Case Law Details
Vikas Sethi Vs ITO (ITAT Delhi)
The assessee appealed against the order of the National Faceless Appeal Centre (NFAC) for Assessment Year 2017-18. The appeal challenged the validity of the assessment proceedings, the jurisdiction of the Assessing Officer, and the confirmation of an addition of Rs. 2,26,54,967 under Section 69A of the Income-tax Act, 1961 on account of cash deposits.
The assessee, proprietor of M/s Smart Infosystems, was engaged in trading computer peripherals and parts, rendering service assignments for HCL Services Ltd. and TVS Electronics Ltd., and handling prepaid coupon business for telecom companies. The original return was filed on 28 December 2017 declaring income of Rs. 6,49,400 and a revised return was filed on 29 December 2017 declaring income of Rs. 4,99,280.
During assessment proceedings, the assessee furnished bank books for all bank accounts for FY 2016-17, a daily cash withdrawal report, cash book containing day-wise cash receipts and deposits, and workings of daily and monthly cash balances. The Assessing Officer was not satisfied with the explanation and made an addition of Rs. 2,57,93,500 under Section 69A. The CIT(A) partly allowed the appeal by granting relief of Rs. 27,38,533 on account of cash sales but sustained an addition of Rs. 2,26,54,967.
Before the Tribunal, the assessee sought admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. The Tribunal declined to admit the additional evidence at that stage.
The assessee contended that the cash deposits, including Rs. 31,06,500 deposited during the demonetisation period, were sourced from recorded cash withdrawals made during the ordinary course of business. It was argued that the CIT(A) rejected the explanation merely on account of minor clerical and procedural discrepancies without demonstrating that the deposits were not traceable to documented withdrawals. The assessee also submitted that the addition under Section 69A was sustained without rejection of the books of account.
The Tribunal noted that the CIT(A) rejected the cash book after observing negative cash balances on five dates, holding that cash in hand could not be negative. The assessee explained that cash gifts aggregating to Rs. 3,65,000 received from his parents had not been recorded in the cash book due to an inadvertent mistake by the accountant, resulting in the negative balances. The Tribunal observed that the cash book had been produced before the CIT(A) as additional evidence under Rule 46A and that the assessee claimed to have become aware of the negative balance only after the CIT(A)’s order.
The Tribunal further noted that the CIT(A) rejected the month-wise cash summary after finding negative closing balances and mismatches with the cash book. According to the Tribunal, the alleged negative balances for August and September 2016 arose from computational errors in the summary. It recorded the assessee’s explanation that the opening cash balance of Rs. 18,04,775 and withdrawals of Rs. 56,70,000 during August 2016 resulted in cash availability of Rs. 74,74,775, against which bank deposits of Rs. 36,90,350 were made, leaving a positive balance instead of the negative figure reflected in the summary. The Tribunal also noted the explanation that the discrepancy between the cash book and summary resulted from the same computational error.
The Tribunal observed that the CIT(A)’s finding regarding the source of cash deposits during the demonetisation period was based on the rejected cash book and summary. It noted that the Assessing Officer himself had recorded cash withdrawals of Rs. 2,69,31,000 during the year and had not disputed those withdrawals. The Tribunal further observed that there was no material to show that the withdrawn cash had been utilised elsewhere.
With respect to the geographical discrepancy noted by the CIT(A), the Tribunal found that although the ICICI Bank overdraft account was registered with the Chennai Branch, the withdrawals were actually made from the Pitampura and Lawrence Road branches in Delhi, as reflected in the bank statements. It therefore held that the finding regarding geographical discrepancy was factually incorrect.
The Tribunal also considered the difference between cash deposits of Rs. 31,06,500 reflected in ITD data and Rs. 27,86,500 disclosed in the audited accounts. It noted the assessee’s explanation that the audited SBN disclosure related only to the proprietary concern’s accounts, while the remaining deposits were made through personal or other accounts not forming part of the firm’s books. It observed that the two figures related to different accounting perimeters.
The Tribunal noted that although it did not admit the additional evidence relating to affidavits of the assessee’s parents regarding cash gifts, the deposits made by the assessee had been supported by evidence and the Assessing Officer had not doubted the purchases. It held that the entire sales could not be added in the assessee’s hands. Considering the entirety of the facts and circumstances and in the interest of justice, the Tribunal sustained an addition of only Rs. 5,00,000 and directed the Assessing Officer to recompute the assessee’s income accordingly.
The appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the Assessee against the order of Ld. National Faceless Appeal Centre (NFAC), Delhi dated 28-11-2025 for the Assessment Year 2017-18 on the following grounds:-
1. That the CIT(A) vide order dated 28.11.2025 has erred both on facts and in law in not quashing the assessment order dated 29.12.2019 passed u/s. 143(3) of the Income Tax Act, 1961 by the AO on the ground of being illegal, bad in law, without jurisdiction, and not in accordance with the provision of the Act.
2. That the notice dated 10.9.2018 under section 143(2) of the Act was issued by ITO, Ward 40(5), Delhi is without jurisdiction, illegal, and void ab initio. Accordingly, the assessment framed pursuant thereto is bad in law and liable to be quashed.
3. That the Ld. CIT(A) has erred both in law and on facts in not quashing the assessment order 29.12.2019 passed by ITO, Ward 43(5), Delhi, without any lawful transfer of jurisdiction, and further failing to appreciate the fact that the AO who assumed jurisdiction over the appellant by issuing a valid notice under section 143(2) of the Act (i.e. ITO, Ward 40(5), Delhi) did not conclude the assessment proceedings.
4. That the Ld. CIT(A) has erred both on facts and in law in upholding the addition of Rs. 2,26,54,967/- as unexplained money under section 69A of the Act on account of cash deposits, made in the assessment order dated 29.12.2019 under section 143(3) of the Act.
4.1 That the Ld. CIT(A) has erred both in law and on facts in sustaining the addition of Rs. 2,26,54,967/- under section 69A of the Act by treating the cash deposits as unexplained money, without appreciating that the entire cash deposits including Rs. 31,06,500/- deposited during the demonetization period were duly sourced from recorded cash withdrawals made by the appellant in the ordinary course of business during the year under consideration.
4.2 That on the facts and circumstances of the case, the Ld. CIT(A) has grossly erred in not accepting the appellant’s submission merely on account of minor clerical or procedural discrepancis, without demonstrating that the source of deposits was not traceable to the appellant’s own documented withdrawals.
4.3 That the Ld. CIT(A) erred both in law and on facts in sustaining the addition of Rs. 2,26,54,967/- u/s. 69A of the Act, without rejecting the books of account maintained by the appellant.
4.4 That the Ld. CIT(A) and AO erred on facts and in law in not appreciating that the higher rate of tax prescribed under section 115BBE, which was introduced subsequently vide The Taxation Law Second Amendment Act, 2016 was not applicable retrospectively to the impugned transactions.
2. Brief facts of the case are that the assessee, having business income, filed the original return for AY 2017-18 on 28.12.2017 declaring income of Rs. 6,49,400/- and a revised return on 29.12.2017 declaring income of Rs. 4,99,280/- with Ward 25(1), New Delhi. The assessee, as proprietor of M/s Smart Infosystems, was engaged in the business of trading in computer peripherals and parts and also rendering service assignments on behalf of HCL Services Ltd., TVS Electronics Ltd., and handling prepaid coupon business for telecom companies. In response to notices dated 23.12.2019 and 26.12.2019, the assessee filed replies addressing the majority of the questionnaire. Along with e-proceeding submissions, the assessee furnished the bank books for all bank accounts for FY 2016-17, a daily cash withdrawal report for FY 2016-17, and the cash book containing day-wise cash receipts and deposits, together with a working of daily/monthly cash in hand and balances in various bank accounts and outside loans from associates to show the net outstanding liability. Subsequently, the AO was not satisfied with the submission made by the assessee and further no reply was received with reference to the show cause notice issued, and concluded with making an addition of Rs. 2,57,93,500/0 u/s. 69A of the Act vide the assessment order dated 29.12.2019. Against the above, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 28.11.2025 has partly allowed the appeal of the assessee by giving the relief of Rs. 27,38,533/- being cash sales as claimed by the assessee and balance addition of Rs. 2,26,54,967/- was confirmed. Aggrieved, assessee is in appeal before us.
