DRJ CHEMICALS LIMITED,DELHI V. ITO WARD 7(1), NEW DELHI

ITA 1491/DEL/2024

AI Insights

The case involves DRJ Chemicals Ltd, which appealed against the order of the National Faceless Appeal Centre (NFAC) confirming an addition made by the Assessing Officer (AO) regarding cash deposits during the demonetization period. The AO had added Rs. 2,58,99,000 as unaccounted cash credit, which was partially sustained by the NFAC. The Tribunal examined the business operations of the assessee, the nature of cash sales, and the financial records provided, ultimately deciding in favor of the assessee by dismissing the incorrect observations made by the lower authorities.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 303103 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Other Referred Cases: CIT vs. Dhanrajgirji Raja Narasingirji, ACIT Vs. Hariom Retail Pvt. Ltd
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR DHANESTA
• Assessee Lawyers: RAJIV KHANDELWAL
• Keywords: Business income; Unexplained cash credit; Commercial expediency
• Section: 143(3); 68

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No. 1491/Del/2024 (Assessment Year: 2017-18) DRJ Chemicals Ltd, 203-204, Suradeep Building, Wazipur Industrial Area, New Delhi Vs. ITO, Ward-7(1), Delhi (Appellant) (Respondent) PAN:AABCD7878K Assessee by : Shri Rajiv Khandelwal, CA Shri Jaind Kumar Jaiswal, Adv Revenue by: Shri Rajesh Kumar Dhanesta, Sr. DR Date of Hearing 23/01/2025 Date of pronouncement 16/04/2025 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.1491/Del/2024 for AY 2017-18, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. NFAC’, in short] in Appeal No. ITBANFAC/S/250/2023-24/1060632727(1) dated 07.02.2024 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 24.11.2020 by the Assessing Officer, ITO, Ward-7(4), Delhi (hereinafter referred to as ‘ld. AO’). 2. The only effective issue to be decided in this appeal is as to whether the ld NFAC was justified in confirming the addition made on account of cash deposits made during the demonization period. ITA No. 1491/Del/2024 DRJ Chemicals Ltd Page | 2 3. We have heard the rival submissions and perused the material available on record. The return of income for AY 2017-18 was electronically filed by the assessee company on 23.10.2017 declaring loss of Rs. 2,82,330/-. The assessee has four business locations/ verticals containing chemicals Unit at Delhi; manufacturing unit at Kundli, Haryana; Import vertical and Natupur location. Delhi chemical unit is engaged in the business of chemical manufacturing whereas at Kundli, Haryana, it is engaged in the business of manufacturing. At the other two locations, the assessee company is carrying other business activities of sale/ purchase import etc. It is not in dispute that the assessee had deposited cash of Rs. 2,58,99,000/- during demonetization period. When asked about the source for the same, the assessee explained that the same was sourced out of cash sales made at various locations at the assessee. It was specifically pointed out that the assessee had started the Haryana Unit engaged in the business of manufacturing the blankets wherein, commercial production started during the year. The sale made in Haryana Unit was prevalent only during this year and hence, it cannot be compared with earlier year as there was no sale in that unit. It is not in dispute that the blankets were sold in cash by the assessee in Haryana Unit. The assessee had deposited Rs. 2 crores in the bank account of Haryana Unit and remaining Rs. 58.99 lacs was deposited in Delhi unit. The assessee gave month-wise details of opening cash balance, cash sales, cash withdrawals from banks, cash deposits in bank and closing cash balance together with details of average daily cash sales for its textile unit and chemical unit. These details are tabulated in page 2 to 3 of the assessment order. 4. The main case of the ld AO is that the assessee has been making cash withdrawals in spite of sufficient cash balance in its kitty and there ITA No. 1491/Del/2024 DRJ Chemicals Ltd Page | 3 is no reason for holding huge cash. Further, the ld AO observed that the assessee has more secured loans and the liabilities to be discharged and accordingly, it should have prudently deposited the available cash balance with it in the bank account and settled the liabilities and secured loans. Since this has not been done by the assessee, the availability of huge cash balance of the assessee per se was doubted by the ld AO and accordingly, the addition was made u/s 68 of the Act in the sum of Rs. 2,58,99,000/- as unaccounted cash credit u/s 68 of the act in the hands of the assessee. The ld NFAC gave partial relief to the extent of Rs. 69,65,413/- as explained cash deposit and sustained the differential sum of Rs. 1,89,33,587/- (Rs. 2,58,99,000-Rs. 69,65,413/-). 5. At the outset, we find that the ld AO is not permitted to sermonize how the business should be conducted by any assessee. The businessman knows his interest best. The commercial expediency of a transaction need to be viewed from the point of view of the businessman and not from the stand point of the revenue. Reliance in this regard is placed on the decision of the Hon’ble Supreme Court in the case of CIT vs. Dhanrajgirji Raja Narasingirji (1973) 91 ITR 544 (SC). In the instant case, the assessee had explained the source of cash deposit made in the bank account during the demonetization period to have emanated out of cash sales made by it and already disclosed in the income tax return of the assessee. The sales disclosed by the assessee in the return were not doubted by the revenue. The ld NFAC had made a passing remark in para 4.8 that income from cash sales were not recorded by the assessee in the profit and loss account. This fact is factually incorrect because the assessee’s total sales as per audited accounts duly matched with the VAT returns filed by the assessee for all the four entities put together and there was no discrepancy thereon. The ld AR also placed on record the ITA No. 1491/Del/2024 DRJ Chemicals Ltd Page | 4 break-up of the sales in the form of cash sales and credit sales and matching the same with the VAT returns for all the units of the assessee. We do not find any discrepancy theroen. Hence, it is very clear that the cash sales has been duly disclosed by the assessee in its return and P&L account. Accordingly, the observation made by the ld CIT(A) is factually incorrect and is hereby dismissed. 6. It is a fact that Kundli Unit engaged in the manufacturing of blankets had started commercial production during the year. Hence, logically there could not be any sales that could have been made on sales of blankets in the earlier year to make a comparison with the earlier year. The blankets are predominately sold in cash and huge cash sales were made by the assessee at Kundli Unit prior to date of announcement of demonetization as is evident from the cash sales made as under:- April 2016 Rs. 63,13,280/- May 2016 Rs. 61,74,691/- June 2016 Rs. 56,37,434/- July 2016 Rs. 94,37,240/- August 2016 Rs. 9124971/- September 2016 rs. 51,98,485/- October 2016 Rs. 87,64,008/- 7. We find that the cash balance available in Kundli Unit alone as on 08.11.2016 (being the date of announcement of demonetization) was Rs. 2,09,88,549/-. The cash balance available in Delhi Unit as on 08.11.2016 was Rs. 62,13,999/-. Hence, there is absolutely no reason to doubt the cash deposit made in the bank account as assessee is having sufficient cash balance in its books. Further, we find that the allegation leveled by the ld AO that assessee have been making huge cash withdrawals despite having huge cash balance is factually incorrect as totally, assessee had made only 2 withdrawals of Rs. 2 lakhs in May 2016 from ITA No. 1491/Del/2024 DRJ Chemicals Ltd Page | 5 Kundli and Rs 5 lakhs from Delhi Unit. The allegations leveled by the ld AO is factually incorrect. The assessee had filed the entire cash book of Kundli in pages 190 to 217 of the Paper Book wherein, the daily basis of cash sales are enclosed. The VAT returns are enclosed in page 115 of the Paper Book. The stock registers are enclosed in page 409 to 410 of the Paper Book. The ld AR also filed the sales ledger before us together with copy of annual report and tax audit report. We find that the books of account and book results were duly accepted and not rejected by the ld AO. The sales disclosed by the assessee including the cash sales were duly accepted by the ld AO. The assessee had duly furnished the cash book, VAT and excise returns and stock register before the ld AO. In these circumstances, it cannot be said that the assessee had not explained the source of cash deposits. Similar issue was subject matter of adjudication by the coordinate bench of this Tribunal in the case of ACIT Vs. Hariom Retail Pvt. Ltd in ITA No. 1700/Del/2024 for AY 2017-18 dated 28.08.2024 wherein, under similar circumstances, addition made on account of cash deposit during demonetization period was sought to be deleted. 8. In view of the aforesaid observations and respectfully following the judicial precedent herein above, the grounds raised by the assessee are allowed. 9. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 16/04/2025. -Sd/- -Sd/- (YOGESH KUMAR U.S.) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 16/04/2025 A K Keot ITA No. 1491/Del/2024 DRJ Chemicals Ltd Page | 6 Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "