Usha Gupta Vs ITO (ITAT Chandigarh)
Kirana Cash Is Not Contraband—Audited Sales Cannot Become Unexplained Money Merely Because Deposited During Demonetisation u/ss 68 &; 69A
Summary:
A Wrong PAN Opens the Cash Box
The controversy began during scrutiny proceedings in the case of the Assessee’s husband, Shri Chaman Lal Gupta. The Department noticed cash deposits in an SBI account & sought an explanation from him.
He explained that the bank account actually belonged to his wife, Smt. Usha Gupta, proprietor of M/s Vikki Traders, & that his PAN had been wrongly mapped to the account by the bank. The bank confirmed this factual position.
Information concerning cash deposits of ₹13,71,060 during the demonetisation period was thereafter transferred to the Assessee’s case & reassessment proceedings were initiated by issuing notice u/s 148.
First Assessment: Only SBN Deposits Added u/s 69A
The Assessee was carrying on the business of a Kirana & general merchandise shop. Her total disclosed turnover for the year was ₹1,05,95,395. The books were audited & the audit report was furnished.
During reassessment, it was found that out of total cash deposits of ₹13.71 lakh, only ₹2,25,000 represented Specified Bank Notes. The balance deposits were not in demonetised currency. The Assessee explained that the deposits represented cash sale proceeds arising from her regular business.
The AO accepted the explanation concerning the remaining deposits but added ₹2.25 lakh u/s 69A, alleging that the Assessee had not produced the cash book, bank statement & sales book.
The CIT(A) confirmed the addition on 27.01.2026. Although the Assessee had submitted the cash book, bank statement & sales book during appellate proceedings, the CIT(A) merely reproduced the AO’s reasoning without recording any finding on those documents.
Section 263 Sends the Matter Back—This Time for a Bigger Addition
While the first appeal was pending, the PCIT invoked section 263, holding that the original AO had not properly examined the cash deposits other than the SBN deposits.
The PCIT set aside the assessment for fresh verification. Significantly, the PCIT directed that if the Assessee’s stated position was found correct & satisfactory, the AO should pass the necessary order dropping the matter. While referring to the possibility of a contrary conclusion, the PCIT used the expression “in the unlikely likelihood.”
The Tribunal observed that this wording indicated prima facie satisfaction with the Assessee’s explanation, though it refrained from commenting further because the validity of the section 263 order was not directly under appeal.
In the consequential assessment dated 28.03.2025, the AO added the entire cash deposits of ₹13,71,060, this time u/s 68. The Assessee’s reply reproduced in the assessment order itself recorded that purchase bills, sales bills & the relevant cash book had been furnished. Nevertheless, the addition was made primarily because stock particulars were not supplied in the particular format demanded by the AO.
The CIT(A) confirmed this addition also. Thus, the same deposits produced two proceedings, two sections & two additions—₹2.25 lakh u/s 69A in the first round & ₹13.71 lakh u/s 68 in the second.
Assessee’s Explanation Remained Consistent
Before the ITAT, the Assessee explained that she had been regularly assessed to tax, maintained audited accounts & carried on an ordinary retail Kirana business. The cash deposits represented business receipts already included in the disclosed turnover exceeding ₹1 crore.
The Assessee furnished the audit report, bank book, cash book, VAT return, purchase bills & sales bills. Her books were never rejected u/s 145(3). The disputed deposits represented only about 13% of the disclosed turnover.
The Revenue argued that the Assessee had failed to discharge the onus imposed by sections 68 & 69A. It supported the orders of the AO & CIT(A), notwithstanding the use of different provisions in the two rounds.
Cash Sales Are Normal in a Kirana Shop
The Tribunal noted that the Department had examined the controversy on multiple occasions—first in the husband’s case, then during the Assessee’s original reassessment, thereafter in the proceedings u/s 263 & finally in the consequential assessment.
Despite these repeated opportunities, the Revenue did not identify any specific defect in the Assessee’s cash book, bank book, purchase bills, sales bills, VAT return or audited financial statements.
The nature of the Assessee’s business was crucial. A small Kirana or general merchandise shop ordinarily receives substantial payments in cash. It could not be presumed that every retail customer would make payment through banking channels. Therefore, the mere fact that cash receipts were deposited in the bank during demonetisation did not render them unexplained.
The cash deposits were duly relatable to the disclosed business turnover. The Revenue produced no evidence showing that the sales were bogus, that the books contained fabricated entries or that the deposits arose from any source independent of the regular business.
Once the Assessee produced the books & supporting records explaining the source, the onus shifted to the Revenue to point out concrete defects. Repeated disbelief could not substitute factual verification.
The Final Verdict
The ITAT deleted both the addition of ₹2,25,000 u/s 69A & the addition of ₹13,71,060 u/s 68. Both appeals were allowed.
The ruling emphasizes that cash deposited during demonetisation does not automatically acquire the character of unexplained money. Where sales are recorded, turnover is disclosed, accounts are audited & books are not rejected, the Revenue must establish that the sales are false or that the money originated elsewhere.
A Kirana shop may sell groceries for cash; the Income-tax Act cannot insist that every packet of biscuits must travel through NEFT. The calendar of demonetisation may justify scrutiny—but it does not erase genuine business receipts from audited books.
Cases Discussed
- Smt. Charu Aggarwal Vs. Deputy Commissioner of Income-tax, [2022] 140 taxmann.com 588 (Chandigarh – Trib.) — referred to for the proposition that cash sales out of existing stock, accepted by the Sales Tax/VAT Department and not otherwise disproved, could explain post-demonetization bank deposits.
- R.B. Jessaram Fatehchand (Sugar Dept.) v. Commissioner of Income-tax, [1970] 75 ITR 33 (Bombay) — relied upon regarding rejection of books where addresses of cash purchasers were not maintained.
- Commissioner of Income-tax, Ludhiana v. Ludhiana Steel Rolling Mills Ltd, [2008] 166 Taxman 20 (Punjab & Haryana) — relied upon on rejection of books and the requirement for discrepancies to be established on the evidence.
- Principal Commissioner of Income-tax v. Agson Global (P.) Ltd., [2022] 134 taxmann.com 256 (Delhi) — relied upon concerning cash deposits corresponding with cash sales and the absence of evidence of non-existing sales.
- Jet Freight Logistics Ltd. v. Commissioner of Income-tax Appeal (NFAC), [2023] 146 taxmann.com 349 (Mumbai – Trib.) — relied upon on explained cash deposits during demonetization where documentary material supported the source.
- ACIT, Central Circle – 1, Visakhapatnam v. Hirapanna Jewellers, [2021] 128 taxmann.com 291 (Visakhapatnam – Trib.) — the supplied order relied upon this decision for deleting an addition where cash deposits were explained as sales and matched with stock outgo.
- K. P. Varghese vs ITO, (1981) 7 Taxman 13 (SC) — cited in support of the proposition concerning the Revenue’s burden after adequate material is produced.
- A. S. Sivan Pillai vs. CIT, (1958) 34 ITR 328 (Madras) — cited in support of the assessee’s submission concerning the burden of proof.
- Roshan Di Hatti vs CIT, 107 ITR 938 (SC) — cited in support of the assessee’s submission concerning burden and unexplained receipts.
- CIT, Faridabad v. Laul Transport Corporation, [2009] 180 Taxman 185 (Punjab & Haryana) — cited in support of the assessee’s submission concerning the shifting burden of proof.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT CHANDIGARH
Both the above appeals have been filed by the Assessee against the respective orders of Ld. CIT(A)/NFAC, Delhi dt. 27/01/2026 & 30/01/2026 respectively for the Assessment Year 2017-18.
2. The issue involved in these two appeals are so intervened together and the facts of the case needs to be appreciated first in a comprehensive manner taking both the appeal together.
3. Appellant has raised following grounds in ITA No. 637/Chd/2026:
1. That on the facts and circumstances of the case and in law, the National Faceless Appeal Centre (hereinafter referred to as ‘NFAC’) has grossly erred in not appreciating that the Assessment Order passed by National Faceless Assessment Centre (hereinafter referred to as ‘AO’) u/s 147 r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) is bad in law.
2. That on the facts and circumstances of the case and in law, the NFAC has failed to appreciate that the addition of Rs. 2,25,000 made by AO u/s 69A of the Act is bad in law and that section 69A of the Act has been wrongly invoked by the AO.
