Abu Jani Sandeep Khosla Vs DCIT (ITAT Mumbai)
Demonetisation Cash Deposits, Section 40A(3) Disallowance & Unsecured Loan: ITAT Mumbai Grants Major Relief to Fashion Designer
The Mumbai ITAT “A” Bench disposed of cross-appeals in Abu Jani Sandeep Khosla vs DCIT (ITA Nos. 2504 & 2530/Mum/2025, AY 2017-18) by upholding deletion of demonetisation-related cash deposit addition of ₹3.01 crore and disallowance u/s 40A(3) of ₹37.70 lakh, while also deleting addition of unsecured loan of ₹18 lakh u/s 68 along with consequential interest, thereby granting comprehensive relief to the Assessee and dismissing the Revenue’s appeal in toto.
The Assessee, a well-known fashion designer firm, had deposited ₹5.50 crore in cash during the demonetisation period. The AO treated ₹3.01 crore as unexplained u/s 68 by applying an average-cash-availability formula based on October–November figures of earlier years and invoking the doctrine of “preponderance of probabilities”. The AO also made disallowance u/s 40A(3) for cash payments exceeding ₹20,000 and added ₹18 lakh u/s 68 towards unsecured loan from Blue Star Investment.
The Tribunal affirmed the CIT(A)’s findings that cash deposits during demonetisation were fully explained by recorded cash sales, duly reflected in audited books and VAT returns, which were never rejected. It was held that once sales are accepted and supported by statutory returns, cash deposits arising therefrom cannot be branded as unexplained merely on suspicion or probability theory. Selective comparison of two months of earlier years was held to be an unsustainable and unscientific approach.
On Section 40A(3), the ITAT held that the AO failed to appreciate that individual cash payments to labourers were below ₹20,000 per day per person, and that consolidated accounting entries were passed only for administrative convenience. Genuineness of payments was supported by vouchers, PAN details and audit records, and therefore Section 40A(3) had no application.
On the unsecured loan issue, the Tribunal held that the Assessee had discharged the primary onus by furnishing PAN, ledger confirmation and bank details, and importantly, the loan was repaid in a subsequent year through banking channels, a fact not disputed by the Revenue. Relying on Ayachi Chandrasekhar Narsangji (Guj HC) and Bhupendra Champaklal Dalal (Bom HC), the ITAT held that once repayment is proved and not disputed, addition u/s 68 is unsustainable. Consequential interest disallowance was therefore also deleted.
Accordingly, the ITAT allowed the Assessee’s appeal in full and dismissed the Revenue’s appeal, reiterating that documentary evidence and audited books cannot be overridden by assumptions, selective averages or human-probability theory.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
