Sakshi Lingerie Pvt. Ltd vs Income Tax Officer

PER M. BALAGANESH, A. M.:

The appeal in ITA No.5694/Del/2025 for AY 2017-18, arises out of the order of the ld. Commissioner of Income Tax (Appeals)-26, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 14.08.2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 23.12.2019 by the Assessing Officer, ITO, Ward-22(1), Delhi (hereinafter referred to as ‘ld. AO’).

None appeared on behalf of the assessee despite issuance of notice. Hence, we proceed to dispose of this appeal on hearing the ld DR and based on materials available on record. The only effective issue to be decided in this appeal is as to whether the ld CIT(A) was justified in confirming the addition of Rs. 46,59,259/- made on account of cash deposits during demonetization period treating it as unexplained cash credit u/s 68 read with Section 115 BBE of the Act in the facts and circumstances of the instant case.

We have heard the ld DR and perused the materials available on record. The assessee company is engaged in the business of manufacturing and trading of lingerie and ladies garments under the name and brand “Sona”. The return of income for the AY 2017-18 was electronically furnished by the assessee company on 31.03.2018 declaring total income of Rs. 16,49,890/- under normal provisions of the Act and book profit of Rs. 10,91,996/- u/s 115JB of the Act. The total revenue from operations during the year was Rs. 10,46,04,292 as per the audited financial statements. The ld AO noticed that during the demonetization period, assessee had deposited a sum of Rs. 80,78,000/- in ICICI Bank, State Bank of India and Bank of Baroda in Specified Bank Notes (SBNs). The source of such cash deposits were sought to be examined by the ld AO. The assessee submitted that the source emanated from cash received against sales made during the previous months prior to demonetization period and out of cash withdrawal from banks. The assessee had cash balance as on 01.04.2016 of Rs. 18,03,199/- ; as on 01.10.2016 of Rs. 66,91,601 and cash balance as on 01.11.2016 of Rs. 93,54,370/-. The assessee also filed month-wise summary of cash sales and credit sales together with cash deposits made in bank for AY 2016-17 and AY 2017-18 which are reproduced in pages 3 and 4 of the assessment order. For the sake of convenience, the month-wise summary of sales together with cash deposits in bank account made by the assessee in AY 2017-18 are tabulated herein:-

The ld AO disbelieved the contentions of the assessee and adopted the average monthly cash deposit made during the period 01.04.2016 to 31.10.2016 at Rs. 7,73,942. The ld AO arrived the average monthly cash deposit during the period 01.04.2016 to 30.10.2016 at Rs. 16,15,542. The ld AO gave credit to the opening cash balance of Rs. 18,03,199 as on 01.04.2016 coupled with average cash balance worked out at Rs. 16,15,542 and concluded that the total cash available with the assessee is only Rs. 34,18,741 as against which, cash deposits were made during demonetization period for Rs. 80,78,000, thereby leaving a difference of Rs. 46,59,259 (8078000 -3418741) which was sought to be treated as unexplained cash credit u/s 68 r.w.s. 115 BBE of the Act. This action of the ld AO was upheld by the ld CIT(A).

First of all, we are unable to comprehend ourselves to accept to the basic methodology adopted by the ld AO to arrive at the average cash deposits for the period 01.04.2016 to 30.10.2016 at Rs 16,15,542/-. The assessee is maintaining regular books of accounts and had duly furnished the same before the lower authorities for examination. No defect whatsoever was pointed out by the ld AO. The book results and the books of accounts were not sought to be rejected by the ld AO by applying the provisions of Section 145(3) of the Act. Admittedly the cash sales shown by the assessee is part of the total sales disclosed in the audited financial statements. The revenue had duly accepted the sales disclosed by the assessee in the return as income. In our considered opinion, the revenue having accepted a credit side of a transaction, cannot dispute the debit side of the very same transaction which is cash, which is explained as a source available for making the cash deposits in the bank account. This, in our considered opinion, is absolutely untenable and unsustainable in the eyes of law and generally accepted accounting principles. It is not the case of the revenue that assessee did not have sufficient stocks to effect the cash sales. The total sales disclosed by the assessee both cash as well as credit sales is part of the audited financial statements and the income tax return which has been accepted. The assessee had pleaded that the source of cash deposits had emanated out of cash sales and cash withdrawals from bank. Hence, separately making an addition on account of cash deposits in the sum of Rs.46,59,259 would only result in double addition. Hence, the addition made on account of cash deposits deserve to be deleted on that count itself.

Further, we hold that the assessee had indeed proved the source of cash deposits by clearly establishing that the source emanated from the books of accounts and cash book regularly maintained. Hence we hold that no part of cash deposits could be treated as unexplained warranting any addition under section 68 of the Act.

Further, we also find that Hon’ble Madras High Court in the case of 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 for transactions from 01.04.2017, relevant to assessment year 2018-19 onwards and not earlier. Accordingly, the grounds raised by the assessee are allowed.

In the result, the appeal of the assessee is allowed.