NANDISH MADHUKAR SHAH, HUF,AHMEDABAD V. THE DY. CIT, CIRCLE-3(1)(1) (PREVIOUSLY ITO, WARD-5(2)(3)), AHMEDABAD

ITA 1272/AHD/2024

AI Insights

The case revolves around an appeal by Nandish Madhukar Shah (HUF) against the order of the CIT(Appeals), which confirmed the addition of \\u20b91,01,94,386/- to the assessee's income for the Assessment Year 2017-18. This addition was initially made by the Assessing Officer under Section 68 of the Income Tax Act, citing unexplained cash deposits during the demonetization period. The assessee contended that these deposits were from legitimate business activities, supported by sales records and VAT returns. However, the Assessing Officer and CIT(Appeals) were unconvinced, leading to the appeal before the Tribunal. The Tribunal, after reviewing the evidence and arguments, sided with the assessee, highlighting the lack of substantial evidence from the department to counter the assessee's explanations.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712707 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MALARKODI R.
• Assessee Lawyers: HARDIK VORA
• Keywords: Set aside; Business income; Unexplained cash credit; Income from undisclosed sources
• Section: 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.1272/Ahd/2024 (Assessment Year: 2017-18) Nandish Madhukar Shah (HUF), A/2, Skylark Apartment, B/h. Siddhi Vinayak Complex, Nr. Thakarshi Hospital, Ahmedabad-380015 Vs. Deputy Commissioner of Income Tax, Circle-3(1)(1), (Previously ITO, Ward-5(2)(3), Ahmedabad [PAN No.AACHN1097A] (Appellant) .. (Respondent) Appellant by : Shri Hardik Vora, AR Respondent by: Smt. Malarkodi R., Sr. DR Date of Hearing 07.07.2025 Date of Pronouncement 28.07.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 30.04.2024 passed for A.Y. 2017-18. 2. The assessee has raised the following grounds of appeal: “1.1 That the ld. CIT(A) has erred in confirming the addition of Rs. 1,01,94,386/- made by the assessing officer in respect of cash deposited during demonetization period. 1.2 That the various reasons advanced by ld. CIT(A) in upholding the additions are contrary to the facts of the case and evidence on record. 1.3 The appellant respectfully submits that he has deposited cash out of cash sales and all the evidences have been filed by the appellant. Therefore, no addition can be made for Rs. 1,01,94,386/- and in particular when the source of cash deposited is out of sales which is already shown in income, the addition of Rs. 1,01,94,386/- cannot be made on the facts of the case. 1.4 The ld. CIT(A) has further erred in confirming the addition made u/s. 68 of the Act when the source of cash is out of business income only and therefore the Printed from counselvise.com ITA No. 1272/Ahd/2024 Nandish Madhukar Shah(HUF) vs. DCIT (Previously ITO) Asst.Year –2017-18 - 2– addition should be made only as business income. This submission is without prejudice to the contention that no addition can be made on the facts of the case. 1.5 The appellant craves leave to add, alter or amend any of the grounds of appeal before final hearing of the appeal.” 3. The brief facts of the case are that during the assessment proceedings for A.Y. 2017-18, the Assessing Officer examined the return filed by the assessee, who had declared an income of ₹9,64,140/-. The case was selected for scrutiny under CASS due to significant cash deposits made during the demonetization period (₹1,18,30,436/-) in multiple bank accounts. On review of the books, the Assessing Officer noted that the assessee, who was engaged in resale of building material and manufacturing of paver blocks, reported a sudden and disproportionate increase in cash sales during September and October 2016, amounting to nearly 50% of the total annual sales of ₹2.09 crore. In contrast, cash sales after November 2016 plummeted to less than 2%. The assessee's explanation for the cash deposited that the same had been derived from business receipts-was found by the Assessing Officer to be unconvincing, particularly since many invoices did not have proper details, and cash receipts were backdated to inflate the opening balance for F.Y. 2016-17. Further, the Assessing Officer noted an inconsistency of ₹9.37 lakh in the opening cash balance, as books showed opening balance of ₹14.48 lakh against the correctly reported ₹5.11 lakh from the previous year’s return. The assessee submitted that this was on account of clerical errors, but the AO rejected the assessee’s explanation, on the ground that audited books in both years could not reflect such discrepancies. As per the Assessing Officer, the increase in cash sales during the months immediately before demonetization, the lack of customer verification for large cash receipts, and mismatches in accounting entries clearly indicated manipulation by the assessee Printed from counselvise.com ITA No. 1272/Ahd/2024 Nandish Madhukar Shah(HUF) vs. DCIT (Previously ITO) Asst.Year –2017-18 - 3– intended to justify high cash deposits. The AO held that ₹1,01,94,386/- out of the total cash deposited remained unexplained and treated this as income under Section 68 of the Income Tax Act (Act). Accordingly, the income was enhanced to ₹1,11,58,526/-, and penalty proceedings under Section 271AAC were initiated separately for underreporting of income. 4. In appeal, CIT(Appeals) dismissed the appeal filed by the assessee, thereby confirming the addition of ₹1,01,94,386/- made by the Assessing Officer under Section 68 of the Act. Before CIT(Appeals), the assessee challenged the addition, submitting that the cash deposits during the demonetization period were fully supported by entries in the cash book and arose from genuine cash sales, which had already been offered to tax and duly reflected in VAT returns and audited books of account. The assessee also contended that the increase in cash sales during September to November 2016 was a normal business trend and should not be considered as evidence of unaccounted income. However, CIT(Appeals) observed that the assessee failed to substantiate the explanation with sufficient evidence. CIT(Appeals) was of the view that the increase in cash sales during the pre-demonetization months was not supported by comparable figures from the previous year and appeared to be sudden and unsubstantiated. The CIT(A) noted that despite showing high cash sales in October and November 2016, the assessee made no corresponding cash deposits in the bank accounts during that time, casting serious doubt on the credibility of the explanation given by the assessee. Further, CIT(Appeals) noted that the difference in the opening cash balance of ₹9.37 lakh-shown as ₹14.48 lakh instead of ₹5.11 lakh- could not be convincingly explained by the assessee, especially since both the current and previous year’s books were audited and such a significant error was neither identified nor corrected earlier. The CIT(A) Printed from counselvise.com ITA No. 1272/Ahd/2024 Nandish Madhukar Shah(HUF) vs. DCIT (Previously ITO) Asst.Year –2017-18 - 4– also held that merely providing names, dates, and amounts of cash receipts was insufficient to discharge the onus cast upon the assessee under Section 68 of the Act. CIT(Appeals) was of the view that the assessee failed to establish the identity and creditworthiness of the persons from whom substantial amounts in cash were allegedly received, nor was the genuineness of such transactions proved. The explanation was held to be an afterthought by the Commissioner and he accordingly upheld the Assessing Officer’s order to the effect that the books had been manipulated to justify large cash deposits during the demonetization period. As a result, the appeal of the assessee was dismissed, and the addition of ₹1,01,94,386/- was confirmed. 5. The assessee is in appeal before us against the order passed by CIT(Appeals). Having considered the submissions of both parties and perused the material available on record, we are of the considered view that the assessee has adequately explained the source of the cash deposits. The assessee is a Hindu Undivided Family engaged in the semi- wholesale resale of building material under the trade name \"Green House Enterprise\". The assessee's books of accounts were duly audited under section 44AB of the Act and also subjected to scrutiny under VAT laws. During the demonetization period (from 09.11.2016 to 30.12.2016), the assessee deposited a total sum of ₹1,18,30,436/- in three bank accounts. The AO held the said deposits to be unexplained cash credits under section 68 of the Act, mainly due to substantial increase in sales during September to November 2016 as compared to the corresponding period in the previous year and also due to discrepancy in the opening cash balance of ₹9,37,169/-. Having considered the submissions of both parties and perused the material available on record, we find that the assessee has adequately explained the source of the cash deposits. The Printed from counselvise.com ITA No. 1272/Ahd/2024 Nandish Madhukar Shah(HUF) vs. DCIT (Previously ITO) Asst.Year –2017-18 - 5– assessee has consistently contended that the cash deposits were out of genuine cash sales, which were duly recorded in the books of account maintained in the regular course of business, supported by cash memos and invoices. These sales were also reflected in the VAT returns filed and accepted by the VAT department. The audit under VAT and its finalization in Form 304 further corroborate the genuineness of these transactions. The total turnover for the year under consideration was ₹12.12 crores as against ₹11.93 crores in the preceding year, demonstrating growth in business activity and consistent increase in cash inflows. The assessee has also furnished details of parties from whom cash in excess of ₹1 lakh was received, along with dates, amounts, and the relevant invoices, during the course of assessment proceedings. Despite this, the AO did not make any inquiries to disprove the same. It is well-settled law that once the assessee produces prima facie evidence supporting its contention regarding cash sales, the burden shifts to the Department to rebut such evidence with cogent material. No such inquiry or material was brought on record by the AO in the present case to disprove the veracity of the assessee's claim. The increase in cash sales during the festive and post-monsoon season, particularly in the business of building materials, cannot in itself be considered unusual or suspicious without any adverse material. It is a matter of commercial prudence that seasonal fluctuations impact business cycles, especially in sectors like construction and hardware, and the explanation provided by the assessee, in our view is plausible and consistent with the nature of its business being resale of building material. As regards the discrepancy in the opening cash balance of ₹9,37,169/-, the assessee has explained that it was a clerical error due to misposting of certain cash receipts in the previous year’s books while entering transactions of FY 2016-17. The Printed from counselvise.com ITA No. 1272/Ahd/2024 Nandish Madhukar Shah(HUF) vs. DCIT (Previously ITO) Asst.Year –2017-18 - 6– closing cash balance as on 31.03.2017 remained unchanged and was correct. In the absence of any evidence to suggest that this misstatement was intentional or with malafide intent, we are inclined to accept the explanation of the assessee as a reasonable human error in book-keeping. In view of the above facts and circumstances, and in the absence of any evidence to show that the cash deposits were out of non-business sources, we are of the considered view that the addition of ₹1,01,94,386/- under section 68 of the Act is liable to be deleted. The AO has not brought any material on record to rebut the documents and explanations furnished by the assessee. Therefore, the impugned addition cannot be upheld. Accordingly, we set aside the order of the CIT(A) and direct the AO to delete the addition of ₹1,01,94,386/- made under section 68 of the Act. 6. In the result, appeal of the assessee is allowed. This Order pronounced in Open Court on 28/07/2025 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 28/07/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad Printed from counselvise.com "