3. That on the facts and circumstances of the case and in law, the NFAC has failed to appreciate that Section 69A of the Act applies only where the assessee is found to be the owner of any money which is not recorded in the books of account, if any, maintained by him for any source of income. The Appellant maintained a single business bank account (SBI A/c No.35889001616) for M/s Vikki Traders and the cash deposits were fully disclosed in the Books of Account including the Return of Income filed by the Appellant.
4. That on the facts and circumstances of the case and in law, the NFAC has erred in upholding the addition made u/s 69A of the Act which is only made on the basis of presumptions, conjectures and surmises.
5. That on the facts and circumstances of the case and in law, the NFAC has grossly erred in not admitting the additional evidence filed by the Appellant during the course of Appellate proceedings thereby violating Rule 46A of the Income Tax Rules, 1962.
6. That on the facts and circumstances of the case and in law, the NFAC has violated the statutory provision contained in section 250(4) r.w.s 250(6) of the Act without giving any independent reasons as to the conclusions arrived at and by simplicitor upholding the order of the AO.
7. That on the facts and circumstances of the case and in law, the NFAC has erred in not appreciating that the Assessment Order passed by the AO was unsustainable in as much as it was passed in flagrant violation of the procedure laid down u/s 144B of the Act and also violated principle of natural justice.
4. Appellant has raised following grounds in ITA No. 638/Chd/2026:
1. That on the facts and circumstances of the case and in law, the National Faceless Appeal Centre [hereinafter referred to as NFAC] has grossly erred in sustaining the addition of Rs 13,71,060 made by the Assessment Unit u/s 68 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
2. That on facts and circumstances of the case and in law, the NFAC has failed to appreciate that the Assessment Order passed by the Assessment Unit u/s 147 r.w.s. 263 r.w.s 144B is bad in law.
3. That on facts and circumstances of the case and in law, the NFAC has failed to appreciate that the Assessment Order passed by the Assessment Unit is bad in law since it is in violation of the directions issued by the Ld. Commissioner of Income Tax in order dated 20.03.2024 passed u/s 263 of the Act and therefore the order passed by the Assessment Unit is unsustainable in law.
4. That on facts and circumstances of the case and in law, the NFAC has failed to appreciate that the Assessment order is bad in law in as much as it had not followed the letter and spirit of the directions in the order u/s 263 of the Act dated 20.03.2024 which had specifically directed the Jurisdictional Assessing Officer to examine the factual matrix of the case while following the principle of natural justice.
5. That on facts and circumstances of the case and in law, the Jurisdictional Assessing Officer failed to carry out factual verifications as directed in the order u/s 263 of the Act rendering the consequential assessment framed by the Faceless Assessing Officer as invalid.
6. That on facts and circumstances of the case and in law, the NFAC has violated the statutory provisions contained in section 250(6) of the Act in as much as the NFAC has not given its independent findings as to the conclusions arrived and has simpliciter upheld the order of the Assessment Unit.
7. That on facts and circumstances of the case and in law, the NFAC has grossly erred in upholding the addition of Rs 13,71,060 u/s 68 of the Act without appreciating that section 68 could not have been invoked in the factual matrix of the case.
8. That on facts and circumstances of the case and in law, the NFAC has failed to appreciate that the books of accounts of the Appellant have not been rejected by the Assessment Unit u/s 145(3) of the Act and that the Assessment Unit could not have treated the cash deposits as unexplained while relying on the books of accounts.
9. That on facts and circumstances of the case and in law, the NFAC has failed to appreciate that addition under Section 68 will not apply in the present case since the cash deposited is from the sales made by the Appellant during the course of her business activity and the source of the cash is explained and fully disclosed in the books of account and Return of Income.
10. That on facts and circumstances of the case and in law, the NFAC has erred in upholding the order of the Assessing Officer without appreciating that the provisions of section 263 had no applicability in the present case on the basis of doctrine of merger.
5. During the scrutiny assessment proceedings of Shri Chaman Lal Gupta Husband of the assessee, he was asked about certain cash deposits in the bank account with SBI Account No. 35889001616. Shri Chmana Lal Gupta explained that this account was of his wife Smt. Usha Gupta, proprietor of M/s Vikki Traders and his PAN was wrongly entered by the bank. This fact was confirmed by the bank. On receipt of this information including the information of deposit of cash of Rs. 13,71,060/- during the demonetization period, the assessee’s case was reopened by issuing of notice under section 148.
6. During the course of reassessment proceeding it was noticed that the deposits in Specified Bank Notes (SBN) were only of Rs. 2,25,000/- and the remaining cash deposits were not in SBN. The assessee explained that its total sale during the year was Rs. 1,05,95,395/-, its bank account were audited and the audit report was submitted. It was claimed that the cash deposits were out of business receipts of the assessee from the business of Karyana & General Merchandise. The AO made an addition of only Rs. 2,25,000/- being the deposit in SBN and therefore accepted the remaining deposits out of business receipts of the assessee.
7. The Ld. CIT(A) confirmed this addition of Rs. 2,25,000/- vide order dt. 27/01/2026 against which the assessee has filed an appeal in ITA No. 637/Chd/2026. The order of the Ld. CIT(A) mentions that the appeal is against the order passed under section 144 which is not correct as the assessment order dt. 15/03/2022 was passed under section 144B. The main reason for addition by the AO was that the cash book, bank statement and the sales book were not produced, as mentioned on page 3 of the assessment order.
8. Before the Ld. CIT(A) the assessee stated that the AO never asked for cash book and sales book and also submitted the bank statement, cash book and sales book of the relevant period as mentioned in the assessee’s reply reproduced on page 7 of the appellate order dt. 27/01/2026. The decision of the Ld. CIT(A) given in para 7.3 of the appellate order is reproduced herein under:
7.3 Decision: I have carefully examined the assessment order and the written submissions filed by the appellant. It is noticed that the AO has clearly mentioned in the assessment order as follows:
“The sufficient opportunity were provided to assessee to explain these source of cash deposits. Assessee had deposited old note on different dates. The assessee has not furnished cash books ,Bank statement and sale book. The assessee has failed to prove genuineness of cash deposit. It means assessee has not cash balance in hand. The assessee deposited undisclosed cash. As assesse failed to explain the cash deposits . The assessee had deposited total (Old notes) cash of Rs. 2,25,000/- in the State Bank of India. During the assessment proceedings assessee has not furnished details and explanation of cash deposits (old notes(SBN) on various dates during the demonization period).
On perusal of assessee’s reply, it is not found considerable. The burden to identify the source lies upon the assessee and he was required to explain the genuineness of cash deposits in this bank account. The assessee failed to offer any explanation about the nature and source of acquisition of the money i.e. cash deposits in bank account therefore it is presumed that cash deposits of Rs. 2,25,000/- is out of unexplained source and treated as unaccounted and unexplained money u/s 69A of the Income Tax Act,1961 and accordingly addition of Rs. 2,25,000/- is made to the total income of the assessee.”
Thus it is evident from the above that the appellant did not prove the source of cash deposits of Rs.2,25,000/- during the assessment proceedings.
In view of the above, the addition amounting to Rs.2,25,000/- made by the A.O. is being upheld. Hence, Ground No. 1 to 4 of appeal are dismissed.
From a perusal of the above it is apparent that there is no finding on the cash book, bank statement and sales book submitted by the assessee during the appellate proceedings.
9. During the course of hearing before the Tribunal the assessee filed a paper book enclosing copies of its reply before the AO and the Ld. CIT(A). While the appeal before the Ld. CIT(A) against the assessment order dt. 15/03/2022 was pending the Ld. PCIT, Chandigarh passed an order under section 263 holding that the assessment order passed is an erroneous as well as prejudicial to the interest of the Revenue as the AO did not make proper verification and inquiries with reference to deposits other than the SBN. The assessment order was therefore set aside to the AO by the Ld. PCIT. The fresh assessment order after order under section 263 passed on 28/03/2025 in which the AO added the entire amount of Rs. 13,71,060/-. Strangely the reply of the assessee is reproduced on page 5 of the assessment order in the second round, which mentioned that the purchase bills, sale bills and cash book of the relevant period were submitted.
10. From the paper book and also from a perusal of the assessment order, it is noticed that the assessee furnished the bank book, VAT return, purchase and sale bills, cash book etc. of the relevant period. However, the AO made the addition in the second round mainly on the ground that the stock details were not furnished in the format required as mentioned on page 11 of the assessment order. The addition in the first round was made under section 69A while in the second round the addition has been made under section 68. The Ld. CIT(A) in the second round confirmed the addition in the order dt. 30/01/2026 which has been challenged by the assessee in ITA No. 638/Chd/2026.
11. During the course of hearing the Ld. AR submitted that the receipts pertains to regular business receipts and the assessee is regularly assessed to tax for past several years and its books of accounts are audited. The total turnover is more than Rs. 1 Crore and the disputed cash deposits are only Rs. 13.71 Lacs. He also highlighted that Ld. PCIT in order under section 263 did not give any adverse finding and observed in para 7 “ The JAO shall, if he finds the Assessee’s stated positions as above to be correct and satisfactory, pass the necessary order u/s 143 of the Act dropping the matter in reference. In the unlikely likelihood of the contrary position ……………………..the JAO is at liberty to process the matter for further necessary action ………………….”
12. It is evident from the above that the assessee had explained its stand before the Ld. PCIT also and the use of the word by Ld. PCIT “ in the unlikely likelihood” conveys that he was primafacie satisfied with the assessee’s explanation. However, he set aside the matter to the JAO for verification. Since it is not an appeal against the 263 order, we refrain from making any further observation on the order of the 263.
13. The Ld. DR on the other hand relied on the order of the lower authorities and submitted that the assessee had failed to discharge its onus under section 68/69 A of the Act, the two different sections under which the additions were made in the two assessment orders.
14. The rival contentions have been examined. It is noticed that Revenue had occasions to examine the details on multiple occasions. The issue first arose in the case of assessee’s husband and later on in the assessee’s case in the first round and then in the second round of assessment. The Ld. PCIT also had a occasion to examine the facts in processing under section 263. The assessee’s account are audited, the assessee did furnish the audit report, bank book, cash book, purchase and sale bills of the relevant period. Still not only the AO but also the Ld. CIT(A) decided the issue against the assessee. The deposits are only 13% of the total turnover of the assessee. Therefore after considering the totality of the circumstances we are of the view that the assessee explained the source of deposit in bank account and the onus was on the Revenue to find a defect in those submissions i.e cash book, bank book, purchase and sales bills, VAT return etc, which the Revenue failed to do.
15. We have considered the rival submissions and perused the material available on record. The assessee is carrying on the business of a Karyana (Kirana) and General Merchandise shop under the name and style of M/s Vikky Traders, with disclosed turnover of Rs. 1,05,95,395/- The assessee explained that the cash deposits in the bank account represented cash sales arising from the regular business of the Karyana (Kirana) shop, which were duly recorded in the books of account and formed part of the disclosed turnover. The books of account were duly audited and were not rejected by the Revenue
16. In the nature of such business, the payment of such purchases is often made in cash. It cannot, therefore, be presumed that every customer of a small Karyana(Kirana) shop would necessarily make payment through banking channels. The fact that the business receipts were received in cash and subsequently deposited in the bank, including during the demonetisation period, does not by itself render such receipts unexplained.
17. The assessee has consistently explained the source of the deposits as business sale proceeds, and the record also contains the cash book, bank account and details of sales/purchases supporting the explanation. The Revenue has not brought on record any specific material to demonstrate that the corresponding sales were bogus or that the cash deposits represented any source independent of the assessee’s disclosed Karyana (Kirana) business.
18. We, therefore, find the explanation of the assessee regarding the nature and source of the cash deposits as business receipts to be duly relatable to her regular business activity. Consequently, the addition of Rs.2,25,000/- under section 69A in one appeal and Rs.13,71,060/- under section 68 in the other appeal cannot be sustained and are accordingly deleted.
19. We are not giving ground wise decision because of the grounds of appeal in both the appeals challenge the additions made and confirmed by the Ld. CIT(A) which have been deleted. The individual grounds are of repetitive nature and / or of consequential nature. Therefore both the appeals of the appellant are allowed.
20. In the result, both the above appeals are allowed.
Order pronounced on 02/09/2026
