Case Law Details
Cumin Infotech Private Limited Vs ITO (ITAT Delhi)
Income Tax Appellate Tribunal (ITAT), Delhi Bench, has deleted an addition of Rs. 24,06,635/- made by the Assessing Officer (AO) to the income of Cumin Infotech Private Limited for the Assessment Year 2017-18. The addition, initially sustained by the Commissioner of Income Tax (Appeals) [CIT(A)], was related to cash deposits treated as unexplained money.
The case involved Cumin Infotech Private Limited, which had filed its return of income for AY 2017-18 declaring Nil income. During the assessment proceedings under section 143(3) of the Income Tax Act, 1961, the AO identified cash deposits totaling Rs. 33 lakhs in the company’s bank account. The assessee explained that these deposits, amounting to Rs. 24,06,635/-, were sourced from sale proceeds generated between October 1, 2016, and March 5, 2016.
However, the AO did not accept this explanation and treated the sum of Rs. 24,06,635/- as unexplained money, adding it to the assessee’s income under section 68 of the Act. The assessee contested this addition before the CIT(A). The CIT(A) upheld the addition but notably changed the section under which the addition was made, reclassifying it under section 69A of the Act, which deals with unexplained money.
Aggrieved by the CIT(A)’s decision, Cumin Infotech Private Limited filed an appeal before the ITAT Delhi.
Before the Tribunal, the counsel for the assessee argued that the AO had made the addition without providing any justification for rejecting the company’s explanation regarding the source of the cash deposits. A key point raised was that the AO had not doubted the audited books of accounts maintained by the assessee. The counsel highlighted that the AO had not questioned the purchases, sales, cash in hand, or opening stock figures recorded in the books. Furthermore, no specific defects were pointed out in the books, nor were the books of accounts formally rejected by the AO. The assessee contended that in the absence of such actions, treating the cash deposits as unexplained money was unwarranted.
The assessee’s counsel also challenged the CIT(A)’s action of changing the section of addition from section 68 to section 69A. Reliance was placed on a decision of the Delhi Bench of the ITAT in the case of Toffee Agricultural Farms Pvt. Ltd. Vs. ITO, which, according to the assessee, supported the proposition that the CIT(A) does not possess the power to alter the section under which an addition is made by the AO.
Several judicial precedents were cited by the assessee’s counsel to support the argument that an addition on account of cash deposits is not justified when the books of accounts are not rejected and no defects are found. These included the Delhi High Court decision in PCIT Vs. Akshit Kumar and Tribunal decisions in ACIT Vs. Ram Lal Jewellers Pvt. Ltd. (Mumbai Tribunal), Mahesh Kumar Gupta Vs. ACIT (Jaipur Tribunal), and Gopal Jaiswal Vs. ITO (Kol. Tribunal). These cases generally support the principle that when the assessee’s books are accepted and no discrepancies are found in the recorded transactions, cash deposits reflected therein should ordinarily be accepted as explained.
The Revenue, represented by the Ld. Departmental Representative (DR), supported the orders passed by the AO and the CIT(A), arguing that the addition was correctly made and sustained.
The ITAT, after considering the submissions from both sides and reviewing the orders of the lower authorities, observed that the assessment order lacked specific reasons for rejecting the assessee’s explanation that the cash deposits originated from sale proceeds. The Tribunal noted that the AO had not disputed the purchases, sales, stocks, or cash in hand, nor had any defects been pointed out in the audited books of accounts. Crucially, the books of accounts were not rejected by the AO.
The Tribunal referenced the decision of the Mumbai Bench in ACIT Vs. Ram Lal Jewellers Pvt. Ltd. This precedent, dealing with cash deposits during the demonetization period, held that an addition under section 68 cannot be made solely because the ratio of cash deposits to cash sales is high, especially when the cash sales are duly recorded in the books and tally with the stock. The Mumbai Tribunal had emphasized that if huge cash purchases recorded in the books match the stock, a large cash sale in a particular month alone is not sufficient reason to treat it as undisclosed income.
Applying this principle and considering the facts of the present case, the ITAT Delhi found that the AO had not even argued that the cash deposits to cash sales ratio was high. More significantly, the AO had failed to provide any reasons whatsoever for rejecting the assessee’s explanation.
The Tribunal concluded that in the absence of rejection of the books of accounts, the pointing out of specific defects, or any dispute regarding the recorded purchases, sales, stocks, and cash in hand, there was no justification for treating the cash deposits as unexplained money and disregarding the assessee’s explanation.
Regarding the CIT(A)’s action of changing the section of addition, while the Tribunal noted this point raised by the assessee, its primary focus and basis for deleting the addition rested on the AO’s failure to provide justification and reject the books of accounts.
