AI Structured Summary
Not yet generated for this judgment
Judgment
O R D E R
PER M. BALAGANESH, A. M.:
The appeal in ITA No.7/Del/2026 for AY 2017-18, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 16.10.2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.12.2019 by the Assessing Officer, ITO, Ward-22(4), Delhi (hereinafter referred to as ‘ld. AO’).
No arguments were advanced by the Learned AR before us in support of Ground Nos. 1,5 & 6. Accordingly, the same are hereby dismissed as not pressed.
The Ground No.2 raised by the assessee was specifically stated to be not pressed on behalf of the assessee, for which necessary endorsement was made by the arguing counsel in our records. Accordingly, the same is hereby dismissed as not pressed.
The only issue to be decided in this appeal is as to whether the Learned NFAC was justified in upholding the addition made on account of cash deposits during the demonetization period.
We have heard the rival submissions and perused the materials available on record. The return of income for assessment year 2017–18 was filed by the assessee on 30.3.2018 declaring taxable income of Rs 1,39,784. The assessee company was engaged in the business of Agarbatti and LED bulbs during the year under consideration and had deposited cash amounting to ₹1,11,41,000/- in its bank account during the demonetization period. The assessee was asked to explain the source of the same. The assessee explained that it had reported a turnover of Rs 1,85,45,595 and had made huge cash sales during the year in a routine manner in consonance with the nature of business carried on by it and that always substantial cash balance was held by the assessee company at any point of time for meeting its business requirements. The ld AO agreed to the contentions of the assessee that it was regularly having cash sales both in the year under consideration and also in the immediately preceding year. The assessee primarily submitted that the cash source had been generated out of cash sales made by it in its business and the available cash balance as per books stood deposited in the bank account pursuant to announcement of Demonetization by the Government of India. Hence the entire source of cash deposit is explainable from the cash balance available as per books. The ld AO resorted to examine the veracity of the purchases made by the assessee from 5 parties by issuing notices u/s 133(6) of the Act. Out of 5 parties, only two parties responded to the notice. Those two parties duly confirmed the factum of sales made to the assessee company. The remaining 3 parties however did not respond to the notice issued u/s 133(6) of the Act. But this fact was not even confronted to the assessee by the ld AO. It is not in dispute that the assessee had deposited cash of Rs 25,55,500/- in its bank account during the period 1-4-2016 to 8-11-2016 and Rs 1,11,41,000/- from 9-11-2016 to 31-12-2016. The ld AO had doubted only the cash deposit made during the demonetization period and had accepted the deposit made prior to that period. The opening cash balance as on 1-4-2016 was Rs 55,67,428/- and cash sales made during the period 1-4-2016 to 31-10-2016 was Rs 85,83,979/- and total cash sales in the remaining 5 months was Rs 7,98,115/-. The reduction in cash sales was explained to be on account of reduction in cash liquidity in the market pursuant to demonetization. The ld AO however, did not agree with this contention and proceeded to arrive at the average of cash deposited by the assessee at Rs 3,64,858/- during the period 1-4-2016 to 31-10-2016 and concluded that the average monthly cash deposit does not commensurate with the total cash deposits made during the demonetization period. Accordingly, the ld AO proceeded to give credit only to the extent of average of monthly cash deposit of Rs 3,64,857/- and added the remaining sum of Rs 1,07,76,143/- (1,11,41,000 – 3,64,857) as unexplained credit u/s 68 of the Act This action of the ld AO was upheld by the ld CIT(A).
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 the period 1-4-2016 to 31-10-2016 to the tune of Rs 85,83,979/- and the same is part of total sales disclosed by the assessee in the sum of ₹1,85,45,595/- in the profit and loss account.
b The purchase made by the assessee has not been doubted by the revenue. The ld AO had merely doubted on the fact that for the purchases made in April 2016, the assessee had made payments on 16-11-2016. This does not in any way make the purchases of the assessee ingenuine.
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 . The assessee has furnished details of purchases and sales, stock statements complete cashbook, showing the month wise movement before the ld AO for the year and in the immediately preceding year.
There is no negative cash balance on any day that has been alleged by the ld AO.
j. The major purchase parties (2 persons) had been duly subjected to examination u/s 133(6) of the Act and he had even confirmed the transactions with the assessee. The three parties who had not responded to notice u/s 133(6) of the Act had not even been confronted to the assessee by the ld AO.
Further, we find that the ld AO had accepted the return of income by the assessee, which included this cash sales also. Hence, separately, making an addition on account of cash deposits in the sum of ₹1,07,76,143/- would only result in double addition. Hence, the addition made on account of cash deposits deserves 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 account and the cashbook regularly maintained. None of the books of account have been rejected by the ld AO. In these facts and circumstances, there is no case made out by the revenue for making an addition on account of cash deposit separately. Accordingly, the addition made is hereby directed to be deleted. 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 from 01.04.2017, relevant to assessment year 2018-19 onwards and not earlier. Accordingly Ground Nos. 3 to 5 raised by the assessee are allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 05/06/2026.