Ranjit Singh Kundalia Vs ITO (ITAT Kolkata)
Inadvertent Cash-Book Omission Cannot Trigger Section 68 Addition When Cash Sales and Records Explain Source; Wife’s Tax Profile Proves Loan: Kolkata ITAT
The Kolkata ITAT has deleted additions of ₹50,000 and ₹2.50 lakh after finding that the assessee’s cash sales, invoices, stock statements, revised cash book and the tax records of his wife satisfactorily explained the disputed amounts.
The Tribunal held that an inadvertent omission in the cash book could not, by itself, justify an addition when the overall source of cash deposits stood explained and the Assessing Officer had not identified any discrepancy in the supporting business records.
The Tribunal also condoned a delay of 217 days because appellate communications had apparently been sent to an old email address belonging to the assessee’s former accountant.
Background
The assessee, an individual carrying on business through his proprietary concern, M/s Kundalia Enterprises, filed his return for Assessment Year 2017-18 declaring a total income of ₹3,35,620.
The income was offered on a presumptive basis under Section 44AD. The return disclosed gross receipts of ₹65,55,616 through banking channels and cash sales of ₹10,29,736.
Based on information that the assessee had deposited cash of ₹2.15 lakh in his bank account during the demonetisation period, reassessment proceedings were initiated.
An original notice under Section 148 was issued on June 25, 2021. Following the Supreme Court’s decision in Union of India v. Ashish Agarwal, a notice under Section 148A(b) was issued on May 25, 2022. An order under Section 148A(d), followed by a fresh notice under Section 148, was passed on July 27, 2022.
In the reassessment, the AO made an addition of ₹50,000 relating to a cash deposit made on December 29, 2016 because there was no corresponding entry in the original cash book.
The AO also added ₹2.50 lakh shown as credits in the cash book, rejecting the assessee’s explanation that these represented capital introduced by him and an unsecured loan received from his wife.
The CIT(A) confirmed the additions through an ex parte order after observing that the assessee had failed to comply with the hearing notices.
Delay Caused by Communications to Old Email Address
The appeal before the Tribunal was delayed by 217 days.
The assessee explained that his correct and updated email address was available on the income-tax portal and was also mentioned in Form 35. However, the notices under Section 250 had been sent to an old email address belonging to his former accountant.
The assessee stated that the appellate order had apparently also been communicated to the old email address. Consequently, he remained unaware that the appeal had been decided.
The Department opposed the condonation request, describing the delay as inordinate.
The Tribunal relied upon the Supreme Court’s decision in Collector, Land Acquisition v. Mst. Katiji, which requires a liberal approach where the delay is supported by a reasonable explanation and substantial justice would otherwise be defeated.
Considering the incorrect email communication, the Tribunal condoned the delay and admitted the appeal.
Assessee’s Explanation for Cash Deposit
The assessee explained that the bank account belonged to his proprietary business. He had inadvertently omitted certain cash deposits from the original cash book under the impression that the relevant information already pertained to the proprietary concern.
The assessee demonstrated that he had reported cash sales of ₹10,29,736 during the year and held an opening cash balance of ₹2,60,443 as of November 1, 2016.
A revised cash book was produced along with:
- purchase invoices;
- sales invoices; and
- stock statements.
The AO did not identify any discrepancy in these documents.
The assessee also questioned the invocation of Section 68 because the addition of ₹50,000 arose from a bank deposit and not from a credit appearing in his books. However, the Tribunal ultimately granted relief on the facts and did not decide this legal objection.
Explanation of ₹2.50-Lakh Credit
The assessee submitted that the disputed amount of ₹2.50 lakh represented capital introduced by him and an unsecured loan received from his wife.
His wife was separately assessed to tax and had filed her return for Assessment Year 2017-18 declaring income of ₹1,59,540. The assessee himself had declared income of ₹3,35,620.
These facts, according to the assessee, sufficiently demonstrated the source and financial identity behind the disputed credits.
Tribunal’s Findings
The Tribunal noted that the assessee had disclosed substantial business receipts, including cash sales exceeding ₹10 lakh, under Section 44AD.
It held that an inadvertent mistake in the cash book could not be viewed in isolation when the source of the other deposits stood satisfactorily explained. The purchase invoices, sales invoices, stock statements and revised cash book supported the business activity and cash availability.
Since the AO had not found any defect in these documents, there was no justification for treating ₹50,000 as unexplained. The addition was accordingly deleted.
Regarding the ₹2.50-lakh credit, the Tribunal accepted the explanation that it arose from the assessee’s capital and a loan from his wife. Her PAN and return of income established her identity and tax status, while the income declared by both spouses supported the explanation.
The second addition was also deleted.
As full relief was granted on merits, the Tribunal treated the legal grounds concerning the validity of reassessment—including the objection that approval should have been obtained from the Principal Chief Commissioner under Section 151(ii)—as academic and left them undecided.
Author’s Comments
The ruling shows that a defect in the cash book is not automatically proof of unexplained money. The assessment must consider the assessee’s business model, disclosed cash turnover, opening cash balance, invoices, stock movement and overall cash flow.
A revised cash book deserves careful scrutiny, particularly when prepared after reassessment begins. But it cannot be rejected merely because it is revised. If supported by contemporaneous invoices and stock records, the AO must identify specific defects before disregarding it.
The ruling is also relevant to presumptive-taxation cases. Section 44AD reduces the requirement to maintain detailed books, though it does not create immunity from explaining demonetisation-period deposits. Still, where disclosed turnover and supporting records reasonably explain the cash, addition cannot rest on a single accounting omission.
Regarding the loan from the wife, mere filing of her return may not prove creditworthiness in every case. Here, however, the modest amount, her assessed status, the assessee’s own income and the surrounding explanation were considered cumulatively sufficient.
Finally, taxpayers should ensure that the correct email address and mobile number are updated not only on the income-tax portal but also in Form 35, Form 36 and the authorised representative profile. A notice sent to an obsolete professional email can result in an ex parte order, prolonged litigation and avoidable delay.
Cases Discussed
- Collector, Land Acquisition Vs. Mst. Katiji & Others (1987) 167 ITR 471 (SC)
- Union of India Vs. Ashish Agarwal [(2022) 444 ITR 1 (SC)]
- Sumunder Saree Centre Vs. DCIT Circle-46(1), Delhi in ITA No.558/DEL/2026, A.Y. 2017-18
- Amitabh Tayal Vs. ITO, Ward-61(1), Delhi in ITA Nos.636 & 637/DEL/2026, A.Y. 2017-18
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, KOLKATA
This Appeal is filed by the Assessee against the order of the NFAC, Delhi (‘Ld. CIT(A)’ for short) dated 21.08.2025, passed u/s 250 of the Income Tax Act, 1961 (“the Act”, for short) for the Assessment Year 2017-18.
2. There is a delay of 217 days in filing the Appeal. The Assessee filed an application for condonation of delay narrating the reasons which are reproduced as under:-
“5. That immediately thereafter, I contacted my tax professional who logged into the e-filing portal and upon verification, it appears that the Demand is raised against the Appellate order which was allegedly communicated through email. However, n such email was every received or delivered to me. It is reasonable apprehended that nay such email, if sent, may have gone into the junk/spam folder and consequently got auto-deleted after expiry of the retention period.
6. That upon further verification, it was noticed that my correct and updated email address is [email protected] which stood duly updated on the e-filing portal and was also correctly mentioned in Form No.35. However, the hearing notices issued under Section 250 were sent to the old email ID, namely [email protected] belonging to the erstwhile accountant. I reasonably believe that the appellate order dated 21.08.2015 was also communicated to the same old email ID.
7. That due to the notices and communications being sent to an incorrect/old email address, I remained completely unaware of the passing of the appellate order, which ultimately resulted in the delay in filing the present appeal before this Hon’ble Bench of Tribunal.”
3. The Ld. DR submitted that, there is no sufficient cause to condone the inordinate delay, thus sought for dismissal of the present appeal on delay in latches.
4. We have heard the Ld. DR and perused the material. The Hon’ble Supreme Court time and again clarified that the delay in filing the appeal with sufficient cause should be looked into in a liberal way and shall condone the delay. In the landmark decision in Collector, Land & Acquisition vs. Mst. Katiji & Others (1987) 167 ITR 471 (SC), the Hon’ble Supreme Court settled the law that the delay when supported by justifiable reasons, must make way for the cause of substantial justice. Considering the above facts and circumstances, we condone the delay of 217 days in filing the present Appeal.
