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Judgment
PER MANISH AGARWAL, A.M.:
The present appeal is filed by assessee against the order dated 24.11.2025 passed by Ld. Commissioner of Income Tax (A)-29, New Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-710730/2019-20 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 26.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18.
Brief facts of the case are that the assessee is a company, engaged in the business of manufacturing and trading of diamonds jewellery, gold jewellery etc. and filed its return of income on 20.07.217, declaring total income of INR 2,77,39,460/- under normal provisions of the Act and declared book profit of INR 2,75,96,190/- u/s 115JB of the Act. The case of the assessee was selected for scrutiny under CASS for the reason of large cash deposited during demonetization period in Specified Bank Notes (SBN). Various notices were issued from time to time and assessee duly replied the same. The assessee has deposited cash of INR 9,54,33,500/- during demonetization period and the immediate source of the same was claimed as made out of sales made in cash during the month of October till 08.11.2016. The AO observed that out of the total cash sales of INR 13.12 crores made by the assessee in AY 2017-18, cash sales of INR 10,61,23,110/- was made during the period from 01.10.2016 to 08.11.2016 i.e. in a span of only 39 days which looking to the past history of the assessee where cash sales from 01.04.2016 till 30.09.2016 was of INR 1,03,92,684/- only, was very abnormal. The AO further observed that only Four employees were working during the year having salary ranging between INR 10,000/- to INR 20,000/- and it is not possible for them to manage sales of more than INR 10.00 crores in such a short period of time where each and every bill was less than INR 2.00 Lakhs. Accordingly, the AO allowed the credit of income declared at INR 60.00 Lakhs under PMGKY (Pradhan Mantri Garib Kalyan Yojna) and further reduced the average cash sales and treated the balance amount of INR 8,54,28,285/- as unexplained deposits and made the addition for the same u/s 68 of the Act. The AO reduced the G.P @ 8.01% declared by the assessee from such addition which has already been offered for tax on the total cash of INR 8,54,28,285/- which was treated as unexplained credit to avoid double taxation. Accordingly, total income of the assessee was assessed at INR 10,63,24,939/- and the AO further invoked the provision of section 115BBE of the Act on the additions made on account of cash deposited u/s 68 of the Act.
In first appeal, ld. CIT(A) has confirmed the additions made by the AO by doubting the extraordinary, steep and apprised increase in cash sales over a very short period more particularly when the same was claimed to have been made immediately preceding period of the demonetization announced by the hon’ble Prime Minister and thus creates serious doubts.
Aggrieved by the order of ld. CIT(A), the assessee is in appeal before the Tribunal by taking following Grounds of appeal mentioned in the appeal memo:-
1.“On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts.
2.On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in confirming the addition of Rs. 8,54,28,285/- on account of cash deposits made during the period 09.11.2016 to 30.12.2016 and erroneously held to be unexplained deposits u/s 68 of the Act read with section 115BBE of the Act.
3.(i) On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in rejecting the contention of the appellant that cash deposited in bank account were out of the cash sales made in the normal course of business during the year under consideration.
(ii)On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in not appreciating that once the purchases declared in the books of accounts were accepted, there is no basis to treat the cash sales made out of such purchases as unexplained.
4.On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in not appreciating that once the books of accounts have been accepted, the cash deposits out of cash sales made could not be regarded as unexplained credits.
5.On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in confirming the aforesaid addition of cash deposits which has already declared in the return of income as part of total sales and that it amounts to double taxation of the same amount.
6.Without prejudice to the above and in the alternative, even assuming that the additions were warranted under section 68 of the Act, the CIT(A) has erred both on facts and in law in confirming the demand computed in accordance with rate specified in section 115BBE of the Act as amended by Taxation Laws (Second Amendment) Act, 2016.
7.That the appellant craves leave to add, alter OR amend any of the grounds of appeal.”
Ground of appeal No.1 raised by the assessee is general in nature hence, not adjudicated.
Ground of appeal Nos. 2 to 5 of the assessee are with respect to the additions of INR 8,54,28,285/- made u/s 68 of the Act and further invoking the provisions of section 115BBE of the Act.
Before us, ld. AR for the assessee vehemently argued that the cash was deposited out of the cash sales made from 01.10.2016 to 08.11.2016 and all the bills and vouchers alongwith the cash book, month-wise comparative details, sales invoices and VAT returns etc. were filed. Ld. AR submits that total sales have increased from INR 29.29 crores to INR 57.36 crores which includes cash sales as well as credit sales. Ld. AR submits that credit sales has increased from INR 23.12 crores to INR 44.57 crores and corresponding increase in cash sales was upto INR 12.78 crores. He submits that the assessee has started new show-room at Karol Bagh where cash sales was made during the Diwali festive season and the same has resulted into steep increase in the sales during the period 01.10.2016 to 08.11.2016. He further submits a detailed written submissions wherein ld.AR tried to negate the allegations made by lower authorities which reads as under:-
Ld. AR thus submits that when books of accounts were not rejected and
sales has been accepted therefore, cash deposited out of the cash sales deserves to be accepted. He prayed accordingly.
Per contra, Ld. CIT DR for the Revenue vehemently supported the orders of the lower authorities and submits that the assessee has failed to discharge the burden casted upon it of proving the source of cash deposited in SBN during the demonetization period by placing evidencing with respect to claim of cash sales. He submits that from the examination of all bills and vouchers and the details filed, it was observed by the AO that most of the sales was made in cash during the period from 01.10.2016 till 08.11.2026 and almost all the bills were issued of less than INR 2.00 Lakhs. He further submits that in the Paper Book filed before us, assessee has not filed any sale invoices evidencing such cash sales. Ld. CIT DR further argued that it is very surprising that assessee had sales of more than INR 10.00 crores during the period of 39 days just before the announcement of demonetization and was having only four staff. Ld. CIT DR further submits that for the period from 01.10.2016 to 31.12.2016, the assessee VAT returns were later revised. This raised doubts about the sales and other claims made in the original return.
Another glaring fact brought to our notice by the Ld. CIT DR was that assessee has not filed quantitative details of the goods manufactured/traded. For this, ld. DR drew our attention to the Tax Audit Report wherein though total quantitative details is placed at page 20 of PB and no item-wise stock register was maintained. Further at page 5 of PB, it is reported that the assessee has not maintained stock register nor they were examined by the auditor. He, therefore, submits that in absence of daily item-wise stock register, the claim of sales are not verifiable and thus the AO has rightly made the addition towards cash deposit during demonetization period u/s 68 of the Act.
Heard the contentions of both the parties at length and perused the material available on record. In the instant case, the assessee has made total cash deposits of INR 9,54,33,500/- in SBN during the demonetization period and had declared a sum of INR 60.00 Lakhs under PMGKY scheme announced by the Government during demonetization period. The AO further reduced a sum of INR 33,53,298/- by treating the same as cash sales of month of October, 2016 being the highest monthly cash balance at any time upto 30.09.2016. Besides this, deduction of INR 6,51,917/- was allowed for the sales during the period from 01.11.2016 to 08.11.2016 and the remaining cash deposited in SBN of INR 8,54,28,285/- was treated as unexplained credits in the bank u/s 68 of the Act. The AO further held that assessee has declared G.P rate of 8.01% and since the cash of INR 8,54,28,285/- was added as unexplained credit, the gross profit declared by the assessee on such as cash sales was reduced to cover up the double addition if any, on account of profits in the cash sales so claimed by the assessee.
It is observed that the assessee during the assessment proceedings had filed many details containing bifurcation of sales excluding VAT, declaration made under PMGKY scheme on account of cash deposited in Kotak Mahindra Bank Account No.612044002265/-, comparative cash deposits in FYs 2015-16 & 2016-17. The assessee further filed details of the employees working, details of suppliers from whom purchase were made, filed some copies of purchase invoices, copy of ledger account of suppliers, purchase register for the period from 02.07.2016 to 21.08.2018, re-conciliation of turnover with VAT returns, copy of original and revised VAT returns and copy of rent agreement for new premises located at Karol Bagh, New Delhi. It was the claim of the assessee that during the year under appeal, it has started new show room at Karol Bagh which has resulted into extraordinary steep spike in the sales as compared to immediately preceding previous year which are not comparable. Before us, ld.AR has detailed written submission which is reproduced herein above, wherein the assessee has made various allegations against the action of the lower authorities while making the additions which are dealt with as under:-
Allegation No. 1& 2: As per the assessee, the AO alleged that substantial cash sales of INR 10.61 crores were made during the period from 01.10.2016 to 08.11.2016 out of total cash sales of INR 13.12 crores made during the previous year. The assessee’s claimed that a new showroom was started at Karol Bagh New Delhi where during the period from 01.10.2016 to 08.10.2016 due to festive season of Diwali, the sales have been increased however, before us, the assessee has not filed copy of any sale invoice nor the stock register was filed from where it could be verified that how much quantity and what items were sold by the assessee during that period of Diwali Festival. From the perusal of the Tax Audit Report placed at page 4 to 20, it is observed that the assessee has not maintained any stock register nor the same was audited by the Auditors.
The relevant extract of Form 3CD report is reproduced as under:-
It is further observed that at page 20 of the Paper Book, the assessee has filed the quantitative details however, these quantitative details are of total goods manufactured. It appears that the assessee has purchased gold bars which were used for manufacturing process however, from the said stock sheet, it is not clear how much quantity of jewellery manufactured and how much yield assessee got nor the quantity of other metal used for impurity in manufacturing of jewellery was reported. Since the assessee was also dealing in the diamond studded gold jewellery therefore the item-wise stock inventory has to be maintained which was not maintained on day-to-day basis. Further in absence of sale invoices with respect to the sales made during the period from 01.10.2016 to 09.11.2016, the claim of the assessee is that due to festive season, sales have been increased in festive season cannot be not accepted.
Next allegation was that very small amounts was deposited in the bank account however, when the assessee was having huge cash in hand with it out of the sales made from 01.10.2016 to 08.11.2016 thus, the same should be deposited in one or two installments. The claim of the assessee was that there was no bar under the Act to retain cash in hand. The assessee further claimed that such cash was retained for meeting out of business requirement such as purchase of stocks and other expenses. Here it is relevant to state that the assessee is a Private Limited Company and as per the provisions of Income Tax Act, payment in excess of INR 10,000/- in cash for any expenses or for the purpose of goods is not permissible. Thus the claim of the assessee that it had maintained cash for such type of expenses/purchases cannot be accepted. It appears that the cash sales claimed to cover up the availability of cash deposited in SBN during the demonetization period.
Next allegation of the AO is that though there was substantially increase in sales however, corresponding expenses have not been increased. It is observed that during the year, the assessee has started new showroom however, the salary payments have been reduced from INR 19.53 Lakhs to INR 10.20 Lakhs and other expenses also have not been increased as compared to the immediately preceding AYs. The AO further alleged that the sales of more than INR 10.00 crores have been claimed to have been with a period of 39 days however, the assessee was having 02 outlets and only 4-5 employees were employed who were stated to have handled the same which is practically not possible more particularly when cash as well as credit sales were made and verification of the goods manufactured was also to be verified on day to basis. This further creates doubts about the claim of the assessee of cash sales.
Regarding the allegation that the AO had compared the stock available as on 08.11.2016 as opening and closing stock and doubted the genuineness of the sales, as observed above, in absence of day-do-day item wise stock register, the claim of the assessee that sufficient stock available with it as and when cash sales were made, cannot be accepted and therefore, we concur with the findings given by ld. CIT(A).
Lastly, the AO has observed that in subsequent years, sales of only INR 20.41 crores was made. However, from the perusal of the details of total cash sales made in succeeding year, we observed that the AO has made incorrect findings whereas the assessee has made total sales of INR 204.09 crores in FY 2017-18 relevant to AY 2018-19 which includes cash sales of INR 36.71 crores. Here it is relevant to state that in subsequent AY, despite of festive season, cash sales in the entire month of October, 2017 was INR 6.23 crores and in the month of November, 2017 was INR 6.15 crores, as compared to which during the year under appeal, cash sales of INR 9.21 crores were claimed to have been made in the month of October, 2016 and of INR 1.41 crores in 08 days of the November, 2016. This disparity further strengthen the doubts raised that cash sales made by the assessee during the period between 01.10.2016 to 08.10.2016 was not comparables either with the preceding year or with the succeeding year and has supports the allegation that cash sales claimed was to cover up the total cash deposit in SBN during the period of demonetization.
The assessee has placed reliance on many judicial pronouncements of the hon’ble jurisdictional high court and of the coordinate benches of Tribunal however, it is a pure question of fact and every case has different facts and thus the ratio laid down in a case where cash was deposited during the demonetization cannot be applied when the facts are different. In the instant case, as observed above, assessee had not maintained day-to-day item-wise stock register and was not having sufficient staff to handle the huge sales in cash thus the judgements relied upon are distinguishable on facts. Considering the entirety of the facts and circumstances of the case, we are not inclined to interfere in the findings of the lower authorities holding the cash deposit of INR 8,54,28,285/- as unexplained credit u/s 68 of the Act and accordingly, we uphold the addition made on this account.
The assessee further claimed that addition made u/s 68 of the Act of INR 8,54,28,285/- has resulted into double addition as this amount was disclosed as cash sales and profit on the same has already been offered for tax. This claim of the assessee cannot be accepted since the AO has already reduced the amount of G.P. rate embedded in such sales and reduce the amount of INR 68,42,806/- out of the total income computed therefore, there is no double addition on account of profits claimed to have been declared on such cash sales. In view of the above discussion, Grounds of appeal Nos. 2 to 5 raised by the assessee are dismissed.
In Ground of appeal No. 6, the assessee has challenged the invocation of the provision of section 115BBE of the Act. The Hon’ble Madras High Court in the case of SMILE Microfinance Ltd. v. ACIT in WP(MD) No. 2078 of 2020 & 1742 of 2020 dated 19.11.2024 (Mad.) has already settled this issue and held that Section 115BBE applies from AY 2018-19 and onwards. The Hon’ble Rajasthan High Court in the case of Deepak Maratha Vs. Union of India in DB CWP No. 3625/2020 vide order dt. 27.05.2026 also expressed the similar view and held as under:
17.SUMMARY/CONCLUSION As an upshot of the discussion and analysis, as above, in our opinion, the Correct Legal Position which emerges is summarized as below :
(i)The law applicable to an assessment year is the law in force on the first day of that year -- i.e., 01st April. A provision coming into force after that date, without express retrospective language, cannot be applied to assessments for that year.
(ii)Changes in law occurring after the commencement of a financial year cannot govern the tax liability for that year unless the amendment is expressly made retrospective.
(iii)The amendment to Section 115BBE came into force on 01.04.2017 i.e. the first day of financial year 2017-18. For FY 2016-17, the law in force on 01.04.2016, prescribing a rate of 30%, must govern. The enhanced rate of tax @60% came into force on 01.04.2017 and can apply only from that date, i.e. for financial year 2017-18 onwards.
(iv)The Taxation Laws (Second Amendment) Act, 2016 contains no express language for it's retrospective effect of section 115BBE.
18.We thus hold that the Taxation Laws (Second Amendment) Act, 2016 is prospective in effect as specified therein (from 15.12.2016 except the amendment of Section 115BBE, which is effective from 01.04.2017). The question framed in para 8.1, in the preceding part, is answered accordingly.
Thus, by following the aforesaid judgments of Hon’ble Madras High Court and of Hon’ble Rajasthan High Court, we hold that provisions of section 115BBE of the Act are not applicable in AY 2017-18 and are applicable from AY 2018-19 and onwards. Therefore, we direct the AO to charge the tax at normal rate of tax. Accordingly, Ground of appeal No.6 of the assessee is thus, allowed.
In the result, appeal of the assessee is partly allowed.