Case Law Details
Pret Study By Janak Fashions Private Limited Vs DCIT (ITAT Delhi)
The appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench, arose from the order dated 12.11.2025 passed by the Commissioner of Income Tax (Appeals) [CIT(A)] under Section 250 of the Income-tax Act, 1961, for Assessment Year 2017-18. The impugned appellate order had originated from an assessment order passed under Section 143(3) of the Act on 30.12.2019.
The assessee had originally filed its return declaring total income of Rs.1,64,68,460, which was subsequently revised on 27.03.2018. During scrutiny assessment proceedings, the Assessing Officer (AO) issued notices under Sections 143(2) and 142(1), and the assessee participated in the proceedings. The AO noted that the assessee was engaged in the business of manufacturing and retailing readymade garments and carrying out tailoring work. It was observed that the assessee had deposited cash amounting to Rs.8,39,28,129 in its bank accounts during the demonetisation period from 09.11.2016 to 30.12.2016.
In response to the AO’s queries, the assessee furnished certain details but failed to produce the cash book. The AO observed that there had been an increase in cash sales immediately prior to demonetisation, accompanied by substantial cash balances and cash deposits. The AO further noted that the sales were unverifiable as the assessee had not provided the PAN details or addresses of customers. It was also observed that the assessee maintained large cash balances despite operating multiple bank accounts and having outstanding loans and overdraft facilities. Relying on the Supreme Court decision in Sumati Dyal v. CIT, the AO rejected the books of account and treated Rs.2,07,37,908 out of the cash deposits made during demonetisation as unexplained cash credits under Section 68 of the Income-tax Act. Additionally, the AO made a disallowance of Rs.17,500 under Section 14A read with Rule 8D of the Income-tax Rules, 1962.
The assessee challenged the assessment order before the CIT(A). During the appellate proceedings, six notices were issued by the CIT(A). The assessee failed to respond to the first two notices and sought adjournments in response to the subsequent four notices. The CIT(A) ultimately decided the appeal ex parte. While the CIT(A) upheld the addition of Rs.2,07,37,908 under Section 68 relating to unexplained cash deposits, the addition of Rs.17,500 under Section 14A read with Rule 8D was deleted on the ground that the AO had not recorded the satisfaction required under the Supreme Court decisions in Maxopp Investment Ltd. v. CIT and Godrej & Boyce Mfg. Co. Ltd. v. DCIT before invoking Rule 8D.
Aggrieved by the confirmation of the Section 68 addition, the assessee approached the Tribunal. The assessee contended that the CIT(A) had upheld the addition without providing any independent reasoning and that the appellate order violated Section 250(6) of the Act, which mandates a reasoned and speaking order. The Revenue submitted that despite repeated opportunities, the assessee had failed to furnish replies or relevant documents before the CIT(A).
The Tribunal observed that although six notices had been issued, the CIT(A) had confirmed the addition without conducting any independent inquiry or even calling for the assessment records. The Tribunal emphasized that Section 250(6) requires the CIT(A) to clearly state the points for determination, the decision on each issue, and the reasons supporting those decisions. It noted that merely stating that the assessment order required no interference was inadequate. The Tribunal also observed that the powers of the CIT(A) are co-terminus with those of the AO and include the power of enhancement. Therefore, the CIT(A) was obligated to adjudicate the appeal on merits through a reasoned order rather than dismissing it solely on account of the assessee’s non-compliance.
At the same time, the Tribunal held that the assessee was equally responsible for the situation because of its failure to comply with the notices issued by the CIT(A). The assessee’s counsel assured the Tribunal that, if another opportunity was granted, all necessary documents and evidence would be produced to explain the cash deposits during the demonetisation period. It was also submitted that the nature of the assessee’s business regularly generated cash sales, which were subsequently deposited in the bank.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal in ITA No. 532/Del/2026 for assessment year: 2017-18 has arisen form the appellate order dated 12.11.2025 passed by ld. CIT(A) u/s 250 of the Income-tax Act, 1961(in Short “Act”) in DIN & Order No: ITBA/NFAC/S/250/2025-26/1082540159(1), which appeal in turn has arisen from the assessment order dated 30.12.2019 passed by the AO u/s 143(3) of the 1961 Act.
2. The brief facts of the case are that the assessee filed its return of income declaring total income of Rs.1,64,68,460/-. The return of income was revised on 27th March, 2018. The case of the assessee was selected by Revenue for framing scrutiny assessment. During the course of assessment proceedings, the AO issued statutory notices u/s 143(2) and 142(1) of the 1961 Act, from time to time. The assessee participated in assessment proceedings. The AO observed that the assessee is engaged in the business of manufacturing and retailing of readymade garment & tailoring work. The AO observed that the assessee has deposited cash amounting to Rs.8,39,28,129/- in its bank accounts during the period of demonetization (09.11.2016 to 30.12.2016). The AO asked assessee to explain the same. The assessee submitted before the AO detailed called for , but the assessee did not submit cash book . The AO observed that just before demonetization, there has been increase in cash sales, high cash in hand as well cash deposits in the bank. The AO observed that none of the sale is verifiable, neither PAN nor address from any of the customers were furnished by the assessee. It was observed by the AO that the assessee is maintaining high cash in hand , and very small amounts are deposited in bank, further there is no reasons to hold huge amount of cash in hand once assessee is having multiple bank accounts and loans/OD are outstanding . The AO relied upon decision of Hon’ble Supreme Court in the case of Sumati Dyal v. CIT 1995 AIR 2109. The AO rejected books of accounts of the assessee. After making detailed enquiry and analysis as is recorded in assessment order, the AO made the addition to the income of the assessee to the tune of Rs.2.07,37,908/- out of the cash deposited during the demonetization period, which as per the AO has remained unexplained and the same stood added to the income of the assessee u/s 68 of 1961 Act. The AO also made addition of Rs. 17,500/- to the income of the assessee by invoking provisions of Section 14A of the 1961 Act read with Rule 8D of the Income-tax Rules, 1962.
3. Aggrieved , the assessee filed first appeal before the Ld. CIT(A) . During appellate proceedings, the Ld. CIT(A) issued as many as six notices to the assessee as are recorded in the ld. CIT(A) appellate order. On the first two occasions, the assessee did not responded, while for the subsequent four notices issued by ld. CIT(A), the assessee sought adjournment. The Ld. CIT(A) proceeded to decide the appeal ex-parte in the absence of the assessee. The Ld. CIT(A) upheld the additions made by the AO with respect to the unexplained cash deposits to the tune of Rs.2,07,37,908/-, and appeal of the assessee on this ground stood dismissed by ld. CIT(A). The Ld. CIT(A) observed that the assessee has not participated in the appellate proceedings and no supporting documents has been placed on record by the assessee during the course of appellate proceedings to support its contention. So far as addition of Rs.17,500/- u/s 14A r.w.r 8D is concerned, the Ld. CIT(A) deleted the addition as was made by the AO by holding that the AO has not recorded the satisfaction as has been contemplated by Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT [(2018) 402 ITR 640 (SC)] and Godrej & Boyce Mfg. Co. Ltd. v. DCIT [2017] 394 ITR 449 (SC) before invoking Rule 8D.
4. Still aggrieved, the assessee filed second appeal with the Tribunal. The ld. Counsel for the assessee submitted that the Ld. CIT(A) has dismissed the appeal of the assessee ex-parte with respect to the addition made on account of unexplained cash deposit in the bank account to the tune of Rs. 2,07,37,908/- u/s 68 of the Act , and there is no independent reasoning given by the Ld. CIT(A) while upholding the addition made by the AO to the tune of Rs.2,07,37,908/- u/s 68 as explained cash deposits. It was submitted that keeping in view provisions of section 250(6), the appellate order passed by Ld. CIT(A) is not sustainable. It was prayed that the matter may be restored back to the file of ld. CIT(A) for fresh adjudication of the issue of unexplained cash deposits in the bank during demonetization to the tune of Rs. 2,07,37,908/- u/s 68.
4.2 Ld. Sr. DR submitted that the assessee sought adjournments before ld. CIT(A), but did not file response/reply before the Ld. CIT(A).
5. We have considered rival submissions and perused the materials available on record. We have culled out brief facts and contentions of both the parties in the preceding para’s of this order and the same are not repeated. The short issue before us is with respect to the additions made by the AO and as sustained by ld. CIT(A) to the tune of Rs. 2,07,37,908/- being unexplained cash deposits in the bank account during demonetization period by invoking provisions of Section 68 of the 1961 Act. We have observed that during the course of appellate proceedings, the Ld. CIT(A) issued as many as six notices to the assessee. On the first two occasions , there was no response from the assessee to the notices issued by ld. CIT(A) , while on next four occasions, the assessee sought adjournment from ld. CIT(A). The ld. CIT(A) adjudicated appeal of the assessee ex-parte. The Ld. CIT(A) partly allowed the appeal of the assessee by upholding the addition made by the AO u/s 68 of the Act with respect to the unexplained cash deposits in bank account to the tune of Rs.2,07,37,908/- during demonetization period. It is observed that Ld. CIT(A) has upheld the addition without making any independent enquiry, and we have observed that Ld. CIT(A) did not even call for the assessment records before dismissing the appeal of the assessee on the issue of unexplained cash deposits during demonetization. The ld. CIT(A) is required and obligated to pass appellate order in compliance with the provisions of section 250(6), as ld. CIT(A) is required to pass reasoned and speaking order on merits in accordance with law. Reference is drawn to provisions of Section 250(6), wherein ld. CIT(A) has to state point for determination, his decision and reasons thereof. The ld. CIT(A) did not called for the assessment records from the AO nor did made independent enquiries . Reference is drawn to provisions of Section 250(4).The appellate order passed by ld. CIT(A) is subject to further appeal with ITAT u/s 253. The appellate order passed by ITAT is subject to further appeal before Hon’ble High Court u/s 260A. The judgment and order passed by Hon’ble High Court is also subject to challenge before Hon’ble Supreme Court. Thus, the appellate order passed by ld. CIT(A) is not a final order, as it is subject to challenge before higher appellate authority. Thus, Reasons which weighed in the minds of the adjudicating authority while adjudicating appeal on merits of the issues are cardinal as the higher appellate authority can then adjudicate appeal on the issues arising in appeal before them, based on decision and reasoning of ld. CIT(A) in deciding the issues. If the ld. CIT(A) simply dismiss the appeal merely because the assessee did not comply with the notices issued by ld. CIT(A) without adjudicating issues arising in the appeal on merits , such order is not sustainable in the eyes of law keeping in view provisions of Section 250(6) , and also higher appellate authorities will be deprived to see what weighed in the mind of the ld. CIT(A) while adjudicating appeal as it will be an order passed without reasoning on the issues on merits . The appellate order of the CIT(A) is clearly in violation of section 250(6) of the Act and liable to be set aside. Merely stating the assessment order passed by AO is upheld and does not warrant interference is not sufficient, and that the assessee has not submitted details/documents during appellate proceedings is not sufficient. The ld. CIT(A) is not toothless as his powers are co-terminus with the powers of the AO, which even includes power of enhancement. It is equally true that the assessee also did not complied with the notices issued by ld. CIT(A) and did not file the requisite details/documents to support his contentions. Thus, the assessee is equally responsible for its woes as the assessee did not comply with the notices issued by the ld. CIT(A) The ld. Counsel for the assessee has made statement before the Bench that if one more opportunity is provided, the assessee will provide all details/documents/evidences to justify the cash deposits in the bank account during demonetisation. It was submitted that the assessee is dealing in ready made garments and tailoring, and cash is generated regularly in this business by way of cash sales which stood deposited in the bank account. Keeping in view the entire factual matrix as culled out above in the preceding para’s of this order, it will be fair to both the parties as well in the interest of justice, that the appellate order passed by ld. CIT(Appeals) be set aside and the matter be remanded back to the file of ld. CIT(Appeals) for fresh adjudication after giving proper opportunity of being heard to both the parties w.r.t. the issues arising in the appeal .The assessee is directed to comply with the notice issued by ld. CIT(Appeals) during the appellate proceedings in set aside remand proceedings, otherwise ld. CIT(A) shall be free to decide the appeal ex-parte on merits in accordance with law, after complying with provisions of Section 250(6). We clarify that we have not commented on merits of the issues. Thus, the appellate order passed by ld. CIT(A) is set aside and matter is restored back to the file of ld. CIT(A) for fresh adjudication. The appeal of the assessee is allowed for statistical purposes. We order accordingly.
6. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order is pronounced in the Open Court on 27.05.2026
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