S. S. Pranav Steels Private Limited Vs ITO (ITAT Delhi)
Cash Deposits During Demonetisation Accepted as Genuine; Addition Deleted
Delhi Tribunal examined the addition of ₹1,31,11,845/- made by the AO u/s 68 r.w.s. 115BBE on account of cash deposits during the demonetisation period.
Assessee, engaged in trading of steel wire products with a declared turnover of ₹44.46 crore, had recorded substantial cash sales during October 2016 & up to 08.11.2016. All books of accounts, VAT-reconciled sales, monthly stock registers, cash books, cash memos & cash flows were filed. It was explained that higher cash sales were driven by festival-season demand & industrial expansion. The AO, however, rejected actual cash sales & substituted his own estimate based on the average cash-to-credit ratio, thereby treating the balance deposits as unexplained.
Tribunal noted that the Assessee’s cash sales formed part of the total disclosed turnover, purchases were accepted, stock movement was consistent, VAT authorities had accepted sales, cash book showed no negative balance, & there was only minor variation in cash-sales ratio compared to earlier years. The Tribunal held that once sales are accepted as genuine & taxed as business income, the same cash cannot again be treated as unexplained-otherwise it results in double addition. It further observed that the AO had not rejected books of account, nor established any discrepancy in stock, sales, or cash book. The source of deposits was proved to be business receipts, fully traceable to the books. Hence, the separate addition u/s 68 was unsustainable.
Tribunal also referred to SMILE Microfinance Ltd (Madras HC) which held that the enhanced tax rate u/s 115BBE applies only from AY 2018-19 onwards. Concluding that the AO’s approach was arbitrary & contrary to settled principles, the Tribunal deleted the entire addition & allowed the appeal.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. The appeal in ITA No. 1738/Del/2024 for AY 2017-18, arises out of the order of the Commissioner of Income Tax (Appeals)-23, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. No: CIT(A), Delhi-8/10336/2019-20 dated 28.02.2024 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 16.12.2019 by the Assessing Officer, ITO, Ward-22(1), New Delhi (hereinafter referred to as ‘ld. AO’).
2. The only effective issue to be decided in this appeal is as to whether NFAC was justified in confirming the addition made by ld AO on account of cash deposits in the facts and circumstances of the instant case.
3. We have heard the rival submissions and perused the material available on record. The return of income for assessment year 2017–18 was filed by the assessee on 23.10.2017 declaring total turnover of Rs 44,46,55,438/- and declaring total income of Rs 5,29,170/-. The assessee furnished the entire computation of income, audited financial statements, books of accounts and tax audit report together with its annexures before the ld AO. The ld AO noticed that the assessee is engaged in the business of purchase, sale and trading of mild steel, high carbon and stainless steel wires or various types in retail and had made an addition of Rs 1,31,11,845/- on account of abnormal cash deposited in its bank account during the demonetization period. The assessee was asked to explain the source of the same. The assessee explained that cash deposits were made out of cash sales made during October 2016 , cash realization from debtors and cash in hand as on 08.11.2016. It was also submitted that the cash sales were made to small scale and tiny industries and were duly supported by cash memos. The assessee had maintained large quantity of stocks and cash sales were duly reflected in the monthly stock register for April 2016 to March 2017. The reason for huge increase in cash sales in October 2016 was explained by stating that due to high demand for steel related products in the market due to festival season and rapid manufacturing expansion of the steel industry during second half of Financial Year 2016-17. Total sales disclosed in the books of accounts reconciled with VAT returns and accepted by VAT authorities. There was marginal increase in cash sales to total sales for Financial Year 2015-16 and 2016-17 from 9.78% to 11.10%. It was also submitted that the entire cash balance as on 08-11-2016 were not deposited in the bank account on a single day as the banks were not accepting large cash deposits due to shortage of resources at their end. The assessee also submitted that the opening cash balance as on 01-04-2014 was Rs 37,53,161/- ; closing cash balance as on 31-03-2015 was Rs 50,08,650/- ; closing cash balance as on 31-03-2016 was Rs 26,05,625/- and closing cash balance as on 08-11-2016 was Rs 2,13,52,249/-. The assessee furnished the following documents in support of its explanation of sources for the cash deposits before the ld AO :-
a. Bank statements from Financial Years 2015-16 to 2017-18
b. VAT returns with reconciliation
c. Monthly cash flow statement for Financial Year 2016-17
d. Cash book for the Financial Years 2015-16 and 2016-17
e. Cash memos for the retail sales
f. Monthly inventory movement for Financial Year 2016-17
g. Statement of cash sales from Financial Years 2015-16 to 2017-18
h. Summary of cash deposited
4. The ld AO, however, did not agree with this contention and sought to adopt the average of cash sales made by the assessee during April to Sep 2016 as sacrosanct and concluded that the cash and credit sale in the month of October 2016 showed an abnormal increase which cannot be accepted. Since there was time for the assessee to file VAT returns for December quarter, the ld AO sought not to accept the cash sales for October 2016 in toto. He resorted to accept the cash sales in the same ratio of credit sales @ 15.98% . In this manner, the acceptable normal cash sales of October 2016 was worked out at Rs 42,74,738/- (being 15.98% of total credit sale of Rs 2,67,50,551/- of October 2016. Further for the first 8 days in November 2016, the cash sales was accepted only in the proportionate manner in the sum of Rs 5,04,330/- ignoring the fact of festival season and other auspicious occasions. The Ld AO also accepted the opening cash balance as on 01-04-2016 at Rs 26,05,625/- and cash realization from debtors to the tune of Rs 8,13,462/-. Accordingly, the ld AO accepted the cash of Rs 81,98,155/- (4274738+2605625+813462) to have emanated from normal business activities and any amount over and above this figure was considered abnormal. Accordingly, he proceeded to make an addition u/s 68 r.w.s. 115BBE of the Act of ₹1,31,11,845/- on account of cash deposits. This action of the ld AO was upheld by the ld CIT(A).
5. It is not in dispute that the assessee had indeed shown cash sales and is part of the total turnover disclosed by it in the return of income and in the audited profit and loss account. The following points are undisputed and indisputable: –
a. The assessee had shown cash sales for month of October 2016 and cash sales from 01.11.2016 to 08.11.2016 and the same is part of total sales disclosed by the assessee in the sum of ₹44.46 crores in the profit and loss account.
b. The purchase made by the assessee has not been doubted by the revenue.
c. The total sales made by the assessee (both cash as well as credit sales) has not been doubted by the revenue.
d. The assessee had sufficient stocks to effect the said cash sales and generate cash as an independent source to prove the cash deposits.
e. To the extent of sales made by the assessee, corresponding reduction in stock had been duly made.
f. Sales made by the assessee, both cash as well as credit had been duly subjected to VAT and the VAT authorities had accepted the turnover declared by the assessee.
g. The assessee has furnished month-wise, purchase and sales, both cash as well as credit for the year under consideration as well as for the immediately preceding year. The assessee had also furnished the details of cash received from its sundry debtors which has been accepted by the ld AO.
h. The assessee has furnished the complete cashbook, showing the month wise movement before the ld AO.
i. There is no negative cash balance on any day that has been alleged by the ld AO.
j. There is only minor variation in the figure of cash sales when compared to previous year.
6. Further, we find that the ld AO had accepted the return of income by the assessee, which included this cash sales also. Hence, separately, making an addition on account of cash deposits in the sum of ₹1,31,11,845/- would only result in double addition. Hence, the addition made on account of cash deposits deserves to be deleted on that count itself. Further, we hold that the assessee had indeed proved the source of cash deposits by clearly establishing that the source emanated from the books of account and the cashbook regularly maintained. None of the books of account have been rejected by the ld AO. In these facts and circumstances, there is no case made out by the revenue for making an addition on account of cash deposit separately. Accordingly, the addition made is hereby directed to be deleted. Further, we also find that Hon’ble Madras High Court in the case of of SMILE Microfinance Limited vs ACIT in WP (MD) No. 2078 of 2020 and WMP (MD) No. 1742 of 2020 dated 19-11-2024 had held that the provisions of section 115BBE of the Act which enhanced the rate of tax could be made applicable only from 01.04.2017, relevant to assessment year 2018-19 onwards and not earlier. Accordingly grounds raised by the assessee are allowed.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 14/11/2025.
