Sri Radha Trade Wind P. Ltd. vs Income Tax Officer, Ward-24(2)

PER VIKAS AWASTHY, JM:

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short 'the CIT(A)'] dated 23.09.2025, for Assessment Year 2017-18.

The assessee in appeal has assailed addition of Rs.33,99,000/- made u/s.68 r.w.s. 115BBE of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), on account of unexplained cash deposits in the bank account during demonetization period.

Shri S. S Gupta appearing on behalf of the assessee submits that the assessee company was incorporated in September 2016. The assessee is engaged in the business of trading of surplus cloth. The assessee purchased surplus cloth (exempt from sales tax) from M/s. Sargam Overseas. The assessee purchased surplus cloth only from one supplier i.e. M/s. Sargam Overseas. The cash deposits in the bank are from cash sale proceeds of the said cloth. He submitted that though the assessee was having good business, but, due to unavoidable reasons, the assessee had to close its business in March 2017. He thus, prayed for deleting the addition.

Per contra, Shri Keshav Kishore Anand representing the department vehemently defending the impugned order submits, that no sales were made by the assessee in subsequent assessment year. Hence, the submissions advanced by the ld. AR of the assessee cannot be relied upon.

Both sides heard, orders of the authorities below examined. The solitary issue in present appeal is the addition of Rs.33,99,000/- on account of alleged unexplained cash deposits in the bank account of the assessee during demonetization period. The assessee has explained that the cash deposits are from cash sales of cloth. The sole reason for not accepting the source of cash deposits is that the alleged business of sale of cloth was carried out by the assessee for a short period, i.e., from October 2016 to March 2017. Undisputedly, the assessee company was incorporated in September 2016. The assessee has furnished documentary evidence, to substantiated that it had purchased cloth from one vendor, i.e., M/s. Sargam Overseas, between 01.10.2016 and 14.12.2016, and sold the entire stock during the period from 01.10.2016 to 21.03.2017. The AO made additions merely on surmises and conjectures, raising doubts as to how a third party could sell goods on credit to the assessee when its existence was very short, and also questioning as to why the assessee closed its business at the end of the financial year, i.e., 31.03.2017 when the assessee was having good business. The AO has failed to controvert the fact that the assessee made purchases of cloth from M/s. Sargam Overseas. The assessee, in its return of income for the impugned assessment year has offered income from sale of cloth, which has been accepted by the AO. I am of the considered view that the addition made by the AO is unsustainable, as it is based only on presumptions without there being any substantive material to disregard the explanation furnished by the assessee. Accordingly, addition of Rs.33,99,000/- is directed to be deleted.

In the result, impugned order is set aside and appeal of the assessee is allowed.