SUBHA AGARWAL,GHAZIABAD V. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(2)(1), GHAZIABAD

ITA 1658/DEL/2024

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The case involves Sudha Agarwal, a proprietor of M/s Shreeji Diamond World, who appealed against the order of the CIT(A) which upheld additions made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961, regarding unexplained cash deposits during demonetization and under-valuation of stock. The AO had assessed the income of Sudha Agarwal significantly higher than declared, attributing the difference to undisclosed income from cash deposits and under-valued stock. The CIT(A) reduced the additions but did not completely remove them, leading to the appeal before the Tribunal. The Tribunal, after examining the books of accounts, sales records, and the nature of the business, concluded that the cash deposits were from genuine sales and thus the additions were unjustified.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 23672 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2017-2018
• Other Referred Cases: Subhash Chand Gupta Vs. ACIT, CC-29 New Delhi in ITA No. 1557/Del/2021, B.L. & Sons Jewellers Vs. ITO in ITA NO. 3142/Del/2023, Rachit Agarwal Prop. M/s Ashok Kumar Gupta & Co. Vs. ITO, ITO Vs. Sahana Jewellery Exports (P) Ltd., Fine Gujaranwala Jewellers Vs. ITO in ITA No. 1540/Del/2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAHIL KUMAR BANSAL
• Assessee Lawyers: RAJESHWAR PAINLY
• Keywords: Business income; Opportunity of being heard; Unexplained cash credit
• Section: 143(3); 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’: NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.1658/Del/2024 (ASSESSMENT YEAR 2017-18) Sudha Agarwal, III/A-5, Nehru Nagar, Ghaziabad-201002, Uttar Pradesh. PAN-ABMPA7690K Vs. Asst. CIT, Circle-2(2)(1), Ghaziabad. (Appellant) (Respondent) Assessee by Shri Rajeshwar Painly, Adv. Shri Mohit Giri, Adv. Department by Shri Sahil Kumar Bansal, Sr. DR Date of Hearing 12/02/2025 Date of Pronouncement 05/03/2025 O R D E R PER MANISH AGARWAL, AM: This is appeal filed by the assessee against the order passed u/s 250 of the Income Tax Act, 1961 (the Act, in short) by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 13/02/2024 in Appeal No. CIT(A), Ghaziabad/10957/2019-20 for Assessment Year 2017-18. 2 ITA No.1658 /Del/2024 Sudha Agarwal vs. ACIT 2. Brief facts of the case are that assessee is an individual and is proprietor of M/s Shreeji Diamond World and is engaged in the business of trading of Diamond jewellery on retail basis since past long. The return of income for the year under appeal was filed on 19/06/2017 declaring total income at Rs. 28,35,570/-. The case was selected under CASS and the assessment was completed u/s 143(3) of the Act assessing the income of the assessee at Rs. 2,54,66,307/- by making addition of Rs. 1,27,15,000/- u/s 68 of the Act on account of cash deposit during demonetization as undisclosed income and further made addition of Rs. 99,15,777/- on account of under valuation of stock. 3. Against such order assessee preferred an appeal before the ld. CIT(A) who vide order dt. 18/12/2019 decided the appeal of the assessee wherein based on the material available on the record has partly allowed the appeal of the assessee without providing fair and reasonable opportunity of being heard to the assessee. Ld. CIT(A) has reduced the addition made on account of cash deposited in SBN during the demonetization from Rs. 1,27,15,000/- to Rs. 85,00,000/- being 2/3 of such cash deposited and further reduced the amount of under valuation of stock from Rs. 99,15,777/- to Rs. 23,99,550/-. Aggrieved by the said order, assessee is in appeal before the Tribunal. 4. The assessee has taken following grounds of appeal:- “1. That the impugned Appeal Order is bad in law, illegal, and in violation of rudimentary principal of contemporary jurisprudence. 3 ITA No.1658 /Del/2024 Sudha Agarwal vs. ACIT 2. The Hon'ble Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi erred in law and fact in upheld the addition of Rs. 85,00,000/- on account of unexplained credit under section 68 of the Income Tax Act. 1961. 3. The Hon'ble Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi erred in law and fact in upheld the addition of Rs. 23,99,550/- on account of under valuation of stock. 4. That the Appellant craves leave to add/alter any/all grounds of appeal before at the time of hearing of the appeal.” 5. Before us, the Ld. AR of the assessee submitted that during the year under appeal assessee has made trading of diamond jewellery on retail basis. The assessee has maintained regular books of account which were duly audited and no defect whatsoever was pointed out by the auditor. During the course of hearing before the AO, assessee has filed every details as asked from time to time and the AO has not pointed out any defect in the details so submitted nor has doubted the genuineness of books of account produced before him. The trading results declared by the assessee were accepted which are progressive in nature. Ld. AR further submitted that when books of accounts have been accepted and the sales have not been doubted, the cash deposit out of the said sales could not be held as unexplained. Ld. AR argued that when sales have already been offered for tax, the cash generated out of such sales could not be doubted and if the such cash deposits out of such cash sales is taxed 4 ITA No.1658 /Del/2024 Sudha Agarwal vs. ACIT it would tantamount to double taxation. The Ld. AR further submitted that the AO has rejected the explanation of the assessee without bringing any contrary material on record to hold that the assessee has made cash deposit out of unexplained sources. Only allegation of the AO was that the entire sales of 1,23,58,411/- was made in cash just after the demonetization was announced by the Hon’ble PM and all the sales were mostly for the amount of Rs. 1.00 lacs or more and in all other cases more than 20,000/- yet no details of the buyers were kept by the assessee. In this regard it was submitted by the ld. AR that once the explanation of the assessee could not be controverted by any corroborative material brought on record by making independent inquiry, solely on conjecture and surmises, addition cannot be made. It was further submitted that there was no ban to accept the SBN upto the closing hours of 08/11/2016 and the assessee has duly declared such sales in the VAT return which were also duly accepted by the respective authorities. 6. The Ld. AR further submitted that while confirming the additions, the Ld. CIT(A) has failed to appreciate the facts that he himself has accepted 1/3 amount of cash deposit as explained and on presumptions has confirmed the 2/3 of the cash deposited into bank as undisclosed without assigning any reason for accepting the sales of Rs. 42,15,000/-. It is submitted by ld.AR that the sale bills representing the sales of Rs. 42,15,000/- accepted by ld. CIT(A) are same as for the remaining sales doubted by him. He thus prayed for 5 ITA No.1658 /Del/2024 Sudha Agarwal vs. ACIT the deletion of the addition so confirmed by the ld. CIT(A). Reliance is also placed on the following judgements of various benches of Tribunal wherein the additions made on account of cash deposited during the period of demonetization was deleted by the Tribunal: - Subhash Chand Gupta Vs. ACIT, CC-29 New Delhi in ITA No. 1557/Del/2021 order dt. 18/10/2024 - B.L. & Sons Jewellers Vs. ITO in ITA NO. 3142/Del/2023 vide order dt. 11/10/2024 - Rachit Agarwal Prop. M/s Ashok Kumar Gupta & Co. Vs. ITO reported in (2024) 162 Taxmann.com 49 (chandigarh Trib.) vide order dt. 22/04/2023 - ITO Vs. Sahana Jewellery Exports (P) Ltd. reported in (2023) 157 Taxmann.com 680 (Chennai Trib.) vide order dt. 20/12/2023 - Fine Gujaranwala Jewellers Vs. ITO in ITA No. 1540/Del/2022 vide order dt. 27/03/2023 7. On the other hand, the Ld. Sr. DR vehemently supported the orders of the lower authorities and stated that the AO has made analysis of the cash deposited and sales made by the assessee during the year under appeal and immediately preceding year. He further submitted that the assessee has declared sales of Rs. 1,23,58,411/- just after the demonetization announced by the Hon’ble PM on 08/11/2016 which is nothing but a story concocted by the assessee to prove the source of cash deposited into bank in SBN during demonetization. He further stated that ld. CIT(A) has already allowed substantial relief to the assessee and, therefore, the ld. CIT(A) was very much reasonable in confirming the addition of Rs.85.00 lacs which orders deserves to be upheld. 6 ITA No.1658 /Del/2024 Sudha Agarwal vs. ACIT 8. We have heard the rival submissions and perused the materials available on record. In the instant case, the books of accounts of the assessee are subject to audit and from the perusal of the financial statement, we find that neither the auditor has pointed out any deficiency in the maintenance of the books of accounts nor the Assessing Officer has pointed out any defects in the same who has accepted the books of accounts and had not disturbed the trading results declared by the assessee. It is also seen that the assessee had filed the stock records but AO has not pointed out any defects in the date to day stock records maintained by the assessee. AO only alleged that all the bills were issued below Rs.2 lacs and no details of the buyers were kept which incidentally is not the requirement of the Act. It is also seen that the assessee has filed regular returns under the VAT Act where the sales declared by the assessee were accepted. Once the Assessing Officer has accepted the books and not raised any doubts on the day to day stock register maintained and sales made thereon, it is not correct to say that the cash deposited out of such cash sales which duly reflected in the books of accounts is unexplained. The Assessing Officer failed to find any error in the details and evidences filed by the assessee. 9. Assessee has deposited cash during the demonetization out of the cash available as on the closing hours of 08.11.2016 i.e. the date when the demonetization was announced by the hon’ble prime minister and was the last day upto which the SBN could be accepted as valid currency. The AO is required to take into consideration the 7 ITA No.1658 /Del/2024 Sudha Agarwal vs. ACIT record of the assessee such as stock register, possibility of back- dating of cash sales or fictitious sales etc. before making any allegation about the genuineness of the cash deposited in SBN during the demonetization period. No such adverse observations were made by the AO or by the ld. CIT(A) that the assessee’s records are not in conformity with the accepted accounting principles. Neither the AO nor the CIT(A) have doubted the availability of stock prior to sales. When the assessee has submitted complete details and thus discharges its onus, whereas no contrary material whatsoever was brought on record by the AO to disprove the details filed by the assessee. As observed above, assessee has already included the entire cash sales in the total sales and the profits have been derived which were offered for tax, thus taxing the same income twice once in the sales and other when the sale consideration was realised and deposited in the bank account which is doubted on conjectures and surmises. 10. At this juncture provisions as contained in section 68 is reproduced as under: “68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.” 8 ITA No.1658 /Del/2024 Sudha Agarwal vs. ACIT 11. From the perusal of the provisions of section 68 of the Act it is very clear that assessing officer can make addition u/s 68 only under two circumstances, i.e. (i) Appellant does not offer any explanation about nature and source of such credit; or (ii) Explanation offered by Appellant is not upto the satisfaction of Ld. AO. 12. In other words, whenever Appellant provides explanation, before rejecting the same ld. AO has to record dissatisfaction as to why the explanation furnished by Appellant is not acceptable. As is evident that assessee not only offered explanation regarding nature and source of such credits but also substantiated the same with documentary evidences in the shape of Audited Financial Statements, Stock Register and Cash book. No specific defects whatsoever was brought out on record by the ld. AO/ ld. CIT(A) in those evidences and books of accounts so furnished. It is not understood as to how the addition has been made by the lower authorities when the source of such cash deposits, being cash sales, was duly accepted. Even no discrepancy was pointed out by the VAT department in respect of purchases and sales made by the assessee. Therefore, addition so made u/s 68 of the Act without finding out any specific defects in books of account and also without rebutting the evidences produced is unjustified and be deleted. 13. The Hon’ble Delhi High court in the case of CIT v. Kailash Jewellery House in ITA No. 613/2010 (Delhi High Court) has held as under: 9 ITA No.1658 /Del/2024 Sudha Agarwal vs. ACIT “In the facts of above case cash of Rs.24,58,400/- was deposited in bank account. The Assessing Officer made the addition on the ground that nexus of such deposit was not establish with any source of income. The assessee claimed that it was duly recorded in the books on account of cash sales and was considered in the Profit and Loss Account. The Assessing Officer had verified the stock and cash position as per books and had accepted the same. Complete books of account and cash book was submitted to the Assessing Officer and no discrepancy was pointed out. On this basis CIT(A) deleted the addition. Tribunal also observed that it is not in dispute that sum of Rs.24,58,400/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. Therefore, cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. The Hon’ble High Court dismissed the appeal filed by the Department.” 14. The coordinate bench of the Tribunal in other cases relied upon by the assessee, as listed above, also expressed the same view. Thus by respectfully following the said judgements and also in view of above discussion, we are of the considered view that the ld. CIT(A) has committed gross error in not accepting the cash generated out of sales made by the assessee on 08/11/2016 as genuine when he himself has accepted the part sales made which is also supported by the same bills which have not been accepted for confirming the addition. Accordingly, we hereby direct to delete the addition of Rs. 85.00 lacs upheld by the Ld. CIT(A) u/s 68 of the Act. The ground of appeal No. 2 is allowed. 15. In ground of appeal No. 3 assessee has challenged the addition of Rs. 23,99,550/- uphold by the ld. CIT(A) out of the total addition of Rs. 99,15,777/- made by AO on account of under valuation of stock towards the stock which has not been sold. 10 ITA No.1658 /Del/2024 Sudha Agarwal vs. ACIT This addition is made by AO by alleging that that the cash of Rs.1,27,15,000/- deposited was from undisclosed sources which assessee has camouflaged as cash sales therefore, for consequential effect, the value of closing stock was reduced by the assessee in its books of accounts. He accordingly, made the addition of Rs. 99,15,777/- being cost of goods sold which stood reduced from the gross value of stock in the books of account. Ld. CIT(A) while reducing it to Rs. 23,99,550/- has observed as under: “5.4 The assessing officers finding is that there would be consequential reduction in stock if the sales effected are reduced. Here reduction in stock at the rate of 28.23% which was accepted by the assessing officer as pertaining to the previous year that is FY 2015-16 is taken here also and 28.23% of the cash sales disallowed at Rs. 85,00,000/- is taken as the reduction in stock. This comes to Rs. 23,99,550/- The addition to that extend is upheld.” 16. From the perusal of the observations of both the lower authorities we find that this addition is made solely for the reason that the cash deposited during the demonetization period of Rs.1,27,15,000/- was held as undisclosed income of the assessee and not generated out of the cash sale claimed by the assessee. Since while dealing the assessee’s ground of appeal No. 2 above, we have already held the sales made on 08/11/2016 as genuine and deleted the additions made of the cash deposited in SBN during the demonetization thus there is no reason for making the addition by 11 ITA No.1658 /Del/2024 Sudha Agarwal vs. ACIT holding the cost of goods out of such sale as unexplained. Accordingly, the addition of Rs. 23,99,550/- as uphold by Ld. CIT(A) is deleted. The ground of appeal No.3 of the assessee is allowed. 17. As a result, appeal of the assessee is allowed. Order pronounced on 05/03/2025. Sd/- Sd/-/-/- (ANUBHAV SHARMA) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 05/03/2025 PK/Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI "