PATEL WINES,KHEDA V. THE DY.CIT, KHEDA CIRCLE, NADIAD

ITA 1740/AHD/2025

AI Insights

The case involves Patel Wines, a partnership firm engaged in the sale of liquor, which appealed against the order of the Commissioner of Income Tax (Appeals) upholding the addition of 1,61,37,212 to its income for the Assessment Year 2017-18. This addition was made by the Assessing Officer during the demonetization period, suspecting the deposits made were unaccounted income. The assessee argued that these were legitimate business receipts and accumulated cash. However, both the Assessing Officer and the CIT(A) found the explanations unsatisfactory, noting inconsistencies and lack of credible evidence. The Tribunal, referencing judicial precedents, supported the findings of the lower authorities and dismissed the appeal.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 841556 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2026
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2017-2018
• Appeal Filed On: 15-09-2025
• Other Referred Cases: CIT v. Durga Prasad More [(1971) 82 ITR 540 (SC)], Sumati Dayal v. CIT [(1995) 214 ITR 801 (SC)], CIT v. Precision Finance Pvt. Ltd. [(1994) 208 ITR 465 (Cal.)]
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAMESHWAR P MEENA
• Assessee Lawyers: S.N. DIVATIA
• Keywords: Business income; Business expenditure; Income from undisclosed sources; Onus to prove; Principle of natural justice; Bogus
• Section: 68; 133A

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.1740/Ahd/2025 (Assessment Year: 2017-18) Patel Wines, Survey No. 98/2, Oasis Garden, Opp. Dumral Patiya, N.H. No. 8, Nadiad, Kheda-387002 Vs. Deputy Commissioner of Income Tax, Kheda Circle, Nadiad [PAN No.AACFP4000B] (Appellant) .. (Respondent) Appellant by : Shri S. N. Divatia, AR Respondent by: Shri Rameshwar P Meena, Sr. DR Date of Hearing 29.01.2026 Date of Pronouncement 24.02.2026 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 27.08.2025 passed for A.Y. 2017-18. 2. The assessee has raised the following grounds of appeal: “1.1 The order passed by U/s.250 passed on 27.08.2025 for A.Y. 2017-18 by NFAC, [CIT(A)], Delhi (for short “CIT(A)” upholding the addition of Rs.1,61,37,212/- made by A.O. towards cash deposits in HDFC Bank account during the demo period is wholly illegal, unlawful and against the principles of natural justice. 2.1 The ld. CIT(A), has grievously erred in law and or on facts in not considering fully and properly the explanations given and documents/evidence produced before both the lower authorities. The observations made and conclusion reached by both the lower authorities are denied in so far as the same is contrary to the evidence on record. The Id. CIT(A) has completely ignored the reply given in the statement recorded on oath during the course of survey on 17.03.2017. Printed from counselvise.com ITA No. 1740/Ahd/2025 Patel Wines vs. DCIT Asst.Year –2017-18 - 2– 3.1 The ld. CIT(A) has grievously erred in law and or on facts in upholding the addition of Rs.1,61,37,212/- made by A.O. towards cash deposits in HDFC Bank account during the demo period. 3.2 That the in the facts and circumstances of the ld. CIT(A), ought not to have upheld the addition of Rs.1,61,37,212/- made by A.O. towards cash deposits in HDFC Bank account during the demo period.” 3. The brief facts of the case are that the assessee, a partnership firm engaged in the business of sale of liquor to license holders, filed its return of income for Assessment Year 2017-18 declaring a total income of ₹18,57,653/-. A survey under section 133A of the Income-tax Act, 1961 (\"the Act\") was conducted on 17.03.2017 at the business premises of the assessee, M/s. Patel Wines. During the course of assessment proceedings, the Assessing Officer observed that the assessee had deposited substantial cash amounting to ₹1,65,81,880/- in its HDFC Bank account during the demonetization period, out of which ₹1,31,34,000/- was in the form of demonetized currency of ₹500 and ₹1000 notes. The assessee submitted that these deposits were made out of accumulated cash-in-hand of ₹1,61,37,212/- as on 01.04.2016, which, according to the assessee, had been retained over the years due to family disputes and apprehension of bank account operations being interfered with by relatives. The statement of one of the partners was recorded during the survey, reiterating this explanation. The Assessing Officer, however, examined the balance sheets of earlier years and observed that the assessee had been consistently showing very high cash-in-hand balances for several years, along with substantial unsecured loans and sundry creditors which had remained unchanged for long periods. The Assessing Officer further observed that these unsecured loans were from close relatives and related concerns, that no interest was paid thereon by the assessee, Printed from counselvise.com ITA No. 1740/Ahd/2025 Patel Wines vs. DCIT Asst.Year –2017-18 - 3– and no repayments were also made for years with respect to loan taken by the assessee. The Assessing Officer also noted that certain trade creditors had remained outstanding for many years and were subsequently written off and offered to tax in later assessment years, which, according to the Assessing Officer, indicated that such liabilities were not genuine. The Assessing Officer also noticed that the assessee was regularly depositing cash sales into bank accounts throughout the year and incurring routine business expenses in cash, which contradicted the claim of the assessee that cash was being hoarded for years due to alleged family disputes. 