DIGVIJAY CHEMICALS LIMITED,DELHI V. COMMISSIONER OF INCOME TAX (APPEALS)-3, GURGAON

ITA 689/DEL/2025

AI Insights

The case involves Digvijay Chemicals Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) - 3, Gurgaon, confirming an addition of INR 50 Lakhs to the assessee's income for the assessment year 2017-18. The addition was made by the Assessing Officer (AO) under sections 69A and 115BBE of the Income Tax Act, 1961, due to cash deposits in specified bank notes during the demonetization period. The Tribunal examined whether the cash deposits were from undisclosed sources or were already accounted for in the assessee's books. The Tribunal found that the cash deposits were from recorded sales and had been taxed previously, leading to the deletion of INR 45 Lakhs from the addition.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 315748 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2017-2018
• Other Referred Cases: CIT Vs Anil Kumar, ACIT v. Ramlal Jewellers (P.) Ltd., CIT v. Kailash Jewellery House, S. Balaji Mech-Tech Private Ltd Vs. ITO, Fine Gujaranwala Jewellers Vs. ITO, M/S Godwin Tourism Pvt. Ltd. V. DCIT, ITO V. M/s J.K. Wood India Pvt Ltd, JCIT V. M/s Pari Agencies Pvt Ltd, Shagun Jewellers (P) Ltd. vs. DCIT, ACIT, CC-1 Visakhapatnam V. M/S Hirapanna Jewellers And (Vice-Versa)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH
• Assessee Lawyers: VIR SAIN AGGARWAL
• Keywords: Set aside; Business income; Income from undisclosed sources; Bogus purchase; Bogus
• Section: 143(3); 68

Judgement Text

"ITA No.689/Del/2025 Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “C” BENCH: NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT & SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.689/Del/2025 [Assessment Year : 2017-18] Digvijay Chemicals Ltd., 4/80, Janpath, Cannaught Place, New Delhi-110001. PAN-AAACD4965G vs CIT(A)-3, Gurgaon APPELLANT RESPONDENT Appellant by Shri Vir Sain Aggarwal, AR Respondent by Shri Om Prakash, Sr.DR Date of Hearing 13.05.2025 Date of Pronouncement 13.05.2025 ORDER PER MANISH AGARWAL, AM : The present appeal has been filed by the assessee seeking to assail the First Appellate order dated 06.01.2025 of Ld. Commissioner of Income Tax (A)- 3, Gurgaon [“Ld.CIT(A)”] in Appeal No.10813/2019-20 passed u/s 250(6) of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 27.12.2019 passed u/s 143(3) of the Act pertaining to assessment year 2017- 18. 2. Brief facts of the case are that the assessee is engaged in the business of manufacturing of Punjab made Liquor (“PML”) and Indian made Foreign Liquor (“IMFL”) products, Country Liquor & IMFL products. The assessee is working in the State of Punjab on the licenses provided by Excise Taxation Department, Government of Punjab. The return of income for the year under appeal was filed on 30.10.2017, declaring total income of INR 8,03,85,580/-. The case of the assessee was selected for scrutiny under CASS by way of issuance of notice ITA No.689/Del/2025 Page | 2 dated 21.09.2018 under section 143(2) of the Act. During the course of assessment proceedings, various notices were issued which were complied with by the assessee. The AO after making comparison of the cash sales and average cash collection has made the addition of INR 50 Lakhs being the amount deposited in specified Bank Notes (SBN) during the period of demonetization. The AO has invoked the provision of section 69A & 115BBE of the Act for charging the tax. In first appeal, the Ld.CIT(A) has confirmed the additions and dismissed the appeal of the assessee. 3. Aggrieved by the order of Ld.CIT(A), the assessee is in appeal before us by taking following grounds of appeal:- 1. “That the Ld. CIT(A), Gurgaon has erred in upholding the assessment order for the AY 2017-18 against the appellant, contrary to the factual matrix wherein the Assessee has duly disclosed and offered its actual income to tax considering all of its credits. 2. a). That the Ld. CIT(A) has totally erred by making additions of Rs. 50,00,000/-u/s 69A and taxing the same under the provisions of section 115BBE of the Income Tax Act, 1961 without adhering to the facts and circumstances of the case, thereby making the liability to be set aside. b). That the Ld. CIT(A) has failed to appreciate that the said cash as deposited in the regular bank accounts of the assessee is as per regular books of accounts and, as such, the addition as sustained by the CIT(A) is highly unjustified. c). That the Ld. CIT(A) has failed to observe that such cash in hand is out of sales made by the assessee during the year under consideration and which has been reflected in the regular books of accounts and such sales having not been doubted and, as such, the addition as sustained by the Ld. CIT(A) of the cash deposits out of ITA No.689/Del/2025 Page | 3 sales disclosed in the regular books of accounts, is misconceived and the addition as sustained deserves to be set aside. 3. Notwithstanding, the above said ground of appeal no. 2, the impugned order results in violation of the provisions of Act as the same tantamount to Double Taxation of same income already offered to tax and accepted by tax authorities. 4. That even otherwise the said addition by the Assessing Officer in respect of cash deposits is not sustainable, since the books of accounts of the assessee have not been rejected and, as such, the addition is not sustainable, as per settled law in view of the judgment of Hon'ble Karnataka High Court in the case of CIT Vs Anil Kumar in ITA Nos. 200001 & 200002 vide order, dated 15.02.2016 and others. 5. That the judgments as cited by the Ld. CIT(A) while dismissing the appeal are not relevant to the facts and circumstances of the case and the addition of cash deposits & of purchases have been made on surmises and conjectures. 6. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.” 4. During the course of hearing, the Ld.AR for the assessee vehemently argued that the assessee is in the business of liquor trade where day-to-day cash sales is a normal feature. The assessee has explained that all the cash deposited in the bank account was related to its sales and filed the copies of month-wise cash sales/receipts and also the bank accounts maintained which were submitted before the lower authorities. The Ld.AR further submits that the AO has neither doubted the sale nor the trading results declared by the assessee. The books of accounts of the assessee were duly audited and neither adverse comments were made by the Auditor nor by the AO. He further ITA No.689/Del/2025 Page | 4 submits that the assessee has already included INR 50 Lakhs in its turnover and paid taxes on the profits earned thereon. Thus, further addition of INR 50 Lakhs is an attempt to tax an income twice. He further submits that once the said cash is duly recorded in the books of accounts, provision of section 69A could not be invoked. He therefore, prayed for the deletion of the additions made and uphold by the lower authorities. 5. On the other hand, Ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submitted that the assessee has failed to prove the source of cash deposited during demonetization period. Therefore, the lower authorities has rightly made the additions which deserves to be uphold. 6. We have heard both the parties and perused the material available on record. In the instant case, the books of accounts of the assessee are subject to audit and from the perusal of the assessment order, it is seen that except non production of sales bills, there was no major allegation of the AO with regard to the mode and manner of the maintenance of the books of accounts. The AO compare the cash sale in October to November, 2016 with the cash sales made in the months of October and November, 2015. 7. The assessee has deposited cash during the demonetization out of the cash available as on the closing hours of 08.11.2016 i.e. the date when the demonetization was announced by the Hon’ble Prime Minister and was the last day upto which the SBN could be accepted as valid currency. The AO is required to consider the records of the assessee such as bank statement, monthly sales summary, possibility of back-dating of cash sales or fictitious ITA No.689/Del/2025 Page | 5 sales etc. before making any allegation about the genuineness of the cash deposited in SBN during the demonetization period. When the assessee has submitted complete details and thus discharges its onus, whereas no contrary material whatsoever was brought on record by the AO to disprove the details filed by the assessee. As observed above, assessee has already included the entire cash sales in the total sales and the profits have been derived which were offered for tax, thus taxing the same income twice once in the sales and other when the sale consideration was realised and deposited in the bank account which is doubted on conjectures and surmises. 8. At this juncture, provisions as contained in section 69A is reproduced as under:- 69A. “Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. 9. From the perusal of the provisions of section 69A of the Act, it is very clear that Assessing Officer can make addition u/s 69A only under following circumstances, i.e. (i) the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income; (ii) No explanation is offered about the nature and source of the same; (iii) Explanation offered by Appellant is not upto the satisfaction of Ld. AO. ITA No.689/Del/2025 Page | 6 10. Thus the primary condition for invoking the provisions of section 69A is that there must be existence of books of accounts and such money, bullion, jewellery or valuable article was recorded in the same, than the question of the explanation by the assessee arose. If the assessee provides the explanation with regard to the sources thereof, before rejecting the same, ld. AO, has to express his opinion as to why the explanation furnished by Appellant is not acceptable. 11. In the instant case, it is not the allegation of the AO that the assessee has not maintained any books of account or the cash deposited in SBN in bank was not recorded in the books of account maintained. He rather accepted the turnover declared by the assessee which is inclusive of the amount of cash sales which was made in SBN and deposited into bank. Further it is seen that the assessee not only offered explanation regarding nature and source of deposits but also substantiated the same with documentary evidences in the shape of Audited Financial Statements, Sale Register and Cash book. It is not understood as to how the AO could invoke the provisions of section 69A for making addition when the source of such cash deposits, being cash sales, was duly recorded in the books maintained in regular course. Therefore, addition so made u/s 69A of the Act is unjustified and be deleted. 12. The Co-ordinate Bench of ITAT, Mumbai in the case of ACIT v. Ramlal Jewellers (P.) Ltd. Reported in [2023] 154 taxmann.com 584 (Mumbai - Trib.) under similar circumstances, deleted the addition made u/s 68 on account of cash deposit in SBN during the demonetization into bank by making following observations: ITA No.689/Del/2025 Page | 7 “Section 68 of the Income-tax Act, 1961- Cash credit(Cash deposit in bank)- Assessment year 2016-17- Assessee-company was engaged in jewellery business - During assessment proceedings, Assessing Officer noted that immediately after demonetization assessee had shown inflated cash sales and also made deposits in bank account which was completely abnormal as compared to earlier year and also subsequent year - He, therefore, taxed cash deposits under section 68 - It was seen that assessee had maintained regular books of account which was subject to audit and had produced entire sale bills, stock register and purchases and also quantitative tally of sales and corresponding stock - Addition undersection 68 on account of cash deposits could not be made simply on reason that during demonetization period, cash deposits vis-a-vis cash sales ratio was higher - Whether once, it had been established that sales representing outflow of stocks was duly accounted in books of account and there was no abnormal profit during year, then there was no justification to treat deposits made in bank account out of cash sales to be income from undisclosed sources - Held, yes Whether, therefore addition made under section 68 was to be deleted -Held, yes [Para 14] [In favour of assessee]” 13. The Hon’ble Delhi High court in the case of CIT v. Kailash Jewellery House in ITA No. 613/2010 (Delhi High Court) has held as under: “In the facts of above case cash of Rs.24,58,400/- was deposited in bank account. The Assessing Officer made the addition on the ground that nexus of such deposit was not establish with any source of income. The assessee claimed that it was duly recorded in the books on account of cash sales and was considered in the Profit and Loss Account. The Assessing Officer had verified the stock and cash position as per books and had accepted the same. Complete books of account and cash book was submitted to the Assessing Officer and no discrepancy was pointed out. On this basis CIT(A) deleted the addition. Tribunal also observed that it is not in dispute that sum of Rs.24,58,400/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. Therefore, cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. The Hon’ble High Court dismissed the appeal filed by the Department.” 14. The Co-ordinate Bench of ITAT, Delhi in the case of S. Balaji Mech- Tech Private Ltd Vs. ITO in ITA No. 556/Del/2024 vide order dt. 25.09.2024 has observed as under: 18. Coming to the issue of stock movement and excess sales, we observed that the assessee has submitted relevant stock ITA No.689/Del/2025 Page | 8 reconciliation and auditors report of stock movements and there is no negative stock movement which will indicate that the assessee has booked excess sales without there being proper purchases. 19. In our considered view, there are chances that during the demonetization period the regular customers may have choose to buy the spare parts and bearing by making payment by cash so that their excess SBN is transferred. We noticed that the credit sales has come down during this period and the sales of the assessee is more or less maintained during this period. Therefore, it shows that the changes in the patterns recorded in the sales are not abnormal. 20. Whether the recording of cash sales which is already declared in the books of account will attract the deeming provisions of sec.68 or 69A of Act. We observed that the assessee has declared all the cash transactions in its books of account and merely because the cash deposits are more during the demonetization period, whether the CIT(A) can invoke the provisions of section 69A of the Act. As per provisions of the section, it is necessary that the assessee be found with the money, the same is not recorded in the books accounts maintained by it for any source and not offers any explanation or such explanations are not found to be satisfactory to the AO. In this case, the assessee has already declared the cash sales in its books of account and offers the explanation as cash sales, which the lower authorities has accepted it as regular business transactions because they have not rejected the book results and brought to tax the total sales declared by the assessee in its books. Since the cash were already recorded and explanation is already part of the book results, there is no avenue for the CIT(A) to reject such explanations. This expression \"explanation is found not satisfactory to the AO\" is purely relates to the money found with the assessee which are not recorded in the books of account. In this case, the above expression has no relevance since the assessee had already declared the cash sales in its books. In the similar situation, the coordinate bench has held in the case of J.R.Rice India (P) Ltd as under: \"At the cost of repetition, to the extent of sales made, the stock position is also correspondingly reduced by the assessee which goes to prove the genuineness of the claim of the assessee. On examination of the cash book of the assessee, it is found that the assessee had cash balance of Rs. 55.94 lakhs as on 8-11- 2016, i.e., the date on which demonetization was announced, which sufficiently explains the source of deposit of Rs. 52.60 lakhs in specified bank notes. Apart from this, the assessee had duly furnished the month wise details of sales, month wise details of purchase, corresponding freight charges incurred month wise, month wise power and fuel expenses and month wise selling expenses in the form of rebate and discount. The assessee also furnished the quantitative details of goods month ITA No.689/Del/2025 Page | 9 wise for rice, sugar, chana dal and wheat flour before the Assessing Officer. All these facts clearly go to prove the genuineness claim made by the assessee that cash deposits of Rs.52.60 lakhs has been made out of cash balance available with the assessee and, hence, there is absolutely no case made out by the revenue for making addition under section 68.\" 15. Further, in the case of Fine Gujaranwala Jewellers Vs. ITO (ITA No. 1540/Del/2022 dated 27.03.2023, wherein it was held as under: 22. “In the case in hand the reason for disbelieving the cash deposit is that the assessee has been deposited below Rs. 2 lakh in every transactions that lead to the conclusion of the Assessing Officer that the same has been done to avoid the application of provision of section 285BA read with Rule 114E of the Act. The said observation made by the Assessing Officer without any material in his hand. There is no prohibition under law to make sale transaction below Rs. 2 lakhs as such the assessee had at liberty to manage his own affairs. From the action of the assessee in raising the sales bill below Rs. 2 lakhs the Assessing Officer cannot interpret as the sale are bogus only to give colour to non-genuine transaction as genuine transaction. The evidence brought on record by the Assessing Officer are not enough to hold that sales were not genuine. More so, the other wing of the Govt has already accepted the sale transaction under VAT, hence, the Assessing Officer is precluded from making contrary findings on the issue when the sales are not doubted. The other contention of the ld. DR is that the assessee has not maintaining stock register properly and date wise stock position are not given. The Assessing Officer made the said observation without rejecting the books of account form which true profit and loss accounts could be ascertained and there is no quarrel on this issue. The lower authorities cannot place reliance on the circumstantial evidence which is only conjectures and surmises and the said approach of the ld CIT(A) is devoid of merit it deserves to be rejected. Further, the income of the assessee has to be computed by the Assessing Officer on the basis of available material on record and it is very important to have a direct evidence to make an addition rather than circumstantial evidence. When the assessee gives any reply or submission or any documents to the Assessing Officer, it is duty of the Assessing Officer to examine the same in the light of the available evidence. In the present case the Assessing Officer and the ld CIT(A) have concluded the findings on the basis of conjectures and surmises. The Assessing Officer has to establish the link between the evidence collected by him and the addition to be made. The entire case has to be dependent on the Rule of evidence, the assessee in this case explained the source of bank deposits are from cash sales. The Assessing Officer proceeded to disbelieve the explanation of the assessee on the presumption basis without bringing the corroborative ITA No.689/Del/2025 Page | 10 material on record. The Assessing Officer is required to act fairly as reasonable person and not arbitrarily capriciously. The assessment should have been made based on the adequate material and it should stand on its own leg. The Assessing Officer without examining any parties to whom the goods are sold by the assessee, came to conclusion that the sales are not genuine, without even rejecting the books of account which is in our opinion is erroneous. 