BALBIR GURNANI,MUMBAI V. I.T.O., WARD-2(5), KALYAN

ITA 3124/MUM/2024

AI Insights

The case involves Balbir Gurnani, a proprietor engaged in trading of ready garments, who appealed against the order of the Commissioner of Income-tax (Appeals) confirming the addition of Rs. 42,71,955/- as unexplained cash credit under section 68 of the Income Tax Act. The Assessing Officer had noted substantial cash deposits in the assessee's bank accounts and treated them as unexplained due to insufficient evidence provided by the assessee regarding their sources. The Tribunal's decision partly favored the assessee by accepting the opening cash balance but upheld the addition of the remaining amount as undisclosed income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 781387 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2016-2017
• Appeal Filed On: 10-06-2024
• Other Referred Cases: Shri Jayesh Jagat Parekh v. ITO Taxmann.com 348 (Mumbai-Tribunal), Income-tax vs. President Industries (Gujarat High Court)258 ITR 654 (Guj)
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BHAGIRATHA RAMAWAT
• Assessee Lawyers: VINITA NARA
• Keywords: Business income; Additional evidence; Corroborative evidences; Unexplained cash credit
• Section: 68; 44AD

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “K (SMC)” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAJ KUMAR CHAUHAN (JUDICIAL MEMBER) ITA No. 3124/MUM/2024 Assessment Year: 2016-17 Balbir Gurnani, Flat No. 106, B Wing, Mohan Ritteka, Santosh Nagar, Near Maya Ice Factory, Kalyan Thane-421004. Vs. Income-tax Officer Ward 2(5), Wayle Nagar, Kadhakpada, Kalyan-421301. PAN NO. ATCPG 3562 G Appellant Respondent Assessee by : Ms. Vinita Nara Revenue by : Mr. Bhagiratha Ramawat, Sr. DR Date of Hearing : 14/08/2025 Date of pronouncement : 30/09/2025 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 18.03.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2016-17, raising sole ground as under: a) On the facts and circumstances of the case and in law, the learned CIT(A) was not justified in confirming addition of 4271955/- as unexplained cash credit u/s 68 considering the fact that the amount deposited in bank was from opening cash Printed from counselvise.com balance Rs. 1456355/ during the period (before depositing the cash) and the balance amount Rs. 2462439/ to be taxed u/s 44AD by adapting certain percentage of total amount deposited 2. Briefly stated, facts of the case are that individual, is engaged in the business of trading in ready garments under the proprietary concern styled as Collection. The business is carried on from Shop Nos. 9 and 10, Jai Gauri Market, near Jai Gajanand Market, Ulhasnagar, District Thane. For the year under consideration, the assessee filed his return of income on 09.03.2017 declaring a total income of ₹2,65,880/-, comprising of ₹1,50,881/- as interest income from fixed deposits, savings bank accounts, and post office deposits. The assessee claimed to have declared his business income on presumptive basis under section 44AD of the Income- Act”). 2.1 The return was selected for scrutiny, and notice under section 143(2) of the Act was issued on 18.09.2017, duly served upon the assessee. In the course of assessment proceedings, the Assessing Officer noticed substantial cash deposits aggregating to ₹43,37,200/- in various bank accounts maintained by the assessee. The particulars of such deposits, as recorded by the Assessing Officer, are as follows: ITA No. 3124/MUM/2025 balance Rs. 1456355/- and cash withdrawn Rs. 353161/ during the period (before depositing the cash) and the balance ount Rs. 2462439/- to be treated as business receipt and to be taxed u/s 44AD by adapting certain percentage of total deposited Briefly stated, facts of the case are that the assessee, an individual, is engaged in the business of trading in ready garments under the proprietary concern styled as . The business is carried on from Shop Nos. 9 and 10, Jai Gauri Market, near Jai Gajanand Market, Ulhasnagar, District Thane. For the year under consideration, the assessee filed his return of income on 09.03.2017 declaring a total income of , comprising of ₹1,25,000/- as business income and as interest income from fixed deposits, savings bank accounts, and post office deposits. The assessee claimed to have ared his business income on presumptive basis under section -tax Act, 1961 (hereinafter referred to as “the The return was selected for scrutiny, and notice under section 143(2) of the Act was issued on 18.09.2017, duly served upon the assessee. In the course of assessment proceedings, the Assessing Officer noticed substantial cash deposits aggregating to in various bank accounts maintained by the assessee. The particulars of such deposits, as recorded by the Assessing Officer, are as follows: Balbir Gurnani 2 ITA No. 3124/MUM/2025 and cash withdrawn Rs. 353161/- during the period (before depositing the cash) and the balance to be treated as business receipt and to be taxed u/s 44AD by adapting certain percentage of total the assessee, an individual, is engaged in the business of trading in readymade garments under the proprietary concern styled as M/s Pappu . The business is carried on from Shop Nos. 9 and 10, Jai Gauri Market, near Jai Gajanand Market, Ulhasnagar, District Thane. For the year under consideration, the assessee filed his return of income on 09.03.2017 declaring a total income of as business income and as interest income from fixed deposits, savings bank accounts, and post office deposits. The assessee claimed to have ared his business income on presumptive basis under section tax Act, 1961 (hereinafter referred to as “the The return was selected for scrutiny, and notice under section 143(2) of the Act was issued on 18.09.2017, duly served upon the assessee. In the course of assessment proceedings, the Assessing Officer noticed substantial cash deposits aggregating to in various bank accounts maintained by the assessee. The particulars of such deposits, as recorded by the Assessing Printed from counselvise.com S.No. Name of the bank 1 Bank of India 2 State Bank of India 3 Dena Bank Total 2.2 When called upon to explain, the assessee furnished a reconciliation statement attributing the deposits to the following sources: Particulars Out of opening cash balance Out of cash withdrawal from bank Advances received against property Unsecured loan receipt Total 2.3 The Assessing Officer, however, was not satisfied with the explanation. In respect of the claimed opening cash balance of ₹14,56,355/-, he observed that in the return of income for A.Y. 2015-16, the assessee had declared gross receipts of only ₹6,50,000/- with a net profit of The Assessing Officer therefore concluded that the claim of a large opening cash balance was wholly inconsistent with the meagre ITA No. 3124/MUM/2025 Name of the bank Account no. Cash deposited (In Rs.) Bank of India 007310100008990 20,75,600/ State Bank of India 34928450433 3,03,600/ Dena Bank 045910027757 19,58,000/ 43,37,200/ When called upon to explain, the assessee furnished a reconciliation statement attributing the deposits to the following Particulars Amount (In Rs.) Out of opening cash balance 14,56,355/- Out of cash withdrawal from bank 16,34,600/- Advances received against property 8,21,000/- Unsecured loan receipt 3,60,000/- Total 42,71,955/- The Assessing Officer, however, was not satisfied with the explanation. In respect of the claimed opening cash balance of , he observed that in the return of income for A.Y. 16, the assessee had declared gross receipts of only with a net profit of ₹1,30,700/- under section 44AD. The Assessing Officer therefore concluded that the claim of a large opening cash balance was wholly inconsistent with the meagre Balbir Gurnani 3 ITA No. 3124/MUM/2025 Cash deposited (In Rs.) 20,75,600/- 3,03,600/- 19,58,000/- 43,37,200/- When called upon to explain, the assessee furnished a reconciliation statement attributing the deposits to the following (In Rs.) The Assessing Officer, however, was not satisfied with the explanation. In respect of the claimed opening cash balance of , he observed that in the return of income for A.Y. 16, the assessee had declared gross receipts of only under section 44AD. The Assessing Officer therefore concluded that the claim of a large opening cash balance was wholly inconsistent with the meagre Printed from counselvise.com turnover. It was also noted that the returns for A.Ys. 2015 2016-17 had both been filed on the same date, suggesting, in his view, manipulation of figures of cash in hand. 2.4 Regarding the explanation of the assessee of cash withdrawal from the bank, he reproduced the details filed by the assessee as under: Date of withdrawals 20.11.2015 03.02.2016 03.02.2016 04.02.2016 2.5 The Assessing Officer observed that most withdrawals were effected in February 2016, whereas significant deposits had been made in earlier months, particularly November and December 2015. He thus held that the withdrawals could not reasonably explain the source of deposits of Rs. 2.6 As regards the sum of received as advance against property, the Assessing Officer noted that the entire consideration of property transaction was Accordingly, the claim of having received part consideration in cash was disbelieved for want of supporting evidence. ITA No. 3124/MUM/2025 turnover. It was also noted that the returns for A.Ys. 2015 17 had both been filed on the same date, suggesting, in his view, manipulation of figures of cash in hand. Regarding the explanation of the assessee of cash withdrawal from the bank, he reproduced the details filed by the assessee as te of withdrawals Amount withdrawn 17.08.2015 54,000/- 20.11.2015 12,000/- 03.02.2016 7,00,000/- 03.02.2016 5,00,000/- 04.02.2016 4,07,000/- Total 16,73,000/- The Assessing Officer observed that most withdrawals were effected in February 2016, whereas significant deposits had been made in earlier months, particularly November and December 2015. He thus held that the withdrawals could not reasonably explain the of Rs. 16,34,600/-. As regards the sum of ₹8,21,000/- claimed to have been received as advance against property, the Assessing