SURAJ PAL,GURGAON V. ACIT, CIRCLE-4(1), GURGAON

ITA 3346/DEL/2024

AI Insights

The case revolves around an appeal by Suraj Pal against the order of the CIT, NFAC, New Delhi, which sustained an addition of Rs.53,87,989 made by the Assessing Officer under section 68 of the Income Tax Act. The addition was based on unexplained cash deposits in the assessee's bank account during the demonetization period in November 2016. The assessee, operating a petrol pump, argued that the cash deposits were from legitimate business transactions and necessary bank transfers to manage overdraft limits. The Tribunal, considering the unique circumstances of demonetization and the nature of the assessee's business, sided with the assessee, highlighting the lack of substantial evidence from the Assessing Officer to support the addition.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 782172 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2017-2018
• Appeal Filed On: 18-07-2024
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANISH GUPTA
• Assessee Lawyers: K. SAMPATH; V. RAJKUMAR
• Keywords: Unexplained cash credit
• Section: 68

Judgement Text

"ITA No. 3346/DEL/2024 SURAJ PAL 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G” NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SHRI M BALAGANESH, ACCOUNTANT MEMBER आ.अ.सं/.I.T.A No.3346/Del/2024 िनधा रणवष /Assessment Year:2017-18 SURAJ PAL, 1,N.H., 8, Sector-15, Part-2, Gurgaon, Haryana. PAN No.AHIPP6430G बनाम Vs. ACIT, Circle 4(1), Gurgaon, Haryana. अपीलाथ\u0014 Appellant \u0016\u0017यथ\u0014/Respondent Assessee by Shri K. Sampath, Advocate & Shri V. Rajkumar, Advocate Revenue by Shri Manish Gupta, Sr. DR सुनवाईक\bतारीख/ Date of hearing: 19.08.2025 उ\u000eोषणाक\bतारीख/Pronouncement on 27.10.2025 आदेश /O R D E R PER C.N. PRASAD, J.M. This appeal is filed by the Assessee against the order of the Ld. CIT, NFAC, New Delhi dated 11.06.2024 for the AY 2017-18 in sustaining the addition of Rs.53,87,989/- made by the Assessing Officer on account of cash deposited into bank by invoking the provisions of section 68 of the Act. Printed from counselvise.com ITA No. 3346/DEL/2024 SURAJ PAL 2 2. Brief facts are that the Asessee, Shri Suraj Pal filed his return of income for the subject year disclosing total income of Rs.42,78,630/-. The case was later picked up for scrutiny by CASS. It was noticed by the AO that the Assessee was operating a petrol pump and that during the demonetization period he had deposited into the bank account a sum of Rs.3,19,47,500/- which was comparatively much more than what had been doing in the past many months. The AO served a SCN enquiring of the Assessee as to why the incremental difference in the amount noticed in November 2016 as compared to the other months be not considered as an unexplained cash credit. 2.1 The Assessee explained that it was into the business of vending petrol and further that the sales of the business was cash oriented and further that in order to meet with the OD requirements of his bank account he had urgently transferred a certain sum of money from one bank account to another bank account to adhere to the limits prescribed by the bank. It was also urged that the November facts could not be compared to other months due to the extraordinary incidence of demonetization. The AO invoked section 68 of the Act as originally contemplated by him in the first SCN to make an addition of Rs.53,87,989/-. The explanation of the Assessee Printed from counselvise.com ITA No. 3346/DEL/2024 SURAJ PAL 3 was rejected by the AO with a six point reasoning as detailed on pages 3 and 4 of the assessment order. 2.2 Assessee appealed against this order to the NFAC. The submissions of the Assessee have been summarized by the NFAC in para 7.3 of its order on page 19. The NFAC confirmed both the addition and the application of section 68 of the Act. Reasons for so doing are stated in paras 7.5 to 7.8 of the appellate order appearing on pages 19 and 20. 3. Before us Ld. Counsel for the assessee made the following submissions: “4.1 It is submitted that the orders passed by both the authorities are erroneous and illegal. So far as the AO is concerned, he failed to appreciate that there was a quid pro quo for the receipt of sale consideration based entirely on the purchases made. All the purchases were VAT bound and have been through a single Government Controlled supplier. The supplier had been paid through cheques for all the purchases made during the year. The VAT history of the Assessee is blemishless. 4.2 The AO also failed to note that the sales as made by the Assessee during the year have all been accepted in assessment. The sale consideration even though received generally in cash have been regularly banked by the Assessee. This the AO acknowledges. The AO has objected to a higher deposit of cash comparatively in the month of November 2016 vis-a-vis the previous months of that FY. In so doing the AO fails to note that in the month of June 2016 the cash deposited into the bank was Rs.2,51,34,000/- which was just about Rs.68,00,000/- short as compared to the November 2016 deposit. Moreover in the earlier months the effect of demonetisation was absent. Printed from counselvise.com ITA No. 3346/DEL/2024 SURAJ PAL 4 4.3 As to this difference, the explanation of the Assessee that he did a contra entry from one bank account to another bank account to meet the OD limits has been completely ignored by both the Authorities. There is irrefutable proof with regard to that transfer and consequent holding of Rs.55,00,000/- + in cash due to it. There is nothing by way of any excess cash. The entirety of the cash has emanated out of the business and has not arisen or accrued out of any non- business transaction. So to say the entirety of the cash is the sale consideration received during the month and in the earlier months retained as such by the Assessee for circulation in business. 4.4 The AO only says that ‘it seems' cash lying with the Assessee was apart from cash sales. That evidently is a pure guess. Such a guess has no place in front of primary evidence in form of entries in the books of accounts, vouchers for sales and purchases and expenses and on top of all that supported by certified audited accounts. AO’s guess, in the facts and circumstances of the case is baseless and meaningless and being grossly arbitrary and entirely fallacious merits to be quashed. 