Case Law Details
Garima Leather Exports Vs ITO (ITAT Delhi)
In this case, the Income Tax Appellate Tribunal (ITAT), Delhi, considered whether cash deposits of ₹1,34,76,000 made by the assessee during the demonetisation period could be treated as unexplained money under Section 69A of the Income Tax Act, 1961. The assessee, engaged in the business of manufacturing and trading footwear, had filed a return declaring a loss for Assessment Year 2017-18. During assessment proceedings, the Assessing Officer (AO) examined cash deposits made between 9 November 2016 and 31 December 2016 and sought an explanation for their source.
The assessee contended that the deposits originated from cash sales and stated that corresponding purchases were made from M/s Sharma Chemicals and Adhesive, a sister concern. However, the AO observed that from 4 October 2016 to 27 October 2016, the assessee had recorded 539 local tax-free sales vouchers, each for an identical amount of ₹18,480. The AO considered this pattern unusual. Further, notices issued under Section 133(6) to the alleged supplier received no response. Based on these circumstances, the AO concluded that the purchases were not genuine and, consequently, the sales and cash deposits were also not genuine. The amount of ₹1,34,76,000 was therefore added as unexplained cash deposits under Section 69A. The CIT(A) upheld the addition.
Before the Tribunal, the assessee argued that the books of account were audited and had not been rejected. It submitted that the AO had not conducted complete enquiries and had relied on assumptions. The assessee also explained that the same email ID appearing on purchase bills and bank records was a typographical error and that transport receipts were unavailable because goods were transported through local rickshaws and tempos due to short distances.
The Tribunal rejected these explanations. It noted that the genuineness of the 539 identical sales vouchers was doubtful and agreed with the findings of the AO and CIT(A) that such a large volume of identical tax-free sales was unlikely to be genuine. The Tribunal further observed that the AO had disproved the assessee’s claim of short-distance transportation by relying on unbiased Google data showing a distance of approximately 25 kilometres between the parties. It also found the explanation regarding the identical email ID unconvincing. Additionally, the Tribunal considered the non-compliance with notices issued to the sister concern significant, observing that there was no satisfactory reason for the proprietor, who was connected with the assessee, to ignore the enquiries.
Holding that the inconsistencies, deficiencies, and shortcomings identified by the AO were not innocuous mistakes, the Tribunal concluded that the assessee had failed to satisfactorily explain the source of the cash deposits. It therefore upheld the order of the CIT(A), sustained the addition of ₹1,34,76,000 under Section 69A, and dismissed the appeal.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is directed against the order of National Faceless Appeals Centre/Ld. Commissioner of Income Tax(Appeals), New Delhi, [hereinafter referred to as ‘ld. CIT(A)] dated 12.09.2025 arising out of assessment order dated 22.12.2019 passed under section 143(3) of the Income Tax Act, 1961, for the Assessment Year 2017-18. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
2. The assessee has raised following grounds of appeal:-
1. That based on the facts and circumstances of the case and in law, the order passed under section 143(3) assessing the total taxable income at Rs.1,34,76,000 and sustained by the learned CIT(A) is bad in law and on facts.
2.(a) That in view of the facts of the case and the applicable law, the present proceedings are void ab initio, as the notice issued under Section 143(2) of the Act by the Learned Assessing Officer (Ld. AO) on 10.08.2018 violates the CBDT Instruction F.No.225/ 157/ 2017/ ITA-II dated 23.06.2017 and hence, the notice is invalid, and the assessment framed pursuant thereto is vitiated in law.
(b) That in this connection, the notice under Section 143(2) of the Act issued to the Appellant is not in the prescribed format and does not specify as to whether the re-assessment proceedings have been initiated for limited, complete or compulsory manual scrutiny.
(c) That further in this connection, since the notice under Section 143(2) of the Act is not in the prescribed format, it is in violation of the mandatory terms of the Instruction and hence, void in law, and accordingly, the assessment order dated 22.12.2019 emanating therefrom, is void ab initio and deserves to be set aside.
3. That the Learned CIT(A) has grossly erred in upholding the order passed by the Ld. AO, without properly appreciating the merits of the case as the impugned order is vitiated by illegality and jurisdictional defects, as detailed hereunder:
(a) That the Ld. AO has erred in law and on facts by concluding that cash deposited during the demonetization period as unexplained cash deposit under section 69A of the Act, on account of alleging that no purchases were made by the appellant from M/s Sharma Chemical & Adhesive, this conclusion is misplaced and the addition as sustained deserves to be set aside.
(b) That in this regard, the Ld. AO erred in concluding that no purchases were made from M/s Sharma Chemical & Adhesive, merely because no response was received from the said party against the notice under section 133(6) of the Act.
(c) That further in this regard, the Ld. AO has erred in law by not resorting to other means of verification of purchase/ parties before concluding that the said purchases were never made and the whole story created by the appellant is a concocted story.
(d) That, in conclusion, the Ld.AO erred in concluding that no actual purchase had taken place merely on the ground that the goods were transported through local rickshaws and tempos, without affording due weight to the evidences duly furnished by the appellant during the course of the assessment as well as the appellate proceedings. The Ld. AO further failed to appreciate the settled principle that that AO cannot step into the shoes of the assessee so as to determine how a business is to be carried out.
4. (a) Without prejudice to the above, the ld. CIT(A) erred in sustaining the order of the Ld.AO, whereby an addition to the tune of Rs.1,34,76,000 was made under section 69A of the Act.
(b) That in this connection, the ld. AO has grossly erred in treating the cash deposits made during the demonetization period as ‘Unexplained Cash Deposits’ without appreciating that the same were cash sales made by the appellant and duly substantiated during the course of assessment proceedings and appellate proceedings.
(c) That further in this connection, the ld. AO erred in invoking section 69A, without appreciating that the alleged cash deposits were already recorded in the books and duly accounted for, thereby not fulfilling the requirement as per the provisions of section 69A of the Act.
(d) That, furthermore, the Ld.AO has violated the provisions of Article 265 of the Constitution of India inasmuch as the said Article provides that no tax shall be levied or collected except by the authority of law and tax levied must be within the legislature power.
3. At the outset, the ld. Counsel for the assessee submitted that the assessee does not wishes to press ground of appeal no.2. Accordingly, ground of appeal no.2 is dismissed as not pressed.
4. Similarly, ground of appeal no.1 has been found to be general and hence dismissed as infructuous.
5. Ground of appeal no. 3 and 4 are regarding the addition of Rs.1,34,76,000/- under section 69A of the Act on account of cash deposits made during the demonetization period. The ld. Counsel for the assessee took us through the brief factual matrix of the case. The appellant assessee is engaged in the business of manufacturing and trading of footwear. Return declaring loss of Rs.7,73,140/- was filed on 28.10.2017. The ld. AO noted that the assessee had deposited in cash an amount of Rs.1,34,76,000/- between the demonetization period of 09.11.2016 to 31.12.2016 in its bank account maintained with Indian Overseas Bank and Federal Bank Ltd. During the course of assessment proceedings, the ld. AO required the appellant to furnish the details of the cash deposits made amounting to Rs. 1,34,76,000/- made during the demonetization period. During his scrutiny, the Ld. AO observed that on 04.10.2016, the cash in hand as per the cash book furnished by the appellant was Rs.48,65,212/-. From 04.10.2016 to 27.10.2016, appellant showed local tax-free sale of Rs. 18,480/-, of the same price from voucher-R1 to voucher-R539. These 539 bills/vouchers of the same amount of Rs.18,480/-, within span of 24 days did not appear to be normal. In response to the query raised by the Ld. AO, appellant submitted that the cash deposits were made out of the cash sales. It was submitted that the corresponding purchases were made from M/s Sharma Chemicals and Adhesive, which is a sister concern of the appellant. Ld. AO made enquiries with M/s Sharma Chemicals and Adhesive, by seeking information u/s 133(6) of the Act from Shri. Jitender Sharma (prop. M/s Sharma Chemicals and Adhesive). However, there was no compliance from him. Thus, the Ld. AO concluded that the purchases made from the sister concern was not genuine and the consequent sales shown by the appellant was also not genuine. Thus, the cash deposits of Rs.1,34,76,000/- made by the appellant during the demonetization period was not genuine and hence added as unexplained cash deposits. In appeal, the ld. CIT(A) confirmed the order of the ld. AO.
6. The ld. Counsel for the assessee vehemently argued against the order of the lower authorities. It was argued that in the absence of any rejection of audited books of accounts, acceptance of cash flow statements, cash book, bank statements, etc., there was no case for making any disturbance to the assessee’s book results. The ld. Counsel argued that the ld. AO did not conduct proper and complete enquiries before coming to its conclusion and that the same was therefore based upon conjectures and surmises. It was argued that availability of same e-mail Id of on bills of purchasing parties namely Sharma Chemicals and on bank statement of assessee was a case of inadvertent typographical error. It was further argued that the assessee could not produce any lorry/transport receipts of said Sharma Chemicals since considering close proximity goods were supplied through local rikshaw and tempo. In support of his arguments, the ld. Counsel placed reliance upon judicial precedents reportedly covering its case. It was accordingly argued that the entire addition and its confirmation by the ld. CIT(A) was based upon presumptions and conjectures.
7. The ld. DR vociferously argued in favour of the orders of the ld. AO and ld. CIT(A). It was submitted that the non-compliance of the party and defects in the purchase bills qua e-mail ID of the party created genuine doubts of the genuineness of the transactions. Thus, the action of Ld. AO and Ld. CIT(A) was supported.
8. We have heard the rival submissions in the light of material placed on record. The only issue is as to whether the cash deposit of 1,34,76,000/- made during the demonetization period rightly represents local tax-free sale of Rs. 18,480/-, of the same price from voucher-R1 to voucher-R539. Thus, the genuineness of sale through the impugned 539 vouchers is questionable. The arguments put-forth by the assessee regarding the veracity of sale transactions are therefore not totally beyond doubt and therefore difficult to be accepted. We concur with the findings of ld. AO and CIT(A) that irrespective of the seasons sale and other aspects government the business, there is little likelihood of so much of genuine sale being made through such identical tax free sale vouchers. We have further noted that the defence of the assessee regarding non-availability of lorry/transport receipts given very short distance between assessee’s premise and that of purchase party (which is also partner of assessee firm) has been demonstrably demolished by the Ld. AO through the unbiased google data which showed a distance of 25 Kilo Meters. Again, the defence taken to summarily dismiss the availability of same e-mail ID on purchase bill and assessee’s bank account also does not appears to be a case of innocent typographical error. Further, the sheer non-compliance to the AO’s enquiry notices u/s 133(6) issued to Sharma Chemicals also add annulment of non-genuineness to the purchase transactions. The non-compliance appears to be motivated and intentional, otherwise there cannot be any justified reasons as to why partner of a firm owning Sharma Chemicals (supra) would like to non-comply with any enquiries in a matter which concerns his own firm. Thus, the apparent inconsistencies, short-comings, deficiencies etc identified by the Ld. AO in the affairs of the assessee while explaining the sources of the impugned cash deposit of Rs.1,34,76,000/- do not appear to be innocuous mistakes, which can be conveniently ignored. In the above background, the judicial precedents relied upon by the assessee also get evenly distinguished. Accordingly, we are of the considered view that no case of intervention to the order of the ld. CIT(A) is made out at this stage. We therefore confirm the order of the ld. CIT(A) and dismiss the ground of appeal no.3 and 4 are dismissed.
9. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 03rd June, 2026.
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