Ramesh Bhajantri Vs ITO (ITAT Bangalore)
Demonetisation Cash Was Petrol Sales, Not Black Money: Bangalore ITAT Rejects Separate Addition &; 8% Profit Estimate
Summary:
The assessee, was the proprietor of Durga Laxmi Petroleum, an authorised dealer of Bharat Petroleum Corporation Limited. He did not file his return u/s 139(1) for AY 2017-18 & was identified as a non-filer through the Department’s information-monitoring system.
The Department found total cash deposits of ₹40,49,175 during FY 2016-17, including ₹19,97,040 deposited during the demonetisation period. Since no return had been filed, notice u/s 142(1) was issued.
The assessee explained that the deposits represented cash sales of petrol & diesel. Due to his father’s illness & subsequent death, he could not regularly manage the business, which was later closed because of financial difficulties. He restarted operations in July 2019.
The AO completed an ex parte assessment u/s 144 on 26 September 2019. Profit was estimated at 8% of turnover of ₹52,67,731, while demonetisation cash deposits of ₹19,97,040 were separately added. Total income was determined at ₹23,64,050.
Revision u/s 263 & fresh assessment
The PCIT invoked section 263 & held that the AO had not properly examined all bank deposits. The entire assessment was restored with directions to enquire into the credits appearing in the assessee’s bank accounts.
During fresh proceedings, the AO noticed total credits of ₹97,13,000 in three bank accounts. The assessee contended that actual credits were ₹89,75,791 & furnished bank-wise analysis, his brother’s confirmation & bank statements. According to him, credits attributable to his business were ₹69,75,060.
The AO treated the deposits as turnover & estimated profit of ₹5,58,005 at 8%. A further addition of ₹1,36,587 was made as business income. Cash deposits of ₹21,27,210 during demonetisation were separately added as unexplained, resulting in assessed income of ₹26,85,220.
The CIT(A) dismissed the appeal through a virtually single-line finding, stating that the AO had considered the submissions. The original appeal was dismissed as infructuous because a fresh assessment had been passed pursuant to section 263.
Issue before the Tribunal
The principal issue was whether cash deposits made during demonetisation could be separately taxed as unexplained income when they were recorded as petrol & diesel sales, supported by books, VAT returns & supplier records.
The connected issue was whether profit could be mechanically estimated at 8% of bank credits despite evidence that petrol pump margins were substantially lower.
Assessee’s submissions
The assessee submitted that petrol & diesel were predominantly sold for cash. The sale proceeds were deposited into bank accounts & utilised to make payments to BPCL for fuel purchases.
He furnished SBI & Indian Overseas Bank statements, credit analysis, cash book, sales register, financial statements, VAT returns, BPCL purchase confirmation & ledger accounts. These documents showed sales of ₹69,85,003, purchases of ₹76,99,060 & business expenses of ₹2,11,665.
The cash deposited during demonetisation was recorded as sales in the regular books. The assessee also produced material from the Petroleum Planning & Analysis Cell regarding dealer commission & demonstrated that net profit in preceding & succeeding years ranged between 2% & 3.5%, not 8%.
It was further argued that detailed written submissions extending to approximately 50 pages were filed before the NFAC but were not considered.
Revenue’s contentions
The Revenue emphasised that the assessee had failed to file a return within the prescribed time & had accepted substantial cash during demonetisation. In the absence of contemporaneous return disclosure, the AO was justified in treating the deposits as unexplained.
The Revenue therefore sought confirmation of the separate demonetisation addition & estimation of business profit at 8%.
Tribunal’s findings & legal reasoning
The Tribunal found that the assessee had produced bank statements demonstrating that cash sales were deposited & subsequently used for payments to BPCL. The cash book & sales register recorded demonetisation-period deposits as business sales.
The declared turnover was supported by VAT returns, while the dealer commission was corroborated by BPCL communication. Financial statements & returns for earlier as well as subsequent years demonstrated significantly lower net-profit margins.
Once the cash sales were recorded in books, deposited into bank accounts & related profit was offered to tax, the same deposits could not be separately treated as unexplained income without disproving the underlying sales. Such treatment would effectively tax the gross business receipts again, apart from estimating profit thereon.
The Tribunal also rejected mechanical application of an 8% margin. Petrol retailing involved regulated dealer margins from which operating expenses had to be met. The assessee’s historical results showed profit between 2% & 3.5%.
Accordingly, the additions for demonetisation cash deposits & the 8% estimate were held unsustainable in their existing form. However, instead of finally computing income, the Tribunal restored the matter to the AO.
The AO was directed to determine income based on the books if they were found in order. If the books were unreliable, reasonable profit had to be estimated considering the nature of the petrol pump business & results of preceding & succeeding years. ITA No. 2717 was allowed for statistical purposes, while ITA No. 2718 became infructuous.
Practical implications
The ruling confirms that demonetisation deposits cannot be treated as unexplained merely because they were in cash. Where books, sales registers, VAT returns, bank utilisation & supplier confirmations establish business turnover, only the resulting profit can ordinarily be taxed.
Petrol dealers should preserve daily sales records, fuel purchase invoices, VAT/GST returns, bank deposit slips & oil-company confirmations. The decision’s central principle is that recorded cash sales cannot be taxed twice—once as turnover profit & again as unexplained deposits.
Cases Discussed
- ITA No. 1118/Bangalore/2025 — coordinate Bench decision referred to by the assessee on similar facts.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. These two appeals, ITA Nos. 2717 and 2718/Bangalore/2025, have been filed by Mr. Ramesh Bhajantri [the Assessee/Appellant] for the assessment year 2017–18.
2. ITA No. 2718/Bangalore/2025 relates to the assessment year 2017–18 and challenges the appellate order dated 12 September 2025 passed by the National Faceless Appeal Centre (NFAC), Delhi. In that order, the assessee’s appeal against the assessment order dated 26 September 2019, passed under section 144 of the Income-tax Act, 1961 by the Income Tax Officer, Ward 1(1), Hubli (the learned AO), was dismissed as infructuous. The dismissal was based on the fact that proceedings under section 263 had been initiated by the revisionary authority and had resulted in a fresh assessment order pursuant to the revisionary order. That assessment order was also challenged before the CIT(A) and decided on 12 September 2025. Accordingly, the assessee has also filed an appeal against that appellate order.
3. ITA No. 2717/Bangalore/2025 has also been filed by the assessee for the assessment year 2017–18 against the appellate order dated 12 September 2025 passed by the National Faceless Appeal Centre, Delhi. That appeal arose from the assessment order dated 9 March 2023, passed by the Assessment Unit, Income Tax Department, under section 144 read with sections 263 and 144B of the Income-tax Act, 1961. The appeal was dismissed, and the assessee is therefore in appeal against that order as well.
4. Briefly, the assessee, Mr. Ramesh Bhajantri, is the proprietor of DurgaLaxmi Petroleum at Hubli. He did not file a return of income for the assessment year 2017–18 and was identified as a non-filer through the Income Tax Department’s information monitoring system. The information available with the Assessing Officer showed that the assessee had deposited cash of ₹19,97,040 in his Indian Overseas Bank account at Hubli during the demonetisation period, while the total cash deposited during financial year 2016–17 was ₹40,49,175. Since the assessee neither responded to the reported transaction nor filed a return under section 139(1) of the Act, a notice under section 142(1) was issued on 16 February 2018 and served at the address available in the PAN database and bank records. In the absence of a proper response, the Assessing Officer proposed to estimate income at 8% of the assessee’s total turnover of ₹52,67,731 and to add the cash deposited during demonetisation, thereby proposing total income of ₹23,64,046. In response to the show-cause notice, the assessee submitted a letter dated 23 September 2019 stating that he was a dealer in petrol and diesel for Bharat Petroleum Ltd.; that all transactions were routed through bank accounts; that, due to his father’s illness and subsequent death, he could not run the petrol pump regularly and it was closed because of financial difficulties; and that he restarted the business in July 2019, which was still running at a loss. He further stated that the turnover recorded by the Department represented sales of petrol and diesel, including during the demonetisation period, and that the cash deposits represented sales proceeds. The Assessing Officer, after considering the explanation, passed an assessment order dated 26 September 2019 by applying section 44AD of the Act, estimating profit at 8% on turnover of ₹52,67,731 for the non-demonetisation period, adding ₹19,97,040 as cash deposited during demonetisation, and assessing total income at ₹23,64,050.
5. The assessee preferred an appeal against the said assessment order.
6. Meanwhile, the Principal Commissioner of Income Tax, Hubli, invoked section 263 of the Income-tax Act and passed an order dated 22 March 2022 for the relevant assessment year. The PCIT held that the Assessing Officer had erroneously estimated income at 8% in respect of cash deposited in the bank accounts between 1 April 2016 and 8 November 2016. The PCIT therefore restored the entire assessment to the Assessing Officer with a direction to examine the deposits and credits in the assessee’s bank accounts during the year, conduct the necessary enquiries in accordance with law and applicable CBDT guidelines, and frame a fresh assessment.
7. Pursuant to the revisionary order, a fresh assessment order was passed on 9 March 2023 under section 144 read with sections 263 and 144B of the Act. During the proceedings, the assessee filed written submissions explaining the facts of the case and reiterating that most sales were made in cash, the sale proceeds were deposited in bank accounts, and payments to Bharat Petroleum Ltd. for purchases of petrol and diesel were made from those accounts. The Assessing Officer noted that the assessee maintained three bank accounts with total credits of ₹97,13,000. In response to the show-cause notice, the assessee filed copies of the bank statements and submitted that the actual credits were only ₹89,75,791, not all of which represented sale proceeds. He also furnished a bank-wise analysis of the deposits, along with confirmation and bank statements from his brother, and computed the total credits attributable to him at ₹69,75,060. The Assessing Officer treated the entire amount as business turnover and assessed income at ₹5,58,005, being 8% of the total credits. A further addition of ₹1,36,587 was made under the head “business income”. Since the assessee could not satisfactorily explain cash deposits of ₹21,27,210 made during the demonetisation period, that amount was also added to his total income. Accordingly, the assessment order dated 9 March 2023 determined the assessee’s total income at ₹26,85,220. The assessee challenged this order before the CIT(A).
8. The CIT(A) dismissed the assessee’s appeal against the original assessment as infructuous but considered the appeal arising from the assessment order passed pursuant to the revisionary proceedings under section 263 of the Act. The CIT(A) recorded that, during assessment proceedings, the assessee had stated that he was an authorised dealer of Bharat Petroleum Corporation Ltd., engaged in the retail sale of petrol and diesel under the Durga laxmi Petroleum. The assessee admitted that he had not filed a return of income for the reasons already stated and submitted that most sales were in cash, which were deposited into bank accounts and used to make payments to Bharat Petroleum Corporation Ltd. for purchases. The assessee also produced supporting evidence, including the cash book, sales register, purchase confirmation from Bharat Petroleum Ltd., and financial statements, explaining that these were part of the normal course of business of a petrol pump. As per the VAT returns, the assessee reported total sales of ₹69,85,003 and furnished the VAT returns and ledger account of the petroleum supplier. Despite these submissions, the CIT(A) dismissed the appeal in a single line, observing that the Assessing Officer had considered all submissions while passing the order under section 144 read with sections 263 and 144B of the Act and had completed the assessment by determining income at ₹26,85,220. The CIT(A) accordingly confirmed the Assessing Officer’s action.
9. The assessee is therefore aggrieved by both appellate orders passed by the CIT(A) on 12 September 2025 and has filed two separate appeals before us.
10. Ms. S. Nithya, Advocate and learned authorised representative for the assessee, submitted that the assessee had filed detailed written submissions before the National Faceless Appeal Centre, comprising 50 pages and placed at pages 25 to 41 of the paper book, but the submissions were not considered. She argued that the appeal was disposed of by a single-line order without addressing any of the assessee’s contentions. She referred to the State Bank of India and Indian Overseas Bank statements, the credit analysis of those statements, the cash book and sales register for the demonetisation period, and the financial statements. She further referred to Petroleum Planning and Analysis Cell data on dealer commission for petrol and diesel and to the coordinate Bench decision in ITA No. 1118/Bangalore/2025, where an addition was deleted on similar facts. She therefore submitted that the assessee had no unaccounted income, that the return could not be filed because of his father’s death, and that the addition made by the Assessing Officer was unsustainable.
11. We heard the learned Departmental Representatives, Shri N. S. Shashidhara, Commissioner of Income Tax, and Shri Pradeep S., Additional Commissioner of Income Tax, Senior Departmental Representative. They submitted that the assessee had failed to comply with the law by not filing a return of income and had accepted cash during the demonetisation period. They therefore contended that the addition made by the Assessing Officer was justified.
12. We have carefully considered the rival submissions and perused the orders of the lower authorities, both in the original assessment and in the assessment framed pursuant to the revisionary order passed by the Commissioner of Income Tax. The record shows that the assessee had not filed a return of income. Therefore, when the Department found cash deposits in the assessee’s bank account without any contemporaneous explanation regarding their source, the deposits were treated as unaccounted income. However, during the assessment proceedings, the assessee explained that he was running a petrol pump and that the cash deposits represented cash receipts from the sale of petrol and diesel. He furnished copies of his bank accounts with State Bank of India and Indian Overseas Bank, along with a credit analysis showing that cash received from sales was deposited in the bank accounts and later used to make payments to Bharat Petroleum Corporation Ltd. for the supply of petrol and diesel. The assessee also produced the cash book and sales register, which showed that the cash deposited during the demonetisation period was recorded as sales in the books of account. He further furnished financial statements for the relevant assessment year, placed at pages 80 to 89 of the paper book, and a return of income for assessment year 2017–18 filed on 16 October 2019, declaring income of ₹2,95,704. The profit and loss account showed sales of ₹69,85,003, purchases of ₹76,99,060, and expenses of ₹2,11,665 relating to Durga Laxmi Petroleum, along with the balance sheet placed at page 86 of the paper book. The assessee also produced returns for earlier and subsequent assessment years. The material on record indicates that the assessee did not earn net profit at 8% of turnover. He also placed material showing his gross margin, from which the expenses of running the petrol pump had to be met. In these circumstances, since the cash sales were recorded in the books, deposited in the bank account, and the profit thereon was offered to tax; since the turnover was supported by VAT returns; and since the commission earned was supported by the communication from Bharat Petroleum Corporation Ltd., we are unable to uphold the orders of the lower authorities. Accordingly, the additions made by the Assessing Officer and confirmed by the CIT(A), both on account of cash deposits during the demonetisation period and by estimating net profit at 8%, cannot be sustained, particularly when the assessee’s results for earlier and subsequent years show net profit in the range of 2% to 3.5%.
13. In view of the above facts, the assessee’s income is required to be determined on the basis of the books of account maintained by him, even though no return of income was filed under section 139(1) of the Act. Reasonable profit must be estimated on the basis of the books, if they are found to be in order. Accordingly, ITA No. 2717/Bangalore/2025, which challenges the assessment order passed pursuant to the revisionary order under section 263 of the Act, is restored to the file of the Assessing Officer for fresh determination of the assessee’s income. The Assessing Officer is directed to accept the books of account if they are found to be in order. If the books are not found reliable, the Assessing Officer shall determine the assessee’s profit having regard to the nature of the business carried on by him and the results of the preceding and succeeding assessment years, after giving the assessee a reasonable opportunity of being heard.
14. In the result, ITA No. 2717/Bangalore/2025 filed by the assessee is allowed for statistical purposes.
15. In view of our decision in ITA No. 2717/Bangalore/2025, ITA No. 2718/Bangalore/2025 filed by the assessee for the same assessment year has become infructuous and is accordingly dismissed.
Order pronounced in the open court on 27th August, 2026.