23. Respectfully, following the above decisions, we are inclined to allow the grounds raised by the assessee with the observation that the AO/CIT(A) cannot invoke the provisions of section 68 or 69A when the assessee is already declared the source for cash deposits in the books of accounts and the lower authorities without their being any material to support on their contrary view, the provisions of section 68 or 69A cannot be invoked. 24. In the result, appeal filed by the assessee is allowed.” 16. The Co-ordinate Benches of ITAT, in the following case laws has held as under: [i] M/S Godwin Tourism Pvt. Ltd. V. DCIT 2024 (8) TMI 1173 (ITAT, Delhi), dated- August 21, 2024, held that- 19. “Considered the rival submissions and material placed on record, we observed that the assessee has submitted cash book in the Paper Book wherein assessee has received share application money on various dates and received the same by way of cash on verification of the cash book submitted before us. We observed that on various dates, the assessee has maintained sufficient cash which are out of share k withdrawals and it is substantiated that sufficient source application money and some bank of cash available with the assessee to make the bank deposit of Rs. 8 lacs. After considering the facts on record, we observed that assessee has sufficient cash in hands to make above said dash deposit. Accordingly, additions made by the Assessing Officer is deleted.\" [ii] ITO V. M/s J.K. Wood India Pvt Ltd, 2024 (1) TMI 1262, dated 03.01.2024, Hon'ble ITAT Delhi held that- 14. “We have given thoughtful consideration to the factual matrix discussed hereinabove The undisputed fact is that there is not even a whisper of any defect, error or infirmity in the books of account maintained by the assessee which were audited both under the Companies Act and under the Income tax Act. The books of account have been maintained in the regular course of business and cash deposits in the books of account are duly reflected in the books of account ITA No.689/Del/2025 Page | 11 15. Sales made by the assessee and shown in the regular books of account have been accepted as such by VAT authorities while framing the VAT assessment. The assessee was having sufficient stock in hand for making the impugned sales during the demonetization period and it is not the case of the Assessing Officer that the assessee has shown bogus purchases to show bogus sales to cover up cash deposited during the demonetization period\" JCIT V. M/s Pari Agencies Pvt Ltd. ITA No. 2006/DEL/2023, dated 14.12.2023, Hon'ble ITAT Delhi heid that- 11. Nowhere in the assessment order the Assessing Officer has mentioned that after inflating the alleged cash sales the assessee has frequently revised its VAT returns. It is not the case of the Assessing Officer that the assessee has shown alleged cash sales without having sufficient stock in hand during that period. Not a single instance of defect is pointed out in the audited books of account. The entire assessment is based on assumptions/presumptions, surmises and conjectures de hors of the facts on record.\" 17 ITA No.3168/Del/2023 Shagun Jewellers (P) Ltd. vs. DCIT.” 17. Further reliance in this regard is being placed on the Judgment of ITAT Visakhapatnam in the case of ACIT, CC-1 Visakhapatnam V. M/S Hirapanna Jewellers And (Vice-Versa), 2021 (5) TMI 447, dated: 12-5-2021 held as under:- \"9. In view of the foregoing discussion and taking into consideration of all the facts and the circumstances of the case, we have no hesitation to hold that the cash receipts represent the sales which the assessee has rightly offered for taxation. We have gone through the trading account and find that there was sufficient stock to the sales and we do not find any defect in ccoun effect the stock as well as the sales. Since, the assessee has already admitted the sales as revenue receipt, there is no case for making the addition u/s 68 or tax the same u/s 115BBE again. This view is also supported by the decision of Hon'ble Delhi High Court in the case of Kailash Jewellery House (Supra) and the Hon'ble Gujarat High Court in the case of Vishel Exports Overseas Ltd. (supra), Hence, we do not see any reason to interfere with the order of the Ld. CIT(A) and the same is upheld.\" 18. In view of these facts and looking to the facts and circumstances that the profits declared on cash sales have already been subjected to tax, the entire ITA No.689/Del/2025 Page | 12 cash deposit in SBN cannot be brought total. However, the facts remained that the assessee has not been able to furnish all the cash sales bills before the lower authorities therefore, an addition of INR 5 Lakhs is hereby, sustained and remaining addition of INR 45 Lakhs is deleted. As observed above, the provision of section 69A of the Act are not applicable in the instant case, thus, provision of section 115BBE are not applicable to the addition of INR 5 Lakhs. 19. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 13.05.2025. Sd/- Sd/- (MAHAVIR SINGH) VICE PRESIDENT *Amit Kumar, Sr.P.S* (MANISH AGARWAL) ACCOUNTANT MEMBER Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "