ACIT, CIRCEL -52(1), NEW DELHI, NEW DELHI V. ARUN KUMAR GUPTA, NEW DELHI

ITA 4637/DEL/2024

AI Insights

The case involves an appeal by the Revenue against the order of the Commissioner of Income-tax (Appeals) which had deleted an addition made by the AO under section 68 of the Income Tax Act, 1961. The AO had added Rs.1,66,13,755 as unexplained cash credit, suspecting that the cash deposits made during the demonetization period were not from legitimate sources. The assessee, Arun Kumar Gupta, argued that the deposits were from legitimate business activities, particularly increased sales during the festival season. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not rejected the books of account nor provided adequate reasons to disbelieve the reported sales.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 23836 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Other Referred Cases: Forum Sales Pvt.Ltd., ITA 862/2019 & ITA 863/2019- Delhi HC, Hirapanna Jewellers, 196 ITR (Tribj 2024-ITAT Vishakhapatnam, Amantpur Kalpana 130 taxmann.com 141-ITAT Bangalore, Agsom Global Pvt.Ltd., 441 ITR 550- Delhi HC, Magic Auto Pvt.Ltd., ITA 2152/Del/2023- ITAT Delhi, Shivam Industries ITA No.1612/Del/2021- ITAT Delhi, Kailash Jewellery House ITA 613/2010-Delhi HC, Vaishal Exports Overseas Ltd. ITA 2471 of 2009-Gujarat HC, Singhal Eximn Pvt.Ltd. ITA No.6520/Del/2018- ITAT Delhi, Shree Sanand Textile Ind. Ltd. ITANo.995/Ahd/2014-ITAT Ahmedabad
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH TRIPATHI
• Assessee Lawyers: C. S. ANAND; VAISHNAVI YADAV
• Keywords: Business income; Unexplained cash credit
• Section: 143(3); 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: A : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No.4637/Del/2024 Assessment Year: 2017-18 ACIT, Circle-52(1), New Delhi. Vs Arun Kumar Gupta, 23-25, Bengali Market, New Delhi – 110 001. PAN: AAKPG9900B (Appellant) (Respondent) Assessee by : Shri C.S. Anand, Advocate & Ms Vaishnavi Yadav, Advocate Revenue by : Shri Ashish Tripathi, Sr. DR Date of Hearing : 13.02.2025 Date of Pronouncement : 12.03.2025 ORDER PER ANUBHAV SHARMA, JM: This appeal is preferred by the Revenue against the order dated 29.08.2024 of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as the ld. First Appellate Authority or ‘the Ld. FAA’ for short) in Appeal No.CIT(A), Delhi- 18/10330/2019-20 arising out of the appeal before it against the order dated 21.12.2019 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred ITA No.4637/Del/2024 2 as ‘the Act’) by the ACIT, Circle 52(1), Delhi (hereinafter referred to as the Ld. AO). 2. Heard and perused the record. The facts in brief are that the assessee filed return of income declaring total income of Rs.48,43,150/-. The case of the assessee was taken up for scrutiny and mandatory notices were issued. The assessee is a proprietor and is engaged in the business of running sweets/namkeen/Halwai shop and a restaurant under the name “Nathu’s Sweets.” As for the year under consideration the assessee has shown income from business or profession and other sources. During the assessment proceedings, the ld. AO observed that the assessee has deposited cash amounting to Rs.1,22,05,000/- in Central Bank of India Account No.3416570218 and Rs.1,03,35,000/- in HDFC Bank Ltd. Account No.50200010770836. As these deposits were during the period of demonetization, the ld. AO found that a sum of Rs.60 lakhs was deposited in new currencies and the rest was in specified bank notes (SBNs). The ld. AO observed that the assessee had reported Rs.1,65,40,000/- as cash in hand available with the assessee on 8th November, 2016 which was subsequently deposited in the two bank accounts during the demonetization period. The ld. AO considered it to be abnormal increase in cash deposit during the demonetization period. The ld. AO considered the return of the assessee, audited report and other relevant information called during the assessment proceedings and concluded as follows:- ITA No.4637/Del/2024 3 “Your ITR, Audit report and submissions for the relevant AY have been perused. Your kind attention is drawn to the following table: From the above table following abnormal trends is being observed: • Cash sales in October 2015 was Rs. 8707370 whereas cash sales in October 2016 was Rs. 26993600. There is an abnormal increase in cash sales by 210% that too on a higher base of sales of Rs. 8707370 in October 2015. It is pertinent to mention here that your total sales in FY 2015-16 was Rs. 116582851 and in FY 2016-17 was Rs. 136794517 which means Period Cash Sales inclusive Tax (Rs.) Opening cash in hand (Rs.) Sept 2015 9090642 Oct 2015 8707370 1696246 Nov till 08/11/2015 3224857 1663335 09/11/2015 to 30/11/2015 7114920 1894074 Dec 2015 7664450 5529889 Sept 2016 7534595 584673 Oct 2016 26993600 991538 Nov till 08/11/2016 1796062 19020463 09/11/2016 to 30/11/2016 2333643 . 16613755 Dec 2016 4212380 4619506 ITA No.4637/Del/2024 4 that your total sales have increased in relevant AY by 17% over the preceding A Y. • Opening cash in hand for November 2015 was Rs. 1663335 however opening cash in hand for November 2016 was Rs. 19020463. There is an abnormal increase in opening cash in hand by 1043%. • Cash sales in September 2015 was Rs. 9090642 whereas cash sales in October 2015 was Rs. 8707370 which means a decline of 4.2%. Cash sales in September 2016 was Rs. 7534595 and cash sales in October 2016 was Rs. 26993600 which means an increase of 258%. These data points out that cash sales in October 2016 have been manipulated to create a huge cash in hand till 8th Nov 2016 i.e. the day of demonetization and then the cash in hand was deposited in bank account in garb of cash sales to accommodate the out of books cash lying in your hand. You are show caused as to why this abnormal increase in cash sales in October 2016 amounting to Rs. 19775457 over the preceding assessment year which was later deposited in bank account during demonetization period may not be disallowed and added back to your income as unexplained cash credit u/s 68 of the Income Tax Act, 1961. 3. The assessee’s claim that the deposit was out of cash generated during the festivals of Diwali and Bhaidooj and the pattern of deposit was not strange compared to previous period and the subsequent period of demonetization. However, the AO was not satisfied and made an addition with following observations:- “Addition under section 68 of the Income Tax Act, 1961  Cash sales in October 2015 was Rs. 8707370 whereas cash sales in October 2016 was Rs. 26993600. There is an abnormal increase in cash sales by 210% that too on a higher base of sales of Rs. 8707370 in October 2015. It is pertinent to mention here that your total sales in FY 2015-16 was Rs. 116582851 and in FY 2016-17 was Rs. 136794517 which means that your total sales have increased in relevant AY by 17% over the preceding AY.  Opening cash in hand for November 2015 was Rs. 1663335 however opening cash in hand for November 2016 was Rs. 19020463. There is an abnormal increase in opening cash in hand by 1043%. ITA No.4637/Del/2024 5  Cash sales in September 2015 was Rs. 9090642 whereas cash sales in October 2015 was Rs. 8707370 which means a decline of 4.2%. Cash sales in September 2016 was Rs. 7534595 and cash sales in October 2016 was Rs. 26993600 which means an increase of 258%. These data points out that cash sales in October 2016 have been manipulated to create a huge cash in hand till 8th Nov 2016 i.e. the day of demonetization and then the cash in hand was deposited in bank account in garb of cash sales to accommodate the out of books cash lying in the hand of assesse.Thus there is an abnormal increase in cash sales in October 2016 amounting to Rs. 19775457 over the preceding assessment year which was later deposited in bank account during demonetization period. …… Hence the closing, cash in hand as on 8th Nov 2016 amounting to Rs.1,66,13,755 is disallowed and added back to income of assesse as unexplained cash credit u/s 68 of the Income Tax Act, 1961. Penalty proceedings u/s 271AAC of the Income Tax Act, 1961is also initiated for the same. (Addition: Rs 1,66,13,755) 4. The ld. CIT(A) has given relief to the assessee for which the Revenue is in appeal raising the following grounds:- “I. Whether on the facts and in the circumstances of the case, the ld. CIT(A) NFAC is correct in deleting the addition of Rs.1,66,13,755/- made as per provisions of section 68 of the IT Act on account of unexplained cash credit without considering abnormal increase in cash deposit in 2016 as compared to 2015 as well as compared to 2017. II. Whether on the facts and in the circumstances of the case, Ld. CIT(A), NFAC is correct in deleting the addition of Rs.1,66,13,755/- made on account of cash deposit, in respect of which the assessee fails to offer satisfactory explanation during the course of assessment proceedings.” 5. The ld. AR has re-asserted the averments of the case of the assessee supplementing it with references made on the basis of the paper book and filing written submissions for the same. The ld. AR for the assessee had emphasized that disbelieving the whole of the closing cash in hand as on 08.11.2016, ITA No.4637/Del/2024 6 without rejecting the books of account, was absolutely unjustified and illegal. The ld. AR had placed reliance upon the following judgments. (i) Forum Sales Pvt.Ltd., ITA 862/2019 & ITA 863/2019- Delhi HC (ii) Hirapanna Jewellers, 196 ITR (Tribj 2024-ITAT Vishakhapatnam (iii) Amantpur Kalpana 130 taxmann.com 141-ITAT Bangalore (iv) Agsom Global Pvt.Ltd., 441 ITR 550- Delhi HC (v) Magic Auto Pvt.Ltd., ITA 2152/Del/2023- ITAT Delhi (vi) Shivam Industries ITA No.1612/Del/2021- ITAT Delhi 5.1 The ld. DR has relied the orders of the ld. AO and it was submitted that the ld. AO has extensively examined the fact that merely because of festivals the cash sales would not have generated the amounts deposited in SBNs. 6. Now from the assertion of ld. AR, the admitted fact is that for the last several years, the respondent assessee has been running a sweets/namkeen/halwai shop and also a restaurant under the popular name and style of NATHU'S SWEETS at Bengali Market, New Delhi. It has been maintaining books of account & other records, and has been getting the same audited by a firm of Chartered Accountants. As per the P & L account for the year ended 31.03.2017 copy of which is available at PB page 11, which is forming part of audited financial statements for FY 2016-17 (i) the purchases were Rs. 104406430/-; (ii) the sales were Rs.136794517/-; (iii) the gross profit was Rs.24455474/- and (iv) the net profit was Rs.4841256/-. In the tax audit report for FY 2016-17 (PB: 12-22), the tax auditor has reported that (i) the assessee is registered under sales VAT/tax and service tax; (ii) the assessee has ITA No.4637/Del/2024 7 maintained cash book, bank book, journal, ledger, purchase register & sale register; (iii) all such books of account & other records were examined by them; (iv) the sales have gone up from Rs.116582851/- to Rs.136794517/-; (v) the net profit rate has substantially gone up from 1.98% to 3.54%. The tax auditor has not pointed out any discrepancy/defect/short coming in the books of account maintained by the assessee which were examined by them. 7. The total amount received towards sales during FY 2015-16 was Rs.130234507/- (inclusive of VAT amount of Rs. 13651656/-), out of which the total cash received was Rs.95769911/-. The percentage of cash sales/total sales is worked out at 73.53%. 7.1 The total amount received towards sales during FY 2016-17 was Rs.147813394/- (inclusive of VAT amount of Rs.11018677/-), out of which the total cash received was Rs.99780230/-. The percentage of cash sales/total sales is worked out at 67.50%. 7.2 The total amount received towards sales during FY 2017-18 was Rs. 145213958/- (inclusive of VAT amount of Rs.11409377/-), out of which the total cash received was Rs.88272851/-. The percentage of cash sales/total sales is worked out at 60.78%. 8. During the course of assessment proceedings, vide letter dt.05.12.2019 (PB:23), the assessee had furnished copies of (i) the audited financial statements for FY 2016-17; (ii) tax audit report for FY 2016-17; (iii) sales register for FY 2016-17; (iv) purchases register for FY 2016-17; (v) cash book for FY 2016-17; ITA No.4637/Del/2024 8 and (vi) bank statements for FY 2016-17. Copy of cash book for FY 2016-17 is placed in the paper book at (PB:24-220). 9. Next, vide letter 19.12.2019 (PB:221-222), the assessee had responded to the show cause notice dt.16.12.2019 (i) explaining and justifying about the closing cash in hand as on 31.10.2016 (the day next too Diwali) amounting to Rs.19020463/- and as on 08.11.2016 (the day on which demonetization was announced) amounting to Rs.16613755/-; (ii) explaining and justifying the reasons for accumulation of cash. 10. The first and foremost thing that comes up from above is that since the sales made in cash is already credited to the P & L a/c, the profit percentage is accepted, there is no tinkering with the purchases or sales, stock, or otherwise there is no allegation of misreporting in the financials, so making addition will tantamount to double addition. Thus we find substance in the contention of ld. AR that ld. AO had picked up the figure of Rs.16613755/- which was nothing but the closing cash in hand as on 08.11.2016 (PB:157) and treated the same as unexplained cash credit in terms of section 68 of the Act, without rejecting the books of account, and same is not sustainable. 11. Then we find that the learned AO had recorded that out of total deposited amount of Rs.2,25,40,000/- the assessee had deposited Rs.60.00,000/- in new currencies and rest in specified bank notes (SBN). As claimed by assessee, Rs.1,65,40,000/- was cash in hand available with the assessee on 08th Nov 2016 which was subsequently deposited in above mentioned bank accounts during ITA No.4637/Del/2024 9 demonetization period. This is sufficient to establish that assessee was generating sufficient cash from day to day transactions and simultaneously depositing the excess in the bank account. 12. Given the nature of assessee’s line of business the Revenue cannot dispute that the assessee's sales may have gone up due to the festival seasons beginning with Navratras to Bhaidooj which incidentally happened few days prior to the date on which demonetization was declared. The assessee had also pointed before the ld. CIT(A) that its sales had gone up by more than Rs.2 Crores, as compared to immediately preceding year. 13. The learned CIT(A) had appreciated that (i) the learned AO had no reason to disbelieve the sales; (ii) the learned AO had accepted the purchases, sales, stocks etc; (iii) the learned AO had not found any defect in the books of account, trading account, P&L account, financial statements; (iv) the cash receipts represented the sales which were rightly admitted and offered for taxation; and (v) there is no case for making the addition u/s 68 or to tax the same again u/s 115BBE. The learned CIT(A) had drawn strength from the following judgments/orders: (i) Kailash Jewellery House ITA 613/2010-Delhi HC (ii) Vaishal Exports Overseas Ltd. ITA 2471 of 2009-Gujarat HC (iii) Singhal Eximn Pvt.Ltd. ITA No.6520/Del/2018- ITAT Delhi (iv) Shree Sanand Textile Ind. Ltd. ITANo.995/Ahd/2014-ITAT Ahmedabad ITA No.4637/Del/2024 10 14. On the basis of aforesaid discussion we find no reasons to interfere in the reasoned findings of ld. CIT(A) and rejecting the grounds as raised by the Revenue, the appeal is dismissed. Order pronounced in the open court on 12.03.2025. Sd/- Sd/- (NAVEEN CHANDRA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 12th March, 2025. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "