Shivam Silkfab Pvt. Ltd. Vs Additional/Joint/Deputy Assistant/CIT/ITO (ITAT Varanasi)
The Income Tax Appellate Tribunal (ITAT), Circuit Bench, Varanasi, considered the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals) dated 24.12.2024 for Assessment Year 2014-15. The appeal arose from reassessment proceedings in which an addition of Rs. 17,15,56,550 under Section 68 of the Income-tax Act, 1961 had been sustained by the CIT(A).
The assessee had originally filed its return of income on 28.11.2014 declaring total income of Rs. 15,41,020, which was accepted in scrutiny assessment under Section 143(3) on 13.12.2016. Subsequently, based on information received through the Income Tax Department’s Insight Portal regarding cash deposits of Rs. 17,15,56,550 in the assessee’s bank account, reassessment proceedings were initiated by issuing notice under Section 148. The reassessment was completed under Section 147 read with Section 144B, wherein the Assessing Officer added the entire amount of cash deposits under Section 68 as unexplained cash credits and determined the total income at Rs. 17,30,97,570.
According to the assessment order, the Assessing Officer considered the cash deposits suspicious because they represented substantial cash transactions in the bank account of a private limited company. Although the assessee submitted replies to the show cause notice and participated in a video conference hearing through its authorised representative, the Assessing Officer held that the assessee had failed to conclusively establish the source of the cash deposits and accordingly treated the entire amount as unexplained cash credits under Section 68.
The CIT(A) dismissed the assessee’s appeal. The appellate authority observed that the assessee’s claims were evidence-based and required supporting documents, which according to the CIT(A) had not been satisfactorily produced during either the assessment or appellate proceedings. Relying upon Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC), the CIT(A) held that the assessee had failed to discharge the statutory burden in relation to the cash credits aggregating to Rs. 17,15,56,550, and therefore upheld the addition.
Before the Tribunal, the assessee withdrew Ground No. 4, which was accordingly dismissed as withdrawn. The Tribunal thereafter considered Grounds Nos. 1, 2 and 3 concerning the addition under Section 68. The assessee relied upon the statement of facts, grounds of appeal, written submissions filed before the CIT(A), and various documents included in the paper book, such as audited financial statements, books of account, purchase invoices, sale invoices, cash sale ledger, sales register, purchase ledger, creditors’ ledger and other accounting records.
The assessee submitted that:
- it had consistently maintained regular books of account including cash book, ledger, journal, bank book, bills and vouchers;
- its accounts had been regularly audited without adverse remarks;
- the method of accounting and valuation of stock had remained unchanged since inception;
- during the original scrutiny assessment, the books of account had been examined and the returned income had been accepted;
- the impugned cash deposits represented cash sales made in the ordinary course of business;
- the business consisted of trading in raw silk and fabrics, where substantial cash sales were made to small weavers and customers;
- cash received from sales was deposited into the bank and subsequently utilised for making payments to suppliers;
- detailed sale registers showing cash sales, credit sales and sales returns had been furnished during reassessment proceedings; and
- the Assessing Officer ignored these materials and made the addition merely on conjectures without examining the business model and accounting treatment.
The assessee further pointed to comparative figures of cash sales, credit sales and sales returns for different years to demonstrate that substantial cash sales were a normal feature of its business. It contended that the impugned amount had already formed part of the sales turnover disclosed in the profit and loss account and therefore could not again be treated as unexplained income.
The Departmental Representative supported the assessment order and the order of the CIT(A).
After considering the material on record, the Tribunal observed that the assessee’s original scrutiny assessment had been completed after examination of books of account and relevant records. The assessment order recorded that the authorised representative had appeared from time to time and produced documents including ledgers, cash book, bank statements and books of account. No adverse finding had been recorded during the original assessment.
The Tribunal further observed that during reassessment proceedings also, the assessee had filed multiple written replies and supporting documents. However, the reassessment order did not discuss the contents of those replies and rejected them without examining their substance.
The Tribunal noted that the comparative figures produced by the assessee demonstrated that substantial cash sales were a normal feature of its business. It also observed that while the Income-tax Act contains restrictions regarding certain cash purchases under Section 40A(3), there is no corresponding restriction regarding cash sales.
On the applicability of Section 68, the Tribunal held that the provision can be invoked only where a sum credited in the books has not already been taken into account while computing the income of the assessee. In the present case, the reported cash sales formed part of the total turnover and had already been considered while computing taxable income. Therefore, the same amount could not be added again as income under Section 68.
The Tribunal explained that the accounting entries for cash sales consisted of a debit to the cash account and a corresponding credit to the sales account. The assessee had not credited any person’s account by creating a liability. Instead, the amount had been credited to the sales account and had already entered the computation of income. Consequently, treating the same amount once again as unexplained income amounted to an erroneous approach.
