MS. ALLIED TRADE LINKS,GUWAHATI V. ACIT CIR-2, GUWAHATI, GUWAHATI

ITA 150/GTY/2023

AI Insights

The case involves M/s. Allied Trade Links, a partnership firm engaged in wholesale and retail trading of electrical items, which appealed against the order of the Commissioner of Income Tax (Appeals) - NFAC, Delhi. The appeal contested the addition of Rs.39,94,846 to the total income of the appellant, deemed as unexplained money under section 69A of the Income Tax Act, 1961, following a scrutiny of cash deposits during the demonetization period. The ITAT found that the AO and CIT(A) had not adequately examined the purchase and sales bills/vouchers and the stock register to ascertain the excess sales shown by the assessee, which were deposited in the bank account. The ITAT also noted that the same amount was treated as both part of turnover and unexplained deposit, which is not permissible.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633485 (ITAT-GUWAHATI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Other Referred Cases: Shri Aijaz Ahmed Suri v The Income Tax Officer, Jagjit Singh v. Income-tax Officer, Commissioner of Income-tax v. Devi Prasad Vishwanath, Kale Khan Mohammed Hanif v. CIT, Shree Sanand Textile Industries Ltd. vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Keywords: Set aside; Business income; Opportunity of being heard; Unexplained cash credit
• Section: 143(3); 142(1); 68; 44AD

Judgement Text

"आयकर अपीलीय अधिकरण गुवाहाटी पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL GUWAHATI BENCH AT KOLKATA [वर्ुुअल कोटु] [Virtual Court] श्री मनमोहन दास, न्याधयक सदस्य एवं श्री राक ेश धमश्रा, लेखा सदस्य क े समक्ष Before SHRI MANOMOHAN DAS, JUDICIAL MEMBER & SHRI RAKESH MISHRA, ACCOUNTANT MEMBER I.T.A. No.: 150/GTY/2023 Assessment Year: 2017-18 M/s. Allied Trade Links Vs. ACIT, Cir-2, Guwahati (Appellant) (Respondent) PAN: AAIFM1831B Appearances: Assessee represented by : J. P. Gupta, FCA. Department represented by : Kausik Ray, JCIT Date of concluding the hearing : 09 April, 2024 Date of pronouncing the order : 11th June, 2025 ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax-NFAC, Delhi [hereinafter referred to as “the Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2017-18 dated 10.11.2023, Page | 2 I.T.A. No.: 150/GTY/2023 Assessment Year: 2017-18 M/s. Allied Trade Links. which has been passed against the assessment order u/s 143(3) of the Act, dated 27.12.2019. 2. The assessee is in appeal before the Tribunal raising the following grounds of appeal: “1. That the Commissioner of Taxes (Appeals) erred in law as well as on facts of the case in upholding the addition of Rs.39,94,846/- on account of a cash deposit in the bank to the total income of the appellant under section 69A of the Income Tax Act, 1961 as unexplained money. The same may kindly be deleted. 2. That the appellant craves leave to submit any other ground/s on or before the hearing.” 3. Brief facts of the case are that the return showing total income at Rs.67,63,330/- was filed on 24.10.2017, which was taken up under scrutiny and statutory notices were issued which were complied with. During the relevant assessment year, the assessee earned income from business/profession and was engaged in the wholesale and retail trading of electrical items such as Electrical Wires, Cables, MCB’s Switch, Sockets, Fans, LED Bulbs etc. The Assessing Officer analysed the cash deposits during the period relevant to assessment year 2016- 17 and 2017-18 for the whole year and also till the commencement of demonetization and compared the same with the cash sales made for the corresponding period. He noted that the cash deposits in the bank were always more than the cash sales of the month, which would also be on account of existence of debtors who pay after a certain time period of a year or two and the sum total of sales as shown in books and sum total of cash deposits into the current account of the assessee should tally. Since demonetization was a special instance which required all cash to be deposited anyway, the cash accumulated since long and the cash sales for the preceding few days as well as the cash sales within Page | 3 I.T.A. No.: 150/GTY/2023 Assessment Year: 2017-18 M/s. Allied Trade Links. the time frame had to be deposited within 52 days as specified by the Government. He was of the view that the latter would be lesser in proportion to the former two, since the economic activity during the time witnessed a slight decline due to less liquidity in the market. Also, the assessee was not in a business that had the mandate to accept the high denomination notes. Therefore, the cash deposits for the assessee would be mostly from cash sales from the preceding period. He compared the cash deposits during the demonetization period at Rs.75,00,000/- and cash deposits during the same period of preceding period, which was Rs.23,50,000/- and also noted the total sales had decreased over the preceding years and the total cash sales also similarly decreased over the previous years. He analysed the deposit of cash prior to the period of demonetization and worked out the median of average per day being Rs.57,013/- per day, cash deposits per day during demonetisation at Rs.1,44,231/- and arrived at the difference of Rs.87,200/- and calculated the suppressed sales of 52 days at Rs.45,34,400/-. The per day average of cash deposits during the period of demonetization was two times the maximum per day average of the preceding two years of cash deposits and he inferred that due to the pressure and compulsion of demonetisation, the assessee had to bring forth his unaccounted sales of preceding months to the formal channel. Therefore, the suppressed sales were held to be in the form of additional cash deposits during the period of demonetisation which according to the Ld. AO had to be brought forward for taxation. Accordingly, he calculated the suppressed sales for all the months combined. After considering that the assessee would be having some savings in cash for emergencies and considering Rs.2,00,000/- as the ideal amount kept by people for emergencies, the balance amount of Rs.43,34,400/- was Page | 4 I.T.A. No.: 150/GTY/2023 Assessment Year: 2017-18 M/s. Allied Trade Links. added as sales of the assessee not brought in the books of the assessee initially. Further, a sum of Rs.10,00,000/- taken from Pankaj & Sons HUF during the year under consideration was considered as unexplained loan and added u/s 68 of the Act to the income of the assessee. The income was thus computed at Rs.1,20,97,731/-. 4. Aggrieved with the assessment order, the assessee filed an appeal before the ld CIT(A), who issued notice of hearing and in response to which the assessee furnished written submission along with evidence in the e-filing portal. The Ld. CIT(A) has considered the written submission filed by the assessee and the reasons for addition made by the Assessing Officer, judicial pronouncements relied upon by the assessee and after going through the said documents, observed that the sales have been inflated in the books in the months of October and November, 2016 to justify the deposit of cash of Rs.75,00,000/-, which was deposited during the demonetization period. In none of the earlier occasion, in a single month, such huge cash had been deposited and the overall closing balance till September 2016 has been in the range of Rs.30.61 lakhs to Rs 59.48 lakhs. He also analysed the RBI guidelines after the demonetization, as per which the assessee was not allowed to accept the demonetized notes and therefore, there cannot be any sale proceeds with demonetized notes after the date of demonetization. The Ld. CIT(A), however, did not agree with the method of the Ld. AO for computation of the amount to be taxed and re-worked out the unexplained money deposited in the bank account by considering the opening balance as on 01.10.2016 which was Rs.43,42,938.00 from which he reduced a sum of Rs.14,00,000/- for the cash received from the partner for the month of September 2016 as the source of the cash in the hands of the partner was not explained and therefore, the benefit Page | 5 I.T.A. No.: 150/GTY/2023 Assessment Year: 2017-18 M/s. Allied Trade Links. of said Rs.14,00,000/- in arriving at the cash available on the date of demonetization was not given. He further estimated the cash sales of October, 2016 at Rs.7,65,000/-, being average sales of six months from April, 2016 to September, 2016 which ranged from Rs.4.2 lakhs to 9.06 lakhs as the reasons for exponential growth of the sales in the months of October & November were not satisfactorily explained. Further, as the due date of filing of VAT/GST returns for the month of October, 2016 was the last week of November, 2016, there was scope for the assessee to increase the sales figure of October 2016 to increase the cash in hand. The cash received from debtors being a sum of Rs.4,13,632/- was added and total cash in hand was computed at Rs.41,31,570/- out of which cash expenses and cash deposits in the month of October 2016 of Rs.15,42,476/- were reduced and the opening balance of cash as on 1/11/2016 was thus arrived at Rs.26,89,094/-. Similarly, cash sales for November, 2016 were added at Rs.7,65,000/- being the average sales of six months from April, 2016 to September, 2016 to which cash received from debtors in October 2106 (November, 2016) at Rs. 3,22,005/- was added and out of the total of Rs.36,76,099/-, the cash expenses and cash deposits in the month of November, 2016 shown at Rs.76,70,945/- were reduced and the cash in hand has been worked out at (-) Rs.39,94,846/- as on 01.12.2016 and he concluded in para 9.3 that there is excess cash deposits to the tune of Rs.39,94,846/- and out of total addition made at Rs.45,35,400/- the Ld. CIT(A) sustained the addition to the tune of Rs.39,94,846/- allowing relief of Rs.5,39,554/- to the assessee. 5. As regards the loan of Rs.10 lakhs, the creditworthiness and genuineness of the transaction of the loan along with the identity of the Page | 6 I.T.A. No.: 150/GTY/2023 Assessment Year: 2017-18 M/s. Allied Trade Links. creditor were established and the addition of Rs. 10 lakhs was deleted. The appeal was treated as partly allowed for statistical purposes. 6. Aggrieved with the order of the first appellate authority, the assessee has filed the appeal before us. 7. Rival submissions were considered and the details given in the paper book have been examined. 8. Before us, the Ld. AR appeared on behalf of the assessee and stated that the only ground of appeal is regarding addition of Rs.39,94,846/- upheld by the ld CIT(A). He submitted that the assessee is a partnership concern engaged in Wholesale & Retail trading of electrical items and the books of account were audited u/s 44AD of the Act. The assessee had also submitted evidence u/s 142(1) before the Ld. AO and no show cause notice was issued to the assessee for the additions made. Our attention was drawn to pages 129 to 133 of paper book which is a copy of the order sheet for the assessment made u/s 143(3). It was argued that all the notices were complied with. It was submitted that the Ld. AO had not gone through the books of account and the statement showing the turnover, opening & closing cash in hand shown at Page 42 of the Second paper book while cash flow statement for financial year 2015-16, 2016-17 were enclosed from page 43 to 44 of paper book. Page 42 of the paper book is the statement showing yearly turnover, opening and closing cash in hand and the cash deposited which was Rs.2,64,80,000/-, Rs.3,22,60,000/-, Rs.1,98,00,00/- and Rs.1,68,50,000/-, for the AYs 2014-15, 2015-16, 2016-17 and 2017-18 respectively. Thus, for the year under consideration, the cash deposited was less than what was done in the earlier years. At pages 43 and 44, the cash flow statements for the FY Page | 7 I.T.A. No.: 150/GTY/2023 Assessment Year: 2017-18 M/s. Allied Trade Links. 2015-16, 2016-17 are enclosed; however, it is noted from the same that while the cash sales for the month of July, 2016 are Rs.9,06,172/-, for the month of August Rs.7,77,525/- and for the month of September, 2016 it is Rs. 8,64,316/- but the same had jumped to Rs.29,98,700/- and Rs.13,92,500/- for the months of October & November, 2016 respectively and had gone down to Rs. 4,23,101/- for the month of December, 2016 to March, 2017 at Rs.3,88,766/-, Rs.4,93,066/- and Rs.4,91,530/- for the months of January, 2017 February, 2017 and March, 2017 respectively. The average sale for the 10 months excluding the months of October and November, 2016 is worked out at Rs.6,38,956/- and because of demonetization, there was no justification for the abnormal increase in sales for the months of October and November, 2016. No written submissions have been filed in this respect as to how the sales jumped abnormally. The assessee is a distributor and purchases are claimed to be made from the outsiders. The details of sundry creditors are shown at pages 105 to 121 of the paper book. It was noted that the last six entries are of sundry creditors but the amounts are not mentioned and thus, the entries of sundry creditors are made without mentioning the amount. It was also submitted that the entries are the cash deposits for the month of November, 2016. Our attention was drawn to pages 10, 11 & 12 of the order of the Ld. CIT(A) in which in para 9.3, the excess cash deposits in demonetized notes has been worked out at Rs. 39,94,846/-. However, on perusal of the working of Ld. CIT(A) shown at page 11, the cash sales for the month of October 2016 being average of six months i.e. April, 2016 to September, 2016 is shown at Rs.7,65,000 while at page 12 the sales being average of six months i.e. April, 2016 to September, 2016 are also considered as the sales for November 2016 at Rs.7,65,000/-. Page | 8 I.T.A. No.: 150/GTY/2023 Assessment Year: 2017-18 M/s. Allied Trade Links. 9. On the other hand, the ld. DR supported the order of the CIT(A). He also submitted that the ld. CIT(A) has considered the facts on merits and on law and has passed a reasoned order and has given relief of Rs.10 lakhs for the addition u/s 68 made. The entire purchases are by cheque and the gross rate profit is 2.29%. 10. We have considered the rival submissions. The books of account are stated to be audited, as pointed out by the Ld. AR. However, the assessee has shown excess sales for the months of October & November, 2016 which, considering the average sales for the 10 months are found to be excess by Rs.29,13,447/-. Neither the details of Specified Bank Notes (SBNs) are mentioned nor the Ld. AO has examined the sales vouchers/bills with the stock register to arrive at the figure of suppressed sales deposited in the bank account. While the Ld. AO has adopted the method of working out the median of per day average of cash deposits and compared the same with the per day cash deposited during the demonetisation period, however the Ld. CIT(A) has also compared the average sales from April 2016 to September 2016 to arrive at the sales for the month of October 2016 and November 2016 and has worked out the excess cash deposited and has