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Judgment
PER M. BALAGANESH, A. M.:
The appeal in ITA No.5476/Del/2025 for AY 2017-18, arises out of the order of the ld National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 02.07.2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 06.12.2019 by the Assessing Officer, ITO, Ward-47(2), Delhi (hereinafter referred to as ‘ld. AO’).
The only effective issue to be decided in this appeal is as to whether the Learned CITA was justified in confirming the addition of Rs 1,72,50,000 on account of cash deposits made in the bank account in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the materials available on record. The return of income for the assessment year 2017-18 was filed by the assessee on 8-11-2017 declaring total income of Rs 12,74,520. The case was selected for scrutiny to examine the abnormal increase in cash deposits made in the bank account during the demonetization period. Notice under section 143(2) of the Act stood issued to the assessee on 10-08-2018 and duly served on the assessee. Later, it was followed by issuance of notice under section 142(1) of the Act. During the course of assessment proceedings, the Learned AO noted that assessee had deposited cash of Rs 3,45,00,000 during the demonetization period. The assessee has booked cash sales of Rs 2,80,06,227 in October 2016 and not deposited any amount before this period in the bank account. Statement of the assessee was recorded under section 131 of the Act by the Learned AO during the course of assessment proceedings. The assessee submitted that he is the proprietor of M/s. Chandni Jewellers and engaged in the trading of jewellery. The assessee duly confirmed in this statement on oath before the Learned AO that he had made purchases of jewellery and had sold the same in cash and the said cash was deposited in the bank account pursuant to the announcement of demonetization by the Government of India. The assessee submitted before the Learned AO that he had sufficient stocks to affect the cash sales of jewellery. The Learned AO however was not convinced with the replies given by the assessee and proceeded to disallow or proceeded to add 50% of cash deposits as unexplained and made an addition of Rs 1,72,50,000 under section 68 read with section 115BBE of the Act and completed the assessment. This action of the Learned AO was upheld by the Learned CITA.
It is not in dispute that the assessee had indeed shown cash sales and is part of the total turnover disclosed by it in the return of income and in the audited profit and loss account. The following points are undisputed and indisputable: –
a. The assessee had shown cash sales for month of October 2016 of Rs 2,80,06,227 and the same is part of total sales disclosed by the assessee in the profit and loss account.
b The purchase made by the assessee has not been doubted by the revenue.
c. The total sales made by the assessee (both cash as well as credit sales) has not been doubted by the revenue.
d. The assessee had sufficient stocks to effect the said cash sales and generate cash as an independent source to prove the cash deposits.
e. To the extent of sales made by the assessee, corresponding reduction in stock had been duly made.
f . Sales made by the assessee, both cash as well as credit had been duly subjected to VAT and the VAT authorities had accepted the turnover declared by the assessee.
As stated earlier, the sales disclosed by the assessee has been accepted by the revenue. Having accepted the same, separately making an addition on account of cash deposits in the sum of ₹1,72,50,000 would only result in double addition as the cash deposits had partially emanated out of cash sales. However, it is not known whether the complete cash book was filed before the Learned AO to prove the fact that there was no negative cash balance on any day of the year with the assessee. Hence, in our considered opinion, addition of 5% of Rs 1,72,50,000 as unexplained cash would meet the ends of justice. This was agreed by the Learned AR at the time of hearing. We would like to make it very clear that this shall not act as a precedent in any other case and this decision is rendered in the peculiar facts and circumstances of the instant case. Accordingly, the grounds raised by the assessee are partly allowed.
Further, we also find that Hon’ble Madras High Court in the case of SMILE Microfinance Limited vs ACIT in WP (MD) No. 2078 of 2020 and WMP (MD) No. 1742 of 2020 dated 19-11-2024 had held that the provisions of section 115BBE of the Act which enhanced the rate of tax could be made applicable only from 01.04.2017, relevant to assessment year 2018-19 onwards and not earlier. Hence the enhanced rate of tax @ 60% cannot be applied for the aforesaid addition in Assessment Year 2017-18.
In the result, the appeal of the assessee is partly allowed.