Accordingly, the Tribunal directed the Assessing Officer to delete the addition of Rs. 17,15,56,550. All remaining grounds were disposed of accordingly, and the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT VARANASI
(A) This appeal vide I.T.A. No.239/VNS/2024 has been filed by the assessee for assessment year 2014-15 against impugned appellate order dated 24.12.2024 passed by learned Commissioner of Income Tax (Appeals) [“CIT(A)” for short]. In this appeal, the assessee has raised the following grounds: –
1. BECAUSE, Assessing Officer has erred on facts and in law in wrongly making a huge addition of Rs. 17,15,56,550.00 (Rupees Seventeen Crore Fifteen Lakhs Fifty Six Thousand Five Hundred and Fifty only) u/s. 68 of Income Tax Act, 1961 on account of Unexplained Cash Credit without properly appreciating the correct facts and circumstances of the case and the submissions made by the appellant based merely on conjectures and surmise.
2. BECAUSE, the Assessing Officer has erred on facts and in law in reopening the case on grounds of “Unexplained Cash Credit” to the tune of Rs. 17,15,56,550.00 totally disregarding the fact that the said transactions had been duly scrutinized during assessment proceedings itself for the relevant year without any adverse findings on this account.
3. BECAUSE, the Assessing Officer has erred on facts and in law in wrongly initiating penalty u/s. 274 r.w.s. 271(1)(c) of the Income Tax Act, 1961 without properly appreciating the correct facts and circumstances of the case and the submissions made by the appellant.
4. BECAUSE, the Assessing Officer has erred on facts and in law in wrongly initiating Interest u/s. 234A, 234B and 234C of the Income Tax Act, 1961 without properly appreciating the correct facts and circumstances of the case and the submissions made by the appellant.
5. BECAUSE, the order is bad both on facts and in law and is not maintainable.
6. BECAUSE, the appellant craves leave to put forward further Grounds of Appeal and/or amend/alter the same before or at the time of hearing.
(B) In this case, the assessee filed its return of income on 28.11.2014 declaring total income of Rs.15,41,020/-, on 28.11.20214. Subsequently, assessment was completed on 13.12.2016 u/s 143(3) of the Income Tax Act, 1961 (“Act”, for short) wherein the return income of the assessee at Rs.15,41,020/- was accepted. The Assessing Officer (“AO”, for short) letter issued notice u/s 148 of the Act on the basis of information received from Insight Portal of Income Tax Department that the cash deposits amounting to Rs.17,15,56,550/- were made in the assessee’s bank account. In response to the notice u/s 148 of the Act dated 30.03.2021, the assessee filed return of income once again declaring total income of the aforesaid amount of Rs.15,51,020/-. Subsequently, assessment order dated 30.03.2022 was passed u/s 147 read with section 144B of the Act wherein the aforesaid amount of Rs.17,15,56,550/- was added to the assessee’s income u/s 68 of the Act and the assessee’s total income was determined at Rs.17,30,97,570/-. The relevant portion of the assessment order is reproduced below: –
“Information has been received from the Investigation Wing under category of High Risk CRIU/VRU Information through Insight Portal of the Department that the assessee is a beneficiary of unexplained credits by way of unexplained cash credits amounting of Rs. 17,15,56,550/- for the year under consideration.
Further, during the course of assessment proceedings a Draft Assessment Order proposing to addition of Rs. 1Z15,56,550/- was given vide SON (Show Cause Notice) dated 24/03/2022 as to why assessment should not bq completed as per Draft– Assessment Order.
The assessee has replied vide his letter dated 28/03/2022 in response to SCN which is on record and submitted its explanation.
During the course of assessment proceedings the assessee was also provided an opportunity of e-hearing through VC (Video Conference) on 29/03/2022. The VC was duly conducted. Shri Puneet Kumar Singh, CA duly authorized by the assessee was present on behalf of the assessee. During VC they have reiterated the facts as mentioned in reply in response to SCN.
The submission of the assessee is duly considered. However, the submissions of the assessee don’ have any cogent force as it is seen from account no.50065635570 with Allahabad Bank total credit turnover Rs.17,15,56,550/- was in cash out of total credit turnover of Rs.47,71,02,115/- during the year under consideration. In a private limited company, this huge amount of cash deposition is suspicious. Prima facie, this cash deposit is not as per accounting norms of the private limited company. The assessee has undertaken financial transactions much beyond the taxable limit. However, the source of entering such huge transactions is not conclusively proved from the details and data collected during the course of inquiry conducted by the Investigation Wing. During the course of assessment Proceedings the assessee was not proved that the assessee is not a beneficiary of unexplained credits by way of unexplained cash credits amounting of Rs.17,15,56,550/- for the year under consideration.
In view of the above, unexplained cash credits amounting of Rs.17,15,56,550/- is added u/s 68 of the Act to the total income of the assessee as unexplained cash credit.”
