Khem Ka Bengal Telecom Vs ITO (ITAT Kolkata)
Demonetisation Deposits Supported by Sales, VAT Returns and Buyer Details: ITAT Deletes ₹74.18 Lakh Section 69A Addition
Background of the Case
The Kolkata Tribunal deleted an addition of ₹74,17,500 under Section 69A relating to deposits of specified bank notes during demonetisation. The assessee had supported the deposits with extensive business records, while the Assessing Officer had neither rejected the books nor identified defects in the supporting evidence.
The assessee-firm carried on distributorship of Hindustan Unilever FMCG products and distribution of mobile recharge vouchers and related products of the Airtel group.
It filed its return declaring income of ₹4,16,180. During scrutiny, the Assessing Officer questioned deposits of ₹74,17,500 in specified bank notes.
Although the assessee furnished explanations and records, the officer considered them insufficient and assessed the entire deposit as unexplained money. Total income was consequently determined at ₹78,33,680.
The CIT(A) sustained the addition.
Deposits Explained as Recorded Trading Receipts
Before the Tribunal, the assessee contended that the deposits arose from cash sales already recorded in its regular books.
Its total turnover for Financial Year 2016–17 was ₹27,49,40,775, including the sales underlying the disputed deposits.
The assessee argued that the Revenue had accepted the sales and the profit disclosed from those sales. Treating the corresponding cash receipts again as unexplained income, without identifying defects in the records, was therefore unjustified.
It also referred to a recorded cash balance of ₹74,72,342 and furnished detailed material concerning the source and deposit of cash.
Extensive Evidence Furnished During Assessment
The Tribunal recorded that the assessee had produced audited financial statements and the tax audit report, together with cash books, ledgers, creditors’ accounts, cash-flow statements and day-wise and month-wise sales and purchase details.
The supporting material also included West Bengal VAT returns for all four quarters, denomination-wise details of specified bank notes deposited, and comparative statements of cash receipts and bank deposits for the preceding and relevant financial years.
Significantly, the assessee furnished names and addresses of 670 buyers to whom cash sales were made during the demonetisation period, along with stock-related details.
Distribution agreements with HUL and Airtel, municipal trade licences, bank statements and financial records for surrounding years supported the existence and continuity of the business.
Third-Party Replies Provided Further Corroboration
The assessment record included replies received from Airtel Payment Bank, Bank of India and Bharti Telemedia Ltd. pursuant to notices under Section 133(6).
These replies formed part of the material available for examining the assessee’s explanation.
The Tribunal specifically noted that the Revenue had recorded no adverse findings concerning these third-party responses.
This mattered because the explanation did not rest solely on the assessee’s own statements. It was supported by business records, statutory returns and information obtained through the Department’s independent enquiries.
No Defects Identified in Books or Supporting Records
The Tribunal found no adverse findings on the VAT returns, the particulars of the 670 buyers, the tax audit report or the audited books.
It also noted that the declared turnover included the relevant sales and that the books had neither been rejected nor found defective.
Thus, the dispute was not resolved merely by observing that the assessee maintained accounts. The Tribunal considered the breadth of the evidence and the absence of a demonstrated defect undermining the claimed sales source.
The Revenue’s general dissatisfaction did not displace that factual foundation.
Earlier Kolkata Decisions Followed
The Tribunal relied on the reasoning in ITO v. Sanhati Infocom Services Pvt. Ltd., where cash deposits were explained through regularly accounted business receipts.
The discussion reproduced in the order also referred to ITO v. Senco Alankar [2022] 142 taxmann.com 578, recognising the relevance of accepted purchases and the absence of specific defects in the books when examining demonetisation deposits.
Applying that approach to the present record, the Tribunal found substance in the assessee’s explanation.
It deleted the entire ₹74,17,500 addition under Section 69A and allowed the appeal.
Mobile Recharge Exception Was Not the Decisive Finding
The assessee’s grounds also referred to the permitted use of specified bank notes for certain prepaid mobile top-ups during demonetisation.
However, the Tribunal did not separately determine that contention or base its operative relief on a finding that every receipt satisfied the conditions of that exception.