Officer noted that the entire consideration of ₹25,00,000/- for the relevant property transaction was received through banking channels. Accordingly, the claim of having received part consideration in cash was disbelieved for want of supporting evidence. Balbir Gurnani 4 ITA No. 3124/MUM/2025 turnover. It was also noted that the returns for A.Ys. 2015-16 and 17 had both been filed on the same date, suggesting, in his Regarding the explanation of the assessee of cash withdrawal from the bank, he reproduced the details filed by the assessee as The Assessing Officer observed that most withdrawals were effected in February 2016, whereas significant deposits had been made in earlier months, particularly November and December 2015. He thus held that the withdrawals could not reasonably explain the claimed to have been received as advance against property, the Assessing Officer noted for the relevant received through banking channels. Accordingly, the claim of having received part consideration in cash Printed from counselvise.com 2.7 On the issue of unsecured loans of failed to provide the necessary partic addresses, or PAN of the alleged creditors. 2.8 In view of the aforesaid infirmities, the Assessing Officer rejected the explanation furnished by the assessee and treated the entire cash deposits amounting to adding the same to the total income of the assessee. 3. In appeal before the reiterated the submissions earlier advanced before the Assessing Officer. The assessee further contended that, out of the total cash deposits of ₹42,71,955/ ₹14,56,355/- ought to have been allowed, and the residual sum of ₹28,15,600/- be treated as business receipts not recorded in the books. It was urged that, in such circumstances, the assessee was prepared to offer profit at the presumptive rate of 8% under section 44AD of the Act. The Ld. CIT(A) has noticed and reproduced the above request of the assessee. However, the same did not find favour. The appellate authority observed that, save and exce letter dated 12.04.2024 asserting that certain documents had been filed — namely (i) agreement for purchase of shop dated 28.11.2015, (ii) copy of electricity bill and municipal tax receipt of the shop, and (iii) copies of purchase bills were in fact annexed to the record. The Ld. CIT(A) further held that, ITA No. 3124/MUM/2025 On the issue of unsecured loans of ₹3,60,000/ failed to provide the necessary particulars such as names, addresses, or PAN of the alleged creditors. In view of the aforesaid infirmities, the Assessing Officer rejected the explanation furnished by the assessee and treated the entire cash deposits amounting to ₹42,71,955/- as unexplaine adding the same to the total income of the assessee. In appeal before the Ld. CIT(A), the assessee substantially reiterated the submissions earlier advanced before the Assessing Officer. The assessee further contended that, out of the total cash 42,71,955/-, credit of the opening cash balance of ought to have been allowed, and the residual sum of be treated as business receipts not recorded in the books. It was urged that, in such circumstances, the assessee was prepared to offer profit at the presumptive rate of 8% under section The Ld. CIT(A) has noticed and reproduced the above request of the assessee. However, the same did not find favour. The appellate authority observed that, save and exce letter dated 12.04.2024 asserting that certain documents had been namely (i) agreement for purchase of shop dated 28.11.2015, (ii) copy of electricity bill and municipal tax receipt of the shop, and (iii) copies of purchase bills — no such doc were in fact annexed to the record. The Ld. CIT(A) further held that, Balbir Gurnani 5 ITA No. 3124/MUM/2025 3,60,000/-, the assessee ulars such as names, In view of the aforesaid infirmities, the Assessing Officer rejected the explanation furnished by the assessee and treated the as unexplained, , the assessee substantially reiterated the submissions earlier advanced before the Assessing Officer. The assessee further contended that, out of the total cash , credit of the opening cash balance of ought to have been allowed, and the residual sum of be treated as business receipts not recorded in the books. It was urged that, in such circumstances, the assessee was prepared to offer profit at the presumptive rate of 8% under section The Ld. CIT(A) has noticed and reproduced the above request of the assessee. However, the same did not find favour. The appellate authority observed that, save and except a letter dated 12.04.2024 asserting that certain documents had been namely (i) agreement for purchase of shop dated 28.11.2015, (ii) copy of electricity bill and municipal tax receipt of no such documents were in fact annexed to the record. The Ld. CIT(A) further held that, Printed from counselvise.com even assuming such documents were on record, they bore no nexus to the issue of unexplained cash deposits or alleged undisclosed business activity. In the circumstances, finding n explanations tendered, the Ld. CIT(A) upheld the addition of ₹42,71,955/- as made by the Assessing Officer. 