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Judgment
PER S. RIFAUR RAHMAN, AM :
This appeal is filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)] dated 06.11.2025 for the Assessment Year 2017-18 raising following grounds of appeal :-
“1.The order dt.06.11.2025 u/s 250 passed by the learned CIT(A)/NFAC is bad in law.
2.On the peculiar facts of the case and in law, adopting the figure of 'SBN deposited' in the bank account at Rs.17550000/- (as against the figure of Rs.14800000/-) is factually incorrect.
3.On the peculiar facts of the case and in law, treating the cash deposited in the bank account (sourced out of cash in hand available as per the cash book having been maintained in regular course of business, which was audited by a firm of chartered accountants) as unexplained money in terms of section 69A, is arbitrary unjust and illegal.
ADDITIONAL GROUNDS OF APPEAL
4.Treating the cash deposited in bank account as unexplained money is unwarranted, in as much as the books of account were not rejected.
5.Making addition of cash deposited in bank account (represented the sale proceeds, which were already credited to P & L account for the same year) tantamount to double addition which is not permissible in law.
6.Charging income tax & surcharge at special (higher rate) is arbitrary, unjust and illegal, as the same were not applicable for AY 2017-18.”
After going through the submissions of both the sides, we admit additional grounds raised by the assessee in view of the decision of Hon’ble Supreme Court in the case of NTPC Limited vs. CIT (1998) 229 ITR 383 (SC)
At the time of hearing, ld. AR of the assessee submitted that assessee's case is squarely covered by the Order of the coordinate Bench in the case of Rahul Bansal (HUF) in ITA 2683/DEL/2023 order dated 19.09.2024 (wherein the Accountant Member is the Author of that order).
However, ld. AR of the assessee brought to our notice facts of the case and also submitted his submissions. He submitted that for the last several years, the assessee has been carrying on the business of purchase and sale of jewellery under the name and style of M/s M.B. Jewellers at 3/69, 1st Floor, Chotta Bazaar, Shahdara, Delhi and the said M/s M.B. JEWELLERS was maintaining books of account and other records.
He submitted that as per Form No.3CB/3CD dated 03.10.2017 (Tax Audit Report) of the said M/s M.B. Jewellers, the Cash Book, Bank Book, Journal, Sales Book, Purchase Book, Ledger, Stock Register etc. were maintained and also the same were examined by the Tax Auditor. He further submitted that in Column No.4 thereof, the Tax Auditor had reported the registration details with the VAT Department (TIN: 07840382966) and in Column No.35bB thereof, the Tax Auditor had reported the stock details. Further he submitted that in Column No.40 thereof, the Tax Auditor had reported that the Total Turnover for FY 2016-17 was Rs.3,68,23,939/- and for FY 2015-16 (i.e. the immediately preceding year) was Rs.2,98,94,733/-.
He further submitted that vide letter dated 10.12.2019 (uploaded on 12.12.2019), the assessee had (i) explained to the AO that it has been depositing cash every year, out of cash sales; (ii) that total cash deposited in the bank accounts during FY 2015-16 (i.e. the immediate preceding year) was Rs.2,20,89,000/-; (iii) furnished the VAT returns; (iv) furnished the quantity-wise & value-wise details of Closing Stock; (v) furnished copy of the Tax Audit Report Form 3CB/CD; and (vi) furnished ledger accounts of all creditors & debtors.
Further ld. AR submitted that the AO had arbitrarily made an addition of Rs.1,75,50,000/- u/s 69A of the Income-tax Act, 1961 (for short ‘the Act’). He submitted that while doing so, the AO had incorrectly adopted the figure of total cash deposited in the bank accounts in FY 2016-17 at Rs.1,75,50,000/- (as against the correct figure of Rs.1,53,50,000/-). He further clarified that in FY 2016-17, the assessee had deposited total cash of Rs.1,53,50,000/- (Rs.1,43,00,000/- in Axis Bank + Rs.5,00,000/- in PNB) but the AO had incorrectly adopted the amount of total cash deposited in PNB at Rs.27,50,000/- (in place of Rs.5,00,000/-).
He further brought to our notice that in para 6 of the assessment order, the AO had recorded his concluding remark, “The assessee has not, for the reasons best known to him, chose not to deposit cash sales accruing in the month of October and November, 2016 immediately after the scheme of demonetization was announced. This very fact casts doubt on the genuineness of the entire submissions made by the assessee. It clearly indicates that the whole scheme of thing is nothing but an afterthought to bring the unaccounted money of the assessee into his books of accounts post demonetization.”
In this context, he brought to our attention RBI communication dated November 08,2016 bearing No.RBI/2016-17/112 DCM (Plg) No.1226/10.27.00/2016-17 and brought to our attention to first para of the said communication which is reproduced hereunder-
"In terms of Gazette Notification No. 2652 dated November 08, 2016 issued by Government of India, 500 and 1000 denominations of Bank Notes of the existing series issued by Reserve Bank of India (hereinafter referred to as Specified Bank Notes) shall cease to be legal tender with effect from November 09, 2016.... depositing the Specified Bank Notes for crediting to their accounts, upto and including the December 30, 2016.. ".
He submitted that it was nowhere stated that the Specified Bank Notes are required to be deposited in the bank account, immediately upon the announcement of demonetization.
He further submitted that the discretion for not depositing the cash in hand available with it, in its bank accounts, was with the assessee. Mere suspicion on this account could not obliterate the fact that the assessee was having cash in hand as on 08.11.2016. In the circumstances, there is no justification to hold that the cash deposited in FY 2016-17 in the bank accounts was ‘unexplained money’ in terms of section 69A.
He brought to our notice para 4.4 of the assessment order and submitted that the AO had mentioned "from perusal of the cash book of the assessee, it was observed that the assessee has made total cash sales of Rs.1,46, 68,355/-from 09.10.2016 to 08.11.2016. It is incomprehensible that how assessee could just make cash sales of Rs.1,46,68,355/- in just 30 days.” In this context, he pointed out that this period was full of festivals like Navratras(02.10.2016 to 10.10. 2016), Dussehra(11.10.2016), Karwachauth (19.10.2016), Diwali (30.10.2016), Govardhan Pooja (31.10.2016), Bhaidooj (01.11,2016) etc.
He submitted that during such auspicious period, people usually make purchases of jewellery and making sales in cash and depositing cash in its bank accounts were the routine affairs or the assessee. To support such factual contention, he mentioned that in the immediately preceding year i.e. FY 2015-16, the total cash deposited by the assessee was Rs.2,20,89,000/-(which was much more than the total cash deposited during FY 2016-17, amounting to Rs.1,53,50,000/-).
He submitted that there was no evidence/material on record, on the basis of which it could have been inferred that such sales were not made by the assessee during such period. He further submitted that drawing an adverse inference against the assessee (which led to making addition in the hands of the assessee u/s 69A) on such whimsical ground, should not be and also cannot be approved.
He further submitted that the AO had accepted the declared Opening Stock as on 01.04.2016, Purchases made in FY 2016-17, Expenses incurred in FY 2016-17, Sales credited to P&L Account for FY 2016-17 and also the Closing Stock as on 31.03.2017. He submitted that however, while computing the income of the assessee for Assessment Year 2017-18, the AO had adopted the figure of total income returned at Rs.9,91,900/-. He further submitted that the AO, without bringing on record any adverse material, had treated the entire amount of cash deposited in bank accounts during FY 2016-17 as ‘Unexplained Money and made addition u/s 69A r.w.s. 115BBE.
He further submitted that the cash sales made in FY 2016-17 (including the sales made during the period upto 08.11.2016), as recorded in the Cash Book, were credited to the Trading and Profit & Loss Account (which was forming part of the Audited Financial Statements for FY 2016-17). Hence by making addition on account of cash (generated out of recorded sales), the AO had made double addition and such double addition is not permissible.
He submitted that the undisputed facts are that the AO could not point out any defect, discrepancy, shortcoming etc. in the details, documents, records (more particularly the Cash Book) and also that the AO had not rejected the books of account. He further submitted that it is not the case of the AO and/or the learned CIT(A) that such cash transactions were not found recorded in the Cash Book.
Further he submitted that it has been settled by different courts that when the cash is found recorded in the books of account and the audited books of accounts were not rejected, the Revenue Authorities are precluded from making an addition u/s 69A. For this proposition, he placed reliance on the following orders
Kailash Jewellery House - ITA 613/2010- Delhi High Court
Shivam Industries Pvt. Ltd. vs CIT - ITA 1612/ DEL/ 2021- Order dt.27.02.2024
Durga Fire Works vs ITO - ITA 383/ DEL/2024- Order dt.03.07.2024
He reiterated that the assessee's case is squarely covered by the Order of the coordinate Bench in the case of Rahul Bansal (HUF) in ITA 2683/DEL/2023 order dated 19.09.2024.
On the other hand, ld. DR of the Revenue brought to our notice detailed findings in the assessment order and heavily relied on the findings of the lower authorities.
