NARAYAN MUNDHARA,NEW DELHI V. ITO WARD 58(5), NEW DELHI

ITA 3831/DEL/2023

AI Insights

The case revolves around an appeal by Narayan Mundhara against the order of the Commissioner of Income Tax (Appeals) which upheld the addition of Rs.1,19,70,500 as unexplained money under section 69A of the Income-tax Act, 1961. The addition was based on substantial cash deposits made during the demonetization period, which the AO deemed unexplained. The assessee argued that these deposits were from legitimate cash sales, significantly increased due to the firm's distributorship of a major business and seasonal sales during festivals. The Tribunal, after considering the submissions and evidence, directed a detailed verification of the assessee's records and if found accurate, the addition should be removed.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126217 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2017-2018
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARVIND KUMAR TRIVEDI
• Assessee Lawyers: ROHIT TIWARI
• Keywords: Business income
• Section: 142(1); 143(2); 133(6); 69A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’: NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER and SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.3831/DEL/2023 (Assessment Year: 2017-18) Narayan Mundhara, vs. ITO, Ward 58 (5), 10/97, Geeta Colony, New Delhi. Delhi – 110 031. (PAN : AJQPM2361M) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Rohit Tiwari, Advocate Ms. Tanya, Advocate Ms. Shivani, Advocate REVENUE BY : Shri Arvind Kumar Trivedi, Sr. DR Date of Hearing : 28.01.2025 Date of Order : 23.04.2025 ORDER PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. The assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”, for short] dated 27.10.2023 for the Assessment Year 2017-18 raising following grounds of appeal :- “1. The learned CIT (A) has erred on facts and circumstances of the case in adding Rs.1,19,70,500/- on account of cash deposit in to bank u/s 69A of the act without any justification. 2 ITA No.3831/DEL/2023 2. That on the facts and circumstances of the case and in law, the order passed by CIT (A) New Delhi (hereinafter referred to as CIT (A), is bad in law. 3. That on the facts and circumstances of the case and in law, the Ld. CIT (A) was not justified in upholding the action of AO of adding Rs.1,19,70,500/- on account of cash deposit in to bank u/s 69A, when assessee has duly discharged the burden cast on it under the law.” 2. The assessee has raised the above grounds of appeal raising a solitary issue of addition sustained by the ld. CIT (A) under section 69A of the Income-tax Act, 1961 (for short ‘the Act’) of Rs.1,19,70,500/-. The relevant facts of the grounds raised by the assessee are, the case of the assessee was selected for scrutiny under CASS specifically for the issue of “assessee has deposited large value of cash during demonetization period”. The assessee has filed return of income for the AY 2017-18 on 06.11.2017 declaring total income of Rs.8,32,140/-. Accordingly, notices u/s 143(2) & 142(1) were issued and served on the assessee directing the assessee to file relevant information as listed by the AO at page 2 of the assessment order. In response, assessee has submitted the relevant information. During assessment proceedings, AO observed that the assessee had deposited an amount of Rs.1,19,70,500/- during demonetization period i.e. 08.11.2016 to 31.12.2017 in Current Account No.112605501681 in the name of Navdurga Fabrics maintained with ICICI Bank, Gandhi Nagar Branch, Delhi-110 017. Consequently, notice u/s 133(6) of the Act was issued to ICICI Bank, Kotak Mahindra Bank 3 ITA No.3831/DEL/2023 and Canara Bank for KYC and bank statement. In response, they have submitted the relevant information. 3. On perusal of the above information, the AO observed that assessee has engaged in the trading of fabrics under the name and style as ‘Navdurga Fabrics’ having placed at 10/97, Geeta Colony, Gandhi Nagar, Delhi-31. When the assessee was asked to provide information as per the current accounts maintained at ICICI Bank and saving accounts maintained with Kotak Mahindra Bank and Canara Bank, the assessee submitted that it generated cash sales during the year and assessee received cash from its retail customers and any retail customers deposited cash more than Rs.2 lakhs, the assessee submitted that it deducted the TCS and deposited the same. Further assessee submitted a comparative month-wise sale made by the firm from April 2016 to 08.11.2017. The AO, upon analyzing the comparative statement submitted by the assessee, observed that during the pre-demonetization period, assessee has deposited only Rs.93,448/- as cash sales and during demonetization period, assessee has deposited Rs.90,00,843.92 i.e. sales of October 2016 and November sales upto 08.11.2017. With the above information, a show-cause notice was issued to the assessee to explain the transactions and in response for justification of the sales, assessee has submitted as under :- “Justification of Sales : During the previous year, the assessee firm has shown sale of Rs.24.57 crore compare to Rs.63.00 lacs in the 4 ITA No.3831/DEL/2023 immediate preceding years. The assessee has started firm M/s. Navdurga Fabrics in F.Y. 2015-16 only there was a sale of Rs.63.00 lacs only. Further the assessee firm was appointed one of two distributor for Delhi by M/s. Super Gold Suiting Pvt. Ltd. and Bhilwara, Rajasthan and almost 95 of the sale pertains to their products only.” 4. After considering the above submissions, the AO rejected the same and he proceeded to make addition of Rs.1,19,70,500/- as unexplained money. 5. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and filed detailed submissions. After considering the detailed submissions of the assessee, ld. CIT (A) rejected the grounds of the assessee with the following observation :- “4.3.3. The second argument of the appellant is that the AO relied upon comparison of cash sales in the previous year to cash sales in the current year which is not correct because the appellant started business only in the previous year wherein sales are less. While that may be so, why the cash sales are high, how the appellant generated so much cash in demonetization period, when trading in fabrics is not listed in the exemptions for use old currency notes in the Notifications related to demonetization, is unexplained. Further, on examination of the appellant's ITRs, it is seen that he is filing ROI from A.Y. 2010-11. Further, appellant has not provided any cash sales data of later years to substantiate its stand. 4.3.4. The appellant has also argued that the cash deposits are explained by the books, but in the appeal proceedings has not submitted the ledger A/cs, cash book. invoices, details of parties etc to which the said cash sales were made. The AO on the other hand has noted that the majority of cash sales were shown only in October 2017 and first week of November 2017, with no explanation/cause for this sudden peak in cash sales. Cash deposited before the demonetization period was Rs.17,63,800/- 5 ITA No.3831/DEL/2023 while the cash deposited during the demonetization period is Rs.1,49,41,400/-. AO has not accepted the stated position of the appellant and the appellant has not submitted the evidence before the appellate authority, leaving no scope to differ with the AO's observation.” 6. Aggrieved with the above order, assessee is in appeal before us. 7. Before us, ld. AR of the assessee submitted that assessee has cash sales which is a source for making cash deposits during the year and brought to our notice page 258 of the paper book wherein assessee has submitted month-wise details of cash sales and credit sales and submitted that assessee has declared total sales of Rs.24.57 crores and cash sales of Rs.1.50 crores. He submitted that the cash sales recorded by the assessee is only 5% of the total sales and brought to our notice page 9 of the appellate order and brought to our notice detailed submissions of the assessee. He submitted that during FY 2015-16, assessee has recorded only sales of Rs.63 lacs and during the current FY, assessee has been appointed by two distributors for Delhi and almost 95% of the sales pertained to their products. The reason for vast difference in sales figures is due to the fact that in FY 2015-16, the business of the firm had barely started whereas in FY 2016-17, the business has established and got the distributorship of a major player in the market. As compared to the cash sales of FY 2015-16 and 2016-17, the sales were increased in FY 2016- 17 mainly due to the distributorship of the major business houses. During 6 ITA No.3831/DEL/2023 October and November being the festive season, it is a particular reason for increase in cash sales. He submitted that the above factual issues were submitted before the ld. CIT (A) and ld. CIT (A) has rejected the same. He prayed that assessee has deposited during demonetization period the cash sales recorded by the assessee out of festival season. He prayed that the addition made by the AO is unjustified and deserves to be deleted. 8. On the other hand, ld. DR of the Revenue brought to our notice page 4 of the assessment order and submitted that assessee itself submitted a comparable chart as per which assessee had average cash sales during pre-demonetization period is of only Rs.93,448/- whereas the sales recorded by the assessee during demonetization period is manifold. Further he brought to our notice page 15 of the ld. CIT (A)’s order and submitted that ld. CIT (A) has dismissed the argument of the assessee and submitted that ld. CIT (A) has passed a speaking order, hence, he relied on the same. 9. Considered the rival submissions and material placed on record. We observed that the business of the assessee has increased manifold during AY 2017-18 compared to AY 2016-17. It is also fact on record that assessee has achieved Rs.24.57 crores during the current assessment year in comparison to Rs.63 lacs during AY 2016-17. We observed that 7 ITA No.3831/DEL/2023 assessee has recorded cash sales of Rs.1.50 crores during the year and during demonetization period, assessee has recorded cash sales of Rs.43.52 lacs in October 2016 and from 01.11.2016 to 08.11.2016 assessee has recorded Rs.46.48 lacs. However, assessee has declared sales of Rs.85.53 lacs during November 2019 including Rs.46.48 lacs booked during 01.11.2016 to 08.11.2016. The AO observed that the assessee has registered sales of Rs.93,448/- during pre-demonetization period and recorded sales of Rs.43.52 lacs during October 2016 and from 01.11.2016 to 08.11.2016 of Rs.46.48 lacs. Based on the above observation, he was of the view that assessee has registered sales only during demonetization period whereas the fact on record discloses differently. Assessee has recorded cash sales more than previous year due to increase of its business during current assessment year due to its being appointed as distributorship of two sales houses, namely, M/s. Super Gold Suiting Pvt. Ltd. and Bhilwara, Rajasthan. The sales have increased mainly during October 2016 and November 2016 and it has recorded Rs.43.52 lacs and Rs.85.53 lacs respectively. The assessee has deposited Rs.1,49,41,400/- during the year and cash deposited before demonetization period is Rs.17,63,800/- It is fact on record that assessee has recorded cash sales even after 08.11.2016. The assessee has recorded from 01.11.2016 to 08.11.2016 Rs.46.48 lacs whereas the whole month 8 ITA No.3831/DEL/2023 assessee was recorded at Rs.85.53 lacs. Therefore, it is fact on record that assessee’s business has increased compared to previous assessment year and also assessee has recorded cash sales even after 08.11.2016 and assessee has recorded huge cash sales during October and November correspondingly even credit sales have increased manifold during October to January. It clearly shows that assessee has source for cash deposits made during the pre-demonetization and also subsequently. The AO proceeded to make the addition merely on the basis of sales recorded by the assessee comparatively less during previous assessment year and he has completely overlooked the fact that assessee has sales of cash of selling the fabric during festival season mainly in October and November. They do not deny the fact that the assessee has recorded huge cash sales and credit sales during the festival season and the sales recorded during the current assessment year cannot be compared with previous assessment year due to increase of business recorded only during the current assessment year. The details of two incomparable years cannot be compared. Therefore, in our considered view, assessee has a source of cash deposits. Hence, the addition made by the AO is not justified and for the sake of overall justice, we are inclined to direct the assessee to submit a quantity-wise details of opening purchases and sales recorded of credit as well as cash sales during the year matching with the closing 9 ITA No.3831/DEL/2023 stock declared in the financial statement. The AO is directed to verify the same and if the quantity details are properly recorded in the financials statement, the additions proposed by him should be deleted. With the above direction, we are inclined to delete the addition after due verification of the quantity details by the AO. 10. In the result, the appeal of the assessee is allowed with the above observation. Order pronounced in the open court on this 23rd day of April, 2025. Sd/- sd/- (SATBEER SINGH GODARA) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 23.04.2025 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals). 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "