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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)-NFAC-Delhi [‘CIT(A)’ in short] dated 23.09.2025 arising from the assessment order dated 18.12.2019 passed by the AO-ACIT, Circle – 20(2), 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.“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.1,33,64,362/- on account of cash sales during the period 01.10.2016 to 08.11.2016 treating the same to be unexplained cash sales u/s 68 of the Act read with section 115BBE of the Act.
3.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 sales made out of such purchases as unexplained cash credits taxable under section 68 of the Act.
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 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 sales 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.”
The brief fact leading to the case is this that the assessee is engaged in the business of trading of timber all over India during the year under consideration. The company filed its original return of income for A.Y. 2017-18 on 27.10.2017 declaring income of Rs. 83,74,630/-. The case was selected for scrutiny assessment. The AO has passed assessment order dated 18.12.2019 u/s 143(3) of the Act wherein the AO has rejected the books of accounts of the assessee and estimated the profit @ 0.69% to be Rs.73,86,281/- and also made a separate addition of Rs.1,33,64,362/- on account of inflated cash sales during the period of demonetization u/s 68 of the Act and treated a percentage of the cash sales as unexplained.
When the aggrieved assessee went in appeal before the ld. CIT(A), the ld. CIT(A) allowed the ground raised by the assessee regarding rejection of books and sustained the addition of cash sales of Rs.1,33,64,362/-. The aggrieved Assessee is before us.
Before us, the ld. counsel for the assessee vehemently submitted that the cash deposits in the bank account during the period of demonetization were out of sales and duly recorded in the books of account.
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 cash sales during demonetization period as being recorded in the books of account. Although the assessee, prima facie, appears to have discharged its onus of explaining the cash sales, it’s contentions to prove the increased sales during the demonetization period, hardly deserves to be accepted in entirety especially when the assessee could not give satisfactory explanation for the disproportionate increase in cash sales just before demonetization period. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention that cash sales are supported by stock register, purchase records, cannot be fully justified. In this factual matrix, there is some element of failure to explain some of the cash sales, 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. 6 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. 7512/DEL/2025 is partly allowed.