(B.1) The assessee’s appeal against the assessment order was dismissed by the Ld. CIT(A) vide impugned appellate order dated 24.12.2024 and the aforesaid addition of Rs.17,15,56,550/- was sustained. The relevant part of the order of the Ld. CIT(A) is reproduced below: –
“To summarise, needless to mention that all the claims of the appellant are purely heavily evidence based claims and ought to have been substantiated and established by submission of the relevant details as well as supporting et4dences. However, the fact remains that the appellant had squarely failed to discharge this onus at the time of subject assessment proceedings and the position also DID NOT improve during the present appellate proceedings. Resultantly, in the facts and circumstances of the matter relying on the decision of the Honble Apex Court in the case of Kale Khan Mohammed Hanif V. CIT [1963] 50 ITR 1 (SC) it CANNOT be said that the assessee had discharged the statutory onus cast upon it in the present matter Lr.o captioned cash credits aggregating to Rs.171556550/- made in its bank account during year under consideration. Thus, the impugned order of the Ld. AO does not call for any interference on this account. Accordingly, the corresponding grounds do not succeed, hence, DISMISSED.”
(B.2) The present appeal has been filed by the assessee against the aforesaid impugned appellate order dated 24.12.2024 of the Ld. CIT(A). In the course of appellate proceedings in Income Tax Appellate Tribunal (“ITAT”, for short), a paper book containing the following particulars was filed assessee’s side: –
(C.2.3) At the time of hearing, the Ld. AR for the assessee also took us through submissions made during the assessment proceedings vide letters dated 18.01.2022, 06.01.2022, 07.01.2022, 23.03.2022 and 28.03.2022. These are included in the paper book referred to in foregoing paragraph (B.2) at SI. Nos.4, 5, 6, 7, 8 and 9 of the paper books.
(C.2.4) In his submissions made at the time of hearing, the Ld. AR for the assessee also took us through the contents of the paper book, which included sample copies of purchase invoices, credit sale invoices, cash sale ledger, sale fabric ledger, sale return ledger, sale invoices, purchase ledger, purchase return ledger, sundry creditor ledger, etc. He also drew our attention to comparative figures of the cash sales, credit sales and sales return of 2012-23, 2013-14 and 2014-15 which is reproduced below: –
The Ld. AR for the assessee vehemently contended that the cash deposits made in the assessee’s bank account were nothing but the cash sales which have already been accounted for in the books of accounts of the assessee and profits thereon have already been reported in the profits and loss account and brought to tax. The Ld. Departmental Representative for Revenue supported the impugned appellate order of the Ld. CIT(A) and the assessment order, the relevant portions of which have already been referred to in foregoing paragraphs (B) and (B.1) of this order.
(E) We have heard both the sides. We have perused the material on record. We find that the return income of the assessee was already accepted after scrutiny of the assessee’s case in the aforesaid assessment order dated 30.03.2022 passed u/s 143(3) of the Act. Copy of this order is included at pages 448 to 452 of the aforesaid paper book. In the aforesaid assessment order, the Assessing Officer has recorded that authorized representative of the assessee appeared from time to time, filed reply and details. The Assessing Officer has further recorded that the authorized representative of the assessee had produced relevant documents like ledger, cash book, bank statement, books of accounts and other details during the course of assessment proceedings which were subjected to text check and the case was also discussed with the authorized representative of the assessee. No adverse finding is recorded by the Assessing Officer in the aforesaid assessment order. The assessment order dated 13.12.2015 accepting the assessee’s return of Rs.17,15,56,550/- was passed after considering the replies and details filed by the assessee. Further, we find that subsequent assessment order dated 30.03.2022 has been passed making the aforesaid addition of Rs.17,15,56,550/- the assessee had filed multiple replies which have been included in the paper book referred to in foregoing paragraph (B.2) of this order. However, in the assessment order dated 30.03.2022, the Assessing Officer has not discussed the contents of the aforesaid written submissions and replies of the assessee and he has rejected the replies and submissions of the assessee without any discussion of the contents of the replies and submissions. The comparative figures, as referred to in foregoing paragraph (C.2.4) of this order, clearly show that it is normal feature of assessee’s business to sell substantial amounts in sale. Under Income Tax Act purchases made by an assessee in cash, in excess of specified amount, are hit by section 40A(3) of the Act. However, there is no such restriction in Income Tax Act in respect of the cash sales of an assessee. The AO and Ld. CIT(A) have invoked section 68 of the Act without careful consideration of accounting principles and applicable law. Section 68 of the Act can be invoked only if the sum found credited in the books of an assessee is not already taken into account in computing the income of the assessee. In the present case, the cash sales reported by the assessee are part of total turnover, and consequently, have already been taken into account in computing the income of the assessee. That being the case, the same amount cannot be once again added as income of the assessee. The accounting entries for cash sales in the books of the assessee are; Debit cash a/c, Credits a/es a/c. The assessee has not, corresponding to cash sale, credited any person thereby showing the amount as liability. Instead, the assessee has credited the sales account. Thus, the amount stands already taken into account for computation of the assessee’s income. The Assessing Officer and the Ld. CIT(A) has patently erred in taking the erroneous view that the cash sales already shown as part of turnover in the credit side of profit & loss account is to be added once again as the assessee’s income. In view of the foregoing discussion, the Assessing Officer is directed to delete the aforesaid addition of Rs.17,15,56,550/.
(E.1) All grounds of appeal are treated as disposed off in accordance with the aforesaid order.
(F) In the result, the appeal of the assessee is allowed.
This order is deemed to be pronounced on 20.07.2026 under Rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963.
