SURESH CHAND,MOHINDERGARH V. ITO, WARD-2, NARNAUL

ITA 2922/DEL/2023

AI Insights

The case involves Suresh Chand, a proprietor engaged in the trading of agricultural produce, who appealed against the order of the Commissioner of Income Tax (Appeals) which upheld the addition of Rs. 73,48,597 to his income for the Assessment Year 2017-18. This addition was initially made by the Assessing Officer under section 68 of the Income Tax Act, 1961, claiming that the cash deposits made during the demonetization period were unexplained. The Tribunal examined the books of accounts, stock registers, and other evidences provided by the assessee, and found that the cash deposits were from legitimate business operations and had been duly recorded and taxed.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474600 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2017-2018
• Other Referred Cases: Laxmi Rice Mills Vs. Commissioner of Income Tax, PCIT Vs. Agson Global (P) Ltd., ACIT, CC-1, Visakhapatnam Vs. Hirapanna Jewellers, Raj Kumar Vs ITO ward 3(3) Amritsar, Purani Hospital Supplies Pvt. Ltd. Vs. DCIT, Coimbatore
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAHIL KUMAR BANSAL
• Assessee Lawyers: GAUTAM JAIN
• Keywords: Business income; Question of law; Unexplained cash credit; Income from undisclosed sources; Tangible material; Bogus
• Section: 143(3); 68; 133(6); 13; 234B; 133A

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.2922/Del/2023 (ASSESSMENT YEAR 2017-18) Suresh Chand, M/s Suresh Chand Subhash Chand Mandi Ateli, Mohindergarh-123021, Haryana. PAN-ABTPC3030A Vs. Income Tax Officer, Ward-2, Narnaul. (Appellant) (Respondent) Assessee by Shri Gautam Jain, Adv. Shri Ankit Kumar, Adv. & Shri Parth Singhal, Adv. Department by Sh. Sahil Kumar Bansal, Sr. DR Date of Hearing 13/02/2025 Date of Pronouncement 07/03/2025 O R D E R PER MANISH AGARWAL, AM: This appeal is 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 25/08/2023 in Appeal No. CIT(A), Rohtak/10871/2019-20 for Assessment Year 2017-18. 2 ITA No.2922 /Del/2023 Suresh Chand vs. ITO 2. Brief facts of the case are that assessee is an individual and is proprietor of M/s Suresh Chand Subhash Chand and is engaged in the business of trading of agriculture produce like Bajra, Gwar, Sarson, Khal etc. in the Krishi Upaj Mandi, Ateli. The return of income for the year under appeal was filed on 14/09/2017 declaring total income at Rs. 3,55,820/-. A survey action u/s 133A was carried out at the business premises of the appellant on 27/02/2017. The AO observed that during the course of survey statement of the assessee were recorded and some incriminating material was also impounded. Thereafter the case was selected under compulsory scrutiny and assessment was completed u/s 143(3) of the Act assessing the income of the assessee at Rs. 77,04,417/- by making addition of Rs. 73,48,597/- u/s 68 of the Act by holding the part of the cash deposit during demonetization as undisclosed income. 3. Against such order assessee preferred an appeal before the ld. CIT(A) who vide order dt. 25/08/2023 has summarily dismissed the appeal of the assessee by relying upon the observations made by the AO. Aggrieved by the said order, assessee is in appeal before the Tribunal. 4. The assessee has taken following grounds of appeal:- “1 That the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred both in law and on facts in upholding an addition made of Rs.73,48,597/- representing alleged unexplained cash deposits in the bank account of the appellant during the period of demonetization and brought to tax under section 68 of the Act read with section 115BBE of the Act. 3 ITA No.2922 /Del/2023 Suresh Chand vs. ITO 1.1 That, the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that the learned Assessing Officer having accepted the cash sales and taxed income thereon could not by any stretch of imagination either legally or logically hold that cash deposited is unexplained and taxable as income of the assessee u/s 68 of the Act. 1.2 That the learned Commissioner of Income Tax (Appeals) has further failed to appreciate that once the sales are duly recorded in the books of accounts and have been made out of stock available in the books of accounts then both logically and legally, such sales could not be separately assessed to tax as bogus sales and unexplained cash credit u/s 68 of the Act. 1.3 That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in upholding the addition by failing to appreciate that once books of accounts are correct and complete and therefore, the sales as recorded in the books of accounts out of stock available with the appellant could to be regarded as cash sales merely on statements without disregarding the factual matrix/evidence tendered by the appellant 1.4 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that once the purchases declared in the books of accounts were duly accepted then no subjective assumption and presumption could be made a basis to subjective assumption and presumption could be made a basis to assume, allege and conclude that sales made out of such purchases were unexplained cash credits taxable under section 68 of the Act. 1.5 That finding of the learned Commissioner of Income Tax (Appeals) that \"the assessee has manipulated his books of account according to his own will and to justify the cash deposit in old currency during the demonetization period.\" is factually incorrect, legally misconceived, and wholly untenable. 1.6 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in recording various adverse inferences which are contrary to the facts on record, material placed on record and, are otherwise unsustainable in law and therefore, addition so sustained is absolutely unwarranted. 2. That without prejudice to the above and in the alternative, even otherwise, the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in holding that amount deposited in the bank by the appellant is taxable as income under section 68 of the Act and 4 ITA No.2922 /Del/2023 Suresh Chand vs. ITO thereafter computed the demand in accordance with the rates specified in section 115BBE of the Act as amended by Taxation Laws (Second Amendment) Act, 2016. 3. That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding the levy of interest u/s 234B of the Act which is not leviable on the facts and circumstances of the case of the appellant. Prayer-It is therefore, prayed that, that addition made and sustained by the learned Commissioner of Income Tax (Appeals) alongwith interest levied may kindly be deleted and, appeal of the appellant be allowed.” 5. Since the grounds of appeal No. 1 to 2 are in relation to the addition of Rs. 73,48,597/- made u/s 68 by holding the cash deposit during the demonetization as unexplained and undisclosed in come of the assessee thus the same are canvassed together for sake of convenience. 6. In the instant case, during the period of demonetization assessee has made cash deposit in SBN on various dates totalling to Rs. 1,72,67,400/-. It was the claim of the assessee that the same was deposited out of the cash which is duly recorded in the books of account accumulated from cash sales of Rs. 1,77,42,093/- upto 08.11.2016 and also out of the bank withdrawals made from time to time. The AO after giving credit of the cash withdrawal of Rs. 67,80,000/- (net of cash deposits) and further allowed credit of Rs. 36,13,500/- for cash in SBN deposited on 10.11.2016 i.e. just after announcement of demonetization has held the remaining cash deposit in SBN of Rs. 73,48,593/- as unexplained and undisclosed income of the assessee and made the addition u/s 68 of the Act and 5 ITA No.2922 /Del/2023 Suresh Chand vs. ITO also invoked the provisions of section 115BBE for charging special rate of tax. While making addition, AO observed that assessee has claimed purchases of Rs. 1,42,31,759/- from three suppliers but during the course of survey their bills etc. were not produced. AO further observed that payment against the purchases made from one M/s Laxmi Gamra Khal Bhandar were made through RTGS during the period from 01.04.2016 to 08.11.2016, however, against the purchases made of Rs. 35,32,581/- during the period from 26.11.2016 to 29.11.2016, no payment was made. Likewise against the purchases of Rs. 28,50,879/- made during the period from 30.11.2016 to 04.12.2016, no payment was made. AO also observed that no purchases/ sales were made of Khal and Binola during the period from May, 2016 to September, 2016. However, during October and November, 2016 purchases of Rs. 2,20,16,391/- and sales of Rs. 2,24,61,075/- were shown. Thus according to the AO, the assessee manipulated his accounts to justify the cash deposit during the demonetization and made the addition of Rs. 73,48,593/- as unexplained cash deposit out of the undisclosed income of the assessee. 7. Before us, the Ld. AR of the assessee submitted that during the year under appeal assessee was engaged in the sale and purchases of agriculture produce like Bajra, Bajra, Gwar, Sarson, Khal etc. The assessee has maintained regular books of account which were duly audited and no defect whatsoever was pointed out by the auditor. Assessee also maintained day to day stock register which were also 6 ITA No.2922 /Del/2023 Suresh Chand vs. ITO submitted before the AO. During the course of hearing before the AO, assessee has filed every price 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 submitted. The trading results declared by the assessee were accepted. 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 further 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 it would tantamount to double taxation. 8. With regard to the AO’s allegation about the purchases and sale of Khal and Binola and further about the purchases from M/s Laxmi Gamra Khal Bhandar made on credit basis, it was submitted by the ld. AR that the Khal and Binola were not produced during the period from May to September thus there was no purchases during this period. With regard to the purchases on credit basis from M/s Laxmi Gamra Khal Bhandar, it is explained by the ld.AR that assessee has filed the confirmation of the said party, duly confirming the transaction which have not been doubted by AO. He drew our attention to the paper book pages 273 to 277 which is the certified copy of account of assessee in the books of M/s Laxmi Gamra Khal Bhandar and stated that it is not correct that the payments were not made. He took us to page 275 of the paper book where the payments on 30.11.2016 and 5.12.2016 through RTGS are appearing. He also 7 ITA No.2922 /Del/2023 Suresh Chand vs. ITO submit that the confirmations were also submitted in respect to other two suppliers from whom transaction were doubted by AO. Ld. AR further submit that if the AO had doubts about the transactions with these parties, he could have made direct enquiries by issuing summons u/s 133(6) to them which was not done. He further submitted that once the explanation of the assessee was not controverted by any corroborative material brought on record by making independent inquiries merely doubting the purchases, addition cannot be made towards the corresponding sales made in cash. It was further submitted that there was survey u/s 133A carried out in the case of the assessee and the statements of the assessee were also recorded. The AO also observed that certain incriminating material was impounded but neither any statements nor any incriminating material so impounded was brought on record to support the allegations that the purchases and sales declared by the assessee is manipulated. 9. It is submitted by ld. AR that assessee has submitted day to day stock register which has not been doubted. He thus prayed for the deletion of the addition so confirmed by the ld. CIT(A). He further submitted that when the cash deposit is duly recorded in the books of accounts and assessee has duly disclosed the sources of the same as generated out of cash sales, provisions of section 68 cannot be invoked. He also argued that the income of the assessee was arisen due to the cash sales and income of which has already offered to tax 8 ITA No.2922 /Del/2023 Suresh Chand vs. ITO thus provisions of section 115BBE which were introduced thereafter are not applicable to the present case of the assessee. 10. Reliance is also placed on the following judgements: - Laxmi Rice Mills Vs. Commissioner of Income Tax [1974] 97 ITR 258 (patna) - PCIT Vs. Agson Global (P) Ltd. [2022] 134 Taxmann.com 256(Delhi) - ACIT, CC-1, Visakhapatnam Vs. Hirapanna Jewellers [2021] 128 Taxmann.com 141 (Banglore ITAT) - Raj Kumar Vs ITO ward 3(3) Amritsar in ITA No. 195/Asr/2022 - Purani Hospital Supplies Pvt. Ltd. Vs. DCIT, Coimbatore in ITA No. 489/Chny/2022 dt. 31.5.2023. 11. On the other hand, the Ld. Sr. DR vehemently supported the orders of the lower authorities and stated that the AO has supported his findings on the basis of details found during the course of survey. He further submitted that the assessee deposited SBN into bank on various dates in short sum which also lead to the conclusion that there was undisclosed cash with the assessee which was deposited at later days with bank as he has deposited substantial cash in SBN immediately after the announcement of demonetiztion. He further argued that AO has already allowed credit towards bank withdrawals claimed by the assessee and further allowed credit on account of SBN deposited just after the announcement of demonetization. According to ld. Sr. DR assessee failed to give any plausible explanation as to why the payments for the purchases made during the period from 9 ITA No.2922 /Del/2023 Suresh Chand vs. ITO 26.11.2016 to 4.12 2016 from M/s Laxmi Gamra Khan Bhandar was not made though for the purchases for the remaining year were cleared immediately through RTGS. Further assessee has failed to give any reasonable explanation for depositing the cash in SBN on various dates that too in small sum. He thus prayed that the addition has rightly been made by AO and upheld by ld. CIT(A) which order deserves to be upheld. 12. We have heard the rival submissions and perused the materials available on record. In the instant case, the assessee maintained regular books of account and the Assessing Officer has not pointed out any defects in the same and had accepted the trading results declared by the assessee. It is also seen that the assessee had filed day to day and item wise stock records but AO has not pointed out any defects in the same. AO only alleged that purchases were made from one party during the period from 26.11.2016 to 4.12.2016 on credit and no payments were made. However, from the perusal of the copy of assessee’s account in the books of that party (M/s Laxmi Gamra Khal Bhandar) available in paper book pages 273 to 277, we find that regular payments were made through RTGS and on 30.11.2016 payment of Rs. 24,75,854/- was made and further on 5.12.2016 payment of Rs. 31,91,531/- was made to that party. Therefore, the allegation of the AO regarding the genuineness of the purchases from M/s Laxmi Gamra Khal Bhandar is baseless. It is also relevant that the AO has doubted the purchases and sales made during the period from October to December 2016 solely for the 10 ITA No.2922 /Del/2023 Suresh Chand vs. ITO reason that no payments were made to M/s Laxmi Gamra Khal Bhandar against purchases. Once such allegations are found baseless, entire foundation of the case of AO crashed. Moreover, once the Assessing Officer has accepted the trading results and did not raise any doubts on books of accounts as well as on the day to day stock records and sales, it is not correct to say that the cash deposited out of such cash sales is unexplained more particularly whether Assessing Officer failed to find any error in the details and evidences filed by the assessee. 13. Assessee has deposited cash during the demonetization period out of the cash balance available in the cash book as on the closing hours of 08.11.2016 i.e. the date when the demonetization was announced by the Hon’ble prime minister. The said cash was accumulated in the cash book out of daily cash sales and bank withdrawals made from time to time. One more aspect needs to be considered that assessee is dealing in agriculture produce where purchases have also been made from farmers. It is also a matter of common knowledge that farmers always prefer the payment in cash, therefore, in the interest of business sufficient cash balance has to be maintained. The AO is also required to consider the record maintained by assessee such as cash book, day to day stock register, monthly sales before making any allegation about the genuineness of the cash deposited in SBN during the demonetization period. No adverse observations were made by the AO or by ld. CIT(A) that records submitted are not in conformity with the accepted accounting 11 ITA No.2922 /Del/2023 Suresh Chand vs. ITO principles and also no doubts were raised about the availability of stock prior to cash sales. When the assessee has submitted complete details and thus discharges its onus, whereas on the other hand, no contrary material 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 derived therefrom were offered for tax, thus taxing such entire cash receipts as income is double taxation of an income, first as the sales declared by assessee itself and secondly by holding the cash deposit out of such sales as unexplained u/s 68 of the Act. 14. 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.” 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 ITA No.2922 /Del/2023 Suresh Chand vs. ITO 15. 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 from the facts of the present case that assessee had not only offered the explanation regarding nature and source of cash deposits in SBN but also substantiated the same with the help of documentary evidences in the shape of Audited Financial Statements, Sale Register, Purchase Register, Stock Register and Cash book before the lower authorities. 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 could be made by the lower authorities when the source of such cash deposits, being cash sales, was duly accepted by them. 16. 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: “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 13 ITA No.2922 /Del/2023 Suresh Chand vs. ITO 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.” 17. The Coordinate Bench of ITAT Mumbai in the case of [2023] 154 taxmann.com 584 (Mumbai - Trib.) ACIT v. Ramlal Jewellers (P.) Ltd. under similar circumstances while deleting the addition made towards cash deposit has held as under: “Section 68 of the Income-tax Act, 1961- Cash credit(Cash deposit in bank)- Assessment year 2016-17- Assessee- company was engaged in jewellery business - During assessment proceedings, Assessing Officer noted that immediately after demonetization assessee had shown inflated cash sales and also made deposits in bank account which was completely abnormal as compared to earlier year and also subsequent year - He, therefore, taxed cash deposits under section 68 - It was seen that assessee had maintained regular books of account which was subject to audit and had produced entire sale bills, stock register and purchases and also quantitative tally of sales and corresponding stock - Addition undersection 68 on account of cash deposits could not be made simply on reason that during demonetization period, cash deposits vis-a-vis cash sales ratio was higher - Whether once, it had been established that sales representing outflow of stocks was duly accounted in books of account and there was no abnormal profit during year, then there was no justification to treat deposits made in bank account out of cash sales to be income from undisclosed sources - Held, yes - Whether, therefore addition made under section 68 was to be deleted -Held, yes [Para 14] [In favour of assessee] 14 ITA No.2922 /Del/2023 Suresh Chand vs. ITO 18. In another case on identical circumstances, the coordinate bench of Amritsar ITAT in the case of Raj Kumar vs ITO in ITA No.195/Asr/2022 has observed as under: 12.1 We also considered that the amount deposited in the bank account was out of sale of various items which had been held by the assessee as stock in trade and since the deposits in the bank account were out of sale of stock therefore the stock of the assessee has depleted and the cash has come in respect of stock, such sales had been disclosed in the trading account against the purchase which had not been doubted, neither the opening and closing stock had been doubted. Therefore, nothing could have been doubted when the source of cash was well explained and was shown in the bank account. However, the addition was made only on the basis of surmises without establishing any motive on the part of the assessee and without disturbing the closing stock as on 31/03/2017 which had been arrived at after reducing the sale in quantity of stock in trade. 12.2 Further, in our considered view, the AO has no right to calculate sales on hypothetical basis ignoring the evidence submitted during the course of assessment proceedings in the form of VAT return, purchase bills and quantitative details. Once the amount is declared as turn over cannot be called concealed income and be taxed doubly on same amount. We further relied on order of ITAT, Mumbai Jet Freight Logistics Ltd. v. Commissioner of Income-tax Appeal (NFAC). The addition U/s 68 is beyond jurisdiction of the ld. AO as the turnover is already reflected in the books of the assessee. So, the addition amount of Rs 2,74,00,000/- is quashed.” 19. Hon’ble Patna High court in the case of Lakshmi Rice Mills vs. CIT reported in [1974] 97 ITR 258 (Pat.) has held as under: 15 ITA No.2922 /Del/2023 Suresh Chand vs. ITO “It is a fundamental principle governing the taxation of any undisclosed income or secreted profits that the income or the profits as such must find sufficient explanation at the hands of the assessee. If the balance at hand on the relevant date is sufficient to cover the value of the high denomination notes subsequently demonetised and even more, in the absence of any finding that the books of account of the assessee were not genuine, the source of income is well disclosed and it cannot amount to any secreted profits within the meaning of the law. What has to be disclosed and established is the source of the income or the receipt of money, not the source of the receipt of the high denomination notes which were legal tender at the relevant time. Thus, the so-called findings of fact by the Tribunal were based upon placing a wrong onus of proof and applying not the correct principles of law governing such cases. On the facts, no tangible material had been brought on the record to take the shape of any legal evidence for the purpose of recording a finding that the assessee’s explanation was not worthy of acceptance. This by itself was a question of law arising from the Tribunal’s decision. Therefore, the Tribunal erred in coming to the conclusion that the cash balance did not include 140 high denomination notes when they were presented to the bank for encashment.” 20. In view of above discussion and also following various judicial pronouncements, we are of the considered view that the assessee has been able to explain the source of cash deposited in SBN during the period of demonetization and already paid taxes on the income earned from the cash sales which was the immediate source of such deposit, therefore, no further addition could be made towards such cash. Accordingly, we delete the addition of Rs. 73,48,597/- made by AO. The grounds of appeal No. 1 to 2 of the assessee are allowed. 16 ITA No.2922 /Del/2023 Suresh Chand vs. ITO 21. As a result, appeal of the assessee is allowed. Order pronounced on 07/03/2025. Sd/- Sd/- (ANUBHAV SHARMA) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 07/03/2025 PK/Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI "