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Judgment
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :
This captioned appeal has been filed by the assessee against the order of the learned Commissioner of Income Tax (Appeals)-29, New Delhi [‘CIT(A)’ in short] dated 10.09.2025 arising from the assessment order dated 28.12.2019 passed by the ITO, Ward 49(3), New Delhi under Section 143(3) of the Income Tax Act, 1961 (‘the Act’) concerning Assessment Year (A.Y.) 2017-18.
The grounds raised by the assessee are as under :
1.“That on the facts and in the circumstances of the case and in law, the assessment order passed under section 143(3) of the Income-tax Act, 1961, determining the total income of the appellant at Rs.1,12,68,780/-, and sustained by the ld. CIT(A), is erroneous, unjustified, and bad in law.
2.(a) That in view of the facts of the case and the applicable law, the present proceedings are void ab initio, as the notices issued under Section 143(2) of the Act by the Learned Assessing Officer (Ld. AO) on 04.09.2018 and 10.08.2018 violates the CBDT Instruction F.No.225/ 157/ 2017/ ITA-II dated 23.06.2017 and hence, the notice is invalid, and the assessment framed pursuant thereto is vitiated in law.
(b)That in this connection, the notices under Section 143(2) of the Act issued to the Appellant are not in the prescribed format and does not specify as to whether the assessment proceedings have been initiated for limited, complete or compulsory manual scrutiny.
3.That the ld. CIT(A) has erred both on facts and in law in not considering on merits the additional ground filed by the appellant inasmuch as the assessment order was passed without issuing a proper show cause notice and explaining how section 68 was to be invoked to make an addition and hence, the entire assessment is liable to be set aside.
4.(a) That the Ld. CIT(A) has erred, both on facts and in law, in upholding the action of the ld. AO of invoking the provisions of section 68 of the Act inasmuch as the cash deposited during the period 09.11.2016 to 30.12.2016, amounting to Rs.1,06,30,000 was out of the cash withdrawals and declared sources of the appellant, which was duly explained to the ld. AO, and is not unaccounted money so as to cover it within the expression unexplained cash credit under section 68 of the Act.
(b)That in this connection, the Ld.CIT(A) failed to give credence to the fact that once learned Assessing Officer has duly accepted the sales, the withdrawals out of the said sales / declared sources of income automatically stands explained.
5.That the authorities below have failed to give credence to the fact that the entire cash deposited during demonization period already formed part of the business receipts of the appellant, tax thereon has been paid on the profit earned on the same and addition under section 68 of the Act pertaining to the said declared sale proceeds would tantamount to double addition.
6.That the ld. CIT(A) has grossly erred in stating that the appellant had disregarded CBDT guidelines with regard to matching of withdrawals and deposits without giving credence to the fact that the appellant had duly substantiated the withdrawals and moreover, it is the ld. AO who failed to follow the said guidelines by not considering the overall facts, nature of business, and cash flow pattern, despite the appellant’s explanation that the deposits arose from cash sales and earlier withdrawals.
7.Without prejudice to above, the authorities below have erred in not considering the fact that no specified bank notes were received by the appellant during the demonization period and the entire deposit was out of the cash available as on 08.11.2016.
8.The Appellant craves to leave add, amend, modify, delete and/ or change all or any of the ground of objection on or before the date of hearing.”
Brief facts of the case are that assessee is engaged in the business of manufacturing of garments, business of trading and export/import of various items i.e. fabrics, garments and accessories under the name and style of M/s. ARJ Exim India. During the year under consideration, the assessee deposited cash amounting to Rs.1,06,30,000/- in his two bank accounts. The AO was not satisfied with the assessee’s explanation, hence the same was added u/s 68 of the Act.
The assessee has filed additional ground with regard to invocation of section 115BBE of the Act and has relied upon decision of NTPC. The assessee has taken a ground with regard to invalid notice issued under section 143(2) of the Act on account of its violation of CBDT Instruction dated 23.06.2017. The issue of validity of notice under section 143(2) being not in the proforma prescribed by CBDT Instruction is no longer res-integra as Hon’ble Jurisdictional Delhi High Court in the case of Bharat Bansal V NFAC in WP 2238/2026 dated 17.02.2026has held that notice which is not in the prescribed format does not vitiate the assessment proceedings. The ground is dismissed.
The second issue is with regard to cash deposit of Rs.1,06,30,000/- added u/s 68 of the Act. The assessee has explained the same as from being cash withdrawals and out of sales proceeds and are from declared source of the assessee and therefore, they are not unaccounted money.
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 source of cash deposit during demonetization period as being from cash sales. Although the assessee, prima facie, appears to have discharged its onus of explaining source of cash deposit, it’s contentions to prove the source, hardly deserves to be accepted in entirety especially when the assessee could not give satisfactory explanation for cash in hand of Rs. 1,06,30,000. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention that cash deposit has been made out of sales, cannot be fully justified. In this factual matrix, there is some element of failure to explain some of the cash deposit, 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. 5 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.
In so far as levy of tax at a higher rate under section 115BBE of the Act is concerned, we find that the Madras High Court in the Writ petition in the case of S.M.I.L.E. Microfinance Ltd. Vs. ACIT, W.P. (MD) No.2078 of 2020 & 1742 of 2020, dated 19.11.2024 (Madras) has held that the impugned statutory provision would come into effect on the transaction done on or after 01.04.2017 only. Accordingly, we direct the AO to tax the addition under normal provisions of tax and not under the provisions of 115BBE.
In the result, appeal of the assessee in ITA No. 5716/DEL/2024 is partly allowed.