4. The Assessing Officer repeatedly asked the assessee to substantiate the reasons for keeping such huge cash-in-hand, including details of family disputes, court cases, and the manner and place where such cash was kept. According to the Assessing Officer, the assessee failed to produce any convincing documentary evidence in support of its explanation. The Assessing Officer therefore held that the explanation offered by the assessee was not satisfactory, that the high cash-in-hand was artificially built up by creating fictitious unsecured loans and bogus liabilities, and that the cash deposited during the demonetization period represented unaccounted income of the assessee firm. Accordingly, the Assessing Officer made an addition of ₹1,61,37,212/- as unexplained money under section 68 read with section 115BBE of the Act, and the total income was assessed at ₹1,79,94,865/-. Penalty proceedings under section 270A were also initiated. Printed from counselvise.com ITA No. 1740/Ahd/2025 Patel Wines vs. DCIT Asst.Year –2017-18 - 4– 5. Aggrieved by the assessment order, the assessee carried the matter in appeal before the Ld. CIT(Appeals). In the grounds of appeal, the assessee challenged the addition made by the Assessing Officer mainly on the ground that the Assessing Officer had wrongly invoked section 68 of the Act, even though the cash deposited in the bank was fully explained by the opening cash-in-hand reflected in the audited books of account. The assessee contended that its books were duly audited, the cash book was produced and never rejected, and the source of cash deposits was clearly identifiable from the regular books of account. It was also submitted that the nature of business, being sale of liquor, mandated cash sales, and therefore accumulation of cash was normal. The assessee further submitted that unsecured loans were received through banking channels in earlier years, had no connection with the cash deposits of the year under consideration, and that writing off of old creditors in subsequent years could not be a basis to treat the cash-in-hand as bogus. The assessee also alleged violation of principles of natural justice and contended that the addition would result in double taxation of the same income. 6. The Ld. CIT(Appeals) considered the submissions of the assessee, the assessment order, and the material available on record. The CIT(Appeals) noted that the Assessing Officer had carried out a detailed analysis of the pattern of cash deposits, the consistency of high cash-in-hand over several years, and the existence of long-standing unsecured loans and creditors which were later written off. The Ld. CIT(Appeals) observed that the assessee failed to substantiate its claim of family disputes with any evidence and that the explanation of keeping huge cash-in-hand for several years did not pass the test of Printed from counselvise.com ITA No. 1740/Ahd/2025 Patel Wines vs. DCIT Asst.Year –2017-18 - 5– human probabilities, especially when the assessee was regularly operating bank accounts and depositing cash sales throughout the year. 7. With respect to the ground relating to violation of natural justice, the Ld. CIT(Appeals) held that adequate opportunities were granted during the assessment proceedings as well as during the appellate proceedings, and therefore this contention of the assessee was rejected. On the applicability of section 68 and section 69A of the Act, the Ld. CIT(Appeals) held that merely showing an opening cash balance in the books does not automatically explain the source if the genuineness of such cash balance itself is doubtful. The CIT(Appeals) placed reliance on judicial principles relating to burden of proof and human probability and held that the Assessing Officer was justified in treating the cash deposits during the demonetization period as unexplained income. Accordingly, after considering each of the grounds raised by the assessee, the Ld. CIT(Appeals) upheld the action of the Assessing Officer and confirmed the addition of ₹1,61,37,212/- made under section 68 read with section 115BBE of the Act. As a result, the appeal of the assessee was dismissed. 8. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. Before us, the counsel for the assessee primarily reiterated the arguments taken before Tax Authorities viz. the cash deposits are from business receipts, from carry forward of cash in hand from three previous years, that the books of accounts of the assessee are duly audited and that Tax Authorities erred in correlating the cash in hand with unsecured loans. Printed from counselvise.com ITA No. 1740/Ahd/2025 Patel Wines vs. DCIT Asst.Year –2017-18 - 6– 9. In response, the Ld. DR placed reliance on the observations made by the Assessing Officer and Ld. CIT(Appeals) in their respective orders. The Ld. Departmental Representative submitted that Audit Report was filed off-line, further a perusal of Page 64 of Paper-Book (Tax Audit Report) shows cash in hand of Rs. 1.65 crores, whereas return of income filed by the assessee shows cash in hand of Rs. 2.65 crores and therefore these two figures do tally casting a serious doubt on the genuineness of books of accounts maintained by the assessee. Further, Ld. Departmental Representative submitted that the assessee has given no plausible explanation of such large cash in hand for various years. 10. We have heard the rival contentions and perused the material on record. 