4. Before us, the assessee has filed a Paper Book running from pages 1 to 153. During the course of hearing, the learned counsel for the assessee also sought to place on record additional evidence in the form of a visiting card of the assessee and a municipal receipt pertaining to the shop premises. In our considered view, these documents do not bear any material nexus to the issue under adjudication, namely, the determination of unexplained cash deposits or undisclosed sales from the alleged parallel busi garment trading. Their evidentiary worth is, therefore, negligible. We accordingly decline to 5. The appeal was first listed for hearing on 06.08.2024, on which date, at the request of the learned counse was adjourned to 23.09.2024. Thereafter, on successive occasions, the matter was again adjourned on the request of the assessee’s counsel from 23.09.2024 to 06.11.2024, then to 05.12.2024, and subsequently to 11.12.2024, 11.02.2025 a 12.03.2025, the Bench did not function, hearing was issued fixing the case for 05.05.2025. On that date, however, none appeared on behalf of the assessee. The matter was ITA No. 3124/MUM/2025 even assuming such documents were on record, they bore no nexus to the issue of unexplained cash deposits or alleged undisclosed business activity. In the circumstances, finding n explanations tendered, the Ld. CIT(A) upheld the addition of as made by the Assessing Officer. Before us, the assessee has filed a Paper Book running from pages 1 to 153. During the course of hearing, the learned counsel for the assessee also sought to place on record additional evidence in the form of a visiting card of the assessee and a municipal receipt pertaining to the shop premises. In our considered view, these documents do not bear any material nexus to the issue under adjudication, namely, the determination of unexplained cash deposits or undisclosed sales from the alleged parallel busi garment trading. Their evidentiary worth is, therefore, negligible. We accordingly decline to admit said documents as additional evidence. The appeal was first listed for hearing on 06.08.2024, on which date, at the request of the learned counsel for the assessee, it was adjourned to 23.09.2024. Thereafter, on successive occasions, the matter was again adjourned on the request of the assessee’s counsel from 23.09.2024 to 06.11.2024, then to 05.12.2024, and subsequently to 11.12.2024, 11.02.2025 and 18.02.2025. On 12.03.2025, the Bench did not function, thereafter a fresh notice of hearing was issued fixing the case for 05.05.2025. On that date, however, none appeared on behalf of the assessee. The matter was Balbir Gurnani 6 ITA No. 3124/MUM/2025 even assuming such documents were on record, they bore no nexus to the issue of unexplained cash deposits or alleged undisclosed business activity. In the circumstances, finding no merit in the explanations tendered, the Ld. CIT(A) upheld the addition of Before us, the assessee has filed a Paper Book running from pages 1 to 153. During the course of hearing, the learned counsel for the assessee also sought to place on record additional evidence in the form of a visiting card of the assessee and a municipal tax receipt pertaining to the shop premises. In our considered view, these documents do not bear any material nexus to the issue under adjudication, namely, the determination of unexplained cash deposits or undisclosed sales from the alleged parallel business of garment trading. Their evidentiary worth is, therefore, negligible. We documents as additional evidence. The appeal was first listed for hearing on 06.08.2024, on l for the assessee, it was adjourned to 23.09.2024. Thereafter, on successive occasions, the matter was again adjourned on the request of the assessee’s counsel from 23.09.2024 to 06.11.2024, then to 05.12.2024, and nd 18.02.2025. On a fresh notice of hearing was issued fixing the case for 05.05.2025. On that date, however, none appeared on behalf of the assessee. The matter was Printed from counselvise.com again posted for 05.07.2025 but, on the counsel, it was adjourned to 07.08.2025. On 07.08.2025, the Bench did not function, and the appeal was ultimately heard on 14.08.2025. 6. We have heard the rival submissions of both parties and perused the material placed on r is the nature and source of cash deposits aggregating to ₹42,71,955/- in the assessee’s bank accounts. During the course of assessment proceedings, the assessee attributed the deposits to four sources, namely: (i) opening cash withdrawals from bank amounting to advances of ₹8,21,000/ unsecured loans of substantiate these claims with credible do Assessing Officer treated the entire sum as unexplained. 6.1 Before the learned CIT(A), the assessee altered his stand and submitted that the sum of balance and that the balance amount of considered as undisclosed business receipts. It was further submitted that profit at the presumptive rate of 8% under section 44AD of the Act be applied to such receipts. The learned CIT(A), however, found no merit in this plea and upheld ITA No. 3124/MUM/2025 again posted for 05.07.2025 but, on the request of the assessee’s counsel, it was adjourned to 07.08.2025. On 07.08.2025, the Bench did not function, and the appeal was ultimately heard on We have heard the rival submissions of both parties and perused the material placed on record. The issue for determination is the nature and source of cash deposits aggregating to in the assessee’s bank accounts. During the course of assessment proceedings, the assessee attributed the deposits to four sources, namely: (i) opening cash balance of ₹14,56,355/ cash withdrawals from bank amounting to ₹16,34,600/ 8,21,000/- received against property, and (iv) unsecured loans of ₹3,60,000/-. As the assessee failed to substantiate these claims with credible documentary evidence, the Assessing Officer treated the entire sum as unexplained. Before the learned CIT(A), the assessee altered his stand and submitted that the sum of ₹14,56,355/- be treated as opening cash balance and that the balance amount of ₹28,15,600/ considered as undisclosed business receipts. It was further submitted that profit at the presumptive rate of 8% under section 44AD of the Act be applied to such receipts. The learned CIT(A), however, found no merit in this plea and upheld the addition in full. Balbir Gurnani 7 ITA No. 3124/MUM/2025 request of the assessee’s counsel, it was adjourned to 07.08.2025. On 07.08.2025, the Bench did not function, and the appeal was ultimately heard on We have heard the rival submissions of both parties and ecord. The issue for determination is the nature and source of cash deposits aggregating to in the assessee’s bank accounts. During the course of assessment proceedings, the assessee attributed the deposits to 14,56,355/-, (ii) 16,34,600/-, (iii) received against property, and (iv) . As the assessee failed to cumentary evidence, the Assessing Officer treated the entire sum as unexplained.. Before the learned CIT(A), the assessee altered his stand and be treated as opening cash 8,15,600/- may be considered as undisclosed business receipts. It was further submitted that profit at the presumptive rate of 8% under section 44AD of the Act be applied to such receipts. The learned CIT(A), the addition in full. Printed from counselvise.com 6.2 On due consideration, we find that the assessee has indeed shifted his explanation regarding the source of the deposits. In so far as the claim of an opening cash balance of concerned, reference was made to the return of income filed for A.Y. 2015-16, which is available on Paper Book page 1 to 3 , assessee had declared business income under the presumptive scheme with gross turnover of ₹1,30,700/-. The return (PB ₹14,56,355/-. Similarly, in the return of income filed for AY 2016 17 i.e. year under consideration also cash balance reported at Rs 26424 regularly reporting cash balance at the year end of the Act where books of account are presumably not maintained, still it holds full evidentiary value and the assessee can’t be asked further to justify availability of c addition of cash deposit to the extent of opening cash balance of ₹14,56,355/-. 6.3 As regards the remaining ₹28,15,600/-, we note that before the Assessing Officer the assessee claimed the same to have arisen out of cash withdrawals, property advances and unsecured loans, but failed to furnish requisite particulars or proof. Before the learned CIT(A), the assessee shifted ground and sought to treat the same as undisclosed sales from business activity, taxable at presumptive profit ITA No. 3124/MUM/2025 On due consideration, we find that the assessee has indeed shifted his explanation regarding the source of the deposits. In so far as the claim of an opening cash balance of ₹ concerned, reference was made to the return of income filed for A.Y. which is available on Paper Book page 1 to 3 , assessee had declared business income under the presumptive scheme with gross turnover of ₹6,50,000/- . The return (PB-3) reflects a closing cash balance of Similarly, in the return of income filed for AY 2016 17 i.e. year under consideration also cash balance 26424 (PB-6). In our opinion, once the assessee is regularly reporting cash balance at the year end, alb of the Act where books of account are presumably not maintained, evidentiary value and the assessee can’t be asked further to justify availability of cash balance. Accordingly, we delete addition of cash deposit to the extent of opening cash balance of As regards the remaining amount of cash deposit of , we note that before the Assessing Officer the assessee same to have arisen out of cash withdrawals, property advances and unsecured loans, but failed to furnish requisite particulars or proof. Before the learned CIT(A), the assessee shifted ground and sought to treat the same as undisclosed sales from activity, taxable at presumptive profit u/s 44AD of the Act Balbir Gurnani 8 ITA No. 3124/MUM/2025 On due consideration, we find that the assessee has indeed shifted his explanation regarding the source of the deposits. In so ₹14,56,355/- is concerned, reference was made to the return of income filed for A.Y. which is available on Paper Book page 1 to 3 , wherein the assessee had declared business income under the presumptive and profit of 3) reflects a closing cash balance of Similarly, in the return of income filed for AY 2016- 17 i.e. year under consideration also cash balance u/s 44AD is e the assessee is albeit, u/s 44AD of the Act where books of account are presumably not maintained, evidentiary value and the assessee can’t be asked ash balance. Accordingly, we delete addition of cash deposit to the extent of opening cash balance of amount of cash deposit of , we note that before the Assessing Officer the assessee same to have arisen out of cash withdrawals, property advances and unsecured loans, but failed to furnish requisite particulars or proof. Before the learned CIT(A), the assessee shifted ground and sought to treat the same as undisclosed sales from u/s 44AD of the Act. Printed from counselvise.com The difficulty with this argument lies in the fact that the assessee had already declared his disclosed turnover under section 44AD and offered profit thereo admission, would therefore represent a parallel and undisclosed stream of business activity. 6.4 It is well-settled that where undisclosed sales are effected out of purchases already recorded in the books, an addition limited to the profit element may suffi explained. However, where the entire transaction represents an undisclosed business, the assessee must demonstrate the source of investment in such purchases. In the present case, no explanation has been furnished as to generate these undisclosed receipts. If, as the assessee suggests, the deposits represent turnover of such clandestine business, then the investment in undisclosed purchases would necessarily have to be accounted for. 6.5 In the present case, the quantum of unexplained purchases is required to be determined by a reverse working method. In the context of the assessee’s garment trading business, where a trade cycle ordinarily spans three to four months, it is apparent such cycles would have been completed by the time of cash deposits in October/November 2015. Treating the total cash deposits of ₹28,15,600/- as proceeds of undisclosed sales up to that period, and applying the profit margin of 8%, the net sales ITA No. 3124/MUM/2025 The difficulty with this argument lies in the fact that the assessee had already declared his disclosed turnover under section 44AD and offered profit thereon. The present receipts, by his dmission, would therefore represent a parallel and undisclosed stream of business activity. settled that where undisclosed sales are effected out of purchases already recorded in the books, an addition limited to the profit element may suffice, since the source of purchases is explained. However, where the entire transaction represents an undisclosed business, the assessee must demonstrate the source of investment in such purchases. In the present case, no explanation has been furnished as to the source of goods purportedly sold to generate these undisclosed receipts. If, as the assessee suggests, the deposits represent turnover of such clandestine business, then the investment in undisclosed purchases would necessarily have to In the present case, the quantum of unexplained purchases is required to be determined by a reverse working method. In the context of the assessee’s garment trading business, where a trade cycle ordinarily spans three to four months, it is apparent such cycles would have been completed by the time of cash deposits in October/November 2015. Treating the total cash deposits of as proceeds of undisclosed sales up to that period, and applying the profit margin of 8%, the net sales Balbir Gurnani 9 ITA No. 3124/MUM/2025 The difficulty with this argument lies in the fact that the assessee had already declared his disclosed turnover under section 44AD n. The present receipts, by his own dmission, would therefore represent a parallel and undisclosed settled that where undisclosed sales are effected out of purchases already recorded in the books, an addition limited to ce, since the source of purchases is explained. However, where the entire transaction represents an undisclosed business, the assessee must demonstrate the source of investment in such purchases. In the present case, no explanation the source of goods purportedly sold to generate these undisclosed receipts. If, as the assessee suggests, the deposits represent turnover of such clandestine business, then the investment in undisclosed purchases would necessarily have to In the present case, the quantum of unexplained purchases is required to be determined by a reverse working method. In the context of the assessee’s garment trading business, where a trade cycle ordinarily spans three to four months, it is apparent that two such cycles would have been completed by the time of cash deposits in October/November 2015. Treating the total cash deposits of as proceeds of undisclosed sales up to that period, and applying the profit margin of 8%, the net sales proceeds at the Printed from counselvise.com commencement of the second trade cycle would reduce to ₹23,90,035/-, representing the undisclosed turnover at the close of the first cycle. On a further application of 8% profit margin in the preceding cycle, the unexplained purchase compon at ₹23,70,912/- at the commencement of the first trade cycle. This computation demonstrates that, even assuming two business cycles during the year, the assessee was required to deploy approximately ₹23,70,912/- towards unaccounted purcha notional profit margin. The assessee has failed to substantiate the source of such investment or provide any cogent explanation. In these circumstances, the contention that only the profit element embedded in the cash deposits ought t as the substantial unexplained capital outlay on purchases remains wholly unaccounted for. 6.7 In the decision relied upon by the Ld. Counsel for the assessee, namely Taxmann.com 348 (Mumbai purchases corresponding to sales was not examined. It does not appear from the record whether, in that case, the undisclosed sales were supported by explained sources of purchase. An addi limited to the net profit is warranted only in circumstances where undisclosed sales are derived from purchases already recorded in the books of account, obviating the need for a separate explanation of the source of such purchases. In the present cas ITA No. 3124/MUM/2025 commencement of the second trade cycle would reduce to , representing the undisclosed turnover at the close of the first cycle. On a further application of 8% profit margin in the preceding cycle, the unexplained purchase component is quantified at the commencement of the first trade cycle. This computation demonstrates that, even assuming two business cycles during the year, the assessee was required to deploy approximately towards unaccounted purchases, exclusive of the notional profit margin. The assessee has failed to substantiate the source of such investment or provide any cogent explanation. In these circumstances, the contention that only the profit element embedded in the cash deposits ought to be taxed is unsustainable, as the substantial unexplained capital outlay on purchases remains wholly unaccounted for. In the decision relied upon by the Ld. Counsel for the assessee, namely Shri Jayesh Jagat Parekh v. ITO Taxmann.com 348 (Mumbai-Tribunal), the question of unexplained purchases corresponding to sales was not examined. It does not appear from the record whether, in that case, the undisclosed sales were supported by explained sources of purchase. An addi limited to the net profit is warranted only in circumstances where undisclosed sales are derived from purchases already recorded in the books of account, obviating the need for a separate explanation of the source of such purchases. In the present cas Balbir Gurnani 10 ITA No. 3124/MUM/2025 commencement of the second trade cycle would reduce to , representing the undisclosed turnover at the close of the first cycle. On a further application of 8% profit margin in the ent is quantified at the commencement of the first trade cycle. This computation demonstrates that, even assuming two business cycles during the year, the assessee was required to deploy approximately ses, exclusive of the notional profit margin. The assessee has failed to substantiate the source of such investment or provide any cogent explanation. In these circumstances, the contention that only the profit element o be taxed is unsustainable, as the substantial unexplained capital outlay on purchases remains In the decision relied upon by the Ld. Counsel for the Shri Jayesh Jagat Parekh v. ITO, 164 Tribunal), the question of unexplained purchases corresponding to sales was not examined. It does not appear from the record whether, in that case, the undisclosed sales were supported by explained sources of purchase. An addition limited to the net profit is warranted only in circumstances where undisclosed sales are derived from purchases already recorded in the books of account, obviating the need for a separate explanation of the source of such purchases. In the present case, however, the Printed from counselvise.com assessee admittedly claims that the entire undisclosed receipt arises from an independent, undisclosed business. Consequently, the onus lies squarely on the assessee to account for the source of purchases deployed in generating the said und 6.8 The Hon’ble Gujarat High Court in the case of of Income-tax vs. President Industries Court)258 ITR 654 (Guj) rejected and unaccounted sales are found, but the correspon purchases are not proved to be outside the books, the addition should be restricted to the undisclosed sales, as the entire gross amount of sales cannot be treated as undisclosed income. as under: Having perused the assessment order made by the AO, the order made by the CIT(A) and the Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under s. 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incur realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring cost in acquiring goods w assessee and that has also not been disclosed. In the absence of such ITA No. 3124/MUM/2025 assessee admittedly claims that the entire undisclosed receipt arises from an independent, undisclosed business. Consequently, the onus lies squarely on the assessee to account for the source of purchases deployed in generating the said undisclosed sales. The Hon’ble Gujarat High Court in the case of tax vs. President Industries (Gujarat High (Guj) held that where the books of account are rejected and unaccounted sales are found, but the correspon purchases are not proved to be outside the books, the addition should be restricted to the net profit element embedded in the undisclosed sales, as the entire gross amount of sales cannot be treated as undisclosed income. The relevant finding is reproduced Having perused the assessment order made by the AO, the order made by the CIT(A) and the Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under s. 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring cost in acquiring goods which have been sold have been made by the assessee and that has also not been disclosed. In the absence of such Balbir Gurnani 11 ITA No. 3124/MUM/2025 assessee admittedly claims that the entire undisclosed receipt arises from an independent, undisclosed business. Consequently, the onus lies squarely on the assessee to account for the source of isclosed sales. Commissioner (Gujarat High here the books of account are rejected and unaccounted sales are found, but the corresponding purchases are not proved to be outside the books, the addition embedded in the undisclosed sales, as the entire gross amount of sales cannot be The relevant finding is reproduced Having perused the assessment order made by the AO, the order made by the CIT(A) and the Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under s. 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods red the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring cost in hich have been sold have been made by the assessee and that has also not been disclosed. In the absence of such Printed from counselvise.com finding of fact the question whether entire sum of undisclosed sale proceeds can be treated income of the relevant assessment year answers by itself in negative. The record goes to show that there is no finding nor any material has been referred about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales 6.9 In the circumstances, for two distinct failure of the assessee to substantiate his original explanation of deposits as arising from withdrawals, property advances and loans, and secondly, the inability of the assessee to explain the source of investment in the alleged paral considered view that the entire amount of be taxed as undisclosed income. 6.10 In view of the addition partly to the extent of Rs. addition of Rs. Commissioner of Income 7. In the result, the appeal of the assessee is Order pron Sd/ (RAJ KUMAR CHAUHAN JUDICIAL MEMBER Mumbai; Dated: 30/09/2025 Rahul Sharma, Sr. P.S. ITA No. 3124/MUM/2025 finding of fact the question whether entire sum of undisclosed sale proceeds can be treated income of the relevant assessment year self in negative. The record goes to show that there is no finding nor any material has been referred about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales. In the circumstances, for two distinct reasons failure of the assessee to substantiate his original explanation of deposits as arising from withdrawals, property advances and loans, and secondly, the inability of the assessee to explain the source of investment in the alleged parallel business—we are of the considered view that the entire amount of ₹28,15,600/ be taxed as undisclosed income. reasons recorded hereinabove, we addition partly to the extent of Rs. ₹14,56,355/ ition of Rs. ₹28,15,600/- sustained by the learned Commissioner of Income-tax (Appeals) is upheld. In the result, the appeal of the assessee is partly allowed Order pronounced in the open Court on Sd/- (RAJ KUMAR CHAUHAN) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Balbir Gurnani 12 ITA No. 3124/MUM/2025 finding of fact the question whether entire sum of undisclosed sale proceeds can be treated income of the relevant assessment year self in negative. The record goes to show that there is no finding nor any material has been referred about the suppression of investment in acquiring the goods which have been found subject of reasons—firstly, the failure of the assessee to substantiate his original explanation of deposits as arising from withdrawals, property advances and loans, and secondly, the inability of the assessee to explain the source of we are of the 28,15,600/- is liable to reasons recorded hereinabove, we delete the 14,56,355/- and balance sustained by the learned partly allowed. 30/09/2025. Sd/- PRAKASH KANT) ACCOUNTANT MEMBER Printed from counselvise.com Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// ITA No. 3124/MUM/2025 Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Balbir Gurnani 13 ITA No. 3124/MUM/2025 BY ORDER, (Assistant Registrar) ITAT, Mumbai Printed from counselvise.com "