Income Tax Officer Vs Chenna Ram Tarad (Income Tax Appellate Tribunal, Jodhpur Bench)
Summary: ITAT Jodhpur dismissed the Revenue’s appeal for AY 2017-18 and upheld the CIT(A)’s deletion of an addition of ₹1,33,64,500 under Section 69A and the reversal of the Assessing Officer’s rejection of the assessee’s books under Section 145(3) of the Income-tax Act, 1961. The assessee was an authorised dealer of a petrol pump of private company Essar Oil Limited at Village Gagariya, Barmer, operating in the name and style of M/s S.R. Choudhary Petroleum. During the demonetisation period, the AO noted cash deposits in Specified Bank Notes (SBNs) amounting to ₹1,82,76,500. The assessee explained that the deposits were sourced from cash sales and the opening cash balance. The AO rejected the explanation, rejected the books and treated ₹1,33,64,500 as unexplained.
The AO’s primary reasoning was that the assessee, being a privately run petrol pump, was not authorised to accept SBNs during demonetisation. He also relied upon the denomination pattern of bank deposits. The assessment order reproduced a denomination-wise table and cash-book extracts to contend that during the relevant period the assessee deposited SBN currency, whereas after 03.12.2016 deposits contained smaller denomination notes. Since the petrol pump was situated near Village Gagariya, Barmer and catered to small vehicles of the village, the AO considered it improbable that customers would not have tendered smaller denomination notes during the demonetisation period.
The CIT(A) found that the AO had accepted the incident of cash sales after 09.11.2016 and the closing cash balance of ₹49,11,502.63 as on 08.11.2016 but had not brought any adverse material on record to treat the cash sales as unexplained. The assessee had furnished a detailed explanation regarding the source of the cash deposits, while the AO had failed to identify any specific defect in the books or violation of a condition permitting rejection of books under Section 145(3). The CIT(A) further observed that the assessment order did not clearly establish how the difference amount of ₹1,33,64,500 arose. He therefore deleted the Section 69A addition and held the rejection of books unjustified.
Before the Tribunal, the Departmental Representative fairly agreed that the primary basis adopted by the AO was that the assessee was not authorised to accept SBNs during the demonetisation period. She, however, also relied upon the denomination pattern and other surrounding circumstances recorded by the AO.
The Tribunal found no infirmity in the CIT(A)’s decision. It held that merely because an act was conducted illegally would not nullify the entire underlying transaction of cash sale. The AO had recorded no finding that the sales recorded by the assessee during the demonetisation period were not genuine. He had neither examined the sales and found them fictitious nor examined stock records to establish that sales had been recorded despite absence of stock or without corresponding movement of stock. His essential finding was only that the assessee had collected cash in SBNs which it was not authorised to collect.
The Tribunal held that once the fact of sales itself was not disputed, collection of consideration for those sales in SBNs or otherwise did not make incorrect the assessee’s explanation that the bank deposits represented SBNs collected from cash sales. Any illegality in accepting SBNs could have its own repercussions under the relevant law, but it did not negate the fact that the assessee had collected those notes against sales. The AO’s comparison of SBN collections with small-denomination collections during and after demonetisation also did not affect the genuineness of the underlying sales. In the absence of any finding that the sales were non-genuine, the denomination in which consideration was collected could not render the transactions non-genuine. The Tribunal accordingly upheld the CIT(A)’s order setting aside rejection of books under Section 145(3) and deleting the ₹1,33,64,500 addition under Section 69A. All grounds raised by the Revenue were dismissed.
Alternative SEO Titles
- Illegal SBN Acceptance Cannot Negate Genuine Petrol Sales: ITAT Jodhpur
- ₹1.33 Crore Section 69A Addition on SBN Petrol Sales Deleted: ITAT Jodhpur
- Genuine Sales Cannot Become Unexplained Merely Due to SBN Collection: ITAT Jodhpur
- No Section 69A Addition Without Disputing Genuine Cash Sales: ITAT Jodhpur
- Unauthorized SBN Receipt Does Not Invalidate Recorded Petrol Sales: ITAT Jodhpur
FULL TEXT OF THE ORDER OF INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH
The present appeal has been filed by the Revenue against the order passed by the National Faceless Appeal Centre (NFAC), Delhi(hereinafter referred to as “Ld. CIT(A)”), dated 22.02.2024 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
2. The grounds raised by the Revenue read as under:-
1. Whether in the facts and circumstances of the case ld. CIT(A) has erred in deleting the addition of Rs.1,33,64,500/- made u/s 69A on account of unexplained cash deposits in SBN in the bank, by failing to appreciate the fact that source of case deposits in the bank was claimed to be sales made in SBN during demonetization period whereas it is undisputed fact that assesse was not authorized to accept SBN during demonetization period.
2. Whether in the facts and circumstances of the case ld. CIT(A) is justified inholding that “AO is unable to point out either any specific defect in the books of account or any violation of any condition for which the books of accounts could be rejected u/s 145(3) of the IT Act” whereas AO has given specific finding in para 7.6 of the assessment order that the SBNs bear no value on 09.11.2016 and afterwards hence, it cannot be journalized in books of account.
3. That the tax effect involved in this case is above the limit laid down in Circular No. 5/2024 dated 15.03.2024 issued by the CBDT.
4. That the appellant reserves its right to add, amend or alter the ground(s) of appeal on or before the date, the appeal is finally heard
3. The issue in the present appeal relates to the deletion of addition by the Ld. CIT(A) of cash found deposited in the bank account of the assessee amounting to Rs.1,33,64,500/- made by the AO u/s 69A of the Act on account of the source of the said cash deposited remained unexplained. The Revenue has also challenged the order of Ld. CIT(A) setting aside the order of the AO rejecting the books of accounts of the assessee u/s 145(3) of the Act.
4. The facts relating to the case are that, the assessee is an authorized dealer of petrol pump of private company Essar Oil Limited retail outlet at Village Gagariya, Barmer in the name and style of M/s S.R. Choudhary Petroleum. During the impugned year, the AO noted that the assessee had deposited the cash in its bank account during the demonetization period in Specified Bank Notes (SBNs) amounting to Rs.1,82,76,500/-. The assessee was asked to explain the source of the same and the assessee clarified that the same was out of the cash sales made and out of opening balance of cash available with it. The explanation of the assessee was rejected by the AO noting several anomalies/deficiencies in the same. The AO also rejected books of accounts of the assessee for the same reason and thereafter treated the cash deposits of Rs.1,33,64,500/- in the bank account of the assessee in SBNs as from unexplained sources. The Ld. CIT(A) however held that there was neither any basis for rejecting the books of accounts of the assessee nor for treating the cash deposited as out of unexplained sources and accordingly he deleted the addition made in the hands of the assessee of Rs.1.33 crores u/s 69A of the Act.
5. Aggrieved by the same, the Revenue has come up in appeal before us challenging the findings of the Ld. CIT(A) holding the rejection of books of accounts of the assessee by invoking Section 145(3) of the Act as incorrect and also as the deletion of the addition made u/s 69A of the Act of Rs.1.33 crores.
6. We have heard both the parties and have gone through the orders of the Authorities below. The findings of the Ld. CIT(A) while deleting the addition made in the hands of the assessee are contained at page 51 of his order as under:-
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Decision: I have considered the submission of the appellant and gonethrough the AO’s observation & decision in assessment order. I find during the course of assessment proceedings, in presence of books of accounts, the AO verify the veracity of the accounts and accepted the incident of cash sales after 09-11-2016 and the closing cash balance in hand as Rs. 49,11,502.63 on 08-11-2016, as submitted by the appellant . I find the AO opined that the monetary transaction done by the appellant in SBN notes after 09-11-2016 being invalid but the AO is unable to bring any adverse material on record to treat the said invalid cash sales as unexplained. I also find the appellant has given detailed representation to explain the source of cash deposit and the AO is unable to point out either any specific defects in the books of accounts or any violation of any condition for which the books of accounts could be rejected under section 145(3) of the I.T Act. Moreover how the difference amount of Rs. 1,33,64,500/- may arise is not clearly established by the AO in his assessment order which was added u/s 69A of the I.T Act.
In view of above observation I find infirmity in the order of the AO and I am of opinion that AO’s decision of invoking provision of section 69A of the I.T Act is unjustified and not in accordance with law. Accordingly the addition of Rs.1,33,64,500/- by invoking provision of section 69A of the I.T Act stand deleted. The ground on this issue is allowed.
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7. The findings of the Ld. CIT(A) holding the assessment order as unjustified for rejecting the books of the accounts of the assessee u/s 145(3) of the Act are contained at page 53 of the order as under:-
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Decision : I have considered the submission of the appellant and gone through the AO’s observation & decision in assessment order. I findmerit in the contention of the appellant on this ground in as much as the AO is unable to pass a speaking order giving details reasoning and logic thereof on this ground. The observation andference of AO is baseless in as much as it states “As per the deposition slips, assessee had deposited SBN currency of Rs. 1,82,76,500/- during demonetization period. This cash cannot be the same which was introduced in the cash book of the assesse as it is a fact that assesse was not allowed to accept cash into SBN currency”. Accordingly I am of opinion that the AO’s order is not justified and not in order since the AO is unable to point out either any specific defects in the books of accounts or any violation of any condition for which the books of accounts could be rejected under section 145(3) of the I.T Act. In view of discussion above the ground relating to invoking of application of section 145(3) of the I.T Act, stand allowed.
