Sony Mony Electronics Ltd. Vs ITO (ITAT Mumbai)
Summary: The G Bench of the Income Tax Appellate Tribunal, Mumbai disposed of cross appeals filed by Sony Mony Electronics Ltd. and the Revenue for AY 2017-18 arising from the assessment under section 143(3) of the Income-tax Act, 1961. The principal dispute in the assessee’s appeal concerned cash deposits during the demonetisation period and an addition of Rs. 2,73,85,824 treated by the Assessing Officer as unexplained cash credits under section 68 and taxed under section 115BBE. The assessee contended that the deposits represented cash sales already recorded in its books and offered to tax, and relied on cash books, sales records, stock records, invoices, bank statements and other supporting material. The Assessing Officer questioned the unusually high cash balances before demonetisation, the sharp change in deposit-to-sales ratios and the absence of timely VAT returns, and invoked the test of human probabilities. The CIT(A) sustained the addition, also observing that section 69A could substantively apply to unexplained money notwithstanding the section originally invoked.
Before the Tribunal, the assessee submitted that the books and trading results had not been rejected, purchases and sales had not been doubted, stock records were maintained, and the cash sales were part of disclosed turnover. It also relied on the decision in ACIT vs. Hirapanna Jewellers and other decisions concerning recorded cash sales and demonetisation deposits. The Tribunal noted that the CIT(A) had not adequately dealt with the detailed submissions and that the Assessing Officer had not pointed out defects in the regular books, trading results, day-to-day stock records or sales. It held that the addition was based on a hypothetical exercise divorced from the book results and that the assessee had discharged its onus by furnishing supporting material.
The Tribunal reproduced section 68 and observed that the assessee had explained and substantiated the nature and source of the cash deposits. It relied on the principle that cash sales already accounted for and offered to tax could not again be treated as unexplained cash deposits. It accordingly set aside the appellate order on this issue and directed deletion of the impugned addition of Rs. 2.73 crore. Grounds concerning section 115BBE and set-off of business loss were treated as consequential and did not require adjudication.
The Tribunal also considered the Rs. 18 lakh rental-receipt issue arising from Form 26AS and upheld the CIT(A)’s direction to the Assessing Officer to verify the relevant records and give consequential relief as directed; the assessee’s ground was dismissed as devoid of merit. On the Rs. 7,68,970 disallowance under section 40(a)(ia), the Tribunal upheld the appellate order and dismissed the ground. The grounds challenging initiation of penalty proceedings under section 271AAC and section 272A(1)(d) were dismissed as premature, while interest under sections 234B and 234C was left for consequential recomputation.
In the Revenue’s appeal, the proposed enhancement of Rs. 3,49,06,874 relating to receipts from M/s Sony Mony Traders Pvt. Ltd. was rejected because the ledger and balance sheet showed the transactions and the Assessing Officer had ignored repayments. The proposed addition of Rs. 35,31,294 under section 41(1) was also rejected because the amount had never been claimed as a deduction and therefore there was no question of cessation of a deductible liability. The Revenue’s appeal was dismissed. Consequently, the assessee’s appeal was partly allowed and the Revenue’s appeal was dismissed.
Cases Discussed
- Sumati Dayal Vs CIT (214 ITR 801) (SC)
- Durga Prasad More 82 ITR 540 [SC]
- Hersh Win Chadha Vs DCIT (I.T.A.Nos.3088 to 3098 & 3107/Del/2005)
- ACIT vs. Hirapanna Jewellers [ITA No.: 253/Viz/2020; order dated 12.05.2021]
- CIT v. Kailash Jewellery House in ITA No. 613/2010 (Delhi High Court)
- [2023] 154 taxmann.com 584 (Mumbai – Trib.) ACIT v. Ramlal Jewellers (P.) Ltd.
- Raj Kumar vs ITO in ITA No.195/Asr/2022
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI
The above captioned cross appeals have been filed by the assessee and the Revenue against the orders passed by the Learned Commissioner of Income-tax (Appeals), CIT(A)-52, Mumbai [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Year [A.Y.] 2017-18. The appeals are being taken up together for adjudication vide this composite order. We take up assessee’s appeal first as below.
2. ITA No. 6379/MUM/2025(Assessee)
The grounds of appeal are as under:-
1. “On the facts and in the circumstances of the case, the CIT(A)/NFAC confirmed the assessment order passed by the Assessing Officer u/s 143(3) of the Act dated 30.12.2019 making addition to income of Rs.2,73,85,824/- which was invalid and bad in law as the order was passed without following the principles of natural justice and without considering the details and submissions and details filed by Appellant. In addition to it the appeal order was issued on 18/08/2025 and the last hearing was on 25/02/2025 and no draft appellate order was provided to the appellant, which is beyond the judicial parameters and CBDT instructions on the subject, hence appeal order dated 1808/2025 to be held as invalid”.
1.1 “The CIT(A) has erred seriously in issuing appellate order without commenting or distinguishing any case laws relied painstakingly by the appellant, hence appellate order to be held as invalid”
2.1 “On the facts and in the circumstances of the case, the CIT(A)51, Mumbai erred in confirming the addition of Rs. 2,73,85,824/-on account of cash deposits in Bank Accounts without considering the cash book/bank book filed and details/submissions filed by Appellant to establish the source and genuineness of cash deposits with regard to the nature of business activities carried out by Appellant”.
2.2 “On the facts and in the circumstances of the case, the CIT(A)51, Mumbai confirmed erred in confirming addition of Rs. 2,73,85,824/-on account of cash deposits without considering the fact that the cash deposited in Banks out of cash sales generated by Appellant as per Cash Book/Bank Book, which was deposited due to demonetisation policy, cannot be treated as income of Appellant. Hence, the said cash deposits cannot be treated as undisclosed money u/s 69A or u/s 68 of the IT Act”.
2.3 “On the facts and in the circumstances of the case, the Ld. the CIT(A)51, Mumbai has erred in confirming the addition of Rs. 2,73,85,824/- on account of cash deposits without considering the fact that there was no abnormal increase in cash deposits for the immediate two years as per details/submissions filed and the source of cash deposits were out of business receipts from sale of Electronic Items and Assessing Officer had failed to consider the details/evidences for the same. Therefore, the addition is liable to be deleted.
2.4 “On the facts and in the circumstances of the case, the CIT(A)51, Mumbai has erred in confirming the addition of Rs. 2,73,85,824/-on account of cash deposits in Bank Accounts without appreciating the details of monthly cash sales and cash deposited in Bank considering the nature of business activities carried out by Appellant company. on account of cash deposit is required to be deleted”.
2.5 “On the facts and in the circumstances of the case, the CIT(A)51, Mumbai has erred in confirming the addition of Rs. 2,73,85,824/-for entire cash deposits in the Bank accounts for the year instead of cash deposit in demonetisation period and the profit element embedded out of the said cash sales. Therefore, the entire addition of cash deposits made by the Assessing Officer is required to be deleted”.
2.6 “On the facts and in the circumstances of the case, the Ld. the CIT(A)51, Mumbai has erred in confirming the entire amount of cash deposits amounting to Rs.2,73,85,824/- in the Bank accounts instead of gross profit element @ 8% of the said cash sales considering the nature of business carried out by the Appellant. Therefore, the addition made on account of cash deposits made by the Assessing Officer is required to be deleted”.
2.7 “On the facts and in the circumstances of the case, the CIT(A)51, Mumbai has erred in confirming the addition of Rs. 2,73,85,824/-on account of cash deposits without considering the details of dates on which cash deposited, nature and denomination of amounts deposited, the names of the persons from whom cash received by Appellant along with receipt voucher from customer, bank statement, and without considering the source of cash deposit in Banks. Therefore, on this account also the addition liable to be deleted”.
2.8 “On the facts and in the circumstances of the case, the CIT(A)51, Mumbai has erred in confirming the addition of Rs. 2,73,85,824/-on account of cash deposits without appreciating the fact that there are cash in hand as per books of Appellant on account of cash sales, which in any way, cannot be considered as income of Appellant and only the profit element can be brought to tax. Therefore, on this account also the addition liable to be deleted”.
2.9 “On the facts and in the circumstances of the case, the CIT(A)51, Mumbai has erred in confirming the addition of Rs. 2,73,85,824/-on account of cash deposits under wrong section u/s 68 of the IT Act without appreciating the fact that the Bank Pass Book cannot be treated as books of accounts of assessee so as make addition u/s 68 as held by various Courts. Only unexplained cash credits in the books of accounts of Appellant can be brought to tax u/s 68 of the IT Act. Therefore, the erroneous addition made in wrong section of the IT Act, requires to be deleted”.
2.10 “On the facts and in the circumstances of the case, the CIT(A)/NFAC has erred in confirming the addition of Rs. 2,73,85,824/-on account of cash deposits as considering the peculiar nature of business activity carried out by Appellant the cash generated out of sales of Electronic Items during and before the demonetisation period is allowed to be deposited in Bank accounts and the source and genuineness of cash deposits was related and linked with the business activity of Appellant, the entire amount cannot be treated as income of Appellant. Therefore, the erroneous addition made in wrong section of the IT Act, requires to be deleted”.
3. “On the facts and in the circumstances of the case, the CIT(A)51, Mumbai has erred in confirming the taxing income u/s 115BBE of the IT Act as the income of Appellant is required to be taxed under normal provisions of IT Act.”
4. “On the facts and in the circumstances of the case, the CIT(A)51, Mumbai has erred in confirming the fact that AO is not allowing the set off of business loss during the year against the income assessed.”.
5. “On the facts and in the circumstances of the case, the CIT(A) has erred in setting aside the issue of addition of Rs.18 lakhs on account of rental receipts as per 26AS and income offered by the Appellant in books without appreciating the fact that the said rental income was not actually earned by Appellant and no credit for TDS was claimed in respect of said amount in the return of income. Therefore, the addition requires to be deleted”.
6.”On the facts and in the circumstances of the case, the CIT(A) has erred in confirming the addition of Rs.7,68,970/- on account of non deduction of TDS without appreciating the fact that on the said payments no TDS is required to be deducted as the same were revenue expenditure incurred and related to business activities carried out by the Appellant on which TDS provisions are not attracted. Therefore, no disallowance for non deduction of TDS can be made on the sald individual payments and society charges claimed by Appellant. Therefore, the addition requires to be deleted”.
7. “On the facts and in the circumstances of the case, the CIT(A)51, Mumbai has erred in confirming the initiating and issuing penalty notice u/s 271AAC of the IT Act.
8. “On the facts and in the circumstances of the case, the CIT(A)51, Mumbai has erred in confirming the initiating and issuing penalty notice u/s 272A(1)(d) of the ITAct as there was non-compliance to the statutory notices issued as evident from the body of assessment order itself.”
9. “On the facts and in the circumstances of the case, the CIT(A)51, Mumbai has erred in confirming the wrongly charged interest u/s 234B& 234C of the IT Act.
3. Brief facts of the case are that the assessee filed its return of income declaring Rs. 3,09,83,107/-as Loss under normal provisions and Income of Rs.29,04,706/- u/s.115JB of the Act. The case was selected for complete scrutiny under CASS. The assessee is engaged in the business trading in consumer durables including Television sets, LCD, Refrigerators, Air Conditioners, Music Systems, etc. and operates from showrooms located at various places in Mumbai.
4. Ground nos.1 and 2 relate to the addition made in respect of cash deposits in bank accounts during demonetization. The AO noted that the assessee had deposited cash of Rs. 2,82,29,583/- during demonetization period in its bank accounts. On analysis of cash in hand position as per the Balance sheets of last few preceding years, the AO noted that the assessee did not hold very high cash-in-hand. In response to the query in this regard, the assessee filed cash book, month-wise cash-in-hand details for three years, cash sales and date-wise cash deposit after demonetization. It was noted by the AO that bills for cash sales, stock register, deposit slips, etc. had not been filed. Also details of persons to whom cash sales had been made were not provided for verification. On analysis of three-year month-wise cash-in-hand figures as provided by the assessee, it was noted from the figures for the month of August, September and October, 2016 when compared with the corresponding figures of last two year that there was extraordinary cash- in hand reported in F.Y. 2016-17. Therefore, cash deposited in the bank in November, 2016 was abnormally large when compared to other years. The assessee had not submitted any reason for this variation. It was not a case that the business had expanded significantly or many new stores were added in this year. The turnover had, in fact, reduced as compared with earlier years. Further, it was noticed that normally the assessee received cash from sales which was regularly deposited in the bank. There were regular cash deposits every month even in preceding two years. Overall, the cash-in-hand remained at few lakh. However, in the month August, September and October, 2016, the assessee had received abnormal cash and had deposited only a part of that and continued to hold remaining cash-in-hand which was in crores. The cash in hand was Rs. 99.76 lakh in August, 2016, Rs.2.01 cr. in September, 2016 and Rs. 2.82 cr. in October, 2016. It was quite improbable that the assessee would hold so much cash-in-hand only for these months. It was not explained why the cash was not deposited in bank for these months. The assessee had not properly complied with statutory notices and not cooperated with the scrutiny proceedings. The conduct of assessee strengthened that the cash deposit was not genuine. In the case of Sumati Dayal Vs CIT (214 ITR 801) the Apex Court propounded the principle of human probabilities and applying it in that case held that whether apparent is real is to be decided on the basis of incriminating circumstances. He further relied on the cases of Durga Prasad More 82 ITR 540 [SC] and Hersh Win Chadha Vs DCIT (I.T.A.Nos.3088 to 3098 & 3107/Del/2005).By applying the test of preponderance of probabilities and considering the circumstantial evidence, the cash deposit shown by the assessee was considered by the AO as non-genuine and unexplained. As the assessee had not furnished relevant supporting documents, the average monthly cash-in-hand in F.Y. 2015-16 and F.Y. 2017-18 was used by the AO to determine the quantum of unexplained cash deposit of 2,73,85,824/- which was treated as unexplained cash credits u/s. 68 and brought to tax as per provisions of section 115BBE of the Act.
5. Aggrieved, the assessee filed appeal before the ld.CIT(A) contesting the addition on the grounds that there was violation of principles of natural justice and non-consideration of submissions and evidence filed. It appears that the assessee had made an exhaustive reply alongwith various facts and figures as also judicial decision relied upon which have been reproduced in the appellate order. Source of cash deposits was claimed to explained. Moreover, cash deposits could not be taxed u/s 69A or u/s 68 of the Act since they had identifiable source from business receipts. There was no abnormal spike as year-on-year comparison showed no unusual increase in cash deposits. Entire deposits was wrongly taxed instead of profit. The AO disregarded sales data, deposit dates, denominations, vouchers from customers, and correlation with bank statements as also the nature of business ignored as he failed to appreciate that cash sales and corresponding deposits were normal in its line of business.
5.1 As regard the allegation that the AO did not consider the details and documents filed by it and thereby violated the principles of natural justice, the documents submitted by the assessee were sent by the ld.CIT(A) to the AO for remand report. Referring to the various guidelines and instructions of CBDT to the AOs for verifying those cases of cash deposit during demonetization period wherein the assessee’s were claiming that the cash deposit is out of cash sales that had been duly entered into the books of accounts, primarily for comparing historical data to see if there was any abnormal jump in cash sales/cash deposit during the demonetization period and whether these sales were vouched by way of VAT returns. It was pointed out that the assessee could not furnish the copies of VAT return and it was also not ascertainable as to whether the VAT returns were filed in time or were filed with a delay and hence, the authenticity of the cash sales was not vouched and in view of the extraordinary circumstances of demonetization, the possibility of back dating and inflating the cash sales was not ruled out.
5.2 The ld.CIT(A) further observed on examining the monthly figures of cash sales, cash deposits, and closing cash balances for the financial year 2016-17 in comparison with the immediately preceding year, that in FY 2015–16, the deposit-to-sales ratio remained consistent at around 0.95 throughout the months of August to November, reflecting a regular pattern between recorded sales and bank deposits. In FY 2016-17, however, a marked deviation occurred from September onwards. The ratio fell from 0.94 in August 2016 to 0.60 in October 2016, showing that a significant portion of recorded sales proceeds were not being deposited into the bank but retained as cash in hand. In November 2016, covering the demonetization period, the anomaly became more pronounced. Sales were recorded at only Rs.73.69 lakh, yet cash deposits soared to Rs.3.53 cr., producing an extraordinarily high deposit to sales ratio of 4.79, which was more than four times the highest monthly ratio observed in the preceding year. This strongly suggested that the November deposits did not originate solely from current month sales but were largely funded by cash accumulated in earlier months. He again pointed out the failure of the assessee to vouch for the cash sales figures by way of duly filed VAT returns indicating such a sale.
5.3 He further noted that the assessee’s closing cash balance rose sharply from Rs. 99.76 lakh in August 2016 to Rs.2.01 cr. in September 2016 and Rs.2.82 cr. in October 2016, without any corresponding increase in recorded business turnover or evidence of seasonal demand justifying such accumulation. The assessee failed to substantiate the genuineness of this cash build-up which was in contrast to its regular practice of depositing the cash and having little cash in hand. The sales remained unsupported by third-party confirmations, and the daily cash book was self-generated without corroborative evidence. Considering the abnormal cash build-up before demonetization, the disproportionate cash deposits in November 2016 vis-à-vis reported sales, and the absence of timely and verifiable supporting evidence, the explanation offered by the assessee regarding the source of deposits being out of cash sales was not found satisfactory by the appellate authority.
5.4 According to the ld.CIT(A), the assessee had further challenged the addition of the AO on various technical grounds such as non rejection of books of accounts by the AO and bank statement not being books of accounts on which Section 68 was not applicable. As regard the issue of applicability of section 68 of the Act, on the ground that bank pass book entries do not constitute “books of account” maintained by the appellant, the same did not come to the rescue of the assessee in the present case. Even if such a technical objection was taken, the substantive provision governing the taxation of unexplained money is section 69A of the Act, which squarely applied to cash deposits in bank where it was found to be the owner and no satisfactory explanation of the nature and source was furnished. It is a settled position of law that a mere misquotation or incorrect reference to the section of the Act does not vitiate the assessment if the power to tax the transaction exists under another correct provision. In the facts of the present case, the failure of the assessee to substantiate the cash deposits during the demonetization period with verifiable sales records and timely VAT returns clearly brought the case within the ambit of section 69A of the Act and the addition so made remained valid notwithstanding the section originally invoked.
5.5 As regard the issue of non rejection of books of accounts by the AO in making the addition, the ld.CIT(A) observed that for the purpose of making an addition on account of unexplained cash deposits during the demonetization period, rejection of the books of account under section 145(3) of the Act was not a prerequisite. The scope of section 69A of the Act is distinct and independent from the provisions governing the rejection of books, and it empowers the AO to bring to tax any money found in the ownership of the assessee for which no satisfactory explanation regarding nature and source is offered, irrespective of whether the regular accounts are otherwise accepted. In the present case, although the appellant has maintained books of account, the cash deposits made during the demonetization period were not supported by verifiable sales data, as the VAT returns were not filed in time and the claimed sales could not be independently corroborated. The failure to substantiate the source of cash deposits rendered them unexplained within the meaning of section 69A of the Act, and hence the addition was warranted without the necessity of rejecting the entire set of books of account. Accordingly, for reasons as detailed above, the contentions of the assessee were rejected by the ld.CIT(A) and the addition of Rs.2,73,85,824/- on account of cash deposited during the demonetization period and held as unexplained by the AO was confirmed.
6. Before us, the ld.AR has reiterated the same contentions as made before the lower authorities. It is submitted that the assessee was engaged in a business which involved lot of cash transactions. It had filed all the contemporaneous records before the lower authorities explaining the cash deposited during the demonetization period and no infirmity was pointed out by them. However, on the analysis of cash deposits made before demonetization, the authorities below wrongly inferred that the cash receipts were back dated so as to inflate the sales. Although, the AO did not reject the book results, thus making allegations based on theoretical exercise rather than the facts borne from the books of account. The impugned addition was made without appreciating the details and submissions filed by the assessee from time to time to prove the source and genuineness of cash deposited out of cash sales made by the assessee, the names of the persons from whom cash received by it along with receipt voucher from customer, bank statement, and without considering the source of cash deposits in Banks. Since there were more than 2500 items, it attached the records of sample of some main items. It was further submitted that the assessee company operated in organised sector where inventory management plays an important role. Moreover, the products were distinctly identifiable. It had electronic record-keeping of inventory owing to the large amount of products. The assessee also submitted to AO, Sales register along with quantity details for April, 2016-November, 2016,Stock Outward register for April, 2016-November, 2016,samplesale invoices etc., which could substantiate the genuineness of the stock and sales effected therefrom. Further, the books of accounts were audited under the provisions of the Companies Act as well under Income Tax Act and there was no adverse comment of the Auditor with respect to the genuineness of the purchases made by the assessee.
6.1 It was further stated that it was discernible from the data made available to the authorities below that the ratio of cash deposited into bank to cash sales was, in fact, lower during the year under appeal, which deserved to be appreciated when arriving at any conclusion regarding cash deposits during demonetization period. As regard the fact of the assessee holding high cash in hand, it was submitted that it was the discretion of the assessee to deal with the cash it holds in the manner it deems fit and merely holding cash in hand did not in any way go to suggest any wrongdoing. The assessee was having cash sales every year and in almost the same proportion to total sales. Besides, the AO had not brought anything on record to prove that the assessee did not have adequate stock to effectuate the sales made during the year under appeal. The final figure of VAT on annual basis after verification/corroboration was at Rs. 674,080,389/- which was less only by Rs. 4,394/- as compared to P&L a/c shown in return of income filed. Therefore, the turnover of Rs. 67.40 cr. was matching with that shown to VAT dept. This record was independent having shown to other Government department. The cash deposit made during the period of demonetization was nothing but the cash realized out of sales made in cash. The conclusive way to substantiate this fact were the documentary evidences which the assessee had produced with respect to the acquisition of products, inventory management of the products and the sale of the products. The company had maintained appropriate records for its inventory and cash accounting. By analyzing these documentary evidences with the financial statement, audit report, income tax returns; it could be easily traced that all the cash sales had been duly offered as revenue and were subjected to applicable tax. All sales including cash sales had been offered to taxation and the same were not in dispute. It was also not the case where the assessee was subjected to any sort of investigation/search proceedings wherein cash was discovered. The transaction made in cash were in its normal course of business. Thus, the primary contention was that the cash held by the assessee could not be doubted by merely considering the trend of historical figures and in utter disregard to the documentary evidences produced to substantiate the sales/purchases/cash for the relevant year. The pre-amended provisions of Rule 114E as applicable to the relevant year also did not require the assessee company to maintain and report KYC/specified financial transaction details w.r.t. cash sales made. There was no mandate to collect details of the customer,
6.2 It was further submitted that as per common practice to offer various discounts/lucrative offers for selling such electronic consumer durable products during the festive season, there were various sort of offers made available during the festivals. It was on account of back-to- back festivals during the period, the assessee effected considerable amount of sales in the month of August, September, October. Just because cash in hand for the month of September and October was high, by itself could not be the sole ground to taint the company of undertaking sham transactions. It was not for the tax authorities to step into the shoes of business men by questioning the prudence and wisdom of his business decision. The assessee had been into business since 25 years and it was its sole discretion to decide what financial transactions to be undertaken. It was not for the revenue to question the commercial expediency or the reasonableness of the transaction.
6.3 It was submitted that apart from the various other reasons to hold cash, it inter-alia included a reason that the assessee had availed Overdraft credit facility from ICICI Bank which was not being fully utilized. Because of cash deposit, the unutilized credit limit was further increasing. Since this limit was not being utilized optimally, the bankers were insisting the assessee to reduce the overall credit limit. However, the company was under anticipation that it may require to use more credit in coming period; hence, it decided that excess cash should not be deposited in bank and to optimally use the credit facility extended by the bank. During the year under review the assessee company had availed Overdraft Facility from ICICI Bank sanctioned on May 2015 from Bank. In April 2016 the Facility was under renewal and the company had already utilized limit of around Rs.24.30 cr. ICICI Bank were insisting on reducing limit due to certain reasons as the Drawing Power of the Company didn’t meet with the norms as decided by Bank. The same was brought to the notice of Company August 2016. As a matter of fact borne out of record that the assessee had deposited cash during demonetization period in two other Current Accounts of the Company other than ICICI Bank. When the source and genuineness of the cash receipts were substantiated by way of documentary evidences, the holding of cash could not be doubted by questioning the reasons for business decisions. It was further argued that the assessee had misrepresented or concealed any aspect of the transaction. The cash sales had been already been disclosed in the return of income and was also subjected to tax. It had maintained cash balance so as to facilitate various business activities and objectives.
6.4 It was further argued that the receipt of cash was undisputed however, the addition was erroneously made under section 68 of the Act solely for the reason that it had held huge amount of cash with itself. Non-spending of money or holding money is a negative fact and the Revenue cannot ask the assessee to bring forth positive evidence regarding the non-spending of such amount(s)/ holding of such amount. Before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The department cannot by merely rejecting unreasonably a good explanation convert good proof into no proof. Reliance was also placed on the appellate order of Hon’ble ITAT, Visakhapatnam in the matter of ACIT vs. Hirapanna Jewellers [ITA No.: 253/Viz/2020; order dated 12.05.2021] in which under identical facts it was held that it was undisputed that assessee had duly recorded cash sales in its books and was also offered to tax. The assessee had duly produced records of the invoices and stock registers which shows the inflow and outflow of stock. The department had conducted survey wherein no difference in stock records was found. The purchase, sale and stock were interlinked and inseparable. The sales and Stock were accepted and there was no defect pointed by the AO; therefore the corresponding sale cannot be disbelieved. The AO failed to disprove the evidences and explanation of the assessee; addition cannot be made merely upon suspicion; unless sales were disproved with tangible evidence. Since the sales and stock records were in order; and because the cash sales were already offered to tax by Assessee; no separate addition u/s. 68 can be made for depositing the cash which was realized from such sales.
6.5 The facts of the present case of assessee company are identical to the above case and accordingly, no addition should be made merely for the reason that company held excess cash for two months which in the opinion of the Assessing Officer was excessive. Consequently, the action of the AO invoking provisions of section 68 of the Act was based on assumptions and presumptions. The AO conveniently ignored the fact that the assessee had explained the source of cash deposited into bank account during the demonetisation period as being out of cash sales, which was duly supported by the facts of the assessee’s case, viz: the extent of cash sales and cash deposits during the year under appeal as well as the year preceding and year succeeding to the year under consideration. The AO had not rejected the book results of the assessee.
6.6 It is also stated that the AO in the remand report reiterated the addition made by holding that the documents such as cash book submitted by the assessee were internally generated document, maintained by itself and not sufficient to conclusively prove the genuineness of the cash deposit. The AO also stated that the submission of the appellant was duly considered at the time of passing the assessment order which has been contested.
7. Per contra, the ld.DR has supported the orders of the authorities below contending that the assessee could not explain the huge cash availability before the demonetization.
8. We have heard the rival submissions and perused the materials available on record. At the outset, we find that the AO made the addition based on an analysis of the books of account drawing a conclusion that the assessee tried to explain the impugned deposit from the cash in hand available to it from earlier months. The ld.CIT(A) affirmed that conclusion holding that there was no justification for holding such large amount of cash in hand which to his mind was an exercise to predate the entries so as to explain the demonetized cash. He also pointed out the assessee failed to reconcile the sales of earlier months from VAT returns which were not filed with the concerned authorities. He also observed on examining the monthly figures of cash sales, cash deposits, and closing cash balances for the financial year 2016-17 in comparison with the immediately preceding year, that in FY 2015-16, the deposit-to-sales ratio remained consistent at around 0.95 throughout the months of August to November, reflecting a regular pattern between recorded sales and bank deposits. In FY 2016–17, however, a marked deviation occurred from September onwards. The ratio fell from 0.94 in August 2016 to 0.60 in October 2016, showing that a significant portion of recorded sales proceeds were not being deposited into the bank but retained as cash in hand. In November 2016, covering the demonetization period, the anomaly became more pronounced. Sales were recorded at only Rs.73.69 lakh, yet cash deposits soared to Rs.3.53 cr., producing an extraordinarily high deposit-to sales ratio of 4.79, which was more than four times the highest monthly ratio observed in the preceding year.
8.1 We further find that the assessee made a detailed submission before the ld.CIT(A) alongwith relevant facts and figures claiming that the books of account were duly supported by necessary evidences. A gist of such submissions have already been narrated in the pars 6 to 6.6 (supra). It appears from the appellate order that the ld.CIT(A) has mostly brushed aside such submission and the appellate order is bereft of any specific observation w.r.t. the contentions made by the assessee before him. In this backdrop, we have duly taken into consideration such submissions in adjudicating the issue in hand.
8.2 The assessee has also contested the addition made without rejecting the book results and also the addition made under wrong provisions of the Act. It is noticed that the ld.CIT(A) failed to take note of such explanation which were duly supported with relevant materials emanating from the books of account which remained untouched by the AO who did not find any deficiency or defect in the book results. Neither purchases or sale were doubted for any of the months under consideration. To our mind, the addition is based on a hypothetical exercise which is fully divorced from the book results. No addition could be made only on surmises and presumption howsoever, the doubt may be strong. No independent enquiry into the matter is also borne from the records. The observations regarding holding substantial cash in hand for making the impugned addition lacks any substance unless any serious defects are pointed by the authorities and it is the commercial decision and business prudence of the assessee could not be dictated by the Revenue.
8.3 In the instant case, the assessee maintained regular books of account and the AO 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. Moreover, once the AO 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 was unexplained, more particularly when he failed to find any error in the details and evidences filed by the assessee even in the Remand proceedings allowed by the appellate authority. The assessee has deposited cash during the demonetization period out of the cash balance available in the cash book on the date when the demonetization was announced. 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 electronic goods comprising of as many as 2500 types of items as a retailer where sales form a major chunk of the turnover. No demerits have been pointed out in the sale bills, purchases or for that matter in the stock register. 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 during the demonetization period. No adverse observations were made by the AO or by the ld. CIT(A) that records submitted were not in conformity with the accepted accounting principles and also no doubts were raised about the availability of stock prior to cash sales. The assessee had submitted complete details and thus, discharged 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 had already included the entire cash sales in the total sales and the profits derived there from were offered for tax, thus taxing such entire cash receipts as income amounts to 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.
8.4 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.”
8.5 From the perusal of the provisions of section 68 of the Act, it is evident that AO can make addition u/s 68 only under two circumstances, i.e.(i) assessee does not offer any explanation about nature and source of such credit; or(ii) explanation offered by it is not upto the satisfaction of the AO. In other words, whenever the assessee provides explanation, before rejecting the same, the AO has to record dissatisfaction as to why the explanation furnished by the assessee is not acceptable. As is evident from the facts of the present case, the 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 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.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 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.”
8.6 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 under section 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]”
8.7 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.”
8.8 It is also evident from the submissions made before the ld.CIT(A) the assessee had duly reconciled the sales turnover with those disclosed in the VAT return but for a minor diference. The ld.CIT(A) has not taken due cognizance of the stand of the assessee in this regard as well. He did not distinguish a plethora of judicial decisions relied upon by the assessee in respect of rejected of books of account, applicability of the provisions of section 68 of the Act so on so forth.
8.9 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 set aside the appellate order and direct the AO to delete the impugned addition of Rs 2.73 cr. The ground nos. 1 and 2 of the assessee are accordingly, allowed.
9. In ground no. 3, it has contested the applicability of the provisions of section 115BBE of the Act while in ground no.4, it has claimed set-off of business loss against the income assessed under section 69A of the Act for the year under consideration
10. However, as we have already directed the AO to delete the entire addition made in respect of cash deposits made during demonetization period in ground nos.1 and 2 above, these grounds being consequential do not survive requiring no adjudication. The AO would give consequential effect in the OGE.
11. In ground no.5, it is stated that the CIT(A) erred in setting aside the issue of addition of Rs. 18 lakh on account of rental receipts as per 26AS and income offered by the assessee in books without appreciating the fact that the said rental income was not actually earned by it and no credit for TDS was claimed in respect of said amount in the return of income.
12. On verification of 26AS, it was observed by the AO that the assessee had received rental income amounting to Rs. 29,00,000/- on which TDS had been deducted in respect of various parties. However, rent receipts shown in Profit and Loss Account was only Rs.11,00,000/-. In this regard, the assessee was asked to submit party-wise reconciliation of rent receipts declared under the head income from house property with the rental receipts reported in 26AS. However, no submission whatsoever was filed reconciling the rent receipts as per 26AS with ITR. Accordingly, in absence of any satisfactory explanation and material available on record, the aforesaid differential rental receipts of Rs. 18,00,000/- was brought to tax and added to the total income.
13. Before the ld.CIT(A),the assessee contested the addition claiming when the credit for TDS was not claimed in this assessment year, the corresponding receipt could not be brought to tax as taxable income and TDS credit have to be in same year as per accepted principles of accountancy. It is further clarified that there was mistake on the part of Bandhan Bank in mentioning our PAN and letter dated 01/01/2020 from the Bank. The ld.CIT(A) observed that the assessee had submitted an email dated 01.01.2020 addressed to the tenant intimating that rent was required to be paid to the new owner and TDS return may be rectified. No further evidence with respect to transfer of ownership hasd been filed by it. In view of the same, the AO was directed to verify the Form 26AS of the assessee to check if the corresponding income had been rectified by the tenant and in such a case delete the addition. In case the Form 26AS still showed the rental receipt as income of the assessee, the AO was directed to allow the credit of TDS against this income. This ground of appeal is allowed for statistical purposes.
14. Before us, the ld.AR has reiterated the same contentions as made before the appellate authority.
15. We have carefully considered the facts. It is evident from the assessment order that no reply regarding non disclosure of a part of the rent receipt as per 26AS was filed before the AO. Thus, the facts of the case and the explanation offered before the appellate authority were not considered in proper perspective by the AO. In such a situation, we find no infirmity in the direction given by the ld.CIT(A) to the AO to examine the case and act as per the direction given. The ground being devoid of any merit is dismissed.
16. In ground no.6, it is stated the CIT(A) erred in confirming the addition of Rs.7,68,970/- on account of non deduction of TDS without appreciating the fact that on the said payments no TDS was required to be deducted as the same were revenue expenditure incurred and related to business activities carried out by the assessee on which TDS provisions were not attracted. No disallowance for non deduction of TDS can be made on the said individual payments and society charges claimed by the assessee.
17. In the course of assessment proceedings, from the party- wise and head-wise details (such as name, address, PAN and amount) of expenses debited to P&L a/c along with details of TDS made on expenses, it was observed that TDS had not been deducted on certain payments relating to loading expenses and Society Maintenance, Selling Distribution etc. The assessee had not offered any explanation as to why TDS was not deducted on the above-mentioned payments. In absence of any satisfactory explanation and material available on record, 30% of these expenses amounting to Rs. 7,68,970/- was disallowed as per provisions of section 40(a)(ia) of the Act and added to total income of assessee.
18. Before the appellate authority, the addition was objected to claiming that the AO erred in making the addition without appreciating the fact that on the said payments ,no TDS was required to be deducted as the same were revenue expenditure incurred and related to business activities carried out by the assessee on which TDS provisions were not attracted. Each amount was small and the assessees concerned were mostly not in tax-bracket, hence no loss to revenue in any case. Such expenditure was regular in each year which had been accepted by the department.
18.1 However, the ld.CIT(A) observed that the statutory requirement under Chapter XVII-B of the Act mandates deduction of tax at source from specified payments if they fall within the ambit of the relevant TDS provisions, irrespective of the quantum of the payment or the tax bracket of the recipient. The obligation to deduct TDS is not conditional upon whether the payee ultimately has taxable income, nor upon whether there is a loss to the Revenue. The appellant had not demonstrated that the stated payments were outside the scope of the relevant TDS provisions. Further, the fact that similar claims may have been accepted in earlier years did not confer any immunity where the statutory provisions are clear and applicable. The assessee had also not produced any conclusive evidence to show that the recipients had offered the amounts to tax so as to avail the benefit of the second proviso to section 40(a)(ia) of the Act. Accordingly, the disallowance made by the AO amounting to Rs.7,68,970/- was upheld.
19. Before us, the ld.AR has reiterated the same contentions as made before the appellate authority.
20. On careful consideration of the above facts, we find that the appellate order has been duly passed considering the replies of the assessee which was not found satisfactory and also unsubstantiated. There being no infirmity therein and in the absence of any cogent reply by the assessee, we uphold the appellate order and the ground in this regard is, therefore, dismissed.
21. In Ground nos. 7 and 8 has contested initiation of penalty proceedings u/s 271AAC and 272A(1)(d) of the Act. Since the penalty orders have not been passed as yet but only have been initiated and no prejudice is caused to the assessee at this stage, the ground of appeal being premature is, therefore, dismissed.
22. In ground no.9, the assessee has challenged the levy of interest u/s 234 B & 234C of the Act. However, the ground being consequential, the AO would recompute the same after giving effect to the directions contained in this order.
23. In the result, the appeal of the assessee is partly allowed.
24. ITA No. 6849/MUM/2025(Revenue)
1. Whether the Ld. CIT(A) has erred in law and on facts in rejecting the proposal for enhancement of Rs. 3,49,06,874/- made under Section 68 of the Income Tax Act, 1961, without appreciating the facts that assessee company fails to establish the creditworthiness of the transaction of Rs.12,19,55,297/- as under section 68, of the Act during the FY 2016-17, however the financial shows the loans and advances of Rs.8,70,48,423/- for the FY 2015-16?”.
2. “Whether the CIT(A) has erred in law and on facts in rejecting the proposal for enhancement of Rs.35,31,294/- in treating the outstanding liability as ceased under Section 41(1) of the Income Tax Act, without there being any evidence of actual remission or cessation of liability during the assessment year?”
25. According to the appellate order, the AO in the remand report had proposed to enhance the income in the case of the assessee on two issues: (i) An amount of Rs.12,19,55,297/- had been received from M/s Sony Mony Traders Pvt. Ltd. on 03.12.2016 which was utilized to pay the overdraft account; however the Balance Sheet showed receivable of Rs.8,70,48,423/- only from the said party. As per the AO, the balance amount of Rs.3,49,06,874/- was not reflected in the Balance sheet and hence, needed to be added to the total income and (ii) the Bank had reversed an interest liability of Rs.35,31,294/- and hence, the same needed to be added back u/s 41 of the Act.
26. In this regard, before the ld.CIT(A),the assessee made a detailed along with copies of ledger account and balance sheet to show that the transactions identified by the AO were duly reflected in the books of accounts and also explained as to why enhancement of income was not required on those issues. The response was forwarded to the AO for comments who however, reiterated the earlier proposal.
26.1 The ld.CIT(A) observed that with respect to receipt from M/s Sony Mony Traders Pvt. Ltd. which the AO alleged that the same was not reflected in the Balance sheet, the assessee submitted the copy of its ledger account and Balance sheet in support of the opening balance and the closing balance of the instant year. It was seen from the ledger account that the said transactions were reflected in a running account wherein there were both debits and credit entries on various dates. The opening balance of Rs.8,70,48,423/- and the closing balance of Rs.10,15,699/- were duly reflected in the Balance Sheet. The AO had merely added the receipts from the said concern and ignored the repayments in holding that the total receipt from the said party was in excess of the amount reflected in the Balance Sheet. Thus, there was no difference in the total receipt and the amount shown as receivable in the Balance Sheet. The proposal of the AO was, therefore rejected and no enhancement of income was done on this account as the finding of the AO was factually incorrect.
26.2 With respect to write off of interest of Rs. 35,31,294/- which the AO proposed to add u/s 41 on account of cessation of liability, it was observed by the ld.CIT(A) from the ledger account of interest paid that the said amount had been credited by the assessee on 27.12.2016 and only the net interest had been claimed as an expenditure. Since the amount of Rs. 35,31,294/- had never been claimed as deduction, the question of adding the same u/s 41 of the Act by treating it as cessation of liability did not arise. This proposal of the AO was, therefore, rejected and no enhancement was done on account of reversal of interest by the Bank on OD account.
27. In the course of hearing before us, the ld.DR has not made any comments and merely relied on the grounds of appeal. In such a situation, we find no reasons to differ from the observations and the findings of the ld.CIT(A) which is based on proper appreciation of facts revealed by the books of account which were duly perused by him. Accordingly, there being no infirmity in the appellate order, both the grounds are dismissed.
28. In the result, the appeal of the Revenue is dismissed.
29. To sum up, appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed.
Order pronounced in the open court on 16/09/2026.