3. Ld. AR for the assessee at the time of hearing, filed the copy of Application under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 for admission of additional evidences. After hearing both the sides, we are of the considered view that admission of additional evidences at this stage is not permissible, hence, the request of the assessee for the same is not acceded to.
4. Ld. AR submitted that Ld. CIT(A) wrongly sustained the addition of Rs. 2,26,54,967/- u/s. 69A of the Act by treating the cash deposits as unexplained money, without appreciating that the entire cash deposits including Rs. 31,06,500/- deposited during the demonetization period were duly sourced from recorded cash withdrawals made by the assessee in the ordinary course of business during the year under consideration. It was further submitted that the CIT(A) erred in not accepting the assessee’s submission merely on account of minor clerical or procedural discrepancies, without demonstrating that the source of deposits was not traceable to the assessee’s own documented withdrawal. It was further submitted that Ld. CIT(A) has sustained the addition of Rs. 2,26,54,967/- u/s. 69A without rejecting the books of account maintained by the assessee.
5. Ld. DR relied upon the order of the Ld. CIT(A).
6. We have heard the rival contentions and perused the records. We find that the Ld. CIT(A) after analysis of the cash book submitted by the assessee, found that the cash balance was negative on five dates and on this basis, the CIT(A) observed that the cash in hand can never be negative unless the assessee has unaccounted cash and accordingly rejected the cash book. However, the assessee received cash gifts aggregating to Rs. 3,65,000/- from his parents, comprising Rs. 1,85,000/- from his father, Late Shri NN Sethi and Rs. 1,80,000/- from his mother, Smt. Veena Sethi. It was the submission of the Ld. AR that assessee had instructed his accountant to record the cash received in the cash book, however, due to inadvertent mistake the same was not recorded by him, as a result negative balance was appeared in the cash book. But the cash book was produced before the CIT(A) for the first time as additional evidence under Rule 46A and the same was admitted by the CIT(A) as going to the core of the issue. The assessee became aware of the negative cash balance in the cash book only after the order of the Ld. CIT(A) was passed. Hence, the rejection of cash book on the basis of negative balance arising out of a recording error without considering the explanation is contrary to the settled legal position.
6.1 Further, the Ld. CIT(A) found inconsistencies in the monthwise cash summary submitted by the assessse, noting that the closing cash in hand was shown as negative at the end of August 2016 and September, 2016 that most closing balances in the summary did not match the corresponding balance in the cash book, and that the closing cash in hand as per the cash book was Rs. 7,97,607/- while as per summary it was Rs. 47,71,512/-. Accordingly, the cash summary was also rejected,. We note that the alleged negative closing balances for August and September 2016 arise solely due to a computational error in the cash summary reproduced by the CIT(A). In August, 23016, the opening cash balance of Rs. 18,04,775/- together with cash withdrawals of Rs. 56,70,000/-resulted in cash availability of Rs. 74,74,775/-, against which bank deposits of Rs. 36,90,350/- where made, leaving a positive cash balance of Rs. 37,84,425/-rather than negative balance of Rs. 1,74,875/- as wrongly computed by the assessee’s accountant. The discrepancy between the closing balance in the cash book (Rs. 7,95,607) and the closing balance in the summary (Rs. 47,71,512) is also a consequence of this computation error in the summary, and not a reflection of any undisclosed income. The corrected summary demonstrates positive balances throughout and is consistent with the bank statements on record.
6.2 It is noted that Ld. CIT(A) observed that the assessee had claimed that the cash deposits made during the demonetization period were sourced from a withdrawal of Rs. 22,86,500/- from ICICI Bank Account in August, 2016 and Ld. CIT(A) held that if this were the case, the cash in hand balance ought to have been at least Rs. 22,86,500/- on every day after August, 2016, which was not borne out by either the cash book or the cash summary. We find that the findings of the Ld. CIT(A) is based on the rejected and erroneous cash book and cash summary. The AO himself noted that cash withdrawal of Rs. 2,69,31,000/-were made during the year and never disputed the fact of such withdrawal. In the absence of any material on record to show that the withdrawn cash was utilized elsewhere, the cash deposits cannot be treated as income from undisclosed sources.
6.3 Further, Ld. CIT(A) noted that the assessee had claimed to have withdrawn cash from ICICI Bank, Chennai Branch, whereas the deposits of cash during the demonetization period were mainly made into Andhra Bank, Delhi accounts. The CIT(A) treated this geographic discrepancy as a further ground casting doubt on the assessee explanation. It reveals from records that the ICICI Bank overdraft account is governed / registered with the Chennai Branch, being the address mentioned in the assessee’s submissions, however, the account was operated from Delhi branches. The bank statement of the ICIC bank account clearly demonstrates that the cash withdrawals were made at Pitampura Branch and Lawrence Road Branch, Delhi and accordingly, the allegation of the CIT(A) relating to geographical discrepancy is factually not correct and contrary to the bank statement on record.
6.4 Also, the Ld. CIT(A) noted that the during the demonetization period, the assessee deposited cash of Rs. 31,06,500/- in his bank account, as confirmed by the ITD data and the assessee’s own confirmations. However, in his audited accounts ( Notes on Accounts — SBN Disclosure), the assessee declared that the total amount deposited in banks during the period 8.11.2016 to 30.12.2016 was Rs. 27,86,500/- (comprising SBN of Rs. 25,00,000/- and other denomination notes of Rs. 2,86,500/-) and Ld. CIT(A) treated this as a discrepancy in the assessee’s own accounts. It is noted that SBN disclosure in the Notes on accounts pertains specifically to the accounts of M/s Smart Infosystems (the proprietary firm) and reflects only those deposits routed through the firm’s books. The remaining deposits were made from personal / other accounts of the assessee not forming part of the firm’s books and accordingly did not appear in the firm’s SBN disclosure i.e. Andhra Bank. And ICICI Bank. The difference of Rs. 3,20,000/- (Rs. 31,06,500 — Rs. 27,86,500) is thus fully accounted for by deposits in accounts not covered by the SBN statement of the firm. There is no contradiction — the two figures operate at different levels of aggregation. The SBN disclosure was made in the audited accounts only in relation to the entity’s own accounts and the assessee complied with this requirement correctly. It is submitted by the Ld. AR that no inference can be drawn from a difference in figures that arise from different accounting perimeters. The CIT(A) has conflated ITD level data (across all accounts of the individual) with firm-level SBN disclosure, which is an error on the face of the record.
7. In view of the aforesaid discussions, we observed that it was the contention of the Ld. AR that in the month of August, 2016 the opening balance was Rs. 18,04,775/- and during this month withdrawals were made for Rs. 56,70,000/- resulted the cash availability of Rs. 74,74,775/- against which the assessee deposited the amount of Rs. 36,90,350/- and the positive cash balance was available, rather than the negative balance which was wrongly computed by the appellant’s accountant. The assessee also filed cash balance flow which shows that the cash balance was available with the assessee to deposit the money. During the course of hearing, the assessee has filed the additional evidences to show that the negative balance was not available with the assessee, because Rs. 3,65,000/- in cash was gifted by his parents, who filed the affidavit to prove that the cash gift was made by them to their son. We did not find any reason to accept the additional evidences at this stage, because the cash was gifted by the parents which the assessee showed in the books of accounts at the time of gift. We further note that Ld. CIT(A) granted the relief of Rs. 27,38,533/- and confirmed the addition of Rs. 2,26,54,967/-. The deposit was made by the assessee has been proved by the evidences and purchases were not doubted by the AO, thus, the entire sales cannot be added in the hands of the assessee. Considering the entirety of the fact and circumstances of the case and in the interest of justice, we deem it fit and proper to sustain the addition of Rs. 5 lacs (Rupees Five Lacs) only and direct the AO to re-compute the income of the assessee accordingly.
8. In the result the appeal of the assessee is partly allowed.
Order pronounced in the open court on 05-06-2026.
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