JCIT Vs Aries Agro Ltd. (ITAT Mumbai)
Mumbai, India – The Income Tax Appellate Tribunal (ITAT) Mumbai Bench has dismissed an appeal filed by the Joint Commissioner of Income Tax (JCIT) – 14(1)(1) against Aries Agro Ltd., upholding the decision of the National Faceless Appeal Centre, Delhi (NFAC) to delete additions made under Section 68 of the Income Tax Act, 1961. The case pertains to the assessment year 2017-18 and revolves around substantial cash deposits made by Aries Agro Ltd. in Specified Bank Notes (SBNs) during the demonetization period. The revenue had contended that these deposits constituted unexplained cash credits, while the assessee maintained they were legitimate receipts from credit sales.
Background of the Dispute
Aries Agro Ltd., a publicly listed company with significant public interest, operates in the manufacturing of mineral additives for agriculture, micronutrients, and other nutritional products for plants and animals. The company maintains a widespread network, including six factories, 28 sales depots, and over 357 dealers across India. For the assessment year 2017-18, the assessee filed its return of income on November 30, 2017, declaring a total income of ₹18,98,37,210. This return was supported by a computation of income, audited accounts, and a tax audit report.
During the assessment proceedings, the Assessing Officer (AO) observed substantial cash deposits made by the assessee in SBNs during the demonetization period. The AO initiated proceedings under Section 68 of the Act, which deals with unexplained cash credits. The revenue’s primary contention was that the nature and source of these cash credits remained unexplained, and the assessee failed to establish the genuineness and creditworthiness of these deposits. A key point of suspicion for the AO was that cash receipts from parties were entered into the assessee’s books between November 1, 2016, and November 8, 2016 – a period immediately preceding the demonetization announcement. Furthermore, the revenue highlighted that the parties from whom these cash payments were purportedly received had not made cash payments in previous years, typically transacting through banking channels. Based on these observations, the revenue argued that the assessee had made backdated entries to account for the SBN deposits.
Assessee’s Defense and Documentation In response to the AO’s queries, Aries Agro Ltd. provided extensive documentation and explanations. The company submitted month-wise details of sales and expenses for the current and preceding years, bifurcated into cash and credit transactions. Specific details of month-wise cash sales and cash deposits for the financial years 2015-16 and 2016-17 were also provided. Crucially, the assessee furnished comprehensive details of its top ten parties (including cash sales) for both financial years.
The company’s total turnover for the year under consideration was ₹2,29,64,72,623. Out of this, a sum of ₹4,94,42,653 was received after allowing discounts for early booking of purchase orders. From this amount, ₹3,86,83,531 was received in cash from 357 identified clients. The assessee provided complete details for each of these clients, including their names, addresses, Permanent Account Numbers (PANs), the cash amounts received, and the specific sales depots where the cash was received against sales.
To further substantiate its claims, Aries Agro Ltd. explained that these were not new cash sales but rather cash receipts in payment of credit sales from identified parties. The company also submitted confirmations from each party that had made cash payments. Importantly, some of these customers were directly enquired by the AO, and they confirmed making cash payments to the assessee. The assessee also highlighted that it maintained a sales register, cash book, purchase register, and stock register, all of which were duly audited. The Tax Audit Report, which included quantity details of stock, was also furnished. The AO had not rejected the books of accounts nor doubted the veracity of these registers. Furthermore, no discrepancy was found between the book stock and actual stock, and the sales had already been accepted by the VAT department.
Revenue’s Appeal and Human Probabilities Test Despite the detailed explanations and documentation provided by the assessee, the revenue appealed the CIT(A)’s decision to delete the additions. The Departmental Representative (DR) reiterated the AO’s arguments before the ITAT, stressing that the cash receipts were entered just before demonetization and that the parties had not previously made cash payments. The DR heavily relied on the Supreme Court’s decisions in CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC) and Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC). These judgments established the “human probability test” to analyze the genuineness of entries through logical analysis. The DR argued that the transactions in the instant case defied logic, practicality, and reasonableness, and therefore, the CIT(A)’s order should be set aside and the AO’s additions restored.
ITAT’s Analysis and Judicial Precedents The ITAT, after hearing both parties and reviewing the records and cited judgments, found that the assessee had successfully discharged its initial onus by providing all relevant documentary evidence. This, the Tribunal noted, shifted the burden onto the AO to rebut the evidence presented. The ITAT observed that the AO had not rejected the assessee’s books of accounts, nor had he doubted the veracity of the cash book, sales register, purchase register, or stock register. No discrepancy was pointed out between the book stock and actual stock, and the sales had been accepted by the VAT department.
The Tribunal strongly emphasized that if the assessee had already offered these cash sales for taxation, then making an additional charge under Section 68 would lead to double taxation. The ITAT concluded that the AO’s addition was based on “conjectures and surmises” as there was no evidence to suggest that the cash deposits were not sourced from the opening cash balance.
To support its decision, the ITAT relied on several judicial precedents:
- ITO v. Sahana Jewellery Exports (P) Ltd. [2023] 157 taxmann.com 680 (Chennai) (Trib): This case held that where trade advances were subsequently converted into sales, cash receipts recorded in books, sales undisputed, cash balance higher than bank deposit, and no discrepancy in purchases/stock-in-trade, the deletion of addition by CIT(A) should be affirmed. It specifically noted that purchases and sales accepted by GST authorities further strengthen the assessee’s case
- Shree Bhagwati farms v DCIT ITA No 452/JP/2024 dtd 2/9/2024 (Jaipur) (Trib.): This ruling affirmed that an addition of cash deposits cannot be made under Section 68 if the books of accounts are not rejected and no evidence is brought on record by the AO to suggest another source of income for the assessee.
- Kishore Jeram Bhai Khaniya, Proprietor, M/s Poonam Enterprises v. ITO (ITA No. 1220/Del/2011) (Del) (Trib): This precedent clearly states that cash sales offered as income cannot be added again under Section 68.
- Kanpur Steel Co. Ltd. v. CIT [1957] 32 ITR 56 (All)(HC): This High Court decision placed the burden on the department to demonstrate that specified notes represented suppressed income from undisclosed sources. It held that the assessee is not required to prove how and when the specified notes were received, and no addition can be made if the assessee’s explanation is not proven false.
- Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC): A Supreme Court judgment, this case held that when entries in books of accounts regarding cash balances are genuine and the assessee provides a reasonable explanation, no addition can be made.
The ITAT specifically distinguished the revenue’s reliance on CIT vs. Durga Prasad More and Sumati Dayal vs. CIT. It clarified that these cases, which deal with the “human probability test,” were not applicable to the present facts because Aries Agro Ltd. had properly maintained books of accounts with sufficient cash balances, and these books were not challenged by the AO. Therefore, the entries in the books of accounts deserved to be considered genuine.
Conclusion
Finding no new evidence or documents presented by the revenue to controvert or rebut the findings of the CIT(A), the ITAT concluded that there were no grounds to interfere with the lawful findings recorded by the CIT(A). Consequently, the appeal filed by the revenue was dismissed. The order was pronounced in open court on April 30, 2025, solidifying the assessee’s position regarding the demonetization cash deposits.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal has been filed by the revenue challenging the impugned order 26.11.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the assessment year 2017-18.
2. All the grounds raised by the revenue are interrelated and interconnected and relates to challenging the order of Ld. CIT(A) in deleting the additions made u/s 68 of the Act.
3. In this regard Ld. DR while relying upon the orders of AO, submitted that assessee had made substantial cash deposits in ‘SBN’ during the demonetization period and nature of these credits falls under ‘unexplained cash credit’ within the meaning of Sec. 68 of the Act and without appreciating the said fact Ld. CIT(A) has wrongly deleted the additions made by the Ld.AO. It was further submitted that assessee could not establish the genuineness and creditworthiness of cash deposits made during the year under consideration and even the source of these credits remained unexplained. It was further submitted by Ld. DR that Ld. CIT(A) has not appreciated the fact that cash receipts from parties have been entered in the books of assessee from 01.11.2016 to 08.11.2016 i.e just before demonetization period. It was also argued and stressed by Ld. DR that all the parties from where the source of cash deposit is being claimed by the assessee have not made any cash payments in the earlier years and therefore while relying upon the decision of Hon’ble Supreme Court in the case of CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC) and Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC), it was submitted that the courts have laid down a test to analyze the genuineness of the entry through logical analysis by applying the test of human probability. As per Ld. DR in the instant case the subject matter transaction defies logically, practically and reasonably, therefore the orders passed by Ld. CIT(A) be set aside and that of the AO be restored.
4. On the other hand, Ld. AR reiterated the same arguments as were raised by him before the revenue authorities and has also relied upon the order of Ld. CIT(A).
5. We have heard the counsels for both the parties, perused the material placed on record, judgments cited by respective parties and also the orders passed by the revenue authorities. From the records we noticed that it is an undisputed fact that the assessee company is a listed company in which public is substantially interest and engaged in the business of manufacturing of mineral additives for the agriculture use, micronutrients and other nutritional products for plants and animals. Assessee has 6 factories, 28 sale depots and more than 357 dealers across the country. The assessee had filed its return of income for the year under consideration on 30.11.2017 disclosing total income of Rs. 18,98,37,210/- and in support of this, assessee had placed on record Computation of Income at page No. 2 to 8 of the paper book, audited accounts at page No. 9 to 46 of the paper book and tax audit report at page No. 47 to 61 of the paper book. Apart, assessee had also complied with notices issued by AO and submitted following relevant records:
i. Month wise details of sales and expenses of current year and preceding year bifurcated into cash and credit transactions.
ii. Month wise cash sales and cash deposits from 01/04/2015 to 31/03/2016 and 01/04/2016 to 31/03/2017.
iii. Month wise cash sales and cash deposits from 01/04/2016 to 31/03/2017.
iv. Details of Top ten parties to whom the sales are made (including cash sales) for F. Y. 2016-17 and F. Y. 2017-18.
6. It is also an undisputed fact that assessee had disclosed turnover of Rs. 2,29,64,72,623/- for the year under consideration and after allowing discount for early booking of P.O, a sum of Rs. 4,94,42,653/- was stated to have received and out of this a sum of Rs. 3,86,83,531/-was received from 357 clients. In this regard assessee has placed on record complete details of such clients such as names, address, PAN, amount received in cash and the sale depot from which such cash was received against the sales.
7. From the records, we also noticed that some of the customers, who had paid cash to the assessee were also enquired by AO and in their respective replies, the clients have confirmed of making payment in cash.
8. Now the only reason for making addition u/s 68 of the Act was that the cash receipts were entered in the books of assessee w.e.f 01.11.2015 to 08.11.2016 and the said parties had earlier not made any cash payments and the transactions have been through banking channel. Therefore, AO was of the view that assessee had made back dated entries of cash apart from raising other doubts as mentioned in para 5.5 of the assessment order.
9. In this regard as discussed by us, the assessee has successfully rebutted the concern / doubts raised by the AO by placing and proving on record all the relevant documentary evidences thereby discharging its onus. Therefore in such a scenario, onus shifted upon the AO to rebut the same.
10. The assessee has duly explained that these are not cash sales. However, the assessee has received the cash in payment of credit sales from the identified parties. The details of month wise cash sale and cash deposit for the F.Y. 2016-17 were also submitted. The assessee has also submitted the explanation of cash deposits and confirmations of each and every party on 06/12/2019 and in this regard documents are placed at page No. 76 to 79 of the paper book.
11. The assessee had also submitted the name, address, PAN, ledger account of confirmations of all the parties, who had made cash payments to the assessee. Even the parties had responded to the notices u/s 133(6) of the Act and confirmed making cash payments to the assessee.
12. We have also noticed that Assessee is maintaining sale register, cash book, purchase register and stock register. The accounts of the assessee are audited. The Tax Audit report was furnished which shows the quantity details of stock and the Ld.AO was satisfied and had not rejected the books of accounts and not even doubted the veracity of cash book, sale register, purchase register and the stock register.
13. Apart no discrepancy was pointed out by the AO between the book stock and actual stock. Even the sales have already been accepted by VAT department and thus in our view once the assessee has offered cash sales for taxation then the addition of cash deposits u/s 68 of the Act would lead to double taxation. Since there is no evidence with the AO to substantiate that cash deposit is not out of opening cash balance therefore the entire addition made by AO was based upon conjectures and surmises. In this regard, we rely upon the following decisions:
In ITO v. Sahana Jewellery Exports (P) Ltd [2023] 157 taxmann.com 680 (Chennai) (Trib) wherein it was held that:
Trade advances, subsequently converted into sales, cash receipts recorded in the books of account. Assessing Officer has not disputed the sales. Cash balance in the books as on 8th November 2016 is higher than the cash deposited in the Bank.
The A.O. has not pointed out any discrepancy in purchases or stock-in-trade Purchases and sales have been accepted by GST Authorities.
Order of CIT(A) deleting the addition is affirmed. Followed, Lalchand Bhagat Ambica Ram v. CIT (1959) 37 ITR 288 (SC), Lakshmi Rice Mills v. CIT (1974) 97 ITR 258 (Pat)(HC), CIT v. Agson Global (P) Ltd (2022) 325 CTR 1 (Delhi)( HC), distinguished, Sumati Dayal v CIT (1995) 214 ITR 801 (SC), CIT v.Dugra Prasad More (1971) 82 ITR 540 (SC), Khale Khan Mohammad Hanif v. CIT (1963) 50 ITR 1 (SC)
Shree Bhagwati farms v DCIT ITA No 452/JP/2024 dtd 2/9/2024 (Jaipur) (Trib.) (Pg. No. 205-215 Paper Book No. II) (Pg. 212 to 213)
Addition of cash deposit deposited as books of accounts are not rejected. No evidence brought on record by AO that Assessee had any other source of income.
In Kishore Jeram Bhai Khaniya, Proprietor, M/s Poonam Enterprises v. ITO (ITA No. 1220/Del/201 1) (Del) (Trib) [Rel Para 6]
It is held that cash sales offered as income cannot be added u/s 68. (Pg. No. 216- 224 Paper Book No. II) (Pg. 219 to 220)
Kanpur Steel Co. Ltd. v. CIT [1957] 32 ITR 56 (All)(HC) (Pg. No. 225-227 Paper Book No. II) (Pg. 227)
Burden on department to show that specified Notes represented suppressed income of the assessee from undisclosed sources. Assessee is not required to prove how and when it received the specified notes. No addition can be made if explanation of Assessee is not found to be false.
Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC) (Pg. No. 228- 239 Paper Book No. II) (Pg. 237)
When entries in books of accounts in regard to cash balances were held to be genuine and the Assessee has offered reasonable explanation no addition can be made.
13. Even the decision relied upon by the AO in CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC) and Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC) are not applicable as they are rendered in the context of the theory of human probability and whereas in the present case the assessee has maintained the books of accounts and there was sufficient cash balance in its books and the books of accounts of the assessee were not challenged by the AO, and thus the entries in the books of accounts, deserves to be considered as genuine.
14. Thus after considering the facts of the present case we found that the theory of human probabilities is not applicable to the facts of the present case. No new evidences or documents have been placed on record by the revenue to controvert or rebut the findings of Ld. CIT(A), therefore we see no reasons to interfere in to or to deviate from the lawful findings so recorded by the Ld. CIT(A). Therefore, the grounds of appeal raised by the revenue stands dismissed.
15. In the result the appeal filed by the revenue stands dismissed.
Order pronounced in the open court on 30.04.2025.