4.5 The second objection of the AO is that the amount shown in the cash book in a sum of Rs.61,80,000/- + as opening balance does not accord with the ITRs of the preceding years. The AO does so without considering that the amounts for those years have all been cleared by his own Department and that there is no litigation pending for those years. With the acceptance of books of accounts of those years, the opening cash balance of Rs. 61,80,000/- + could not have been rejected or omitted to be recognized by the AO lawfully. Once again the AO indulges in speculation when he says that it is unlikely that the Assessee was left with that quantum of cash-in-hand. That again is against the primary evidence as reflected in the audited books of accounts and accepted by the Department also in the past. The charge of the AO that the Assessee did not furnish any reason for the same is preposterous on the ground that the entire issue was obvious and self-explanatory requiring neither any reason nor any explanation by the Assessee for confirmation. 4.6 The AO in his third objection fails to note that the entirety of the sales were made out of VAT bound purchases. Also the entirety of the purchases have been made from Government controlled Companies to whom payments have Printed from counselvise.com ITA No. 3346/DEL/2024 SURAJ PAL 5 been made invariably through account payee cheques. With a stock tally ready in hand and with no defects being pointed out by the AO in them the transactions of purchases and sales were completely above board and no insinuation of any sort could be raised. 4.7 The fourth objection of the AO is that the Assessee did not furnish the cash book for the whole of the FY 2016-17 but only provided it for the month of November 2016 and so there was absence of complete documents available for verification. In the first place, in terms of the SOP for assessment, there is no requirement for the Assessee to place copies of his audited books of accounts in entirety on the records of assessment. Even otherwise, AO never asked for the providing of the cash book to him. Had that only been sought by the AO, the Assessee would have readily placed that before him even though such a requirement would be bad in practise and untenable in law. 4.8 The fifth objection of the AO is both tentative and deviant. He alleges that the arguments of the Assessee had various flaws. Not one of those flaws as imagined by the AO has been brought on record though he is quick to allege the same. The need of the business of average balance in the bank account etc. Is a factor which has been at the base of the AO’s examination. It is well-settled by now and done so many times by Courts that the manner of doing business is at the sole and exclusive discretion of the Assessee and that the AO cannot tinker or tamper with that discretion. 4.9 A sixth and the last objection is with regard to the contra entries. The objection as raised by the AO is baseless, in as much as, the cash deposits and cash withdrawals stand regularly recorded in the business accounts in the books of accounts maintained in the usual course of business. The AO found neither any discrepancy nor any fallacy in them. 4.10 The cardinal point in the entire assessment exercise is that the AO has accepted the books of accounts. After accepting the books of accounts it did not behave the AO to criticize and reflect the entries in those books of accounts which he himself had found flawless and so accepted by him. 4.11 Sec.68 of the Act as invoked by him is also preposterous. That is because the AO has placed undue emphasis on the words “credited in the books of accounts”, without understanding and appreciating the nature of that Printed from counselvise.com ITA No. 3346/DEL/2024 SURAJ PAL 6 credit in the books of accounts. All credits in the books of accounts can never constitute cash credits. It is only cash credits which can be added u/s. 68 of the Act subject to the fulfillment of the deeming conditions. The deeming condition is to construe a certain sum as income. The need to so deem arises exclusively in a situation where the Assessee does not return that figure as his income. The sales having been returned for assessment this application fails at the threshold itself. 4.12 In a case where the Assessee himself had suo moto included that sum as his income the need to deem such income does not arise at all. This has been explained to the Department in several decisions by various Courts yet the Departmental Officers onus to apply this Section meaningfully and objectively. The addition as made by Rs.53,87,989/- is, therefore, grossly erroneous and totally untenable and merits to be quashed. 4.13 Regretfully, in the subject case, the Higher Authority in the Department being the NFAC has also failed to appreciate the basic facts and the requirements of law while adjudicating the case. The averments as contained in paras 7.4 to 7.8 of the NFAC order are simply a repetition of the AO’s observations and findings, which as stated elaborately hereinabove, are all misconceived, erroneous and unwarranted and merit to be quashed. PRAYER In terms of the submissions made hereinabove it is pleaded that the addition of Rs.53,87,989/- made by the AO and confirmed by the NFAC u/s 68 of the Act be quashed. Consequential relief in terms of penal interest may also be kindly granted. Placed for the most favourable consideration.” 4. On the other hand, the Ld. DR strongly supported the orders of the authorities below. Printed from counselvise.com ITA No. 3346/DEL/2024 SURAJ PAL 7 5. Heard rival submissions, perused the orders of the authorities below. We find considerable force in the submissions of the Ld. Counsel for the assessee. Further during the course of demonetization, we observed that most of the people went to petrol pumps to fill up their vehicles and that too by paying cash. For various reasons explained above by the assessee, we direct the Assessing Officer to delete the addition made u/s 68 of the Act. 6. In the result, appeal of the Assessee is allowed. Order pronounced in the open court on 27.10.2025 Sd/- Sd/- (M BALAGANESH) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 27.10.2025 *Kavita Arora, Sr. P.S. Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "