INCOME TAX OFFICER, WARD-1(3)(1), AHMEDABAD, AHMEDABAD V. RAJESHKUMAR RAMESHCHANDRA SHAH, AHMEDABAD

ITA 1074/AHD/2023

AI Insights

The case involves an appeal by the Income Tax Officer against Rajeshkumar Rameshchandra Shah concerning the assessment year 2017-18. The primary issues were the deletion of an addition of Rs. 9,60,01,000 as unexplained cash credit under Section 68 of the Income Tax Act, 1961, and the deletion of a disallowance of salary expense amounting to Rs. 7,20,000. The CIT(A) had found merit in the assessee's arguments, which the Tribunal upheld, noting that the cash deposits were from documented cash sales and that the salary payments were substantiated by the employees' tax returns.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 774992 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 20-12-2023
• Other Referred Cases: Akshit Kumar Vs. Asst. CIT, Kanika Rathi Vs. ITO, Jayesh N Barad Vs. Deputy Commissioner of Income-tax, Commissioner of Income-tax Vs. Pradeep Shantilal Patel, Assistant Commissioner of Income Tax, Central Circle 1 Vs. M/s Hirapanna Jewellers, ACIT, Central Circle-2, Jaipur Vs. Motisons Jewellers Ltd, Charu Aggarwal Vs. Deputy Commissioner of Income Tax, Balwinder Kumar Vs. ITO, Ward-3(1), Jalandhar, Fine Gujaranwala Jewellers Vs. ITO, Nawal Kishore Soni Vs. ACIT, Central Circle3, Jaipur, Assistant Commissioner of Income Tax Vs. Shri Chandra Surana
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALPESH PARMAR
• Assessee Lawyers: TUSHAR HEMANI; PARIMALSINH B. PARMAR
• Keywords: Set aside; Business income; Unexplained cash credit; Bogus purchase; TDS; Assessment record; Bogus
• Section: 143(3); 142(1); 68; 133(6); 40A(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 1074/Ahd/2023 (िनधा[रण वष[ / Assessment Year : 2017-18) Income Tax Officer Ward-1(3)(1), Ahmedabad, बनाम/ Vs. Rajeshkumar Rameshchandra Shah 202, Nirja Apartment, B/h. Navrangpura P.O., Navrangpura, Ahmedabad, Gujarat 380009 Öथायी लेखा सं./जीआइआर सं./PAN/GIR No. : AKOPS9777Q (Appellant) .. (Respondent) अपीलाथȸ ओर से /Appellant by : Shri Alpesh Parmar, CIT. DR Ĥ×यथȸ कȧ ओर से/Respondent by : Shri Tushar Hemani, Sr. Advocate & Shri Parimalsinh B. Parmar, A.R. Date of Hearing 07/08/2025 Date of Pronouncement 04/09/2025 (आदेश)/ORDER PER SMT. ANNAPURNA GUPTA, AM: The present appeal has been filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals), (hereinafter referred to as “CIT(A)”), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi dated 19.09.2023 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2017-18. Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 2 – 2. The grounds raised by the Revenue are as under: 1. \"CIT(A) has erred in deleting the addition made on account of unexplained cash credit u/s 68 of the Act Rs. 9,60,01,000/- without appreciating the findings brought out by the assessing officer in the assessment order\" 2. CIT(A) has erred in deleting the disallowance of salary expense made of Rs.7.20,000/- without appreciating the findings brought out by the assessing officer in the assessment order.\" 2. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary\". 4.\" is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored\". 3. Ground No.1 pertains to the addition made to the income of the assessee on account of cash deposited in the bank account of the assessee during demonetization period amounting to Rs.9,60,00,000/-, which was deleted by the Ld. CIT(A). The assessee had attributed the source of cash deposited as out of cash sales made by it in the course of its business which was not accepted by the AO. The Ld.CIT(A) however found merit in the contention of the assessee. 4. The Ld. CIT(A) has dealt with the facts of the case and has given his findings on the issue at para 5.3 to 5.3.7 of his order as under: “5.3 Decision on ground no.1, 2, 3 and 4 I have considered the facts of the case, submissions of the appellant, the observations of the AO contained in the assessment order and the other materials on record on this issue. The assessing officer has observed that the appellant had claimed that the cash deposited in various bank accounts during demonetization Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 3 – period was out of cash sales made by the appellant during period October, 2016 to 08.11.2016. Further, the assessing officer noted that the appellant has recorded no major cash sales between April to September, 2016 but heavy cash sales were recorded thereafter. Further, the assessing officer noted that there were certain abnormalities in the cash sales registers which indicated the non genuineness of the sales. Further, the assessing officer pointed out few abnormalities in the stock summary of the appellant in the month of October and November, 2016. On this basis the assessing officer held that the cash deposited during demonetization period was the undisclosed cash for the appellant and hence, the same was added u/s 68 of I.T. Act, 1961. 5.3.1 The appellant has submitted that the modus operandi of the business of the assessee is such that stocks have been realized by way of sales and source of cash deposit in the regular bank account of the assessee stands established. The appellant has submitted that substantial evidences were submitted in support of sales, purchases, stock and cash transaction with respect to source of cash deposits in the bank accounts. It has been submitted that the cash sales in the relevant previous year were drastically less than the earlier years. The total cash sales in financial year 2015-16 were Rs.141,54,28,549/- which reduced to only Rs.17,03,68,643/- during F.Y. 2016-17. It denotes decline of 87.96%. Further, it has been noted that the cash sales from 01.04.2015 to 08.11.2015 were Rs.108,35,31,632/- which decline to a figure of Rs.12,40,96,512/- during 01.04.2016 to 08.11.2016 depicting sharp fall of 88.54%. Further, if the respective periods of demonetization days are compared then there is decline of 65.56% i.e. cash sales decreased from Rs.28,50,55,069/- during period 09.11.2015 and 30.12.2015 to Rs.9,81,70,000/- during period 09.11.2016 and 30.12.2016. Further, it is contended by the appellant that it was brought to the notice of the assessing officer that even after period of demonetization i.e. after 30.12.2016, there were cash sales of Rs.4,43,02,131/- during the month of January, 17 to March, 17. Further, it was submitted that it was brought to the noticed of the assessing officer that in the preceding financial years assessment proceedings were completed under section 143(3) and after considering the nature of business and evidences submitted in support of cash sales no additions were made on that ground and cash deposits in the bank accounts were accepted. 5.3.2 It has been submitted that assessing officer had issued notices under section 133(6) of the Act to the suppliers of goods to the appellant. All the parties had confirmed the purchases of the appellant and submitted contra accounts of the appellant’s proprietary concern. Further, it has been submitted that appellant had made payment to suppliers through banking channels out of its current bank account in which sales realized in cash were deposited. Further, it has been claimed that the appellant had duly submitted the details of customers above Rs.2,00,000/- on 02.12.2019 to the assessing officer alongwith quantitative details of the closing stock valuation. Further, the details of suppliers as well as the VAT returns were submitted during the assessment proceedings vide reply dated 04.12.2019. The Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 4 – appellant also submitted the complete details of debtors as well as item-wise, date- wise quantitative records of the stock on 06.12.2019. 5.3.3 The appellant in written submissions has also submitted point wise rebuttal of the discrepancies/ anomalies mentioned by the assessing officer in the assessment order. It has been observed by the assessing officer that the appellant has supposedly shown inflated sales on 26.10.2016, 29.10.2016, 01.11.2016 to 05.11.2016. The appellant in this regard has submitted that all the purchases were cross verified by the assessing officer by issuance of notice u/s 133(6) of the Act to the suppliers. Further, the sales were duly supported by sale invoices and sale register containing invoice no., date, name of the customer, quantity sold, amount, applicable VAT tax etc. Further, day to day quantity register were also submitted during the course of assessment proceedings. The appellant has alleged that the contentions of the A.O. are based on surmises and conjectures without any contrary material or finding on record. 5.3.4 The assessing officer had observed that there was only one sales person Parth Rathod handling sales during demonetization period. The appellant has submitted that the details of salary expenses were duly submitted before the assessing officer in the assessment proceedings. Further, it has been submitted that there were two other employees by the name Gunjal Tejas Shah and Sunita K Shah employed with the appellant. Further, due to festive seasons and holiday of “Pushyanakshatra” sale of Gold remained substantially high compared to any other days in whole year. Hence, in addition to staff members, all the family members were also present in the shop for help. 5.3.5 The assessing officer had further noted in the assessment order that the appellant was not having any infrastructure to cut bullion into small pieces. In this regard, the appellant has submitted that he is having the cutter machine for cutting the bullion into small pieces. Further, the appellant had weighing scale and has been doing his business for more than 20 years. The assessing officer has also pointed out that there is no satisfactory reason for high cash in hand of Rs.10,05,76,744/- on 07.11.2016 whereas he deposited only Rs.22,00,000/- in the bank on 08.11.2016. In this regard, the appellant has submitted that cash of Rs.22,00,000/- was in the cash counter of the shop which was deposited. Balance cash was in the “Safe” of the appellant and its key was with the appellant. As appellant was out of station on 08.11.2016, his staff was instructed to deposit Rs.22,00,000/-, available in the cash counter, in the bank. Balance cash was deposited after 08.11.2016 when appellant resumed the office as he was having the Key of the Safe in which balance cash was kept. 5.3.6 The assessing officer at page-26 of the assessment order has noted that the appellant had shown stock balance of 19105.64 gms after invoice no-45 but it increased to 23585.51 gms after invoice-46 and again raised to 23907.54 gms after invoice-47 without any corresponding purchase. The appellant has submitted that on 26.10.2016 sale of 4857.72 grams of 22ct Gold ornament was made through Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 5 – invoice no-26 to 119. On 27.10.2016, opening stock was 19105.64 grams out which 912.52 grams was sold through invoice no 120 to 151. The appellant has further given the stock position on 26.10.2016 and 27.10.2016 as under:- Date Opening Stock (Grams) Sale (Grams) Closing Stock (Grams) 26.10.16 23963.360 4857.72 19105.64 27.10.16 19105.64 912.52 18193.12 5.3.7 The assessing officer has noted on page-34 that on 05.11.2016 there were discrepancies in the stock register of Birla Gold Bar. The stock after invoice no-638 was 0.048 gms but after invoice no-639 the stock raised to 3854.66 gms without corresponding purchase. In this regard, the appellant had refuted the observation by submitting that on 05.11.2016 opening stock of Birla Gold Bar was 4946.927 which was sold through invoice no-620-681 & 730-769 on the same day i.e. on 05.11.2016. Hence, as per the appellant the stock of Gold Birla Bar was available on 05.11.2016 throughout the day. 5.3.8 The assessing officer has noted in para 5.5 of the assessment order that the appellant had deposited Rs.2,31,000/- in account no. 050050107221 of Cosmos Bank and the same has not been declared by the appellant. In this regard, the appellant has submitted that he is the proprietor of M/s Jewellery House and the cash deposit of Rs.2,31,000/- was never confronted in the show cause notice. Further, the said account is savings bank account of the appellant and he had out of his own personal cash on hand, available on the date of demonetization, deposited the same in his savings bank account with Cosmos Bank. 5.3.9 The appellant in his submission has submitted that he has furnished all the details of sales and purchase by credible evidence and the audited books of account have been accepted by the assessing officer. Thus, there is no jurisdiction to treat the cash sale as unexplained. Further, the appellant has submitted that the assessing officer did not disturb the income from business which imply that the trading results have been accepted. The appellant has relied upon the following judicial pronouncement to support the above argument- 1. Delhi ITAT in the case of Akshit Kumar Vs. Asst. CIT 2018 ITL 5880 ITA 6527/Del/2017. 2. Delhi ITAT in the case of Kanika Rathi Vs. ITO 2017 ITL 2516 ITA No.6628/DEL/2013. 3. ITAT, Ahmedabad “SMC” in the case of Jayesh N Barad Vs. Deputy Commissioner of Income-tax. 4. Gujarat High Court in the case of Commissioner of Income-tax Vs. Pradeep Shantilal Patel. 5. ITAT Vishakhapattanam Bench in the case of Assistant Commissioner of Income Tax, Central Circle 1 Vs. M/s Hirapanna Jewellers. Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 6 – 6. ITAT, Jaipur in the case of ACIT, Central Circle-2, Jaipur Vs. Motisons Jewellers Ltd. 6. ITAT, Chandigarh in the case of Charu Aggarwal Vs. Deputy Commissioner of Income Tax ITA No.310/Chd/2021, 311/Chd/2021. 7. ITAT Amritsar in the case of Balwinder Kumar Vs. ITO, Ward-3(1), Jalandhar, ITA No.256/Asr/2022. 8. ITAT Delhi Bench in the case of Fine Gujaranwala Jewellers Vs. ITO, ITA no.1540/DEL/2022 (SA No.244/Del/2022). 9. ITAT Jaipur Bench in the case of Nawal Kishore Soni Vs. ACIT, Central Circle3, Jaipur, ITA No. 1256,1257 & 1258/JP/2019. 10. ITAT Jaipur in the case of Assistant Commissioner of Income Tax Vs. Shri Chandra Surana, ITA No.166/JP/2022. 5.3.10 I have considered the submissions of the appellant. The appellant has made total sales of Rs.149,71,22,327 cash sales was Rs.16,78,65,257/- which was 11.21% of total sales. Infact the cash sales have drastically reduced by 87% during the relevant year as compared to early years. The AO has not considered this aspect by holding the cash deposit during demonetization period as unexplained cash credit in the books of the appellant. It is the fact that the appellant is in the jewellery/ bullion business for more than 20 years and he had regularly maintained day-to- day quantitative registers, item-wise, with all the relevant details and same were submitted in compliance to notices under section 142(1) of the Act. The appellant is doing the business in same mode and manner and had deposited cash in the bank account not only in this year but in early years also. It is also a fact that the books of account of the appellant were duly audited u/s 44AB and the same had not beenrejected by the assessing officer. In the early years also the cash sales have been accepted year after year and thus, the opening stock, purchases, sales and closing stock have been accepted and no addition has been made on these grounds in the assessment years 2008-09, 2009-10,2012-13 and 2013-14. The AO has not rejected the audited books of account u/s 145(3) of I.T. Act, 1961. Hence, once the book results are accepted by the AO, the sale reflected in those book results cannot be doubted otherwise it amounts to double taxation. 5.3.11 The cash sales during the relevant previous years as well as during the months of October, November and December, 2016 are significantly less than the corresponding figures of sales in the early years. The judicial decisions relied upon by the appellant lay that where the books of accounts and the contention of the assessee has not been rejected based on enquiry or any valid reason, then partially disbelieving the contention of the assessee was not permissible and in the same context, disbelieving the cash held in the cash books of the assessee before the demonetization would amount to double taxation. 5.3.12 It is a fact that the auditor has not pointed out any discrepancy in the accounts of the assessee and these have not been rejected by the AO u/s 145(3) of the Income Tax Act, 1961. The stock position depicted in the books has thus been accepted by the AO and the cash sales were made out of accounted stock and it was Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 7 – only exchange of asset from stock to cash. The sales recorded in the books of accounts having being accepted by the AO, the corresponding cash deposit made out of such cash sales cannot be rejected. There is merit in the submission of the appellant that the entries in the books of accounts depict a true state of affairs unless some contrary evidence is found and the books are rejected by the AO. In the instant case, there is no such finding regarding any evidence about bogus sales or bogus purchase by the appellant. The AO has made the addition by treating the cash deposited out of regular books of accounts. Thus making an addition on account of deposit of cash which is duly accounted for in the books of accounts without rejecting the books of accounts, is totally unwarranted. In the instant case, the cash deposited was duly recorded in the books of accounts of the appellant and the appellant offered an explanation regarding the nature & source being the cash sales. In the present case, the money was duly recorded and accounted in the books of accounts and the source was also explained as cash sale. It cannot be said that the appellant failed to give satisfactory explanation about the nature & source of cash deposit. The fact that the appellant deposited many times more cash in the bank account in the earlier years, shows that it was a regular feature of its business to deposit the cash in the bank even during the period prior to the announcement of demonetization on 08.11.2016 and these facts have not been negated by the AO. It is also a fact that the appellant’s business is of jewellery/ bullion trade where there are cash sales in abundance. Thus the track records of deposit of cash in immediate preceding year justify the genuineness of the cash deposit during the demonetization period. Further, the approach of the AO have resulted in double addition because these sales have already been accounted for while arriving at gross profit in the trading account and then adding them separately also as unaccounted cash. This means that sales of Rs.9,60,01,000/- have once been credited in the trading account forming part of gross profit and then also adding them separately treating as unaccounted cash of Rs. 9,60,01,000/-. If sales are to be doubted then it has to be shown that these are bogus sales and there is either no corresponding stock with the appellant or there were no such purchases against these sales. 5.3.13 The Supreme Court in the case of Lalchand Bhagat Ambica Ram vs CIT [1959] 37 ITR 288 (SC) has held that where the cash deposited was out of the books of account & cash book and where such books had not been rejected, then part addition for cash deposits was not sustainable: Section 143 of the Income-tax Act, 1961 - Assessment - Addition to income - Assessment year 1946-47 - Assessee carried on extensive business in grain as merchant and commission agent - Assessee maintained its books of account according to mercantile system and there were maintained in its cash books two accounts: one showing cash balances from day to day and other known as \"Almirah account\" wherein were kept large balances which were not required for day-to-day working of business - It filed its return showing loss in business - However, ITO noticed that assessee had encased high denomination notes of value of Rs. 2.91 lakhs on 19- 1-1946 - Assessee's explanation that those notes formed part of its cash balances Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 8 – including cash balances in Almirah account was rejected by ITO who took into account several surrounding circumstances and included said sum in its total income - ITO also found that portions of entries in assessee's accounts to effect that money's had been received in high denomination notes were subsequent interpolations - Before Tribunal assessee stated that said entries were made in nervousness after coming into force of High Denomination Bank Notes (Demonetization) Ordinance, 1946 on 12-1-1946, as it did not know it had specific proof in its possession of having high denomination notes as part of its cash balances - Tribunal accepted assessee's explanation in respect of said interpolations and held that there was no other reason to suspect genuineness of account books - It was also found that as per book entries cash balance on 12-1-1946 aggregated to more than Rs. 3.1 lakh - However, examining cash book and taking into account all circumstances adverted to by ITO, Tribunal held that assessee might be expected to have possessed as part of its business cash balance of at least Rs. 1.5 lakhs in shape of high denomination notes on date when said ordinance was promulgated but nature of source from which it derived remaining high denomination notes remained unexplained - Accordingly, Tribunal reduced addition - Whether when entries in books of account in regard to cash balances were held to be genuine, there was no escape from conclusion that assessee had offered reasonable explanation as to source of all high denomination notes which it encased on 19-1-1946 and it was not open to Tribunal to accept genuineness of those books and accept assessee's explanation in part and reject same in regard to balance sum - Held, yes - Whether, therefore, it was clear that Tribunal in arriving at its conclusion indulged in suspicions, conjectures and surmises and acted without any evidence or upon a view of facts which could not reasonably be entertained or finding was perverse which could not be sustained and Supreme Court was entitled to interfere with such finding - Held, yes - Whether, therefore, addition made was liable to be deleted - Held, yes 5.3.14 The Hon’ble ITAT Indore Bench in the case of DEWAS SOYA LTD, UJJAIN v/s Income Tax (Appeal No 336/Ind/2012 has held that “he claim of the appellant that such addition resulted into double taxation of the same income in the same year is also acceptable because on one hand cost of the sales has been taxed (after deducting gross profit from same price ultimately credited to profit & loss account) and on the other hand amounts received from above parties has also been added u/s. 68 of the Act. This view has been held by the Hon ‘ble Supreme Court in the case of CIT vs. Devi Prasad Vishwnath Prasad (1969) 72ITR194 (SC) that “It is for the assessee to prove that even if the cash credit represents income, it is income from a source, which has already been taxed” 5.3.15 The Hon’ble Delhi High Court in the case of Pr. CIT Vs Akshit Kumar in ITA No. 348 of 2019 as reported in 197 DTR 121, decided on 17th of November, 2020, Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 9 – in which, the issue was with regard to cash deposits in the bank account of the assessee, which the assessee had stated out of the sale proceeds and the Assessing Officer had framed the assessment by making the addition on account of entries in the bank account and had not accepted the sale proceeds and the addition was deleted by the Hon’ble ITAT and it was held by the Hon’ble Bench as under:- “The Tribunal went by the trading account in the earlier years viz. opening stock, purchase and sales, closing stock, gross profits and assessment made by the department in asst. yr. 2007-2008 when assessment was framed under s. 143(3)/147. The Tribunal observed that since the entire books of account had been scrutinised and the assessee's income had been accepted, it also means that the entire opening stock, sales and closing stock made during the year stood accepted. Additionally, in respect of asst. yr. 2012-13 also, assessee's trading activities were subjected to detailed scrutiny under s. 143(3). In the said year, the AO had rejected the trading result and even enhanced the GP rate and made an addition in the trading account. The Tribunal thus held that in respect of asst. yr. 2012-13 the opening and closing stock and trading accounts including sales has not been disturbed. In these circumstances, the Tribunal observed that in the impugned asst. yr. 2014-15, the audited balance sheet reflected an opening stock of Rs. 19,53,29,660 which stood accepted by the Department either under the scrutiny proceedings or by not selecting the return for scrutiny or by not taking any action to disturb such returned income. In these circumstances, it was held that the quantum figure and the opening stock which stood accepted in the earlier years had to be taken as actual stock available with the assessee. In view of these facts, the sales made by the assessee out of its opening stock were not treated as unexplained income, to be taxed as income from other sources. It thus manifests that the Tribunal has taken into consideration the entire material placed on record including the report of the AO.” Then again in para 14 & 15 of the order had observed as under:- 14. The finding of the AO in her inquiry conducted in November. 2016 and past assessment records have to be weighed in light of all probable factors and preponderance of probability of such factors has to be seen qua material on record which we shall discussed herein after. One of the most glaring fact which unfolds from the material placed on record is that, prior to the asst. yr. 2007-08 assessee had made huge purchases of stock the source of such purchases have been reflected in the books of account and audited accounts; and in the asst. yr. 2007-08, the opening stock of fabric/cloth was valued at Rs. 31,65,48,236 and in that year itself there was sales of around Rs. 5.89 crores leaving behind the stock of Rs. 25.83 crores thereof. Again huge purchases have been shown in the asst. yr. 2008-09 and sales have also been made. The details of opening stock, purchases, sales and closing stock for various ears has already been incorporated above. As on 31st March, 2014 there was a closing stock of Rs. 19,53,79,660 which was also the opening balance in this year and out of the said opening stock, sales of Rs. 4,20,62,550 have been made and closing stock of Rs. 15,48,57,470 has been shown Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 10 – on which gross profit of Rs. 15,40,360 has been disclosed. The controversy to resolve here is, whether the stock in the books have been sold or not; or the. entire deposits claimed out of sales in unaccounted money of the assessee. Going by the history of trading account in the earlier years. viz., opening stock, purchases. sales, closing stock. gross profit and the assessments made b the Department, we find that way back in the asst. yr. 2007-08. assessment was passed under s. 143(3)/ 147, whereby the entire books of accounts have been scrutinised and assessee's income from business have been accepted. This inter-alia means that entire opening stock, sales and closing stock made· during that year stands accepted. Again for asst. yrs. 2008-09 to 2011-12. though returns have been accepted under s. 143(1), however the positions of stock were never disturbed and were duly reflected in the audited accounts. In the asst. yr. 2012-13 again the assessee's trading activity and books of accounts were subjected to detailed scrutiny in proceedings under s. 143(3). wherein the AO had noted the trading account figures like, turnover, profit rate, profit ratios vis-a-vis turnover and stock positions and based on his detailed reasoning, AO had rejected the trading result and has even enhanced the GP rate and thereby making an addition at Rs. 42,51,463 in the trading account. Thus, in this manner the entire trading activity of the assessee stood accepted and only addition made was on account of higher profit rate. but the sales made during that year; trading/business carried out by the assessee was duly accepted. including opening and closing stock. Again in the asst. yr. 2012-13 the opening and closing stock and trading account including sales has not been disturbed. now in the impugned asst. yr. 2014-15, the audited balance sheet reflected an opening stock of Rs. 19,53,29,660 which opening stock stood accepted by the Department either under the scrutiny proceedings or by not selecting the return for scrutiny proceedings or taking any action to disturb such returned income. Hence the quantity and valuation of stock stood accepted which had attained finality. Thus. the quantum and figure of the opening stock which stood accepted in the earlier ears has to be taken as an actual stock available with the assessee. Out of the said stock purported sales of Rs. 4,20,62,550 has been made leaving a closing stock of Rs. 15,48,57,470. 15. Learned AO or learned CIT(A) in the impugned orders have neither said anything about the opening stock or the closing stock coming from the earlier years nor they rejected the trading result or gross profit but instead have treated the entire sales on the credit side as income from unexplained sources. Even if the contention of the AO is accepted that assessee has not made any sales, then in that case the opening stock which has been accepted by the Department in earlier years continues to be with the assessee and the same should be reckoned to be reflected as closing stock on the credit side of the trading account. Not only that, if the gross profit is also not disturbed then the GP which is the balancing figure of opening stock and purchases on debit side and sales and closing stock on the credit side has not been disturbed then how the entire stock could have been disposed of by the assessee has not been dealt by the AO. If the AO' s view is accepted that at no point of time there was any business carried out by the assessee, then how can't the entire trading activity, stock purchased and sold and income derived there from which Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 11 – stood accepted in earlier years and assessments which have attained finality can be disregarded. if way back in the asst. yr. 2006-07 assessee had made huge purchases of stock, the source of which has been disclosed in the books of account and audited financial statement and in the return of income for the asst. yr. 2006-07; and thereafter year by year assessee has been making purchases and sales or has been selling his stock carried forward from the preceding year which stands accepted, then in the impugned assessment year can it be held that there was no stock in existence at all and only activity done by the assessee was to deposit certain unaccounted cash in the garb of the rotate his unaccounted money year after year. A stock existing in the books of accounts cannot be said to have been vanished in this year, when it has been stated that in subsequent year, that is, in July, 2015 the entire stock was sold and business was closed down which was prior to the initiation of the impugned assessment proceedings and much before the inspection carried out by the AO in November. 2016.” Then it has been held in para 16 as under:- “Not only that, in the subsequent years also once the assessee's stock which has been sold and said sale and income derived there from has not been disturbed then it quite difficult proposition to hold that the sales made by the assessee out of its opening stock should be treated as income from unexplained sources.” Then in Para 17 & 18, it has been held as under:- “17. Thus. in our opinion the sale made by the assessee out of his opening stock cannot be treated as unexplained income to be taxed as 'income from other sources'; firstly. the stock was available with the asssessee in his books of account and trading in such stock including purchase, sale, opening and closing stock (quantity wise and value wise) has been accepted the Department year after year and in some years under scrutiny proceedings. therefore, non existence of stock or business cannot be held; secondly, the sale of stock in the earlier years and the sale of balance left out stock in subsequent years has been accepted or has not been disturbed. then to hold that no stock was sold in this year and remained with the assessee will be difficult proposition; thirdly. inquiry and inspection by the AO done much after the closure of business may not be persuasive for the past events especially in wake of facts as discussed above; and lastly. once neither any item in the trading account, nor gross profit has been rejected, then one part of credit side of the trading account, that is, sales cannot be discarded completely so as to hold that it is unexplained money. 18. Our finding given above is peculiar to this case. because here in this case in the earlier years, scrutiny assessment have been done whereby the assessee's opening stock, closing stock and trading activities have been duly accepted and it is not a simple case where mere return income has been accepted under s. 143(1). Thus. we hold that AO is not justified under law to treat the sales as income from unexplained Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 12 – sources and accordingly addition made by the AO and sustained by the CIT(A) of Rs. 420,62,550 is directed to be deleted.” 5.3.16 As a result of the discussion in the preceding paras and the facts of the issue, I am of the considered opinion that the assessing officer has accepted the trading results of the appellant and with it the purchases, stock as well as the sales of the appellant. The AO failed to notice that the appellant had consistently high cash sales in early years which were substantially higher than the cash sales in the relevant previous year. The books of account were not rejected by the assessing officer and he has just concluded on conjecture that there was no actual purchase or sale with respect to the cash deposit during the demonetization period. Infact, this has resulted in double taxation as the amount of Rs.9,60,01,000/- has been a part of the trading result of the appellant as well as the same have been added as unexplained income by the assessing officer. 5.3.17 In view of this the addition of Rs.9,60,01,000/- done by the assessing officer is hereby deleted. As a result the appellant succeeds on ground No. 1, 2, 3 and 4.” 5. We have gone through the orders of the authorities below. The entire addition of Rs.9,60,01,000/- pertains to cash found deposited in the bank account of the assessee during demonetization period which the AO held to have remained unexplained. The order of the Ld. CIT(A) reveals that he has noted some factual findings in relation to this issue leading to his conclusion that the source of cash deposit in the bank account of the assessee during demonetization period stood duly explained. The pertinent finding in this regard are with respect to the fact that the assessee had furnished all evidences proving the genuineness of sales made during this period duly supported with purchases made which were further evidenced by the copy of VAT returns filed by the assessee and also the stock records of the assessee. The Ld. CIT(A) has noted that notices issued by the AO to all parties from whom purchases were made by the assessee u/s. 133(6) of the Act were duly responded and the parties confirmed Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 13 – the sales made to the assessee. The Ld. CIT(A) has further noted that there is no abnormality in the quantum of sales made by the assessee in the impugned year as compared to the preceding year noting the fact that the component of cash sales had decreased by almost 87.96% in the entire year; in the period preceding demonetization it was noted to have decreased by 88.54% and during the demonetization period to have decreased by 65.56%. The Ld. CIT(A) has noted that neither the Auditor has pointed out any discrepancy in the accounts of the assessee nor has the AO rejected the books of the assessee u/s.145(3) of the Act. He has noted the stock position depicted in the books of the assessee to have been accepted by the AO. 6. All these facts noted by the Ld. CIT(A), we agree, establish the genuineness of the cash deposited in the bank account of the assessee to have come out of cash sales made by the assessee during the course of business. The above facts have not been controverted before us by the Ld. DR also. 7. In view of the detailed reasoning of the Ld. CIT(A) based on uncontroverted facts, holding the source of cash deposited in the bank account to be out of cash sales, we see no reason to interfere in the order of the Ld. CIT(A) deleting the addition made of Rs.9,60,01,000/-. 8. Ground No.2 raised by the Revenue pertains to the disallowance of salary paid to two employees amounting to Rs.7,20,000/- made by the AO for want of substantiation, which Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 14 – was deleted by the Ld. CIT(A). The order of the Ld. CIT(A) deleting the impugned disallowance reads as under: “6.3 Decision on ground no.5 & 6 I have considered the facts of the case, submissions of the appellant, the observations of the AO contained in the assessment order and the other materials on record on this issue. The assessing officer has observed the details of salary were not submitted during the assessment proceedings. Further, the appellant had violated the provision of section 40A(3) and also not deducted TDS on the payments. 6.3.1 The appellant has submitted that the salary was paid to two employees namely Gunjan Tejas Shah and Sunita K Shah through banking channel only. Further, it has been contended by the appellant that the assessing officer did not propose the disallowance in show cause notice dated 10.12.2019. Further, it has been contended that the two employees have duly reflected the salary in their respective income tax returns. 6.3.2 The facts of the case, basis of addition made by the AO and the arguments of the AR during the course of appellate proceedings have been considered. It is noted that the assessing officer has failed to propose the disallowance in the show cause notice dated 10.12.2019. In this regards, the reliance of the appellant on the decision on the jurisdictional ITAT Ahmedabad in the case of ITO Vs Mohammedarif Ibrahimbhai Shaikh (ITAT Ahmedabad) I.T.A. No. 1115/Ahd/2019 cannot be ignored. Further, the respective employees have duly reflected these payments in their ITRs. 6.3.3 As a result of the discussion in the preceding paras and the facts of the issue, I am of the considered opinion that the assessing officer has wrongly concluded vide making disallowance of the salary expense. In view of this the disallowance of Rs.7,20,000/- done by the assessing officer is hereby deleted. As a result the appellant succeeds on ground No. 5 & 6.” 9. We have gone through the order of the Ld. CIT(A) and we find that he has noted the AO had failed to propose the disallowance in the show cause notice issued to the assessee. Further, the Ld. CIT(A) has noted the fact that the employees whose salary was disallowed by the AO i.e. Gunjal Tejas Shah and Sunita K Shah, had reflected these salaries in their ITRs. Noting Printed from counselvise.com ITA No. 1074/Ahd/2023 [ITO vs. Rajeshkumar Rameshchandra Shah] A.Y. 2017-18 - 15 – the above facts, accordingly, the Ld. CIT(A) had deleted the disallowance made of salary paid to these two employees amounting to Rs.7,20,000-. 10. The Ld. DR was unable to controvert the factual findings of the Ld.CIT(A) as above. 11. In the light of the same, we see no reason to interfere in well-reasoned order of the Ld. CIT(A) who, we have noted, deleted the disallowance of salary of Rs.7,20,000/- based on factual findings which have remained uncontroverted before us. In the light of the same, ground of appeal no.3 of the Revenue is also dismissed. 12. In the result, appeal filed by the Revenue is dismissed. This Order pronounced on 04/09/2025 Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 04/09/2025 S. K. SINHA True Copy आदेश कȧ Ĥितिलǒप अĒेǒषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent. 3. संबंिधत आयकर आयुƠ / Concerned CIT 4. आयकर आयुƠ(अपील) / The CIT(A)- 5. ǒवभागीय Ĥितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड[ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad Printed from counselvise.com "