treated the same as the unexplained money which is deposited by the appellant in the bank account which is to be added u/s 69A of the Act. The assessee contends that the Ld. CIT(A) has erred in confirming the addition. The Ld. AO on the other hand has not examined the purchase and sales bills/vouchers and/or the stock register to ascertain the excess sales shown by the assessee which has been deposited in the bank account. Further, the source of Rs. 40,00,000/-introduced by the partner and which was shown in the cash flow statement filed also has been added by the Ld. CIT(A) without considering the returns of income filed by the partner. Page | 9 I.T.A. No.: 150/GTY/2023 Assessment Year: 2017-18 M/s. Allied Trade Links. The fact that there was abnormal increase in the sales during the month of October and November 2016 also cannot be ignored. However, while the deposits in the bank account have been added as unexplained money under section 69A of the Act, the same amount has also been included in the turnover of the assessee. In respect of handling cases of cash deposits during demonetization period, in the case of Shri Aijaz Ahmed Suri v The Income Tax Officer, ITA No. 1157/Bang/2023 order dated 30.01.2024 SMC-‘A’ Bench Bangalore, detailed guidelines as under have been provided as to how to handle such cases which are as under: 6. We have carefully gone through the various standard operating procedures laid down by the central board of direct taxes issued from time to time in case of operation clean. The 1st of such instruction was issued on 21/02/2017 by instruction number 03/2017. The 2nd instruction was issued on 03/03/2017 instruction number 4/2017. The 3rd instruction was in the form of a circular dated 15/11/2017 in F.No. 225/363/2017-ITA.II and the last one dated 09/08/2019 in F.no.225/145/2019- ITA.II. These instructions gives a hint regarding what kind of investigation, enquiry, evidences that the assessing officer is required to take into consideration for the purpose of assessing such cases. 7. In one of such instructions dated 09/08/2019 speaks about the comparative analysis of cash deposits, cash sales, month wise cash sales and cash deposits. It also provides that whether in such cases the books of accounts have been rejected or not where substantial evidences of vide variation be found between these statistical analyses. Therefore, it is very important to note that whether the case of the assessee falls into statistical analysis, which suggests that there is a booking of sales, which is Page 4 of 5 ITA No. 1157/Bang/2023 non-existent and thereby unaccounted money of the assessee in old currency notes (SBN) have been pumped into as unaccounted money. 8. Instruction 21/02/2017 issued by the CBDT suggests some indicators towards verifying the suspicion of backdating of cash. It also suggests indicators to identify abnormal jump in cash trials on identifiable persons as compared to earlier history in the previous year. Therefore in our opinion it is important to examine whether assessee falls into any of these categories and Page | 10 I.T.A. No.: 150/GTY/2023 Assessment Year: 2017-18 M/s. Allied Trade Links. transfer of deposit of cash is not in line with history of transactions in the preceding assessment years. 9. The assessee is directed to establish all relevant details to substantiate its claim in line with the above applicable instructions based on the facts in present case. We are aware of the fact that not every deposit during the demonetisation period would fall under category of unaccounted cash. However the burden is on the assessee to establish the genuineness of the deposit in order to fall outside the scope of unaccounted cash. Assessee is directed to furnish PAN and address details of the depositors from whom loan repayment has been accepted in cash. The Ld.AO shall verify all the details / evidences filed by the assessee based on the above direction and to consider the claim in accordance with law. Needless to say that proper opportunity of being heard must be granted to the assessee. The assessee shall be granted physical hearing in order to justify its claim. 11. Further, in the case of Jagjit Singh v. Income-tax Officer [2023] 149 taxmann.com 48 (Amritsar - Trib.), it has been held as under: 5. We heard the rival submission and relied on the documents available on the record. Considering the order of the revenue authorities the assessee was not able to submit the confirmation from the sundry debtor, M/s AD Traders. The confirmation is annexed with the paper book of the assessee APB page no. 3. The assessee received SBN during demonetization period on dated 10-11-2016. The amount was deposited in the bank account. The amount was received before the appointed day i.e., dated 31-12-2016. So, the assessee shall not (be) in violation for receiving SBN as per the Act. In Income-tax Act the source was unexplained before the revenue authorities as the evidence was not able to submit before any of the lower authorities by the assessee. Considering the factual matrix here we direct to set aside the matter before the ld.AO for necessary verification de novo. Both the revenue and the counsel of the assessee had not made any objection for remanding back the issue before the ld. AO. Needless to say, that the AO shall provide proper and adequate opportunity of being heard to the assessee in set aside proceedings. The evidence/explanation submitted by assessee in its defence shall be admitted by the AO and adjudicated on merits in accordance with law. We order accordingly. Accordingly, the appeal of the assessee is remanded back to the ld. AO as per above terms. 12. It has been held in the case of Commissioner of Income-tax v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC) that there is nothing Page | 11 I.T.A. No.: 150/GTY/2023 Assessment Year: 2017-18 M/s. Allied Trade Links. in law which prevents the ITO in an appropriate case in taxing both the cash credit, the source and nature of which is not satisfactorily explained, and the business income estimated by him under section 13 after rejecting the books of account of the assessee as unreliable. This was so decided in Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC). Whether in a given case the ITO may tax the cash credit entered in the books of account of the business, and at the same time estimate the profit must however, depend upon the facts of each case. In the case of Shree Sanand Textile Industries Ltd. vs. DCIT ITA No.995/Ahd/2014 with CO No.167/Ahd/2014& ITA No.1166/Ahd/2014 the issue relating to double taxation has been dealt with as under: 9.3. Admittedly, the amount of sale as claimed by the assessee was offered to tax by reflecting the same in the trading and profit and loss account. This fact has not been doubted by the authorities below. However, the existence of the parties was not proved by the assessee based on the documentary evidence during the proceedings. Accordingly, the learned CIT (A) treated the amount received from such parties as unexplained cash credit under section 68 of the Act. In this connection we note that the impugned amount has been taxed twice firstly the same was treated as sales and secondly the same was treated as unexplained cash credit under section 68 of the Act. Even if we assume that the action of the learned CIT (A) is correct i.e. the impugned amount is representing the cash credit as provided under section 68 of the Act. Then, the learned CIT (A) was duty-bound to reduce the same from the amount of sales as the same does not represent the sale but unexplained cash credit. As such, the same amount cannot be held taxable twice as per the wish of the learned CIT (A). In our considered view the action of the learned CIT (A) is erroneous to the extent of treating the same as sale proceeds and the unexplained cash credit simultaneously. 12. Hence, in order to be fair to both the assessee and the Ld. AO, and respectfully following the orders of the coordinate Benches (supra), the order of the Ld. CIT(A) as well as the assessment order are set aside and the issue is remanded to the Ld. AO with the direction that the reply filed by the assessee on the portal and the evidence in possession of the Page | 12 I.T.A. No.: 150/GTY/2023 Assessment Year: 2017-18 M/s. Allied Trade Links. assessee subject to reconciliation or payment due from debtors etc. should be considered and thereafter the income/additions, if required, may be made keeping in view the above judicial pronouncements and the departmental instructions and no addition may be made on this ground without proper verification. At the same time, the Ld. AO cannot treat the deposit both as part of turnover and also as unexplained deposit. As the income has not been properly estimated, we deem it proper that the entire assessment order is set aside to the Ld. AO to be made de novo and with the direction that the reply filed on the portal as well as the subsequent replies and evidence, if any, in possession of the assessee may be examined and thereafter, the income may be assessed. The assessee shall produce all required evidence before the Ld. AO as and when called for and shall not seek any unnecessary adjournment. Thereafter, the AO shall pass an order in accordance with the facts of the case. Hence, ground no. 1 of the appeal of the assessee is allowed for statistical purposes. 13. Ground No.2 is general in nature and does not need separate adjudication. 14. In the result the appeal is allowed for statistical purposes. Order pronounced on 11th June, 2025 under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963. Sd/- Sd/- [Manomohan Das] [Rakesh Mishra] Judicial Member Accountant Member Dated: 11.06.2025 Bidhan (P.S.) Page | 13 I.T.A. No.: 150/GTY/2023 Assessment Year: 2017-18 M/s. Allied Trade Links. Copy of the order forwarded to: 1. M/s. Allied Trade Links, Col. J Ali Road, Railway Gate No. 2, Lakhtokia, Guwahati, Assam, 781001. 2. ACIT, Cir-2, Guwahati. 3. CIT(A)-NFAC, Delhi. 4. CIT- 5. CIT(DR), Guwahati Benches, Guwahati. 6. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata "