PRAFULBHAI NATHABHAI KANANI,SURAT V. ITO, WARD 3(3)(5), SURAT

ITA 747/SRT/2025

AI Insights

The case involves Prafulbhai Nathabhai Kanani, who appealed against the order of the National Faceless Appeal Centre (NFAC), which had confirmed the addition of Rs.7,70,500 to his income for the Assessment Year 2017-18. This addition was initially made by the AO, who treated the cash deposit of Rs.11,69,500 made during the demonetization period as unexplained. The Tribunal examined the increase in the assessee's turnover and cash sales, finding that the increase in cash deposits was consistent with the business activities and not abnormal. The Tribunal also noted that the AO had accepted the regularity of cash deposits outside the demonetization period, thus concluding that the cash deposits during the demonetization period were also explained and should not have been treated as unexplained.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 823041 (ITAT-SURAT)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2017-2018
• Appeal Filed On: 11-07-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY UKE
• Assessee Lawyers: P M JAGASHETH
• Section: 143(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “SURAT” BENCH, SURAT [Conducted through E-Court at Ahmedabad] BEFORE SHRI SANJAY GARG, JUDICAL MEMBER & SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 747/Srt/2025 (िनधाŊरण वषŊ / Assessment Year : 2017-18) Prafulbhai Nathabhai Kanani B-204, Nakshatra Residency, Shubhlaxmi Society, Nana Varachha, Surat, Gujarat- 395006 बनाम/ Vs. Income Tax Officer Ward-3(3)(5), Surat ᭭थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AKQPK0615D (Appellant) .. (Respondent) अपीलाथŎ ओर से /Appellant by : Shri P M Jagasheth, CA ŮȑथŎ की ओर से/Respondent by : Shri Ajay Uke, Sr. DR Date of Hearing 09/12/2025 Date of Pronouncement 22/12/2025 O R D E R PER SHRI NARENDRA PRASAD SINHA, AM: This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi, (in short ‘the CIT(A)’), dated 15.05.2025 for the Assessment Year 2017-18 in the proceeding under Section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’). Printed from counselvise.com ITA No. 747/Srt/2025 [Prafulbhai Nathabhai Kanani vs. ITO] A.Y. 2017-18 - 2 – 2. Brief facts of the case are that the assessee had filed his return of income for A.Y. 2017-18 on 18.11.2017 declaring income of Rs.5,15,300/-. The case was selected for complete scrutiny. In the course of assessment, the AO noticed that the assessee had made cash deposit of Rs.11,69,500/- in his bank account during demonetization period. Not being satisfied with the explanation of the assessee, the entire cash deposit of Rs.11,69,500/- made during demonetization period was treated as unexplained and added to the income. The assessment was completed u/s.143(3) of the Act on 06/12/2019 at total income of Rs.16,84,800/-. 3. Aggrieved with the order of the AO, the assessee had filed an appeal before the First Appellate Authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was partly allowed. 4. Now, the assessee is in second appeal before us. The following grounds have been taken in this appeal: “1. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in sustaining an addition of Rs.7,70,500/-on account of cash deposited in bank account during the demonetisation period treated as income and income chargeable to tax u/s.69A rws. 115BBE of the Income Tax Act, 1961. 2. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in applying the provisions of section 115BBE of the Income tax Act, 1961. Printed from counselvise.com ITA No. 747/Srt/2025 [Prafulbhai Nathabhai Kanani vs. ITO] A.Y. 2017-18 - 3 – 3. It is therefore prayed that the above addition may please be deleted as learned members of the tribunal may deem it proper. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.” 5. Shri P M Jagasheth, Ld. AR of the assessee submitted that the assessee is engaged in the business of trading of battery product and auto electric repairing activity. He explained that the cash sales are regular feature of business of the assessee and cash sales as well as cash deposits in the bank account were made throughout the year. Therefore, the AO was not correct in treating the cash deposit made during demonetization period as unexplained while accepting the cash deposits during rest of the year as genuine. As regarding increase in cash deposits in the current year, the Ld. AR explained that the sale had also substantially increased during the year, which explained the reason for increase in cash sales as well as cash deposits in the current year. 6. Per contra, Shri Ajay Uke, Ld. Sr. DR submitted that the assessee had shown sudden increase in cash sales in the month of October and November 2016, which was not commensurate with the cash sales in earlier months. Further that, the assessee did not furnish the purchase bills as well as the cash book as requisitioned by the AO. Ld. Sr. DR submitted that the Ld. CIT(A) had been considerate in accepting the cash deposit of Rs.3,99,000/- during demonetization period as explained and accordingly, allowed relief to the assessee. He, therefore, strongly supported the order of the Ld. CIT(A). Printed from counselvise.com ITA No. 747/Srt/2025 [Prafulbhai Nathabhai Kanani vs. ITO] A.Y. 2017-18 - 4 – 7. We have considered the rival submissions. It is found that the AO had disallowed cash deposit of Rs.11,69,500/- made during demonetization period but did not dispute the cash deposits in the bank account in other months. When the cash sales as well as the cash deposits in the bank accounts were regular feature of the business activity of the assessee, the AO was not correct in rejecting the cash deposits made during demonetization period only. It is found that the total turnover of the assessee had increased from Rs.41,13,031/- in the preceding year to Rs.97,36,011/- in the current year. This substantial increase in the turnover was also reflected in the cash sales. The total cash sales in F.Y. 2015-16 was Rs.34,42,477/- only whereas the cash sales in current F.Y. 2016-17 was Rs.58,93,465/-. This increase in cash sales can’t be held as abnormal, considering 136% increase in the turnover of the assessee during the year. It is further found that the assessee had made cash deposits in the bank account in all the months, which was not disputed by the AO. Only the cash deposit of Rs.11,69,500/- made during demonetization period was treated as unexplained. Considering the fact that the assessee had made cash deposits in the bank account in all the months, which was backed by cash sales, the AO was not correct in treating the cash deposit of Rs.11,69,500/- made during demonetization period as unexplained. The assessee had provided the working of opening cash in hand, cash withdrawals and closing cash in hand for each month, from which it is evident that the assessee had sufficient cash balance to explain the cash deposits made during demonetization period. The increase in the turnover of the assessee, including the cash Printed from counselvise.com ITA No. 747/Srt/2025 [Prafulbhai Nathabhai Kanani vs. ITO] A.Y. 2017-18 - 5 – sales, made by the assessee during the year was not disputed by the AO. Therefore, the cash deposits were duly explained vis-à- vis the cash sales. The Ld. CIT(A) also was not correct in accepting the first deposit of Rs.3,99,000/- on 12.11.2016 only as explained and subsequent deposits as unexplained, while holding that the assessee had reasonable cash in hand as on 08.11.2016. Considering the facts of the case and the explanation of the assessee, the AO was not correct in treating the cash deposit of Rs.11,69,500/- made during demonetization period as unexplained. Therefore, the addition as made by the AO is deleted. 8. In the result, the appeal of the assessee is allowed. This Order pronounced on 22/12/2025 Sd/- Sd/- (SANJAY GARG) (NARENDRA PRASAD SINHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 22/12/2025 S. K. SINHA 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. By order/आदेश से, Deputy/Asstt. Registrar/DDO ITAT, Surat Printed from counselvise.com "