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Judgment
PER SUDHIR KUMAR, JM :
This is an appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, New Delhi [“Ld. CIT(A)”], dated 18.11.2025 passed u/s 250 of the Income Tax Act, 1961 (the Act, in short) for Assessment Year 2017-18. The solitary issue argued before us is relating to addition of Rs. 2,17,26,319/- made u/s. 68 of the Act as unexplained income.
Brief facts of the case are that the assessee company e-filed its return of income for AY 2017-18 on 26.2.2018 declaring income of Rs. 56,99,620/-. The case of the assessee was selected for Scrutiny assessment and statutory notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred as “Act”) was issued on 24.9.2018 which was served upon the assessee company. Thereafter, notice u/s. 142(1) of the Act was issued on various dates through ITBAS and duly served upon the assessee company and in response to the same, the assessee company filed the desired information and details through ITBA/e-filing portal. Assessee company is engaged in the business of manufacturing and trading of marble block / slabs and sales of marbles slabs / tiles. The assessee submitted copy of balance sheet and profit and loss account and other details through ITBA/e-filing portal which were examined during the course of assessment proceedings. The assessee deposited huge amount of cash amounting to Rs. 4,28,50,000/- during the period of demonetization (09.11.2016 to 30.12.2016). The same was verified from the information available in the ITBA, ITR and also from the bank statements of the assessee. Accordingly, vide notice u/s. 142(1) of the Income Tax Act, 1961 dated 17.9.2019 and 18.11.2019, the assessee was asked to furnish details with regard to cash deposit. During the assessment proceedings balance sheet and profit and loss account for AY 2017-18 were examined. After considering the facts of the case, information available on ITBA, and submission of the assessee, the AO passed assessment order u/s. 143(3) on 24.12.2019 made the addition of Rs. 2,17,26,319/-u/s. 68 of the Act.
Against the said order, assessee preferred appeal before the ld. CIT(A) who vide impugned order, has dismissed the appeal of the assessee.
Aggrieved by the said order of ld. CIT(A), assessee filed present appeal before the Tribunal.
Before us, the Ld. AR of the assessee submitted that Ld. CIT(A) has erred in confirming the rejection the audited books of account solely based on a spike in cash sales, without identifying any specific defects or inconsistencies by overlooking the reliable supporting documents viz. VAT returns and statutory filings. It was further submitted that the action of the Ld. CIT(A) wrongly sustained the addition of Rs. 02,17,26,319/- made u/s. 68 of the Act, as unexplained income, as these cash deposits represented genuine business sales already declared and taxed. Such treatment results in double taxation and ignores the regularity and validity of sales practices with no contrary evidence brought by the AO. He further submitted that cash deposits originates from the normal business activity rather than undisclosed income and AO has failed to prove any adverse source. Before us, Ld. AR for the assessee has filed the Paper Book containing pages 1-191 which includes a photocopy of the computation of assessable income for AY 2017-18 alongwith its audited financial statements, the copy of the same has already been filed before both the lower authorities. He also filed another paper book containing pages 1-96 having the copies of compilation of case laws and submitted that the issue in dispute is fully covered by the decisions cited in this compilation. In view of the above submission, it is prayed by ld. AR that the addition made on account of cash deposit deserves to be deleted.
Per contra, ld. Sr. DR vehemently supported the order of lower authorities.
We have heard the rival submissions and perused the materials available on record. We observed that assessee company e-filed its return of income for AY 2017-18 on 26.2.2018 declaring income of Rs. 56,99,620/-. The Assessee company is engaged in the business of manufacturing and trading of marble block / slabs and sales of marbles slabs / tiles. The assessee submitted copy of balance sheet and profit and loss account and other details through ITBA/e-filing portal which were examined during the course of assessment proceedings. The assessee deposited amount of cash amounting to Rs. 4,28,50,000/- during the period of demonetization (09.11.2016 to 30.12.2016). The same was verified from the information available in the ITBA, ITR and also from the bank statements of the assessee. During the assessment proceedings balance sheet and profit and loss account for AY 2017-18 were examined. We note that Ld. CIT(A) confirmed the rejection the audited books of account solely based on a spike in cash sales, without identifying any specific defects or inconsistencies by overlooking the reliable supporting documents viz. VAT returns etc., whereas, these cash deposits represented genuine business sales already declared and taxed and even otherwise the cash deposits originates from the normal business activity rather than undisclosed income and AO has noted proved any adverse source. Further, the VAT returns were accepted by the VAT authorities who are independent government agency and found no error in the VAT returns filed by the assessee. Assessee has deposited cash during the demonetization out of the cash available as on the closing hours of 08.11.2016 i.e. the date when the demonetization was announced by the Hon’ble Prime Minister and was the last day upto which the SBN could be accepted as valid currency. As observed above, assessee has already included the entire cash sales in the total sales and the profits have been derived which was offered for tax, thus taxing the same income twice once in the sales and other when the sale consideration was realised and deposited in the bank account which is doubted on conjectures and surmises. Thus, the source of cash deposited as out of the cash sales should not be doubted without bringing on record any contrary material.
The Hon’ble Delhi High court in the case of CIT v. Kailash Jewellery House in ITA No. 613/2010 (Delhi High Court) has held as under:
In the facts of above case cash of Rs.24,58,400/- was deposited in bank account. The Assessing Officer made the addition on the ground that nexus of such deposit was not establish with any source of income. The assessee claimed that it was duly recorded in the books on account of cash sales and was considered in the Profit and Loss Account. The Assessing Officer had verified the stock and cash position as per books and had accepted the same. Complete books of account and cash book was submitted to the Assessing Officer and no discrepancy was pointed out. On this basis CIT(A) deleted the addition. Tribunal also observed that it is not in dispute that sum of Rs.24,58,400/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. Therefore, cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. The Hon’ble High Court dismissed the appeal filed by the Department.
The Co-ordinate Bench of ITAT, Delhi in the case of S. Balaji Mech-Tech Private Ltd Vs. ITO in ITA No. 556/Del/2024 vide order dated 25.09.2024 has observed as under:
18.Coming to the issue of stock movement and excess sales, we observed that the assessee has submitted relevant stock reconciliation and auditors report of stock movements and there is no negative stock movement which will indicate that the assessee has booked excess sales without there being proper purchases.
19.In our considered view, there are chances that during the demonetization period the regular customers may have choose to buy the spare parts and bearing by making payment by cash so that their excess SBN is transferred. We noticed that the credit sales has come down during this period and the sales of the assessee is more or less maintained during this period. Therefore, it shows that the changes in the patterns recorded in the sales are not abnormal.
20.Whether the recording of cash sales which is already declared in the books of account will attract the deeming provisions of sec.68 or 69A of Act. We observed that the assessee has declared all the cash transactions in its books of account and merely because the cash deposits are more during the demonetization period, whether the CIT(A) can invoke the provisions of section 69A of the Act. As per provisions of the section, it is necessary that the assessee be found with the money, the same is not recorded in the books accounts maintained by it for any source and not offers any explanation or such explanations are not found to be satisfactory to the AO. In this case, the assessee has already declared the cash sales in its books of account and offers the explanation as cash sales, which the lower authorities has accepted it as regular business transactions because they have not rejected the book results and brought to tax the total sales declared by the assessee in its books. Since the cash were already recorded and explanation is already part of the book results, there is no avenue for the CIT(A) to reject such explanations. This expression "explanation is found not satisfactory to the AO" is purely relates to the money found with the assessee which are not recorded in the books of account. In this case, the above expression has no relevance since the assessee had already declared the cash sales in its books. In the similar situation, the coordinate bench has held in the case of J.R.Rice India (P) Ltd as under:
"At the cost of repetition, to the extent of sales made, the stock position is also correspondingly reduced by the assessee which goes to prove the genuineness of the claim of the assessee. On examination of the cash book of the assessee, it is found that the assessee had cash balance of Rs. 55.94 lakhs as on 8-11-2016, i.e., the date on which demonetization was announced, which sufficiently explains the source of deposit of Rs. 52.60 lakhs in specified bank notes. Apart from this, the assessee had duly furnished the month wise details of sales, month wise details of purchase, corresponding freight charges incurred month wise, month wise power and fuel expenses and month wise selling expenses in the form of rebate and discount. The assessee also furnished the quantitative details of goods month wise for rice, sugar, chana dal and wheat flour before the Assessing Officer. All these facts clearly go to prove the genuineness claim made by the assessee that cash deposits of Rs.52.60 lakhs has been made out of cash balance available with the assessee and, hence, there is absolutely no case made out by the revenue for making addition under section 68."
In view of the above discussions and facts of the case and further by respectfully following the ratio laid down Hon’ble High Court of Delhi and ITAT, Delhi Tribunal, as stated above, we hereby delete the addition of Rs. 2,17,26,319/- made u/s 68 of the Act towards cash deposited in the bank account during demonetization period.
So far as assessee’s assessment u/s. 115 BBE of the Act is concerned, in view of Hon’ble Madras High Court in SMILE Microfinance Ltd. vs. ACIT in WP(MD) no. 2078 of 2020 & 1742 of 2020 dated 19.11.2024 (Mad.) has already settled the issue against the department that the law applies to the transaction on or after 01.04.2017 only.
In the result, the appeal of the assessee is allowed.