Nisarahmed Aralimatti Vs ITO (ITAT Bangalore)
A ₹2 Lakh Cash Deposit, a Retail Shop, and an Impossible Customer List
The deposit under scrutiny
During the demonetisation period, Nisaráhmed Aralimatti deposited ₹2 lakh in the bank account of his proprietary concern, Royal Traders, a retail tobacco and supari business. He said the cash came from ordinary shop sales and was already reflected in the business turnover declared in his return.
The assessing officer was unconvinced. After an earlier scrutiny assessment was reopened for further examination following a revision under section 263, the officer added the ₹2 lakh to Aralimatti’s income. The Commissioner of Income Tax (Appeals) upheld the addition, leading to the appeal before the Bangalore Bench of the Income Tax Appellate Tribunal.
The case raised a practical question: what evidence can reasonably be expected from a small retail business to explain a cash deposit arising from daily sales?
A business conducted largely in cash
Aralimatti was the proprietor of Royal Traders and also a partner in a separate wholesale tobacco firm. For the relevant year, he declared income of ₹22,69,100. Royal Traders reported turnover of ₹53,68,170, with its income offered under the presumptive taxation provisions of section 44AD. That turnover worked out to average monthly sales of approximately ₹4.47 lakh.
The disputed deposit was made on 10 November 2016. Aralimatti maintained that it represented cash received from retail sales between 1 October and 9 November 2016. In support, he produced a reconstructed cash book covering 1 April to 9 November 2016, a monthly sales summary and a daily sales register. His bank statement and sales ledger had also been placed before the first appellate authority.
For the tax authorities, this was insufficient. The Commissioner (Appeals) sought further material, including the names, addresses, PAN details and confirmations of the individual customers whose purchases had generated the cash. Without those details and other records, the Commissioner concluded that the source of the deposit had not been satisfactorily established.
What the Tribunal found persuasive
The Tribunal looked at the deposit in the context of the business rather than treating it as an isolated receipt. Royal Traders had reported annual sales of over ₹53 lakh. Against average monthly sales of about ₹4.47 lakh, a cash deposit of ₹2 lakh was, in the Bench’s view, consistent with the scale of the retail operation.
The sales material supplied by Aralimatti also mattered. The cash book, daily sales register and monthly sales summary connected the deposit to the claimed business receipts. The Tribunal considered it unusual to demand the PAN and confirmation of every retail customer of a tobacco and supari shop, particularly when the business income was declared under section 44AD.
It therefore rejected the conclusion that the ₹2 lakh represented unexplained income and directed the assessing officer to delete the addition. Aralimatti’s appeal was allowed.
The limits of the ruling
Aralimatti had also argued that section 68 could not be used for a bank deposit in the manner adopted by the assessing officer, and that presumptive taxation did not require him to maintain regular books. The Tribunal’s operative reasoning was narrower. It resolved the dispute on the evidence connecting this particular deposit with reported retail sales and did not lay down a categorical ruling on the application of section 68 to bank deposits.
That distinction is important. Section 44AD did not, by itself, make the deposit immune from examination. Aralimatti succeeded because the amount was plausible against his disclosed turnover and because he furnished sales and cash records supporting his explanation.
Author’s comment
The decision is a useful reminder that an explanation for a cash deposit must be tested against the realities of the business. A retail shop may receive numerous small payments from customers whose PAN details and later confirmations are neither routinely collected nor realistically obtainable. Requiring such a customer list as the decisive proof of ordinary counter sales would set a standard poorly suited to that trade.
At the same time, the Tribunal did not accept a bare assertion that “the cash came from sales.” The taxpayer supplied a cash book and sales records, and the deposit was proportionate to the turnover he had declared. The case turns on that combination of business context and supporting records: where cash receipts are already reflected in reported sales, an addition needs a sound reason to treat the corresponding bank deposit as separate unexplained income.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. The assessee filed this appeal against the order of the National Faceless Appeal Centre (NFAC), Delhi, for assessment year 2017–18, which dismissed his challenge to the assessment order dated 28 March 2023 passed by the Assessment Unit, Income Tax Department (the learned AO), under section 143(3) read with section 263 of the Income-tax Act, 1961 (the Act).
2. The Assessee has raised the following grounds of appeal:
1. The impugned appellate order passed by the NFAC u/s 250 of the Act is opposed to law and facts of the case insofar as it is prejudicial to the interest of the Appellant.
2. The NFAC has erred in law and on facts in confirming the addition of Rs. 2,00,000/- made by the Ld AO u/s 68 of the Act based on surmise, conjecture and a pre-set mind, and in doing so
a. It failed to appreciate that the Appellant, being engaged in small retail trade covered u/s 44AD, is not required to maintain regular books of accounts and therefore, the provisions of section 68 has no application in the facts and the case.
b. It failed to consider the monthly sales summary, cashflow statement, and bank statement already on record, which clearly shows that the deposits represented the Appellant’s business collections.
c. It failed to appreciate that the cash deposits were part of the day-to-day business transactions arising from retail sales, regularly deposited in the bank in the normal course of business and forming part of the declared turnover.
d. It failed to exercise powers u/s 250(4) to make, or have made, necessary enquiries to verify the explanation and evidences furnished before sustaining the addition.
The Appellant prays for leave to add, modify, delete, or introduce additional Grounds of Appeal at any time before the Appeal is disposed off.
Based on these and such other grounds that may be adduced from time to time, the Appellant requests the Honourable Income Tax Appellate Tribunal to consider the petition in the light of principles of justice and cancel the additions made by the Assessing Officer which were confirmed by the NFAC.
3. Briefly, the assessee is the sole proprietor of M/s Royal Traders, which is engaged in the retail trade of tobacco, supari, and similar products. He is also a partner in a firm engaged in the wholesale tobacco business. The assessee filed his return of income on 9 June 2017, declaring a total income of ₹22,69,100. During the demonetisation period, he deposited ₹1,21,24,000 in various bank accounts, including ₹2,00,000 in the account of M/s Royal Traders, his proprietary concern, and ₹1,19,94,000 in the account of the partnership firm. The case was selected for scrutiny, and the Assessing Officer accepted the assessee’s explanation. Subsequently, revisionary proceedings were initiated under section 263 of the Income-tax Act, 1961. By order dated 8 August 2090, the Assessing Officer was directed to examine the cash deposited during the demonetisation period, conduct the necessary enquiries in accordance with law, and frame the assessment accordingly. The dispute ultimately concerned the cash deposit of ₹2,00,000 in the bank account of M/s Royal Traders. The assessee submitted that the concern’s profit for assessment year 2017–18 had been declared under section 44AB of the Act and that its turnover was ₹53,68,170. He also furnished the bank statement of Royal Traders, showing total cash deposits of ₹50,91,000 during the year. According to the assessee, the deposit of ₹2,00,000 made on 10 November 2016 during the demonetisation period had been singled out from the total annual deposits of ₹50,91,000. He explained that the amount arose from the concern’s normal cash sales, including sales made during the 40-day period from 1 October to 9 November 2016. He further stated that the concern’s average monthly sales were ₹4.47 lakh and, therefore, the deposit of ₹2,00,000 could not be treated as unexplained income.
4. The learned Assessing Officer rejected the explanation on the ground that the assessee had not furnished satisfactory evidence. Accordingly, the Assessing Officer added ₹2,00,000 and determined the total income at ₹24,96,731 by assessment order dated 28 March 2023.
5. Aggrieved by the assessment order, the assessee appealed to the learned CIT(A) and reiterated the same facts. The learned CIT(A), however, held that the assessee was required to establish the source of the cash deposited in the bank account by furnishing, among other documents, the ledger account, balance sheet, cash book, customers’ names, Permanent Account Numbers and addresses, confirmations of payment, and other supporting evidence. As the assessee had furnished only the bank statement and a copy of the sales ledger, the learned CIT(A) concluded that the source of the ₹2,00,000 deposit had not been satisfactorily explained before the Assessing Officer. Finding no infirmity in the assessment order, the learned CIT(A) dismissed the appeal.
6. The assessee is now in appeal before us. He filed a ten-page written submission, a reconstructed cash book of Royal Traders for the period from 1 April 2016 to 9 November 2016, a monthly sales summary, and the daily sales register. He also contended that section 68 of the Income-tax Act does not apply to cash deposited in a bank account and that the addition made under that provision was therefore unsustainable. We heard the learned authorised representative for the assessee, who reiterated these submissions.
7. The learned Departmental Representative was also heard and supported the orders of the lower authorities.
8. We have carefully considered the rival contentions and examined the orders of the lower authorities. The sole issue in this appeal is the addition of ₹2,00,000 deposited by the assessee in the bank account of his proprietary concern, which he stated represented sales proceeds. The assessee has consistently maintained that he deposited ₹15,91,000 in the bank account during the year, whereas the Assessing Officer selected only the ₹2,00,000 cash deposit made during the demonetisation period and treated it as unexplained. We find that the assessee furnished the complete cash book of Royal Traders for the period preceding demonetisation, supported by the concern’s monthly and daily sales registers. As noted above, Royal Traders had a total turnover of ₹53,68,170 and average monthly sales of approximately ₹4,47,000. In these circumstances, the addition of ₹2,00,000 in the assessee’s hands is unwarranted. Further, the learned CIT(A) required the assessee to furnish unusual particulars, including the Permanent Account Number of each customer from whom cash was received, without considering that the concern’s turnover had been taxed under section 44AD of the Act. Accordingly, in the facts and circumstances of the case, we reverse the orders of the lower authorities and allow ground no. 2 of the assessee’s appeal. The Assessing Officer is directed to delete the addition of ₹2,00,000 made in the assessee’s hands.
9. In the result, the assessee’s appeal is allowed.
Order pronounced in the open court on 29th September, 2026.
