KESHAVLAL RAICHAND AND SONS,MUMBAI V. INCOME TAX OFFICER-23(2)(6), MUMBAI

CO 376/MUM/2025

AI Insights

The case revolves around an appeal by the Income Tax Officer against the decision of the Commissioner of Income Tax (Appeals), which had deleted an addition made under section 68 of the Income Tax Act, 1961. The addition pertained to cash deposits amounting to Rs.2,61,89,000 in the bank account of Keshavlal Raichand & Sons, a partnership firm engaged in supplying products to medical stores and pharmaceutical concerns. The Assessing Officer had reopened the assessment, suspecting that income chargeable to tax had escaped assessment, based on the cash deposits and the nominal income declared by the assessee. However, the Tribunal found that the assessee had provided sufficient evidence to substantiate that these deposits were from regular business operations and not unexplained cash credits.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 847537 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-03-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Mumbai
• Assessment Year: 2017-2018
• Appeal Filed On: 18-12-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI
• Assessee Lawyers: RUCHI RATHOD
• Keywords: Business income; Reassessment proceedings; Corroborative evidences; Unexplained cash credit
• Section: 147; 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘E’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.6813/Mum/2025 (Assessment Year :2017-18) Income Tax Officer- 23(2)(6) Mumbai Vs. Keshavlal Raichand & Sons Unit No.113, Shivshakti Industrial Estate L.B.S. Marg, Ghatkopar (W) Mumbai- 400 086 PAN/GIR No.AABFK0073G (Appellant) .. (Respondent) CO No.376/Mum/2025 (Arising out of ITA No.6813/Mum/2025) (Assessment Year :2017-18) Keshavlal Raichand & Sons Unit No.113, Shivshakti Industrial Estate L.B.S. Marg, Ghatkopar (W) Mumbai- 400 086 Vs. Income Tax Officer-23(2)(6) Mumbai PAN/GIR No.AABFK0073G (Appellant) .. (Respondent) Assessee by Ms. Ruchi Rathod Revenue by Shri Hemanshu Joshi, SR.DR Date of Hearing 18/02/2026 Date of Pronouncement 26/03/2026 Printed from counselvise.com ITA No.6813/Mum/2025 & CO No.376/Mum/2025 Keshavlal Raichand & Sons 2 आदेश / O R D E R PER AMIT SHUKLA (J.M): The present appeal has been preferred by the Revenue and the cross objection has been filed by the assessee against the order dated 25/08/2025 passed by the learned Commissioner of Income Tax (Appeals), NFAC, Delhi, arising out of the reassessment framed under section 147 read with section 144B of the Income Tax Act, 1961 for the assessment year 2017-18, wherein the Revenue has challenged the deletion of addition of Rs.2,61,89,000/- made under section 68 on account of cash deposits, whereas the assessee, by way of cross objection, has merely supported the order of the learned first appellate authority. 2. The facts, as borne out from the record, reveal that the assessee is a partnership firm engaged in the business of supply of products to various medical stores and pharmaceutical concerns, and as part of its regular business operations, it has been consistently undertaking counter sales wherein cash is received from customers on a day-to- day basis and deposited in the bank account. The Assessing Officer, on the basis of information received through the Insight Portal, noted that the assessee had total credit entries of Rs.10,79,17,732/- in its bank account, which included cash deposits of Rs.2,61,89,000/-, and further taking note of Printed from counselvise.com ITA No.6813/Mum/2025 & CO No.376/Mum/2025 Keshavlal Raichand & Sons 3 the fact that the assessee had declared a nominal income of Rs.27,620/- in its return of income, proceeded to reopen the assessment under section 148, forming a belief that income chargeable to tax had escaped assessment. 3. During the course of reassessment proceedings, the assessee furnished detailed explanations along with voluminous documentary evidences to substantiate the nature and source of cash deposits, including cash receipt registers maintained on a day-wise basis, bank book, audited financial statements along with Form 3CA and 3CD, day-wise details of cash deposits, and various correspondences filed before the Assessing Officer. For completeness, the details of documents furnished are to be incorporated as under: 1 Cash Receipt Register 2. Bank Book - Kotak Mahindra Bank 3.Form 3CA and 3 CD 4. Cash deposit daywise 5. Letter dated: 14.06.2022 (Submitted before ITO, Ward 23(2)(6), Mumbai) 6. Financial statements 3.1. The assessee categorically explained that the cash deposits represent realization of sales effected in the ordinary course of business, duly recorded in the books of account, Printed from counselvise.com ITA No.6813/Mum/2025 & CO No.376/Mum/2025 Keshavlal Raichand & Sons 4 and that the practice of receiving cash against counter sales has been consistently followed over the years. 4. It was further brought on record that the assessee maintains a systematic and verifiable record of all cash receipts, including details of counterparties, locations, and amounts received, and such records form part of the audited books of account. The assessee also furnished year-wise comparative details of cash receipts across several years to demonstrate consistency in the pattern of business operations, which are to be incorporated as under: FINANCIAL YEAR AMOUNT OF CASH RECEIPTS 2014-15 RS. 5,55,21,000/- 2015-16 RS. 5,20,95,800/- 2016-17 RS. 5,05,04,000/- 2017-18 RS. 4,63,16,000/- 2018-19 RS. 4,55,43,000/- 2019-20 RS. 3,35,18,390/- 4.1. The said data clearly evidences that the quantum of cash receipts during the year under consideration is in line with earlier years and does not reflect any abnormal or unexplained surge. 5. However, the Assessing Officer, without bringing any cogent material on record to rebut the evidences furnished by the assessee or without pointing out any specific discrepancy in the books of account, proceeded to make an addition of Printed from counselvise.com ITA No.6813/Mum/2025 & CO No.376/Mum/2025 Keshavlal Raichand & Sons 5 Rs.2,61,89,000/- under section 68, primarily on the premise that certain details were not furnished for some months and also observing that there was a spike in cash deposits during the demonetization period, albeit without any proper correlation or enquiry. 6. The learned CIT(A), after examining the entire conspectus of facts and evidences, deleted the addition, holding that the cash deposits were part of recorded sales and that the Assessing Officer had neither conducted any independent enquiry nor established how such deposits could be treated as unexplained cash credits within the meaning of section 68. The relevant findings of the learned CIT(A) are reproduced hereunder: 6.2 Adjudication: In the Assessment Order, Ld. Assessing Officer has alleged that cash deposits amounting to Rs, 2,61,89,000/- is unexplained cash credit u/s 68 is factually as well legally incorrect, since the same is part of books of accounts as well as sales has been recorded and practice of this buissess is since past few decades. Further no independent enquiry were done by the Assessing Officer, hence addition made u/s 68 are incorrect. I have considered the facts of the case and examined the documents uploaded by the appellant at the time of filing of appeal. The appeal is being decided after considering the same as below: The appellant is a dealer in electronic items. During assessment the AO noticed that there was cash deposit amounting to Rs. 2,61,89,000/- in the bank account of the appellant during the year. There were debit and credit transactions amounting to Rs. 10,71,59,273/- and 10,79,17,172/- respectively. The AO has further noted Printed from counselvise.com ITA No.6813/Mum/2025 & CO No.376/Mum/2025 Keshavlal Raichand & Sons 6 that total turnover shown by the appellant is Rs. 14,07,37,117/-, gross profit (GP) is Rs. 87,32,216/- and net profit (NP) is Rs. 27,302/- only. He has mentioned that the GP and NP rates shown by the appellant are on the lower side. The appellant submitted the details of his turnover, the copy of bank account and the explanation regarding debits and credits and cash deposits in the bank account. The AO has also observed that during demonetization period the cash amounting to Rs. 79,35,000/- was deposited in this account. He has also mentioned that post demonetization, there is sudden surge in cash deposits. After making all these observations he has completed the assessment by making addition of Rs. 2,61,89,000/- under section 68 of the Income Tax Act 1961 in respect of the cash deposited throughout the year in the bank account. He has termed the same as cash credits and deemed the same to be income of the appellant under section 68. From the discussion in the assessment order there is no hint as to how the deposits are unexplained. The total debits and credits in the account are lower than the turnover shown by the appellant. Receipt of sales in cash is the normal practice and it has been going on from year to year as explained by the appellant. The AO has not mentioned anything as to how the cash deposit is unexplained. He has given the details of cash deposited during demonetisation period. However no further details have been mentioned and the addition made has not been correlated with the cash deposited during demonetisation period. To sum up, the AO has just mentioned the bare facts without discussing as to what is unexplained and how. Moreover the addition has been made u/s 68, whereas there are no such credits in the books of account to fall in the purview of this section. The amount of addition made comprises of cash deposits in the bank account of the appellant which is not a credit in its books of account. As such, on facts as well in law, the addition made by the AO has no basis. In these circumstances this edition deserves to be deleted. 6.3 In view of the above discussion, the addition is directed to be deleted and all the grounds of appeal stand allowed. Printed from counselvise.com ITA No.6813/Mum/2025 & CO No.376/Mum/2025 Keshavlal Raichand & Sons 7 7. In result, appeal is allowed for statistical purposes. 7. We have heard the rival submissions at considerable length, perused the orders of the authorities below, carefully examined the documentary evidences placed on record, and given our thoughtful consideration to the entire factual and legal matrix emerging from the record, and we find that the addition made by the Assessing Officer is not only bereft of any substantive basis but also suffers from a fundamental legal infirmity in invoking the provisions of section 68 in the peculiar facts of the present case. 7.1. It is an undisputed position that the assessee is engaged in a line of business where cash sales constitute a normal and integral component of its operations, and the assessee has consistently demonstrated, through contemporaneous records and audited books of account, that such cash receipts are duly recorded and form part of the declared turnover. The cash receipt registers maintained on a day-to- day basis, the party-wise details of sales, and the corresponding entries in the bank account together establish a clear nexus between the cash deposits and the business receipts of the assessee, and at no stage has the Assessing Officer discredited these records or held them to be unreliable or non-genuine. Printed from counselvise.com ITA No.6813/Mum/2025 & CO No.376/Mum/2025 Keshavlal Raichand & Sons 8 7.2. What is strikingly evident from the assessment order is that there is no rejection of books of account under section 145, nor is there any finding that the trading results declared by the assessee are incorrect or incomplete. In absence of such rejection or disturbance of the trading account, it is wholly impermissible to isolate certain receipts forming part of sales and treat them as unexplained income. Once the sales are accepted, the corresponding realization thereof, whether in cash or otherwise, cannot be treated as unexplained credits, as the source of such receipts stands embedded in the business itself. 7.3. Further, the invocation of section 68 in the present case is fundamentally misconceived, as the said provision contemplates unexplained credits in the books of account, whereas in the instant case, the cash deposits in the bank account are merely a manifestation of business receipts already recorded in the books. The Assessing Officer has failed to demonstrate that these deposits represent any independent or undisclosed source of income, divorced from the regular business activities of the assessee. 7.4. Even the observations regarding demonetization period are found to be general and devoid of any specific enquiry or correlation. The Assessing Officer has neither brought any material to show that the cash deposits during the said period Printed from counselvise.com ITA No.6813/Mum/2025 & CO No.376/Mum/2025 Keshavlal Raichand & Sons 9 are over and above the recorded sales nor has he examined the cash flow or stock position to establish any anomaly. Mere suspicion arising from timing of deposits, without supporting evidence, cannot justify an addition under section 68. 7.5. On the contrary, the assessee has furnished a consistent and plausible explanation, supported by documentary evidences and historical data, demonstrating that the pattern of cash receipts is in consonance with earlier years, thereby negating any allegation of unexplained income. The learned CIT(A), in our considered view, has rightly appreciated these aspects and has correctly held that the addition made by the Assessing Officer lacks both factual foundation and legal sustainability. 8. Accordingly, in view of the foregoing detailed discussion and considering the totality of facts and circumstances of the case, we find no infirmity in the order of the learned CIT(A) deleting the addition of Rs.2,61,89,000/- made under section 68, and the same is hereby upheld. The grounds raised by the Revenue are, therefore, dismissed. 9. Insofar as the cross objection filed by the assessee is concerned, since the same is merely in support of the order of the learned CIT(A), the same is treated as allowed. Printed from counselvise.com ITA No.6813/Mum/2025 & CO No.376/Mum/2025 Keshavlal Raichand & Sons 10 10. In the result, the appeal of the Revenue is dismissed and the cross objection of the assessee is allowed. Order pronounced on 26th March, 2026. Sd/- (ARUN KHODPIA) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 26/03/2026 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Printed from counselvise.com "