Munish Gupta vs ITO Ward 43 (8)

The instant appeal filed by the assessee is directed against the order dated 27.02.2026 passed by the Ld. Commissioner of Income-tax (Appeals), NFAC, Delhi [hereinafter referred to as the Ld. CIT(A)] under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of the Assessment Order dated 16.12.2019 passed by the ITO, Ward 43(8), Delhi (hereinafter referred to as ‘the ld. AO’) under Section 143(3) of the Act for Assessment Year 2017-18.

The cash deposit of Rs.26,50,000/- in bank account of the assessee during the period of demonetization is in dispute before me. The case of the assessee was selected for scrutiny under CASS by recording reasons “Abnormal increase in Cash deposits during demonetization period as compared to pre-demonetization period”. Statutory notice u/s 143(2) of the Income Tax Act, 1961 was issued on 25.09.2018. A Show Cause was further issued to explain the source of cash deposits amounting to Rs.36,80,000/- out of which Rs.26,50,000/- was deposited in HDFC bank account during demonetization in Account No.01161000097857 during the full period of full year. The assessee submitted that he had opened a Bakery Shop on 1^st July, 2019 in the name of M/s Radha Foods with supporting documents. However, the assessee’s explanation was not found to be acceptable by the Ld. AO and, therefore, an addition of Rs.26,50,000/- was made as unexplained money in bank account u/s 68 r.w.s to 115BBE of the Act in the hands of the assessee which was further confirmed by the Ld. First Appellate Authority. Hence, the instant appeal before us.

I have heard the rival submissions made by the respective parties and also perused the relevant materials available on record. The details of cash deposits and the source thereof were duly placed before us. The assessee commenced the business from 01.06.2016 and registration was also obtained on 22.06.2016. The assessee also declared total turnover of Rs.46,79,157/- and offered income under the presumptive provisions of Section 44AD of the Act which is duly reflected in the return of income and as well as in the VAT Returns. It is the case of the assessee that the source of cash deposits were entirely the genuine business recorded in the books of accounts. The assessee had consistently deposited cash generated from business operations even prior to demonetization is also reflecting at page 2 & 25; total cash deposits of Rs.10,30,000/- were made during the demonetization period itself and post demonetization period cash was deposited to the tune of Rs.1,00,00/- on 12.11.2016 andRs.25,50,000/- on 15.11.2016 were made out of accumulated cash sales of the business. I have further considered the fact that the earlier cash deposits of Rs.10,30,000/- as above, was made prior to demonetization out of the sales receipts which was duly accepted by the Assessing Officer. Even considering the business activity and cash sales pattern, without rejecting the books of account, cash deposits made merely during the demonetization period has not been accepted by the Ld. AO only on surmises and conjecture basis. As it appears on record that the assessee had started his business in June, 2026 and the sales increased gradually with growth of customer base and the period from October to November, 2016 coincided with festive season including Navratri and Diwali, resulting in higher retail sales in business like assessee. The addition made u/s 68 purely on the basis of suspicion arising from timing of deposits during demonetization and not on any adverse material in the hands of the assessee is not found to be acceptable and, therefore, deleted.

In the result, appeal filed by the Assessee is allowed.