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Judgment
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :
This captioned appeal has been filed by the assessee against the order of the CIT(A)/NFAC Delhi dated 24.10.2025 arising from the assessment order dated 30.12.2019 under Section 143(3) of the Income Tax Act, 1961 (‘the Act’) by the ITO, Ward – 49(4), Delhi concerning Assessment Year (A.Y.) 2017-18.
Brief facts of the case are that the assessee is an individual filed return of income on 09.12.2017 declaring total business income of Rs.10,48,790/- for the A.Y. 2017-18. The case was subsequently selected for complete scrutiny under CASS for the reason “Abnormal increase in cash deposits during demonetization period as compared to pre-demonetization period” and “Higher turnover reported in Service Tax return as compared to ITR”. The assessment order u/s 143(3) of the Act was passed on 30.12.2019 assessing total income at Rs.86,83,065/-. The AO made addition of Rs.48,70,953/- on account of difference between the Gross profit declared by the assessee and actual Gross profit. The other addition of Rs.28,44,000/- was made by the AO on account of unexplained cash deposit u/s 68 of the Act. Aggrieved, assessee was in appeal before learned CIT(A)/NFAC in which learned CIT(A)/NFAC given partial relief by observing that “assessee has failed to satisfactorily explain the source of cash deposits to the extent of Rs.10,68,680/-. Thus, out of addition of Rs.28,54,000/-, addition of Rs.17,75,320/- in respect of cash deposit upheld and the balance addition of Rs.10,68,680/- is deleted.
Aggrieved by the order of CIT(A)/NFAC, assessee is now in appeal before us with the following grounds:
1.“That on the facts and circumstances of the case and in law, the Ld. Assessing Officer (Ld. AO) and Commissioner of Income-tax (Appeals) ('CIT(A)') erred in making an addition of INR 66,46,273/-under section 143(3) of the Income-tax Act, 1961 (the Act') vide Ld. AO's order dated December 30, 2019 (the Order') without appreciating the facts and merits of the case. As such penalty may please be deleted.
2.That Ld. AO and CIT(A) erred in making addition of Rs. 17,75,320/-cash deposits without appreciating the facts of the case. As such the addition of Rs. 17,75,320/- may please be deleted.
3.That Ld. AO and CIT(A) erred in making addition of Rs. 48,70,953 without appreciating the facts of the case. As such the addition of Rs. 48,70,953 may please be deleted.
4.That the aforesaid grounds of appeal are without prejudice to each other.
5.That the appellant craves, leave to add, alter, amend or vary and/or withdraw any or all of the aforesaid grounds of appeal or at time of hearing of the above appeal.”
First, we take up the issue of cash deposits during the demonization period. Before us, the ld. counsel for the assessee vehemently submitted that the cash deposits in the bank account during the period of demonetization were out of sales and duly recorded in the books of account.
Per contra, the ld. DR relied on the orders of the authorities below.
We have heard the rival submissions and have perused the relevant material on record. In the instant case, we find that the assessee has attempted to prove the entire cash deposit during demonetization period as being out of sales and recorded in the books of account. Although the assessee, prima facie, appears to have discharged its onus of explaining the cash deposits, it’s contentions to prove the cash deposits during the demonetization period, hardly deserves to be accepted in entirety especially when the assessee could not give satisfactory explanation for the disproportionate increase in cash sales just before demonetization period. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention that cash deposits are from cash sales, cannot be fully justified. In this factual matrix, there is some element of failure to explain some of the cash sales, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of Rs. 2.8 lakh only would be just and proper with a rider that the same shall not be treated as a precedent, so as to cover all loopholes. The assessee’s ground on this count is partly allowed.
With regard to second addition on account of enhancement of Gross profit rate from 16.60% shown by the assessee to 23.24% estimated by the AO. We find that in the instant case, the assessee has attempted to prove the entire gross profit earned as being from two distinct lines of business; one is electrical goods which has the GP rate as 61.55% and another is civil construction business which has GP of (-) 49.88% giving a consolidated GP of the assessee’s two business at 16.60%. Although the assessee, prima facie, appears to have discharged its onus of explaining its gross profit, it’s contentions to prove the same, hardly deserves to be accepted in entirety especially when the AO rejected its books of account on account of non-production books of account as also the purchase and sale bills. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention, cannot be fully justified. In this factual matrix, there is some element of failure to explain the low gross profit, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of ₹ 10 lakh only would be just and proper with a rider that the same shall not be treated as a precedent, so as to cover all loopholes. The ground of appeal no 3 is partly allowed.
In the result, appeal of the assessee in ITA No. 8582/DEL/2025 is partly allowed.