SK. REZZAK,BIRBHUM V. ITO, WARD 3(3), SURI

ITA 586/KOL/2025

AI Insights

The case involves SK. Rezzak, who appealed against the order of the CIT(A) that confirmed the addition of Rs. 8,56,500 to his income as unexplained money during the demonetization period. The AO had initially made this addition, noting a sharp rise in cash deposits during demonetization, which were not supported by the assessee's records of cash in hand. The CIT(A) enhanced this addition to Rs. 18,47,500. The Tribunal, referencing decisions in similar cases, found that the income from these deposits was already taxed as sales proceeds and could not be taxed again under Section 69A as unexplained money.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 782403 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2017-2018
• Appeal Filed On: 25-03-2025
• Other Referred Cases: ITO vs. Joydeb Kundu, ITO vs M/s. Senco Alankar
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside; Business income; Unexplained cash credit; Deemed to accrue or arise in india
• Section: 143(3); 142(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH,KOLKATA SHRI RAJESH KUMAR, ACCOUNTANT MEMBER I.T.A. No.586/Kol/2025 (Assessment Year 2017-2018) SK. Rezzak, Dubrajpur, Islampur, Pachim Para, Dist.- Birbhum, PIN- 731123 [PAN: AHZPR2114G]……..…...……………....Appellant vs. Income Tax Officer, Ward – 3(3), Suri, Aayakar Bhawan, Lal Kuthi Para, Birbhum, Suri - 731101................................ Respondent Appearances by: Assessee represented by : Dilip Chatterjee, Advocate Department represented by : Kallol Mistry, JCIT, Sr. DR Date of concluding the hearing : 22.09.2025 Date of pronouncing the order : 27.10.2025 O R D E R This appeal arises from order dated 12.12.2024, passed u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”) by the Ld. Additional/Joint Commissioner of Income Tax (Appeals)-9, Mumbai[hereafter “the Ld. Addl./JCIT(A)]. 2. At the outset, we observe that there is a delay of 25 days in filing the appeal by the assessee for which the assessee has filed the condonation petition along with supporting documents. For ready reference, the condonation petition is extracted as under: “That the instant appeal has been filed against the order dated 12.12.2024 passed u/s 250 of the I.T. Act by the Ld. Additional/Joint Commissioner of Income Tax (Appeals) - 9, Mumbai, which was received on even date, as such the instant appeal u/s 253 of the I.T. Act was ought to have been filed on orbut filed the same on 25.03.2025. Hence, there is delay of 25 (twenty-five days). Regarding the delay, the appellant likes to state that just after receipt of the impugned order, the entire documents were handed over to the Ld. Advocate, who regularly looks after the taxation matters of the appellant but due to Printed from counselvise.com 2 ITA No.586/Kol/2025 SK. Rezzak certain urgent pre-occupation, the said Ld. Advocate initially could not manage time but subsequently sat to discuss on the issues involved on 28.01.2025. However, as the said Ld. Advocate was compelled to take care of his one of the ailing relatives at a distant location, hence, ultimately referred the matter to the present Ld. Advocate on 26.02.2025, who then managed to sit with the appellant to discuss upon moot issues and sent requisition on 04.03.2025, whose procurement took a few time. Finally, the final draft was sent to have the confirmation over drafting and the entire set, duly signed and sealed by the appellant, which were reached the office ofthe Ld. Advocate on 20.03.2025. Hence, filed on 24.03.2025. As such, on the Tault/pre-occupation of the Ld. Advocates, the appellant should not be suffered. On the above backdrop, Your Honours' may be pleased to treat the delay as caused by sufficient reason, as stated above and after condoning the delay, the matter may be heard on merit.” 3 Considering the reasons mentioned in the said petition ,the delay is hereby condoned and the appeal is admitted for adjudication. 4. Now the sole issue raised by the assessee in the grounds of appeal is against the confirmation of addition of Rs. 8,56,500/- by the Ld. CIT(A) as made by the AO in respect of cash deposited during demonetization period as unexplained money. 5. Brief facts of the case are that the assessee is engaged in the running a cable network and cloth business. The assessee e-filed the return of income declaring total income of Rs. 7,02,220/-. The case of the assessee was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act along with questionnaire were issued and duly served upon by the assessee. The AO observed during the course of assessment proceedings, on the basis of information/documents furnished by the assessee that there was increase in cash deposit during demonetization period. The AO noted that there was sharp rise in cash deposits during demonetization period. The AO noted that the assessee has also not furnished cash in hand balance on 09.11.2016. However, AO noted that the assessee has submitted that their source of total cash deposit was out of his sale proceeds received from cloth and cable network service in the normal course of business. The AO noted that the assessee had deposited Rs. 11,04,000/- in A/c No. 1010038, Rs. 9,43,500/- in A/c No. 10000231. The AO further noted that the assessee had deposited SBN on various Printed from counselvise.com 3 ITA No.586/Kol/2025 SK. Rezzak dates till 20.12.2016 though the assessee was not authorised to receive by the said currency. Finally, the Ld. AO rejected the contention of the assessee that the cash deposited was out of cash sales as the assessee was not authorized to do business in SBN. Finally, the AO had made an addition of Rs. 8,56,500/- as unexplained money u/s 69A of the Act vide order dated 13.12.2016. 6. In the appellate proceedings, the Ld. CIT(A) rather enhanced the assessment by directing the AO to make an addition of Rs. 18,47,500/- in place of Rs. 8,56,500/-. 7. The Ld. A.R vehemently submitted before the Bench that the assessee is doing genuine business of purchase and sale of clothing and cable TV and facts qua the sale and purchase were duly placed before the AO. The Ld. A.R also submitted that the assessee has maintained proper books of account which were duly produced before the AO. The Ld. A.R submitted that cash was generated during the normal course of business and was deposited into the banks during the year including the demonetization period. The Ld. A.R submitted that the AO has only stated that the assessee was not authorised to accept SBN in the normal course of business. The ld. A.R submitted that the AO has applied the provisions of Section 69A of the Act while making the addition which deals with unexplained money not recorded in the books of account maintained by the assessee for any source of income and assessee offers no explanation about the nature and source of acquisition of money, bullion, jewellery or other valuable articles or the explanation offered by the assessee is not satisfactorily then the money and value of bullion, jewellery or other valuable article may be deemed to be the income of the assessee for financial year. However, this is not the case of the assessee. The ld. A.R argued that infact the sales were duly recorded in the books of account and the profit earned during the year from the business was offered to tax and due taxes were paid. Therefore at the very first place the invocation of section 69A is wrong as the same is not applicable to Printed from counselvise.com 4 ITA No.586/Kol/2025 SK. Rezzak the case of the assessee. Therefore the Ld .A.R prayed that the addition so made under the wrong provisions of Act by misconstruing the provisions of law may be deleted by setting aside the order of Ld. CIT(A). Further the ld. AR submitted that sales were not doubted by the AO and therefore how there can be a double addition first by way of profit on such sales and thereafter by adding the entire amount of cash sales deposited during demonetization period by placing reliance on the decision of Co-ordinate Bench in the case of ITO vs. Joydeb Kundu in ITA No. 8/Kol/2021 for AY 2017-18 dated 16.05.2023. The Ld. A.R therefore prayed that in view of aforesaid proposition and the case law the order of Ld. CIT(A) may be set aside and the AO may be directed to delete the addition. 8. The Ld. D.R on the other hand relied on the appellate order. The Ld. D.R therefore prayed that the order of Ld. CIT(A) may kindly be affirmed. 9. After hearing the rival contentions and perusing the material on record including the decision cited before us, we observe that the assessee has shown to have done trading in clothing and Cable TV in Kolkata. This is undisputed that the cash deposited in to the bank accounts of assessee was out of business receipts in the normal course of business and was fully accounted for in the books maintained by the ass. We also note that the AO has not rejected the books of account and even sales were not doubted. Therefore the action of the AO by adding the cash sales u/s 69A amounted to double addition which is not permissible under the Act. First by way of accepting the sales and secondly by way of making further addition towards cash sales u/s 69A of the Act. The ld CIT(A) enhanced the addition by noting that the cash deposited during demonetisation was Rs. 20,47,500/- and after taking into account the average cash balance maintained by the assessee of Rs. 2,00,000/-, the AO was directed to make addition of Rs. 18,47,500/- instead of Rs. 8,56,500/-. In our opinion appellate order passed by the ld CIT(A) is incorrect and cannot be sustained on the ground of taxing the same income twice. The case of assessee finds support from the decision Printed from counselvise.com 5 ITA No.586/Kol/2025 SK. Rezzak of Co-ordinate Bench in the case of ITO vs. Joydeb Kundu (supra) wherein the Hon’ble Bench has held as under: “8. We have carefully gone through the material available on record and considering the rival submission made by the parties, in the present case both the authorities below accepted the fact that the amount received by assessee are nothing but sale proceeds in the course of business of the assessee. The addition has made only on the basis that after demonetization, the demonetization note could not have been accepted as valid tender. Since the sales proceeds for which cash was received are added u/s 69A of the Act which would amount to double taxation once as sale and another against as unexplained cash credit which is violate principles of taxation. The ld. AR further contended that Hon’ble ITAT of Kolkata in the case of ITO vs M/s. Senco Alankar in ITA No. 10/Kol/2021 dated 27.06.2022 on an identical fact held as under: “7. We have heard the rival submissions and carefully considered the material placed on record and gone through various judicial precedents relied upon by both the parties. At the outset, we find that the moot point for consideration is in respect of explanation furnished by the assessee regarding nature and source of cash deposit to the tune of Rs.1,95,03,291/- (Rs.3,87,69,800 – Rs.1,92,66,509) during the demonetization period which has been treated as deemed income of the assessee and added to the total income u/s. 69A of the Act as unexplained money. We find that written submissions and all the relevant documentary evidences were placed on record. 7.1 The foremost point which invites our attention is the computation method adopted by the AO in arriving at this figure of Rs.1,95,03,291/- which is nothing but based on a hypothesis to arrive at estimated probable sales value that could have been made on 08.11.2016 between the time window from 8.30PM to 12 midnight and the entire day. As discussed above, Ld. AO has made certain assumptions on the logistics and the conduct of business transactions/operations to arrive at this probable sale value estimation. We find that the assumptions so made by the Ld. AO are devoid of any scientific basis and third party comparable which gives credibility to such an estimation. All these assumptions and calculations carry AO’s own figment of imagination. We note that the assessee has countered all the assertions and assumptions made by the AO by submitting the details from its audited books of accounts and stock registers by providing all the relevant details from time to time. We note that the assessee had given all the explanations which are reasonable and there is no other material except for the estimation of probable sales value done by the Ld. AO for the purpose of treating the deemed income as unexplained money in the hands of the assessee. We also note that assessee has duly recorded in its books of accounts all the sales made on the date of announcement of demonetization in the time window available on that day which has been credited in the P&L Account. It is also noted that the assessee had stock in hand to meet the sales demand, all of which is duly recorded in the stock register furnished before the authorities below. It is also noted that there is no specific discrepancy pointed out in respect of the books of account, more particularly when the purchases have not been doubted in the assessment. Ld. AO has noted that details of customers on the invoices raised during the time window on the date of announcement of demonetization were not recorded on the invoices for some of the instances wherein the details were recorded, summons were issued to those customers, most of which remained unreplied. We note that all the sales were cash sales and in case of cash transactions of sale, delivery of goods is taken against the cash payment and it is hardly necessary for the seller to bother about the name and address of the purchaser. Printed from counselvise.com 6 ITA No.586/Kol/2025 SK. Rezzak 7.2 We further observe that the assertion of the ld. AO on the mere possibility of assessee earning considerable amount out of cash sales on the date of announcement of demonetization is a pure conjecture on the part of the AO and is based on surmises, speculating on the approach adopted by the assessee. Rather, the estimation approach of arriving at probable sales value by the Ld. AO cannot be rationally inferred to justify the addition so made. Thus, we find that the Ld. AO indulged in suspicion, conjecture and surmises and acted without any evidence and upon a view of facts which cannot reasonably be entertained. It is a settled position of law that in making the assessment, the AO is not entitled to make a pure guess and make an assumption without reference to any evidence or any material at all. It has been consistently held by various Hon’ble Courts that there must be some matter more than their suspicion to support the assumption made u/s. 143(3) of the Act. We find force from the decision of Hon’ble Apex Court in the case of Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC) wherein it was held as under – “The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the Income-tax Officer and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved in the high denomination noted, - this also was a pure conjecture or surmise on the part of the Income-tax Officer. It is, therefore, clear that the Tribunal in arriving at the conclusion it did in the present case indulged in suspicion, conjectures and surmises and acted without any evidence or upon a view of the facts which could not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found, or the finding was, in other words, perverse and this court is entitled to interfere.” 7.3 Ld. Counsel pointed out that assessee had all the capabilities, infrastructure, manpower, process and procedures to handle and deal with high volume of customers during small time window available to it. For comparability of the circumstances which existed on the day of demonetization announcement, he pointed to the occasion of Dhanteras which is a festival wherein similar kind of high traffic volume of customers happens for the purchase and sale of gold/bullion/jewellery, it being an auspicious day for making such investments. It was placed on record that on the day of Dhanteras which fell on 28.10.2016 i.e. prior to the day of announcement of demonetization, sales bills to the tune of 229 numbers were generated while dealing with those many customers which was also during the smaller time window available on that day depending on the muhurats. It was also pointed out that the VAT returns filed by the assessee for the year under consideration have not been revised in any manner so as to reflect any kind of adjustment or accommodation made in the accounted data of the assessee. All these facts and explanations were placed before the lower authorities, copies of which are placed in the paper book at page 19 to 28 and 52 to 75. 8. Keeping in view the above mentioned peculiar facts and circumstances of the case, the guess work adopted by the ld. AO in arriving at probable sales value and the judicial precedents relied upon, we find no reason to interfere with the factual findings given by the Ld. CIT(A) in deleting the addition of Rs.1,95,03,291/- made by the ld. AO. Accordingly, the appeal of the revenue stands dismissed.” 10. In this case the addition has been made u/s 69A of the Act which deals with unexplained money in the form of bullion, jewellery or other valuable articles which are not recorded in the books of account if Printed from counselvise.com 7 ITA No.586/Kol/2025 SK. Rezzak maintained by the assessee for any source of income and the assessee has not offered any explanation about nature and source of acquisition of money, bullion, jewellery or other valuable article but in the present case, the facts are quite clear that the assessee has shown the receipt of money from cash sales which has been duly accounted in the books of accounts. 11. Considering the facts of the case in the light of the above decision , we are of the view that the order passed by the AO is not sustainable under the law on two counts: i) that provision of section 69A were wrongly invoked by wrong interpretation of the provisions of the Act and ii) that the addition would result in double taxation of the same sales which is not permissible under the Act as has been discussed hereinabove. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition. 12. In result, appeal of the assesseeis allowed. Order pronounced on 27.10.2025 Sd/- (Rajesh Kumar) Accountant Member Dated: 27.10.2025 AK,Sr. P.S. Copy of the order forwarded to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. CIT(DR) //True copy// By order Assistant Registrar, Kolkata Benches Printed from counselvise.com "