of the total annual sales for the relevant financial year.

He submitted that the AO found the explanation to be unconvincing and the AO noted several deficiencies in the assessee's submission and taking into account the totality of facts and surrounding circumstances, the AO invoked the provisions of Section 68 of the Act and treated the cash deposits amounting to Rs.74,58,725/-made during the demonetization period as unexplained cash credits, adding the same to the assessee’s total income for the year under consideration and also imposed section 115BBE of the Act. He submitted that assessee filed appeal against the aforesaid assessment order before the ld. CIT (A) and ld. CIT (A) upheld the order of the AO.

He submitted that against the order of ld. CIT (A), assessee preferred an appeal before the Tribunal and submitted that the cash deposits were duly recorded in the books of account and represented genuine sales proceeds arising from regular business activity and the business was dealing in foam and furnishing goods, and sales had legitimately increased in October-November due to seasonal demand during the festival and wedding season. He further submitted the cash sales were recorded in VAT returns and disclosed in the profit & loss account, and hence, could not be treated as unexplained. Relying on various judicial precedents, he further submitted that once the sales are recorded in the books and subjected to VAT, no addition u/s 68 could be made. Further he submitted that section 115BBE could not be imposed as the issue is squarely covered by the decision of Hon’ble Madras High Court in the case SMILE Microfinance Ltd. as cash deposits were duly recorded in the books of account and represented genuine sales proceeds arising from regular business activity and the business was dealing in foam and furnishing goods, and sales had legitimately increased in October-November due to seasonal demand during the festival and wedding season. He further submitted that the cash sales were recorded in VAT returns and disclosed in the profit & loss account, and hence, could not be treated as unexplained. Relying on various judicial precedents, he further submitted that once the sales are recorded in the books and subjected to VAT, no addition u/s 68 could be made. Further he submitted that section 115BBE could not be imposed as the issue is squarely covered by the decision of Hon’ble Madras High Court in the case of SMILE Microfinance Ltd. vs. ACIT in WP(MD) no. 2078 of 2020& 1742 of 2020 dated 19.11.2024 (Mad.).

On the other hand, ld. DR of the Revenue relied on the orders of the authorities below.

Considered the rival submissions and material placed on record. We find that cash deposits were duly recorded in the books of account and represented sales proceeds arising from regular business activity and sales had been increased in October-November due to seasonal demand during the festival and wedding season. We further observed that the cash sales were recorded in VAT returns and disclosed in the profit & loss account. Further we observed that the details of sales were not submitted before First Appellate Authority. This needs verification. At this stage, we observed that the details are required to be verified at the level of AO. Accordingly, in the interest of justice, we are of the opinion that grounds no.1, 2 & 4 are required to be restored to the file of AO to decide afresh de novo after providing an opportunity of being heard to the assessee.

With regard to ground no.3 regarding computing the tax @ 60% u/s 115BBE on the addition, we observed that this issue is covered in favour of the assessee by the decision of Hon’ble Madras High Court in the case of SMILE Microfinance Ltd. vs. ACIT (supra), accordingly ground no.3 is allowed.

In the result, the appeal of the assessee is allowed for statistical purposes as above.