11. We have carefully considered the rival submissions, perused the orders of the authorities below and examined the material placed on record. The core issue for our consideration is whether the cash deposits made by the assessee during the demonetization period, claimed to be out of accumulated opening cash-in-hand, have been satisfactorily explained so as to escape addition under section 68 read with section 115BBE of the Act. We note that the Assessing Officer as well as the Ld. CIT(Appeals) have concurrently recorded a clear finding that the explanation of the assessee regarding accumulation of huge cash-in- hand over several years is not supported by any credible evidence and does not satisfy the test of human probabilities. The assessee failed to produce any documentary evidence whatsoever to substantiate the alleged family disputes, court proceedings, or any restriction on Printed from counselvise.com ITA No. 1740/Ahd/2025 Patel Wines vs. DCIT Asst.Year –2017-18 - 7– operation of bank accounts which allegedly compelled the assessee to retain such a large amount of cash for years together. The Hon’ble Supreme Court in CIT v. Durga Prasad More [(1971) 82 ITR 540 (SC)] has held that taxing authorities are entitled to look into the surrounding circumstances and apply the test of human probabilities, and that apparent facts may be disregarded if they are contrary to human conduct and probabilities. The same principle has been reiterated by the Hon’ble Supreme Court in Sumati Dayal v. CIT [(1995) 214 ITR 801 (SC)]. We also find merit in the findings of the lower authorities that the assessee was regularly depositing cash sales into bank accounts throughout the year and was incurring routine business expenses in cash, which clearly contradicts the plea that cash was being hoarded for several years due to apprehension of bank account interference. Such conduct does not accord with normal commercial prudence. In this background, the explanation of retaining cash-in-hand running into crores for multiple years appears wholly implausible. 12. The argument of the assessee that the cash deposits are fully explained by the opening cash balance reflected in the audited books of account also does not impress us. It is trite law that merely because a figure is shown in the books of account or the books are audited, the same does not automatically establish the genuineness of the entry or the explanation offered. The burden under section 68 squarely lies on the assessee to offer a satisfactory explanation regarding the nature and source of the sum credited. We further note that the Tax authorities have recorded categorical findings regarding long-standing unsecured loans and sundry creditors which remained unchanged for years, without any repayment or interest, and which were subsequently written off and Printed from counselvise.com ITA No. 1740/Ahd/2025 Patel Wines vs. DCIT Asst.Year –2017-18 - 8– offered to tax in later years. These facts strongly support the conclusion that such liabilities were not genuine and were used to artificially inflate the cash-in-hand. The Hon’ble Calcutta High Court in CIT v. Precision Finance Pvt. Ltd. [(1994) 208 ITR 465 (Cal.)] has held that mere identification of the creditor and showing payment through banking channels is not sufficient; the assessee must also establish the genuineness of the transaction and the creditworthiness of the creditor. In the present case, even that minimal standard has not been met. 13. The contention of the assessee that the addition results in double taxation is also devoid of merit. The Tax authorities have clearly demonstrated that the cash deposits during the demonetization period were far in excess of the normal pattern of deposits and were sought to be explained by an opening cash balance whose genuineness itself was found to be doubtful. We are of the considered view that that when cash deposits are claimed to be out of opening balance, the assessee must conclusively prove the availability and genuineness of such balance. The assessee has failed to discharge this burden. 14. The reliance placed by the Ld. Departmental Representative on the discrepancies noticed between the cash-in-hand figures reflected in the tax audit report (Rs. 1.65 crores) and those disclosed in the return of income (Rs. 2.65 crores) further reinforces the doubt regarding the correctness and reliability of the books of account. Such inconsistencies strike at the very root of the assessee’s claim that the books correctly reflect the true state of affairs. Printed from counselvise.com ITA No. 1740/Ahd/2025 Patel Wines vs. DCIT Asst.Year –2017-18 - 9– 15. In view of the totality of facts and circumstances, and respectfully following the binding judicial precedents cited above, we are of the considered opinion that the assessee has failed to discharge the onus cast upon it under section 68 of the Act. The explanation offered regarding the source of cash deposits during the demonetization period is neither supported by evidence nor acceptable on the touchstone of human probabilities. We, therefore, find no infirmity in the orders of the Assessing Officer and the Ld. CIT(Appeals) in treating the sum of ₹1,61,37,212/- as unexplained income of the assessee taxable under section 68 read with section 115BBE of the Act. 16. Accordingly, the addition so made and sustained by the Ld. CIT(Appeals) is confirmed. The appeal filed by the assessee stands dismissed. 17. In the result, the appeal of the assessee is dismissed. This Order pronounced in Open Court on 24/02/2026 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 24/02/2026 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 "