Fifty Hawkers, Six Dates & Identical ₹20,000 Deposits-Symmetry Fails to Prove Evidence U/s 68

M D Sons Vs ITO (ITAT Bangalore)

Fifty Hawkers, Six Dates & Identical ₹20,000 Deposits—Perfect Symmetry Proves Imperfect Evidence u/s 68Fifty Hawkers, Six Dates & Identical ₹20,000 Deposits—Perfect Symmetry Proves Imperfect Evidence u/s 68

The controversy

The assessee, M D Sons, was a partnership firm engaged in distributing cigarettes, food products & snacks manufactured by ITC Ltd. For AY 2017-18, it declared total income of ₹2.31 crore on a turnover exceeding ₹478 crore.

The assessment was selected for scrutiny following a survey conducted on 24 January 2017. The surviving disputes before the Bangalore ITAT concerned cash advances allegedly received from hawkers and the deduction of March 2016 salary paid in April 2016.

The assessee also challenged the validity of notice u/s 143(2) on the ground that it had been issued in the old format rather than the revised format prescribed by CBDT. That issue had already been referred to a Special Bench, which rejected the additional ground in M D Sons v. Income-tax Officer [2026] 188 taxmann.com 703.

₹60 lakh allegedly collected from 50 hawkers

The assessee recorded cash advances of ₹20,000 each from 50 persons on 24 March 2017, aggregating to ₹10 lakh.

Precisely the same pattern was repeated on 25, 27, 28, 30 & 31 March 2017. Thus, each person allegedly advanced ₹20,000 on six different dates, resulting in ₹1.20 lakh per hawker and aggregate cash receipts of ₹60 lakh within the closing days of the financial year.

When the AO called for particulars and confirmations, the assessee furnished a list containing the names of the 50 persons and the amounts allegedly received. However, it did not furnish their addresses, telephone numbers, PANs, income-tax returns or proper confirmations.

The assessee contended that these persons were hawkers connected with its distribution business and that the deposits represented security advances subsequently adjusted against sales made on 3 April 2017.

Invoices failed to rescue the deposits

Before the ITAT, the assessee produced invoices to demonstrate that goods were subsequently sold through the hawkers to various customers.

The Tribunal found that the list contained only the hawkers’ names, identical amounts of ₹20,000 & their signatures. Even the invoices did not mention the addresses of the hawkers or provide proper customer particulars. They did not identify the locality, street, shop or kiosk where the customers allegedly operated.

More significantly, the invoices showed identical quantities of the same products sold to several entities through different hawkers. Despite a specific query from the Bench, the assessee could not explain this unusual uniformity.

The Tribunal held that such identical transactions across numerous parties could not simply be dismissed as coincidence.

Year-end timing raised further doubts

The assessee could not explain why advances of this magnitude were received only between 24 & 31 March 2017, when no comparable practice existed during the rest of the year.

It also failed to explain why each hawker would deposit more than ₹1 lakh in cash when no goods were supplied for nearly ten days.

The alleged advances also inflated the year-end cash balance to approximately ₹75.65 lakh. Further, the balance sheet already contained a separate “hawker cigarette deposit account” of approximately ₹43.30 lakh. No satisfactory reason was offered for creating another “hawkers’ advances against supply” account when a distinct deposit account already existed.

Considering the suspicious timing, identical amounts, uniform invoices & complete absence of basic identification, the Tribunal held that the assessee had failed to establish the identity, creditworthiness & genuineness of the alleged depositors.

The addition of ₹60 lakh u/s 68 was accordingly sustained, along with the consequential application of s.115BBE.

March salary caught between two accounting systems

The second dispute concerned salary of ₹12,27,914 relating to March 2016 but paid in April 2016.

The assessee followed the cash system of accounting in FY 2015-16. Since the salary was not paid during that year, it was not claimed as a deduction. In FY 2016-17, however, the assessee switched to the mercantile system and claimed the amount on payment.

The AO disallowed the expenditure because it related to March 2016 and had not accrued during FY 2016-17. The CIT(A) confirmed the disallowance.

The ITAT agreed. Under the mercantile system followed for the year under consideration, only expenditure accruing during FY 2016-17 could be allowed. Since the March 2016 salary neither pertained to nor accrued during that year, payment in April 2016 did not make it deductible.

The disallowance of ₹12,27,914 was therefore upheld.

Interest & final result

Since the substantive additions were sustained, the grounds challenging interest u/s 234B & 234C were held to be consequential and dismissed.

The assessee’s appeal was dismissed in full.

Author’s comments

The decision demonstrates that commercial probability is an integral part of examining cash credits. One uniform entry might be possible; 300 identical deposits of ₹20,000 across 50 hawkers on six selected year-end dates require exceptionally strong evidence.

Signatures and self-prepared lists cannot replace verifiable identities, addresses, contact details, confirmations & an intelligible commercial explanation. The case also shows that invoices do not establish genuineness merely because they are printed and numbered. Their contents must withstand scrutiny.

The salary issue exposes a harsh consequence of changing the method of accounting. Under the cash system, the deduction was unavailable in FY 2015-16 because payment occurred later. Under the mercantile system adopted in FY 2016-17, it was denied because accrual occurred earlier. A transitional adjustment should ideally be considered while changing accounting methods to prevent a genuine expense from falling into an accounting black hole.

There is, however, a noticeable numerical inconsistency in the order. Its opening narration states that the CIT(A) confirmed hawker advances of ₹16 lakh, whereas the detailed adjudication proceeds on an addition of ₹60 lakh. The assessment figures and substantive discussion support ₹60 lakh, but the discrepancy may warrant verification from the assessment & appellate records.

Cases Discussed

• M D Sons v. Income-tax Officer [2026] 188 taxmann.com 703 (Bengaluru – Trib.)

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE

1. This appeal by M D Sons, the assessee/appellant, relates to assessment year 2017-18 and is directed against the appellate order dated 24 May 2025 passed by the Commissioner of Income Tax (Appeals)-15, Bangalore [learned CIT(A)]. By that order, the learned CIT(A) partly allowed the assessee’s appeal against the assessment order dated 28 December 2019 passed under section 143(3) of the Income-tax Act, 1961, by the Assistant Commissioner of Income Tax, Circle-5(2)(1), Bangalore [learned AO], determining the assessee’s total income at ₹34,875,050.

2. In this appeal, the assessee has raised the following grounds: –

1. The learned Commissioner of Income-tax (Appeals)-15 has erred in partially confirming the assessment order passed u/s 143(3) of the Act. The order passed to the extent of confirming the assessment order is bad in law and such order is liable to be quashed.

2. Without prejudice, the learned CIT(A) has erred in confirming the addition made by the Assessing officer by treating the hawkers advances as unexplained cash credit u/s 68 of the Act on the ground that the appellant has failed to prove the identity and credit worthiness of the creditors with adequate evidence. On proper appreciation of facts and the law applicable, there being no unexplained cash credit at all, the addition as made/confirmed is to be deleted.

3. In any case, the learned CIT(A) has erred in confirming the disallowance made by the Assessing officer with respect to salary paid for the month of March 2016 amounting to Rs. 12,27,914/- in the year under consideration on the ground that as the appellant is following accrual system of accounting, same is not allowable in the year of payment. On the facts and circumstances of the case and the law applicable, the action of CIT(A) in confirming the action of AO is erroneous and same is to be negated and the salary as claimed is to be allowed.

4. In any case, the addition as made/confirmed is erroneous and excessive.

5. The learned CIT(A) has erred in confirming the levy of taxes at special rates u/s 115BBE of the Act on the addition made u/s 68 of the Act. On proper appreciation of facts and law applicable, there being non explained cash credit at all, the provisions of section 115BBE of the Act are not applicable at all. The levy of taxes u/s 115BBE being erroneous is to be deleted.

6. The appellant denies the liability to pay interest u/s 234B and 234C of the Act. The interest having been levied erroneously is to be deleted.

3. The assessee, a partnership firm engaged in distributing products manufactured by ITC Ltd., mainly cigarettes and food products, filed its return of income on 4 November 2017 declaring total income of ₹23,072,000. The return was selected for scrutiny because a survey had been conducted on 24 January 2017, during which the statement of one of the assessee’s partners was recorded and the assessee agreed to disclose income of ₹2 crore in its return for assessment year 2017-18. The assessee reported turnover of ₹4,783,253,165 and profit of ₹20,312,761, comprising profit of ₹20,000,000 from the cigarette division and loss of ₹595,000 from the food division. The assessment under section 143(3) of the Act was completed on 20 December 2019, wherein the learned Assessing Officer made additions of ₹2,500,000 as unexplained cash credit under section 68 of the Act and ₹1,600,000 on account of hawkers’ advances, and further disallowed 20% of casual wages of ₹10,372,203, amounting to ₹2,074,440.

4. In appeal, the learned CIT(A), by order dated 24 May 2025, confirmed the addition of ₹1,600,000 on account of hawkers’ advances and the salary disallowance of ₹1,227,917, while deleting the 20% disallowance of casual wages and the cash credit addition of ₹2,500,000. The assessee is therefore in appeal before us against the two surviving additions/disallowances, namely the salary disallowance of ₹1,227,914 and the addition of ₹1,600,000 under section 68 of the Act in respect of cash amounts received from hawkers.

5. During the hearing, the assessee raised an additional ground contending that the notice dated 24 September 2018 issued under section 143(2) of the Act was invalid, as it was issued in the old format and not in the revised format prescribed by the Board’s instructions dated 23 June 2017. The assessee therefore submitted that the assessment framed pursuant to such notice was void ab initio and liable to be quashed. As divergent views had been expressed by different benches on this issue, the matter was referred to a Special Bench. The Special Bench has since rendered its decision in M D Sons v. Income-tax Officer [2026] 188 taxmann.com 703 (Bengaluru – Trib.) [13-07-2026], dismissing the additional ground raised by the assessee.

6. Turning to the regular grounds, Ground No. 1 in the assessee’s appeal is general in nature and therefore requires no separate adjudication.

7. Ground No. 2 in the assessee’s appeal concerns the addition made under section 68 of the Act in respect of cash deposited during the year under consideration.

8. The relevant facts, as borne out from the record, are that the assessee is engaged in trading cigarettes, food items, and snacks. It purchases products from ITC and sells them to various shops through its cigarette and food divisions. During assessment proceedings, the Assessing Officer noticed that the assessee had shown cash advances of ₹20,000 each from 50 persons on 24 March 2017, aggregating to ₹10 lakh. The same 50 persons were again stated to have advanced ₹20,000 each on 25 March 2017, and similar receipts of ₹20,000 each from 50 persons were recorded on 27, 28, 30, and 31 March 2017, making ₹10 lakh on each date. Thus, the assessee claimed to have received total cash advances of ₹60 lakh from hawkers during 24 March 2017 to 31 March 2017.

When asked to furnish details and confirmations in respect of these advances, the assessee submitted only a list containing the names of the hawkers and the amounts stated to have been advanced in cash, showing that each of the 50 persons had allegedly advanced ₹20,000 on each of the six dates.

9. The Assessing Officer rejected the assessee’s explanation on the ground that it had furnished only the names of 50 persons, without providing their addresses, phone numbers, PAN details, income-tax returns, or confirmations from the hawkers. The assessee also failed to explain the purpose of the advances. The Assessing Officer further noted that such advances were shown only during the period from 24 March 2017 to 31 March 2017 and that no similar business practice was followed regularly during the year. Accordingly, the Assessing Officer treated the cash credits of ₹60 lakh as unexplained under section 68 of the Act and added the amount to the assessee’s total income. The learned CIT(A) also rejected the assessee’s ground on this issue, observing that neither before the Assessing Officer nor during appellate proceedings had the assessee furnished basic details such as PANs, confirmations from the hawkers, their income-tax returns, addresses, or contact numbers. The learned CIT(A) therefore held that the assessee had failed to discharge the primary onus under section 68 of the Act and upheld the addition of ₹60 lakh. Aggrieved, the assessee is in appeal before us.

10. During the hearing, the learned Authorised Representative, Ms. Suman Lunkar, CA, reiterated the submissions made before the lower authorities. She submitted that the cash received by the assessee between 24 March 2017 and 31 March 2017 represented advances from hawkers engaged in the assessee’s business and that these advances were adjusted against sales made on 3 April 2017. To support this contention, she placed on record certain invoices to show that the amounts received from the hawkers were adjusted against sales of goods made to various customers through them. The learned AR also filed an 89-page paper book, in which Serial No. III contained a chart showing cash received from hawkers as advances against product sales, submitted with the assessee’s reply dated 25 December 2019 to the show-cause notice dated 12 December 2019. She again referred to the list of hawkers furnished before the lower authorities. On perusal of this list, appearing at pages 84 to 89 of the paper book, it is evident that it contains only the names of the persons alleged to be hawkers from whom the assessee claimed to have received advances of ₹20,000 each on the aforesaid dates. Apart from the names, the list records only the amount, which is ₹20,000 in every case, along with the signatures of those persons. During the hearing, the learned AR submitted that these advances were ultimately adjusted against sales made on 3 April 2017 and, in support of this contention, referred to the following details on a sample basis:

E-SUGAM Details

Sales Person: RAGHU

11. On the other hand, the learned CIT-DR, Shri N. S. Shashidhara, strongly relied on the orders of the lower authorities and submitted that the assessee had furnished only the names of the hawkers, without providing their addresses or phone numbers. As regards the additional evidence produced by the learned AR, the learned DR submitted that even the invoices filed by the assessee mentioned only the names of the persons claimed to be hawkers and the names of the customers, without furnishing basic details such as the addresses of either the hawkers or the customers.

12. We have considered the rival submissions and perused the material on record. During the year under consideration, the assessee received ₹20,000 each in cash from 50 persons on 24 March 2017. The same 50 persons are also stated to have deposited ₹20,000 each on 25, 27, 28, 30, and 31 March 2017, resulting in cash receipts of ₹10 lakh on each of these dates and an aggregate receipt of ₹60 lakh. The assessee contended that it traded in cigarettes, food, and snack items, and dealt with several hawkers and small vendors in the course of business. According to the assessee, each hawker deposited ₹1,20,000 as a security deposit, which was later adjusted against sales made to them. During assessment proceedings, the assessee was asked to furnish details of the cash advances received from these hawkers in March 2017, along with confirmations. However, it mainly produced only a list containing the names of the hawkers and the amounts stated to have been received from each of them. The record shows that even before the learned CIT(A), no further details were furnished. Since the assessee failed to provide addresses, phone numbers, confirmations, PAN details, or income-tax returns of the alleged hawkers, the Revenue treated the aggregate cash receipt of ₹60 lakh as unexplained cash credit under section 68 of the Act. On careful examination of the material, we find that it does not establish receipt of advances of ₹1,20,000 from each alleged hawker during the relevant financial year. The learned AR also placed on record copies of invoices relating to goods allegedly sold through these hawkers to various customers. On perusal, these invoices contain only the names of the alleged hawkers and customers, without mentioning the addresses of the hawkers or furnishing any customer details. They also do not mention the area, locality, or street where any customer’s shop or kiosk was located.

Further, the invoices show that identical quantities of the same products were sold to several entities through these alleged hawkers. This is evident from the summary sheet of invoices, reproduced below for ready reference:

Sales Details

Period: 01/04/2017 to 30/04/2017

13. During the hearing, despite a specific query, no explanation was offered for the identical sales of the same products to various entities, which cannot be treated as a mere coincidence. Accordingly, the evidence now placed before us does not inspire confidence in the assessee’s claim that cash advances of ₹1,20,000 each were received from 50 hawkers between 24 March 2017 and 31 March 2017. Even in the present appeal, the assessee has not furnished any basic details of the persons alleged to be hawkers, such as their addresses, phone numbers, PAN details, income-tax returns, or confirmations.

14. The learned Authorised Representative was also unable to explain why advances of this magnitude were received only at the fag end of the financial year, ending on 31 March 2017, when no comparable hawker advances were received during the rest of the year. She also could not explain why the vendors purchased material through the hawkers, or why the hawkers would deposit substantial cash advances of more than ₹1 lakh each when no material was supplied to them for nearly 10 days. The record shows that the alleged advances were deposited on 24, 25, 27, 28, 30, and 31 March 2017. The assessee had cash on hand of ₹7,565,027 at year-end, and the hawker advances appear to have inflated that cash balance. Further, Schedule E, relating to current liabilities and provisions, shows that apart from hawkers’ advances against supply of ₹16 lakh, there was also a separate hawker cigarette deposit account of ₹4,329,986. No explanation was offered as to why a separate hawkers’ advances against supply account of ₹16 lakh was created when a hawker cigarette deposit account of ₹4,329,986 already stood in the books. Considering these facts, together with the assessee’s failure to produce confirmations or explain the reasons for such advances, the alleged advances cannot be accepted as genuine deposits received by the assessee.

15. Considering the facts and circumstances of the case, and the material placed on record by the assessee, we are of the considered view that the assessee has failed to substantiate its claim that the cash receipt of ₹60 lakh represented advances from hawkers. We therefore find no infirmity in the findings of the lower authorities treating the aggregate cash receipt of ₹60 lakh as unexplained cash credit under section 68 of the Act. Accordingly, the impugned order on this issue is upheld, and Ground No. 2 raised in the assessee’s appeal is dismissed.

16. Ground No. 3 in the assessee’s appeal concerns the disallowance of salary paid for March 2016 in the year under consideration.

17. The brief facts relevant to this issue, as borne out from the record, are that during the year under consideration, the assessee claimed total salary expenditure of ₹20,223,554. In response to the query seeking details of salary paid, the assessee submitted that, of this amount, ₹1,227,914 related to salary for March 2016, which was paid in April 2016. The assessee stated that, in financial year 2015-16, it claimed salary expenses on a payment basis and therefore did not claim the March 2016 salary in that year, as it was paid only in April 2016. The assessee further submitted that, in the relevant financial year 2016-17, it claimed salary expenses on an accrual basis, including the amount of ₹1,227,914 relating to March 2016 but paid in April 2016.

18. In the order passed under section 143(3) of the Act, the Assessing Officer held that the salary expenditure of ₹1,227,914, relating to March 2016 but paid in April 2016, was not allowable in the year under consideration because the assessee followed the mercantile system of accounting during that year. Accordingly, the Assessing Officer disallowed ₹1,227,914 and added it to the assessee’s total income.

19. By the impugned order, the learned CIT(A) dismissed the assessee’s grounds on this issue and upheld the disallowance of ₹1,227,914. Aggrieved, the assessee is in appeal before us.

20. We have considered the rival submissions and examined the material on record. It is undisputed that the assessee followed the cash basis of accounting in financial year 2015-16 and the mercantile system in financial year 2016-17, the year under consideration. It is also not in dispute that ₹1,227,914 relates to salary for March 2016, which, according to the assessee, was paid in April 2016. The assessee contends that, since it followed the cash basis in financial year 2015-16, it did not claim this expenditure in that year because payment was made only in April 2016.

21. On the facts and circumstances of the case, we find no infirmity in the lower authorities’ disallowance of salary expenditure of ₹1,227,914 relating to March 2016. During the year under consideration, the assessee admittedly followed the mercantile system of accounting, under which only expenditure accruing in financial year 2016-17 is allowable as a deduction. Since the March 2016 salary did not pertain to, or accrue during, that year, it cannot be allowed as a deduction in the year under consideration. Accordingly, the findings of the lower authorities on this issue are upheld, and Ground No. 3 raised in the assessee’s appeal is dismissed.

22. In view of the above findings, Grounds No. 4 and 5 require no separate adjudication and are accordingly dismissed.

23. Ground No. 6 concerns the levy of interest under sections 234B and 234C of the Act, which is consequential in nature. Since the additions on merits have been upheld, this ground is also dismissed.

24. In the result, the assessee’s appeal is dismissed.

Order pronounced in the open court on 07-Sept-2026.