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8. As is evident from a perusal of the findings of the Ld. CIT(A) he found no merit in the order of the AO treating the cash deposited during demonetization period in SBNs of Rs.1.33 crores to be without any basis for the reason that:-
- He found the AO to have not brought any adverse material on record to treat the cash sales made by the assessee, evidencing the cash deposit, as unexplained.
- That he found the assessee to have given detailed representation to explain the source of cash deposits and the AO unable to point out any specific defects in the books of accounts or any violation of any condition for which the books of accounts could be rejected u/s 145(3) of the Act.
- He found that there was no basis for arriving at a figure of Rs.1.33 crores as the cash deposited during demonetization source which remained unexplained.
9. Similarly for holding the AOs order rejecting the books of accounts of the assessee is unjustified. The CIT(A)s decision rests on his findings that:-
- He found the AO to have not passed a speaking order giving detailed reasoning and logic for rejecting the books of accounts of the assessee.
- He found the AOs finding to be baseless since it rests on the fact that the deposits slip of bank showed SBNs currency of Rs.1,82,76,500/- deposited during demonetization period and the AO held that this cash could not be the same which was entered in the cash book of the assessee since the assessee was not allowed to except cash in SBN currency.
10. Therefore what transpires is that, the ld. CIT(A) found that the entire case of the AO for treating the cash deposit during demonetization period to be unexplained rested on his finding that the cash deposited was in SBNs which the assessee was not authorized to collect during the demonetization ,being a privately run petrol pump, which according to the Ld. CIT(A) neither impinged on the fact that the assessee had stated to have collected the SBNs through cash sale of petrol and the genuineness of the transaction therefore remained unaffected.
11. Ld. DR during the course of hearing before us, fairly agreed that the primary basis with the AO for rejecting assessee’s explanation of the cash deposited being out of cash sales was that the assessee was not authorized to accept SBNs during the demonetization period. In this regard, she drew our attention to para 7.6 of the order of the AO recordings the findings of the AO to this effect.
12. She thereafter, stated that besides the same, the AO also noted the surrounding facts and circumstances of the case and found that while during the demonetization period the cash collected by the assessee was in demonetized notes of Rs.500 and Rs.1,000/- only but however after demonetization the assessee had deposited cash in small denomination only and further that since the petrol pump is situated in a small village i.e. Village Gagariya, Barmer it was unfathomable that no person with notes of small denomination came to refill during the demonetization period from 10.11.2016 to 03.12.2016. She drew our attention to the findings of the AO in this regard contained at para 8 to 8.4 of his order as under:-
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8. Not in the prejudice to the above, even if the submission of the AR against the show cause, in which AR of the assessee insisted that sale against which SBN currency was received is already recorded in the books. In this regard, even if it is considered that the assessee accepted SBN currency against the sale of petrol and Diesel during the demonization and deposited the same into bank account. The implications of this are being discussed below:
8.1 The denomination breakup of notes deposited during the demonetization period is being appended here for both the bank accounts of the assessee:
8.2 As it is evident from above denomination table that assessee had deposited cash in the denomination of 50 and 1000 only from 10.11.2016 to 03.12.2016. Further, it was noticed that after 03.12.2016 assessee had deposited in small denominations. Further, assessee the petrol pump of assessee is situated near Gagariya village – Barmer, it is unfathomable that no person with notes of small denomination came to refill during 10.11.2016 to 03.12.2016 on the petrol pump. As the assessee’s petrol pump is only petrol pump situated near the village, it is the only stop for all small vehicles of the village, resulting into collection of the small denomination notes.
8.3 As it is clear from above illustration of denomination of notes that after 03.12.2016 the percentage of small denomination notes into total per day deposits varies from 20% to 80%. However, the same patter was not seen in during 09.11.2016 to 03.12.2016, when only SBN currency (in the denomination of 500, 1000 notes). According to this pattern, it appears that it is impossible that assessee did not get any small denomination notes during 08.11.2016 to 03.012.2016.
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8.4 Further, on the perusal of cash book submitted by assessee it was observed that assessee had made cash sale during the days of demonetization in the pattern of Rs. 185027/-, 1,70,435/-, 1,81,184/- etc. According to this pattern, assessee must have accumulated small denomination notes during the demonetization but the same was not deposited in the bank account. This anomaly clearly destroys the claim of the assessee that SBN was collected from the cash sale of petrol and diesel and only SBN, (in the denomination of 500 and 1000) deposited during the time of demonatization. The copy of cash book is being appended here:
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13. She further contended that the Ld. CIT(A) had erred in deleting the addition noting that the basis with the AO for treating the assessee’s explanation of cash deposited in the bank account of the assessee emanating out of the cash sales made by the assessee to be not correct merely because it was collected in SBNs which the assessee was not authorized to collect, as baseless, was incorrect and also for the reason that the AO had noted other anomalies also in the books of the account maintained by the assessee reflecting the assessee to have collected only cash in high denomination demonetized notes during demonetization period while the assessee was situated in a small village where it was not possible for the assessee to have not to have made cash sales in smaller denominations also. She contended therefore that the facts and circumstances noted by the AO supported his findings of the assessee’s explanation being liable to be rejected.
14. Having considered the findings of the Ld. CIT(A) and that of the AO as pointed out by the Ld. DR before us, we find no infirmity in the order of the Ld. CIT(A) holding the AO to have no basis at all for treating the cash deposit in the bank account of the assessee as out of unexplained source and for rejecting books of accounts of the assessee u/s 145(3) of the Act.
15. We have noted that the entire case of the AO both for rejecting the books of accounts of the assessee and for treating the cash deposit as out of unexplained sources rested on the following
- The cash was stated by the assessee to have been collected out of sales made of petrol only in SBNs which the assessee was not authorized to collect.
- It was not possible and probable for the assessee to have made sales of petrol only in SBNs during the demonetization period particularly when it was situated in a small village and post demonetization the majority collection from cash sales was in small denomination notes.
16. As per the AOs finding that the assessee explanation was incorrect for the reason that it had collected cash in SBNs from sale of petrol which was illegal and not authorized, we hold that merely an act conducted illegally would not nullify the entire transaction of cash sale conducted by the assessee. The AO has not recorded any finding that the sales recorded by the assessee during the demonetization period was not genuine. He has not given any factual finding in this regard by examining the sales made by the assessee during this period or by giving any finding on the basis of the record of stock of petrol maintained by the assessee. It is not the case of the AO nor is there any finding recorded by him that the assessee did not actually sell petrol during this period. He has made no inquiry with respect to the record of stock mentioned by the assessee and has given no finding that the assessee has recorded sale despite no stock being available with him or for that matter the assessee has recorded sale without any movement of stock in its record. His only finding is that the assessee has collected cash in SBNs which he was not authorized to collect.
17. Having not disputed the fact of sales made by the assessee the collection of consideration for the same by the assessee in SBNs or otherwise does not in any way render the explanation of the assessee of having deposited cash in its bank account out of SBNs collected from cash sales as not correct.
18. The Ld. CIT(A) has rightly held that the mere unauthorized collection of SBNs by the assessee on account of sales made by it does not render the assessee’s explanation of SBNs deposit in his bank account from cash sales made as incorrect.
19. Any illegality done by the assessee may have its own repercussions as per relevant law, but it does not negate the fact that the assessee had collected SBNs on account of sales made during the demonetization period. Since the AO has not brought on record nor recorded any finding of the sales made by the assessee of petrol during this period to be in-genuine, therefore the Ld. CIT(A)s finding that the AOs basis for rejecting assessee’s explanation of cash deposited in SBNs during demonetization period being without any basis, we hold is correct.
20. The AOs finding of the assessee’s explanation being improbable merely by comparing the quantum of SBNs collected during demonetization period and the small denomination notes collected during and post demonetization period is also we hold without any merits. The reason being the same, that it does not impinge upon the genuineness of sales made by the assessee. In absence of any recording by the AO of the sales made by the assessee not being genuine merely because the assessee collected SBNs against the said sales or collected small denomination or big denomination notes against the said sales cannot render the transactions to be in-genuine.
21. We therefore, find no infirmity in the order of Ld. CIT(A) setting aside the AOs order rejecting books of accounts of the assessee u/s 145(3) of the Act and also deleting the addition of Rs.1,33,64,500/- made u/s 69A of the Act on account of cash deposited in the bank account of the assessee. Therefore, all grounds raised by the Revenue are dismissed.
22. In effect, the appeal of the Revenue is accordingly dismissed.
Order pronounced in the Open Court on 25.08.2026.