Based on its findings, the ITAT held that the addition of Rs. 24,06,635/- made by the AO under section 68 (and subsequently treated under section 69A by the CIT(A)) could not be sustained. The Tribunal directed the AO to delete the addition.
The appeal filed by Cumin Infotech Private Limited was consequently allowed by the ITAT Delhi. The order was pronounced in open court on February 7, 2025. This ruling underscores the importance of the Assessing Officer providing clear reasons for rejecting an assessee’s explanation and the significance of formally rejecting books of accounts before making additions based on unexplained cash deposits, particularly when the books are otherwise accepted and verified.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the assessee against the order of the Ld. CIT(Appeals)-NFAC, Delhi dated 26.10.2023 for the AY 2017-18 in sustaining the addition of Rs.24,06,635/- being cash deposits as an unexplained money of the assessee.
2. Brief facts are that the assessee for the assessment year under consideration i.e. 2017-18 filed its return of income on 16.09.2017 declaring Nil income. The assessment was completed u/s 143(3) on 23.12.2019 determining the income of the assessee at Rs.24,06,040/-. While completing the assessment the Assessing Officer treated cash deposits of Rs.24,06,635/- out of Rs.33 lakhs as unexplained money of the assessee. The explanation of the assessee that the cash deposits were made out of sale proceeds during the period 01.10.2016 to 05.03.2016 was not accepted. On appeal the CIT(A) sustained the addition.
3. Before me the Ld. Counsel for the assessee submitted that the Assessing Officer simply made addition treating the cash deposits as unexplained money ignoring the explanation of the assessee. Ld. Counsel submits that the Assessing Officer did not doubt the audited books of accounts, did not doubt the purchases, sales, cash in hand, opening stock and further the AO did not point out any defects in the books of accounts nor the books of accounts were rejected to treat the cash deposits as unexplained money of the assessee.
4. Counsel further submits that the Assessing Officer made addition u/s 68 and the Ld. CIT(A) changed the section to 69A of the Act. Ld. Counsel submits that the CIT(A) has no power to change the section to 69A from 68 as applied by the Assessing Officer for this proposition he places reliance on the decision of the Delhi Bench in the case of Toffee Agricultural Farms Pvt. Ltd. Vs. ITO in ITA No.4903/Del/2019 dated 18.04.2022.
5. The Ld. Counsel for the assessee further submits that since the Assessing Officer did not dispute the purchases, sales, opening stock, closing stock, cash in hand and did not point out any defects in the books of accounts and in the absence of rejection of books of accounts there is no justification in treating the cash deposits as an unexplained money of the assessee. Reliance was placed on the decision of the Delhi High Court in the case of PCIT Vs. Akshit Kumar (124 com 123), ACIT Vs. Ram Lal Jewellers Pvt. Ltd. (154 taxmann.com 584) (Mum. Trib.), Mahesh Kumar Gupta Vs. ACIT (104 ITR 519) (Jaipur Trib.), Gopal Jaiswal Vs. ITO (156 taxmann.com 398) (Kol. Trib.).
6. On the other hand, the Ld. DR strongly supported the orders of the authorities below.
7. Heard rival submissions, perused the orders of the authorities below. On reading of the assessment order it is noticed that the Assessing Officer did not give any reasons for rejecting the explanation of the assessee that the cash deposits were made out of sale proceeds. The Assessing Officer neither disputed the purchases, sales, stocks nor pointed out any defects in the audited books of accounts. In the absence of rejection of books of accounts and pointing out any defects in the books of accounts, not disputing the purchases, sales, stocks and cash in hand there is no justification in treating the cash deposits as unexplained money of the assessee ignoring the explanation of the assessee that the cash deposits made in the bank account are from sale proceeds only.
8. The Mumbai Bench of the Tribunal in the case of ACIT Vs. Ram Lal Jewellers Pvt. Ltd. (supra) held that addition u/s 68 on account of cash deposits cannot be made simply on the reasons that during the demonetization period cash deposits viz-a-viz cash sale ratio is higher. If the parties during the period of demonetization has purchased huge quantity of jewellery on cash which has been duly recorded in the books of accounts of the assessee and also tally with the quantity of stock, then simply because there was a huge cash sale in a particular month cannot be a reason for treating it as an undisclosed income from undisclosed sources.
9. In the case on hand it is not even the case of the Assessing Officer that cash deposits viz-a-viz cash sales ratio is higher. Nothing has been stated by the AO as to why the explanation of the assessee was rejected. Therefore, in the circumstances, the addition made by the Assessing Officer u/s 68 which was treated as addition u/s 69A by the Ld. CIT(Appeals) cannot be sustained. Thus, the AO is directed to delete the addition of Rs. 24,06,635/- made towards unexplained money. Grounds raised by the assessee are allowed.
10. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 07/02/2025
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