Considered the rival submissions and material placed on record. We observed that the facts in the present appeal is exactly similar to the facts and in the case of Rahul Bansal (HUF) (supra), we are of the opinion that the issues involved are squarely covered in favour of the assessee and the coordinate Bench has dealt with the issues in detail. For the sake of brevity, the findings of the coordinate Bench in the aforesaid case is reproduced below :-
“7.Considered the rival submissions and material placed on record. We observed that the AO rejected the submissions of the assessee with the observation that the assessee cannot transact in the SBN currencies from the date of announcement of Demonetization scheme with effect from 09.11.2016 and the assessee is not allowed to make any transaction from this date. Since the assessee has made bank deposits after making cash sales during the period of Oct’16 and Nov’16 on the SBN and not deposited immediately on introduction of scheme leads to the doubt that the assessee has deposited his unaccounted money. In our view, the assumption of withdrawal of legal tender on the currency from the date of introduction of demonetization itself is flaw. The scheme of demonetization introduced was very clear and the liability of RBI was withdrawn from the date of introduction of the scheme and these SBNs where declared as illegal currencies only from the date of appointed day i.e., 31.12.2016. We are reproducing the relevant RBI Circular dated 08.11.2016 and Ordinance No. 10 of 2016, the relevant sections 2 and 5 below:
“RBI/2016-17/112 DCM (Plg) No.1226/10.27.00/2016-17 November 08, 2016 The Chairman / Managing Director/ Chief Executive Officer, Public Sector Banks/ Private Sector Banks / Foreign Banks/ Regional Rural Banks / Urban Cooperative Banks/ State Cooperative Banks Dear Sir
Withdrawal of Legal Tender Character of existing Rs.500/- and Rs.1000/- Bank Notes
In terms of Gazette Notification No 2652 dated November 08, 2016 issued by Government of India, Rs.500 and Rs.1000 denominations of Bank Notes of the existing series issued by Reserve Bank of India (hereinafter referred to as Specified Bank Notes) shall cease to be legal tender with effect from November 09, 2016, to the extent specified in the Notification. A new series of Bank Notes called Mahatma Gandhi (New) Series having different size and design, highlighting the cultural heritage and scientific achievements of the country, will be issued. Bank branches will be the primary agencies through which the members of public and other entities will be exchanging the Specified Bank Notes for Bank Notes in other valid denominations or depositing the Specified Bank Notes for crediting to their accounts, upto and including the December 30, 2016. Therefore, banks have to accord highest priority to this work.
In order to enable the members of public and other entities to exchange their existing Rs.500/- and Rs.1000/- notes, the following arrangements have to be made by the banks. ……….”
“Ordinance No. 10 of 2016, the relevant sections 2 and 5
(2)It shall come into force on the 31st day of December, 2016.
2.(1) In this Ordinance, unless the context otherwise requires,-
(a)"appointed day" means the 31 st day of December, 2016;
(b)"grace period" means the period to be specified by the Central Government, by notification, during which the specified bank notes can be deposited in accordance with this Ordinance;
(c)"notification" means a notification published in the Official Gazette;
(d)"Reserve Bank" means the Reserve Bank of India constituted by the Central Government under section 3 of the Reserve Bank of India Act, 1934;
(e)"specified bank note" means a bank note of the denominational value of five hundred rupees or one thousand rupees of the series existing on or before the 8th day of November, 2016.
(2)The words and expressions used and not defined in this Ordinance but defined in the Reserve Bank of India Act, 1934 or the Banking Regulation Act, 1949 shall have the meanings respectively assigned to them in those Acts.” ……………
5.On and from the appointed day, no person shall, knowingly or voluntarily, hold, transfer or receive any specified bank note:
Provided that nothing contained in this section shall prohibit the holding of specified bank notes-
(a)by any person-
(i)up to the expiry of the grace period; or
(ii)after the expiry of the grace period,
(A)not more than ten notes in total, irrespective of the denomination; or
(B)not more than twenty-five notes for the purposes of study, research or numismatics;
(b)by the Reserve Bank or its agencies, or any other person authorised by the Reserve Bank;
(c)by any person on the direction of a court in relation to any case pending in that court.”
8.From the above, it is clear that the exchange of SBN was restricted only from the appointed date of 31.12.2016 and not as per the views of AO from the date of introduction of demonetization i.e., 09.11.2016. Therefore, the assumption of the AO itself is flawed and there was no restriction on the exchange of SBN during the period of Nov-Dec’16. Therefore, the assessee has sold the jewellery during the Oct to Dec’16 and there is no doubt or any discrepancy found by the AO on the genuineness of the cash sales and he has expressed his doubt only on the deposits of SBN during the period of demonetization i.e., before the appointed date. Therefore, the findings and views of the AO are not proper and impracticable. There is no doubt on the cash sales and receipt of cash from the customers and also assessee held sufficient stock to make the sales during the period under consideration. Therefore, we are inclined to direct the AO to delete the additions made u/s 69/69A of the Act.
9.We thought of remitting the issue back to the file of CIT(A) since there was no findings of CIT(A) because of non representation from the assessee side. Since the issue involved is relating to assumption of wrong dates for making additions u/s 69 by the AO by wrongly applying the assumption that the assessee should not transact in the SBN from the date of declaration of demonetization instead of appointed date, this will lead to unnecessary hardship on the assessee, we proceeded to decide the issue at the second appellate stage itself.
10.In the result, appeal filed by the assessee is allowed.”
Respectfully following the aforesaid decision of coordinate Bench and also the availability of cash for the deposits are already explained that it is out of cash sales made during the festival season and also supported by the cash book. We are inclined to allow the grounds raised by the assessee and allow the appeal of the assessee.
In the result, the appeal filed by the assessee is allowed.