The decisive reasoning concerned the established trading activity, recorded sales, extensive corroboration and absence of adverse findings.
Author’s Comments
The ruling demonstrates that a cash-sales explanation becomes persuasive when it is supported by a complete chain of records linking business activity, stock, sales, customers, cash availability and bank deposits.
The non-rejection of books was relevant, but it was accompanied here by substantial documentary and third-party corroboration. The decision should therefore not be reduced to a proposition that every deposit must be accepted merely because the books remain unrejected.
Equally, deposit of specified bank notes during demonetisation does not by itself establish unexplained income. The source must be evaluated against the actual evidence, and any rejection should address identifiable discrepancies rather than general suspicion.
List of Cases Discussed
1. ITO v. Sanhati Infocom Services Pvt. Ltd. (ITAT Kolkata), AY 2017–18: The Tribunal followed this decision concerning cash deposits sourced from regularly recorded business receipts.
2. ITO v. Senco Alankar [2022] 142 taxmann.com 578 / [2023] 202 ITD 278 (ITAT Kolkata), dated 27.06.2022: Relied upon for the treatment of demonetisation deposits where purchases were accepted and no specific defects were identified in the books.
3. Jayanta Fanzen Lighting Industries (P.) Ltd. v. ACIT [2025] 180 taxmann.com 814 (ITAT Kolkata): Discussed in the reproduced Sanhati Infocom reasoning concerning explained bank deposits.
4. Lakshmi Rice Mills v. CIT [1974] 97 ITR 258 (Patna High Court), dated 15.04.1974: Referred to regarding deposits of high-value demonetised notes supported by available cash in the books.
5. ITO v. Joydeb Kundu (ITAT Kolkata), ITA No. 8/Kol/2021, dated 16.05.2023: Cited by the assessee in support of its case.
6. Joginder Kaur v. ITO [2024] 169 taxmann.com 90 (ITAT Amritsar): Discussed within the reproduced precedent concerning redeposit of cash withdrawn earlier.
7. Jaspal Singh Sehgal v. ITO [2017] 83 taxmann.com 246 (ITAT Mumbai): Cited in the reproduced precedent.
8. Ajaya Data v. ACIT [2025] 171 taxmann.com 308 / 211 ITD 701 (ITAT Jaipur): Discussed regarding availability of earlier withdrawn cash where no alternate utilisation was established.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee is directed against the order dated 30.08.2025 of the Office of the National Faceless Appeal Centre (NFAC), Delhi passed under Section 143(3) of the Assessment Year 2017-18 of the Income-Tax Act, 1961 (hereinafter referred to as “the Act”).
2. The assessee firm filed his return of income for the Assessment Year 2017-18 disclosing total income at Rs. 4,16,180/-.The case of the assessee came under the purview of scrutiny through CASS, notice u/s 143(2) and notice u/s 142(1) along with questionnaires were also issued.The Assessing Officers finds that assessee has deposited cash in SBN amounting to Rs. 74,17,500/-, and assessee has been asked to furnish the details. Assessee has furnished the written submission and details as per required but Assessing Officers finds that it is not sufficient hence assessment has been completed determining the total income at Rs. 78,33,680/- as an amount of Rs. 74,17,500/- being unexplained money u/s 69A of the Act.
Aggrieved by the said order assessee preferred appeal before the CIT(A) wherein appeal of the assessee has been dismissed.
3. Being aggrieved by and dissatisfied the assessee preferred appeal by taking following grounds: –
1. For that in view of facts and circumstances of the case, learned Commissioner of Income Tax (Appeal), NFAC erred on facts as well as in law in confirming the action of learned Assessing Officer in making the addition of Rs. 74,17,500/-to the returned income of Rs. Rs.4,16,180/-, by treating the cash deposit of SBN (Specified Bank Notes) invoking section 69A read with section 115BBE of the Income Tax Act, 1961.
2. For that, without prejudice to the above and in view of facts and Circumstance of the case, the Ld. CIT (A) erred on facts as well as in law in not considering the facts that the government had permitted various exemptions for certain transactions and activities wherein payment could be made through the SBN, out of which one is Payments towards prepaid mobile to a limit of Rs 500 per top-up and Your appellant had an out-let of recharge mobile top- up and he therefore collected SBN against top recharge from up customers.
1.1 For that, without prejudice to the above and on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in incorrectly concluding that the deposit of cash is unexplained ignoring the facts that source of all cash deposits is out of trading receipts, which were duly assessed under WBVAT ACT, 2003.
3. For that, without prejudice to the above and in view of facts and Circumstance of the case, the Ld. CIT (A) erred on facts as well as in law in not considering the material brought on record before Ld. A.O. as well as before him in proper perspective.
4. For that, in view of facts and Circumstance of the case, the Ld. CIT (A) erred on facts as well as in law in imposing interest of Rs. 19,11,591.00 & Rs. 3708.00 u.s. 234B & 234C of the L.T. Act, 1961 respectively.
5. The appellant craves leave to adduce further grounds of appeal and/or alter any the grounds before hearing and/or at the time of hearing.
4. The Ld. AR submits that Assessing Officers as well as CIT(A) did not consider the documents filed by the assessee nor they have given any finding as to why these documents are inadmissible, insufficient and un-trustworthy. The ld. AR submits that assessee has filed tax audit report, cash book, ledger book, cash close statement, date wise denomination, names and address of 670 buyers to whom cash sales were made, and reply from Airtel Payment Bank etc. The Ld. AR further submits that cash balance of Rs. 74,72,342/- is duly recorded in the cash payment maintained in the normal course of business. The assessee’s total sales during the F.Y 2016-17 were approximately Rs. 27.49 crores. The Ld. AR submits that books of accounts have not been rejected u/s 145(3)and there was a reply from Airtel Payment Bank and Bank of India in pursuant to the notice issued u/s 133(6).It has further been argued that AO has accepted that profit on the sales, having accepted the profit in the aggregate sales,the AO cannot treat the same cash sales receipts as unexplained income u/s 69A of the Act. The ld. AR cited the following decisions: –
(i) ITO v. M/s Senco Alankar- ITAT Kolkata, ITA No. 10?Kol/2021, dated 27.06.2022 (AY 2017-18)
(ii) ITO v., Joydeb Kundu- ITAT Kolkata, ITA No. 8/Kol/2021, dated 16.05.2023 (AY 2017-18)
(iii) ACIT v. Jayanta Fanzen Lighting Industries Pvt. Ltd. – ITAT Kolkata (AY 2017-18)
(iv) ITO v. Sanhati Infocom Services Pvt. Ltd- ITAT Kolkata (AY 2017-18), decided May 2025.
Contrary to that Ld. DR supports the impugned order.
5. Upon hearing the submission of the counsel of the respective parties, on perusal of the impugned order and facts of the case, we find that assessee firm is engaged in distributorship of FMCG products of Hindustan Uniliver Limited (HUL) and the retail distributorship of mobile recharge vouchers and easy recharge of Bharati Airtel Limited, Airtel M-Commerce and Bharti Tele-Media Ltd for many years. We further find that assessee had produced the following documents before the AO:-
(a) Tax audit report and audited accounts for the year ended 31.03.2017 (u/s 44AB of the I.T. Act and u/s 30E of the WBVAT Act, 2003)- pages 1-12 of paper book;
(b) Cash Book, Ledger Book, Creditor’s Ledger, Cash Flow Statement, day-to-day and month-wise sales and purchase ledger for F.Y. 2016-17 in prescribed format;
(c) WBVAT Returns for all four quarters of F.Y. 2016-17 (pages 189-192) ле turnover consistent with books of account and independently corroborating cash sales.
(d) Date-wise denomination-wise details of SBN deposited into the bank with source;
(e) Names and addresses of 670 buyers to whom cash sales were made during the demonetization period, along with quantity-wise valuation of stock;
(f) Month-wise comparative chart of cash sales/receipts and cash deposits into bank for FY 2015-16 and FY 2016-17:
(g) UCO Bank statement for the period 01.04.2016 to 01.04.2017, Burnpur Branch ( 109-170):
(h) Replies from Airtel Payment Bank (14.11.2019), Bank of India (21.10.2019, 27.11.2019, 23.12.2019), and Bharti Telemedia Ltd. (22.11.2019) received Burnpur Brach pursuant to notices u/s 133(6). (Page 195 to 258).
(i) HUL Redistribution Stockist Agreement (pages 63-94) and Pre-paid Distributio Agreement with Bharti Airtel Ltd. (pages 95-108) establishing the legitimate, struc nature of the Appellant’s trading business;
(j) Trade licences issued by Asansol Municipal Corporation for FY 2016-17 an 200 (pages 58-62);
(k) Current stock report as on 31.03.2017 (pages 171-188) and audited accounts for ye ended 31.03.2016 and 31.03.2018, establishing continuity of business operations; and
(l) Ledger account of Dinesh Kumar Agarwal in the Appellant’s books for A.Y. 2017-18 (furnished pursuant to notice u/s 133(6) dated 03.13.2019).
(m) The Gross Profit/Net Profit ratio of the last 3 years and subsequent year with parity with each year (Page 259);
5.1. It is pertinent to mention here that there was no adverse findings on the WVAT returns, no adverse findings on the 133(6) replies, no adverse finding on the names and address of 670 parties to whom cash sales were made during the demonetisation period, no adverse findings on the tax audit report u/s 44AB and audit books of accounts. We further find that total turnover /sales as declared in the audit accounts of Rs. 27,49,40,775/- includes the sales which were made and the cash deposit during the demonetisation period. The books of accounts have neither been rejected nor found defective by the AO: –
5.2. We have gone through the judgment passed by the Kolkata Tribunal in ITO v. Sanhati Infocom Services Pvt. Ltd.- ITAT Kolkata (AY 2017-18) in which this issue has been dealt and Tribunal has decided as such:-
5. After hearing the rival contentions and perusing the materials available on record, I find that the assessee is in the business of providing internet services to commercial and residential users. I have even examined the books of account as well as the bank account of the assessee and find that the assessee has been consistently being doing business of sale and purchase of items concerning the internet services and sales are also regularly accounted for in the books of accounts and so were the purchases. I note that the assessee deposited into the bank account by way of cash regularly and consistently which is done by the assessee throughout the year out of sale proceeds which is duly accounted for in the books of account. The ld. CIT (A) has rejected the contention of the assessee on the ground that assessee furnished a very short reply by submitting that the money was collected through cash, cheques or NEFTs for the internet service charges and source of cash deposits was not explained. Whereas, on the basis of records available before me, I observe that the assessee has completely and adequately explained the source of cash deposited during the demonetization period to be out of sales proceeds of the assessee. Therefore, the order passed by the ld. CIT (A) cannot be sustained. The case of the assessee is squarely covered by the decision of the co-ordinate Bench in case of Jayanta Fanzen Lighting Industries (P.) Ltd. vs. ACIT [2025] 180 taxmann.com 814 (Kolkata – Trib.)[19-11-2025], wherein it has been held as under:-
“3. The facts in brief are that the assessee filed the return of income on 26.10.2017, declaring income of Rs. 9,17,340/-. The case of the assessee was selected for complete scrutiny through Computer Assisted Scrutiny Selection (CASS) on account of large cash deposits and abnormal increase in sales with decrease in profitability. Accordingly, notice u/s 143(2) and 143(1) of the Act along with questionnaire were issued calling for various documents/ evidences from the assessee to prove the source of cash deposits. The ld. AO noted that during the course of assessment proceedings, the assessee has deposited of Rs. 1,70,60,000/- in two bank accounts namely Axis Bank, Ballbhgarh of Rs. 99,80,000 and Karur VyasyaBank,Merrut Br. of Rs. 70,83,000/-. The ld. AO noted that the deposits made in the Axis bank account, Balbhgarh were inclusive of Rs. 35,80,000/- deposited into the bank during demonetization period. The assessee when did not respond to the various notices issued by the ld. AO, the amount of cash deposited into the bank account was treated as unexplained money u/s 69Aof the Act and added to the income of the assessee in the assessment framed.
4. Thereafter, the assessee challenged the order before the ld. CIT (A), who also dismissed the appeal of the assessee after taking into consideration the contention/ submissions along with evidences and also the remand report called for by the ld. CIT (A) during the appellate proceedings.
5. After hearing the rival contentions and perusing the materials available on record, we find that undisputedly the assessee was non-compliant during the assessment proceedings by not responding to the various notices issued to the assessee and therefore, the cash deposited during the year including the cash deposited of Rs. 35,80,000/- during demonetization period was treated by the ld. AO as unexplained money u/s 69A of the Act. We note that during the appellate proceedings, the assessee furnished before the ld. CIT (A) all the evidences explaining the cash deposited into the two bank accounts by way of additional evidences filing including the bank account statement showing the withdrawals of cash made from the bank account and also audited financial statements, ITR, tax audited report, summary of data wise cash withdrawals from the bank account and explanation of cash deposited into the bank accounts by explaining the source out of cash in hand, which was accumulated out of cash withdrawals. The ld. CIT (A) referred the matter to the ld. AO for examination and verification by calling of remand report which was submitted on 07.03.2025. The ld. CIT (A) after taking into account the remand report dismissed the appeal of the assessee by ignoring the fact that JAO has accepted the source of cash deposits into the bank accounts as duly explained by the assessee. The ld. CIT (A) noted in Para no.5.3.3. of the appellate order that JAO has accepted the assessee stance of withdrawal of cash amounting to Rs. 1,30,83,000/- from its banks on various dates during pre demonetization and Rs. 1,00,000/- during post-demonetization period as available source of money of cash deposited of Rs. 1,33,33,000/- and Rs 1,50,000/-. However, the ld. CIT (A) rejected the remand report on the ground that JAO has not raised any query about the purpose of withdrawals and assessee again depositing the money into the bank accounts and thus confirmed the addition. In our opinion, when the ld. AO has accepted the explanation of the assessee on the basis of evidences explain the source of cash by the assessee to be out of withdrawals from the bank accounts of the assessee made during predemonetization and post-demonetization period, the action of the ld. CIT (A) in dismissing the remand report without assigning any reason is wrong and cannot be sustained. In our opinion, the assessee has duly explained the money by referring to the withdrawals from the banks accounts, cash book and statement showing withdrawals and deposits into the bank accounts. The assessee also submitted before us the details of summary of cash withdrawals and deposits to corroborate the fact that the deposits of cash were out of assessee’s own withdrawals and not from any outside sources. Ld. AR in support of his arguments relied on a series of decisions as under:
(i) Joginder Kaur v. ITO [2024] 169 taxmann.com 90 (Amritsar – Trib.)
(ii) Jaspal Singh Sehgal v. Income-tax Officer [2017] 83 taxmann.com 246 (Mum)
(iii) Ajaya Data v. ACIT [2025] 171 taxmann.com 308/ 211 ITD 701 (Jaipur – Trib.)
6. In the case of Joginder Kaur (supra), the Co-ordinate Bench has held that where the assessee has submitted the details of cash summary showing inflow and outflow cash in the relevant year to show that cash has been withdrawn and redeposited, then the assessee was to be allowed the benefit of redeposit and the impugned addition deserved to be deleted. For the sake of brevity, the relevant findings of the Tribunal are reproduced as under:
“12. We have heard both the counsels at length and considered all the materials on record including the paper book and synopsis filed by the assessee and the various judicial citations referred to by the assessee.
12. 1 We proceed to decide the issue on the merits of the case as contained in ground no 6 of the memorandum.
12. 2 We find that the dispute regarding sale of land vide an agreement of sale dated 10/04/2008, executed by the assessee and her family members and consequent receipt of sale proceeds by cash and cheque, on various dates during the FY 2008-09 as narrated by the AO in the assessment order (page -2 and 3 / para – 2), and also narrated by the Ld. CIT (A) in his appeal order, are factual events that has occurred in the FY 2008-09 (relevant to the A.Y. 200910), andare issues to which we are not concerned at the moment, because it does not relate to the year under appeal. 12.3 We only focus on the financial transactions in the bank account of the assessee in PNB Gramin Bank, for the financial year 2009-10 (Asst year 2010-11) the relevant year under appeal. We find on reading of the bank statement, that the opening balance brought forward on 1st April 2009 is 20. 30 lakhs, and there has been subsequent credit in the said account vide bank transfers (other than cash), to which neither the AO nor the Ld CIT(A) has raised any queries at any stage. Subsequently, the assessee has withdrawn cash from the said bank account on various dates within the financial year, as date wise reflected in the cash flow statement furnished by the assessee, and it is seen that sufficient cash balance are available with the assessee on the date of deposit of cash in the bank account in the month of March 2010 and as per contention of the assessee it is the same cash that has been redeposited. We also agree with the argument of the Ld AR, that it is not the case of the department that cash withdrawn by the assessee from PNB Gramin bank, during the period April 2009 till January 2010, (as reflected in bank account) has been invested or spent somewhere else or has been utilized elsewhere. In absence of any such adverse finding, the benefit of cash availability cannot be denied to the assessee.
13. As such considering all factual circumstances, and considering the transactions of cash withdrawn from the same bank account by the assessee during the same financial year we allow the assessee the benefit of redeposit, in absence of any findings regarding the utilization of the said cash drawn elsewhere, and we direct the addition of Rs. 62,18,200/- to be deleted.
13.1 Since we have already decided the issue on merits of the case, in favour of the assessee, the other legal grounds taken by the assessee becomes academic and as such we are not adjudicating on the same.
14. In the result, the appeal of the assessee.”
7. Similarly, in the case of Ajaya Data (supra), the Co-ordinate Bench has held as under:
6. We have considered the rival submissions as well as the relevant material on record. We note that the only issue in this ground is whether the Ld. CIT(A) is justified in not allowing set off of cash considered unexplained by him against the cash withdrawal of Rs.4,72,000/- made from M/s Vijay Industries between 05.04.2014 to 20.04.2015. We note that no document is found in search to come to a conclusion that the amount withdrawn by the assessee from M/s Vijay Industries has been utilized elsewhere. There is no law which prohibits an assessee to keep cash in hand and therefore only because assessee has not given explanation as to why the cash was withdrawn, when he has withdrawn the cash earlier also cannot be a ground to reject the explanation of assessee. In various cases referred above, it has been held that where no evidence is brought on record that cash withdrawal has been utilized elsewhere, such cash should be considered as available with the assessee. Considering all these facts, we direct the AO to delete the addition of Rs.4,28,830/- made by him.”
8. Considering the facts of the assessee in the light of the aforesaid decisions, we are inclined to set aside the order of ld. CIT (A) and direct the ld. AO to delete the addition, after holding that assessee has duly explained the source of cash deposit.
9. In the result, the appeal of the assessee is allowed.”
6. Similarly, Hon’ble Jurisdictional High Court in case of Lakshmi Rice Mills Vs. CIT [1974] 97 ITR 258 (Patna)[15-04-1974] has held that where the deposit of high value of demonization notes has been made out of cash available in the books of account no adverse view can be taken. The matter before the Hon’ble High Court was in relation to cash deposited during the earlier year demonetization. Similarly, the co-ordinate bench in case of ITO Vs. Senco Alankar [2022] 142 taxmann.com 578 (Kolkata – Trib.)/[2023] 202 ITD 278 (Kolkata – Trib.)[27-06-2022], held that where the purchases were accepted and no specific defect has been pointed out in the books of account no addition u/s 69A can be made in respect of cash deposited during the demonetization period. Consequently, I inclined to set aside the order of ld. CIT (A) and direct the ld. AO to delete the addition on this issue.
7. In the result, the appeal of the assessee is allowed.
6. Keeping in view the facts of the case as well as following the judgment passed by the Tribunal, we find substance in the arguments of the assessee. Accordingly, the addition made u/s 69A by the confirmed by the CIT(A) is hereby deleted.
In the result, the appeal of the assessee is allowed.
Kolkata, the 15th October, 2026.
