Vinod Kumar Gupta Vs ITO (ITAT Allahabad)
Average Daily Turnover Cannot Alone Discredit Cash Sales: ITAT Deletes Addition
Summary: The Income Tax Appellate Tribunal, Allahabad SMC Bench, in Vinod Kumar Gupta Vs ITO, ITA No. 79/ALLD/2025, decided on 15 October 2026 for Assessment Year 2017-18, deleted an addition of ₹2,49,998 relating to cash deposits after holding that the Assessing Officer’s conclusion was based on conjectures and surmises rather than contrary evidence. The Assessing Officer had compared the disputed cash deposit with the assessee’s average daily turnover and considered the amount excessive. The Tribunal found that the assessee had relied on a cash transaction summary, relevant bank statements and VAT returns to explain that the deposits represented business sale proceeds. Since the Revenue had not rebutted the contention that the relevant sales were reflected in the VAT returns, the addition could not be sustained merely on assumptions and presumptions.
The appeal arose from the order of the Addl./Joint Commissioner of Income Tax (Appeals), Jodhpur, dated 30 March 2024, which had sustained the assessment. The assessee contended that the cash deposits represented sale proceeds recorded in the books of account and disclosed in VAT returns. He challenged the treatment of the deposits as unexplained amounts under Section 69A of the Income-tax Act, 1961. The assessee also maintained that supporting records, including the annual VAT return, cash summary and bank statements, had been furnished before the lower authorities.
Delay of 326 days condoned
The appeal before the Tribunal was delayed by 326 days. The assessee explained that the email address registered with the Department belonged to his authorised representative, who had not informed him about the notices and appellate order.
He stated that he learned of the order only when the bank manager informed him that his account had been attached following the Department’s recovery action.
The Revenue opposed condonation. However, applying the Supreme Court’s decision in Collector, Land Acquisition v. Mst. Katiji, (1987) 167 ITR 471 (SC), the Tribunal condoned the delay and admitted the appeal.
AO compared deposit with average daily sales
The Assessing Officer had questioned a cash deposit of ₹2,49,998 by comparing it with the assessee’s annual turnover of ₹1,12,06,567.
Dividing the annual turnover by 365 days, he arrived at average daily turnover of ₹30,702. He considered the disputed deposit excessive compared with that average and treated ₹61,404, representing two days’ average turnover, as normal.
The assessee argued that the authorities had failed to properly consider the documentary evidence linking business sales with the bank deposits. The Revenue defended the Assessing Officer’s reasoning.
VAT disclosure remained unrebutted
The Tribunal found that the addition was based purely on assumptions drawn from the average turnover calculation.
It noted that the assessee had placed a cash transaction summary, relevant bank statements and VAT returns on record. The contention that the disputed sales were duly reflected in the VAT returns had not been rebutted through adverse material.
In the absence of contrary evidence, the Tribunal held that the addition could not be sustained merely on assumptions and presumptions. It directed the Assessing Officer to delete the disputed addition and allowed the appeal.
Cases Discussed
- Collector, Land Acquisition Vs Mst. Katiji, (1987) 167 ITR 471 (SC)
FULL TEXT OF THE ORDER OF ITAT ALLAHABAD
The present appeal has been filed by the assessee against the order of the Learned Addl/Joint Commissioner of Income-tax (Appeals), Jodhpur, dated 30.03.2024, pertaining to the assessment year 2017-18. The assessee has raised the following grounds of appeal: –
“1. ld. JCIT(A) has erred in law and on facts in upholding the validity of assessment order dated 16.12.2019, as had been passed by the Assessing Officer under section 143(3) of the Act, although due compliance had been made to various notices issued under section 142(1), as per perception of the appellant;
2. the ld. JCIT(A), while upholding the validity of the ex-parte assessment order dated 16.12.2019, has went to appreciate the appellant being a person not fully equipped as far as statutory compliances were concerned, was solely dependent on his counsel CA. Sharwan Kumar Jaiswal, but (the appellant) had fully complied with requisitions as had been made by the Assessing Officer and as and when came to his knowledge (through his counsel CA. Sharwan Kumar Jaiswal) he could not have been faulted with any non-compliance from his end;
3. in any case, during the course of regular assessment proceedings, as had been initiated after issuance of jurisdictional notice under section 143(2), the appellant had submitted copies of “VAT return” (including the “annual return” under VAT) and from such “return”(s) the ld. JCIT(A) could have found out that cash deposits (in the Bank Account of the appellant) represented sale proceeds as had reached the appellant in regular course of business and the same stood fully recorded in the books of account maintained by the appellant and the same could not have been treated as unexplained deposits under section 69A of the Income Tax Act, 1961, hereinafter referred to as the Act,
(4) the ld. JCIT(A) has erred in law and on facts, while dismissing the appeal filed by the appellant, by observing that
(a) the appellant had failed to explain sources of cash deposits made in his bank account with relevant supporting documents;
(b) was required to substantiate his claim regarding cash sales, and appellant has failed to furnish supporting details, bills, evidences or documents to substantiate his claim of sale proceeds and thus indirectly accepting that he did not posses any such supporting documents; and
(c) in any case the Authorities below should have appreciated that the addition on account of cash deposits (which had been erroneously treated as unexplained investment within the meaning of section 69A of the Act) amounting to Rs.2,49,998/- was erroneous, as the same worked out to Rs.1,99,998/- only
5. link between ‘business receipts’ and ‘cash deposited’ (in Bank Account) had been fully established before the Assessing Officer by producing, besides others, the following
(a) relevant summary of cash for the financial year 2016-17
(b) relevant passage of the bank statement in which cash sums were deposited, for the financial year 2016-17
(c) annual VAT return substantiating the fact that turnover and purchases declared in VAT return had duly been incorporated in the audited Profit & Loss Account;
5) Order appealed against is contrary to facts, law and principles of natural justice.”
2. The present appeal is barred by limitation by 326 days. The assessee has filed an application seeking condonation of the delay. The reason for the delay, as stated by the assessee, is that the email ID registered with the Department pertained to his authorized representative, who, for reasons best known to him, failed to inform the assessee about the notices issued and the order passed by the lower authority. The assessee further submitted that it came to know about the impugned order only when the bank manager informed him that the demand raised by the Department resulted in attachment of his bank account held with the bank. It was, therefore, prayed that, in the light of various case laws, the delay in filing the appeal be condoned and the appeal be admitted for hearing on merits. The Ld. Departmental Representative (Ld. DR) opposed the assessee’s prayer for condonation of delay and contended that the assessee had failed to demonstrate any sufficient or reasonable cause for the inordinate delay in filing the appeal. Accordingly, it was submitted that the delay ought not to be condoned.
3. I have heard the Ld. Representatives of the parties and perused the material available on record. It is the case of the assessee that it came to know about the impugned order only when the Department initiated recovery proceedings and the bank manager informed the assessee about the attachment of its bank account. The assessee has also relied upon various judicial precedents in support of its application for condonation of delay. Considering the ratio laid down by the Hon’ble Supreme Court in the case of Collector, Land Acquisition Vs MST Katiji reported in (1987) 167 ITR 471 (SC), I hereby condone the delay and admit the appeal for hearing on merits.
4. Apropos to the grounds of appeal, the Ld. Counsel for the assessee vehemently argued that the Ld. CIT(A) was not justified in confirming the ex parte assessment order. He further submitted that the assessee had duly filed VAT returns and that the amounts deposited in the bank account represented the sale proceeds of the assessee. He contended that the relevant documentary evidence substantiating the sales and the corresponding deposits in the bank account had been furnished before the lower authority. He, therefore, submitted that the decision of the lower authority was contrary to the facts and documentary evidence available on record.
5. On the other hand, the Ld. Departmental Representative (“Ld. DR”) supported the orders of the lower authorities and contended that no error had been committed in making the impugned addition. He further pointed out that the Assessing Officer had observed that even if the total turnover of the assessee were divided over 365 days, the transactions in question could not be justified in the manner claimed by the assessee.
6. I have heard the rival submissions and perused the material available on record. It is the case of the assessee that the amount deposited in the bank account represented the sale proceeds of its business. The assessee has also brought on record a summary of the cash transactions for the financial year 2016–17, the relevant bank statement and the VAT returns, which were stated to have been furnished before the lower authorities. I find that the Assessing Officer made the impugned addition by dividing the total turnover of the assessee by 365 days and observing that it was not possible for the assessee to have made a sale of Rs. 2,49,998/- on a single day, i.e., 10.11.2019. For the sake of clarity, the finding of the AO order in para nos. 6 & 7 is reproduced as under: –
“6. The assessee has not submitted any response to the show cause till date. However, on 16.12.2019 a response was received electronically which read as follows “please find herewith attached reply notice” but there was no attachment submitted. Since the assessee was required to explain the abnormal spike in the sales turnover on 10.11.2019 and the assessee has preferred not to reply, I have no option other than to believe that the assessee has nothing to say in this regard.
7. Considering the fact that the assessee has declared annual turnover of Rs.1,12,06,567/- which when divided by 365 days gives average daily turnover of Rs.30,702/-, the cash deposits of Rs.2,49,998/- on 10.11.2019 is on higher side. Considering the fact that there is a difference of 2 days between 8th and 10th of November, and the fact that the cash deposits up to 8th November has been deposited in cash, cash deposits up to Rs.61,404/- can be treated as normal.”
7. Thus, the finding of the Assessing Officer is based purely on conjectures and surmises. The contention of the assessee that the sale in question was duly reflected in the VAT returns has not been rebutted by the Revenue by bringing any adverse material on record. In the absence of any contrary evidence, the impugned addition cannot be sustained merely on the basis of such assumptions and presumptions. I, therefore, direct the AO to delete the impugned addition. The grounds raised in this appeal are allowed.
8. In the result, the appeal of the assessee in ITA. No.79/ALLD/2025 is allowed.
Order pronounced in the open Court on 15/10/2026.