5. Brief facts of the case are that, Assessee is an individual filed its return of income for the assessment year 2017-18 on 17.01.2018, declaring total income of Rs.3,35,620/-. The Assessing Officer based on the information that the assessee has deposited cash to the tune of Rs.2,15,000/- in the bank account during the demonetisation period-initiated proceedings u/s 147 of the Act. Notice u/s 148 of the Act was initially issued on 25.06.2021. In response to which, the assessee did not file any return. Subsequently, based on the decision of the Hon’ble Supreme Court in the case of Union of India Vs. Ashish Agarwal [(2022) 444 ITR 1 (SC), notice was issued to the assessee in terms of Section 148A(b) of the Act on 25.05.2022 and order u/s 148A(d) of the Act was passed on 27.07.2022. Notice u/s 148 of the Act was also issued on 27.07.2022. After considering the assessee’s response and reply, the Assessing Officer added an amount of Rs.50,000/- towards cash deposited during the demonetisation period and also added an amount of Rs.2,50,000/- as unexplained credits noted in the cash book vide assessment order dated 13.05.2023.
6. Against the said assessment order, assessee preferred appeal before the Ld. CIT(A). There was no compliance made by the assessee, to the hearing notices issued by the Ld. CIT(A). Therefore, the Ld. CIT(A) decided the matter ex-parte and confirmed the impugned addition made by the Assessing Officer.
7. Before us, the Ld. AR argued that the order u/s 148A(d) of the Act dated 27.07.2022 and notice u/s 148 of the Act dated 27.07.2022 was issued with the approval of the Ld. PCIT, Kolkata-18, Kolkata instead of the Pr. CCIT in violation of Section 151(ii) of the Act and contended that the notice u/s 148 of the Act is bad in law and the consequent proceedings invalid. The Ld. AR also filed a paper book wherein the copy of the notices u/s 148 of the Act dated 27.07.2022 and order passed u/s 148A(d) of the Act dated 27.07.2022 were issued also enclosed. The Ld. AR also relied on the decision of the Co-ordinate Bench of the ITAT in the case of Sumunder Saree Centre Vs. DCIT Circle-46(1), Delhi in ITA No.558/DEL/2026, A.Y. 2017-18 and Amitabh Tayal Vs. ITO, Ward-61(1), Delhi in ITA Nos.636 & 637/DEL/2026, A.Y. 2017-18 and contended that the notice beyond three years would need to be issued with the approval of the Ld. PCCIT of Section 151(ii) of the Act. Besides various other legal pleas were raised as narrated in the Grounds of Appeal.
8. The Ld. AR further argued that the Assessee failed to mention the cash deposits in the current account of his proprietorship firm M/s Kundalia Enterprises, under the bona fide impression that it related to its firm. Being a small time business man he was not aware of the legal requirements. The reopening was merely based on such non-disclosure, and as such there was no information with the Assessing Officer to suggest escapement of income. The Department cannot make assessment for such mistakes. The AR also submitted that the source for the cash deposits have been satisfactorily explained as during the year the Assessee had reported cash sales of Rs.10,29,736/- with opening cash balance as on 01.11.2016 of Rs.2,60,443/-. Again, the impugned addition of Rs.50,000/- was made taking into the account mistake by the Assessee in its cash book. The Assessing Officer made the impugned addition of Rs.50,000/- with reference to cash deposit in the bank account on 29.12.2016 u/s 68 for the reason that there was no corresponding entry in the cash book. It was contended that the impugned addition was not made with reference to credit in its books of account and invocation of Section 68 of the Act is illegal; and that the Assessing Officer failed to consider that the Assessee had declared income of Rs.3,00,000/- during the year which would form sufficient source. The Ld. AR also pointed out that the Assessee filed a revised cash book along with the sales invoices, purchase details and stock statements. The Assessing Officer did not mention any discrepancies in these documents filed but yet made the impugned addition without basis. The Ld. AR also challenged the addition made of Rs.2,50,000/- as the Assessing Officer ignored the explanation of the Assessee that it represents capital infusion of the Assessee and unsecured loan from his wife. Thus, it was pleaded that the impugned additions be deleted.
9. On the other hand, the Ld. DR relied on the orders of the lower authorities.
10. We have considered the rival submissions. From the perusal of the return of income filed by the assessee, it is seen that the assessee had declared income u/s 44AD of the Act, in respect of gross receipts in cheque of Rs.65,55,616/- and Rs.10,29,736/- in cash. An inadvertent mistake in the cash book cannot be the basis for the impugned addition, as it cannot be overlooked that the source for the other cash deposits has been satisfactorily explained. Besides, it is seen that the assessee had furnished the purchase invoices, sale invoices, stock statements along with revised cash book, and the Assessing Officer did not find any discrepancy in any of these documents furnished before him. In such a factual scenario, we do not find merit in the impugned addition made of Rs.50,000/-. Accordingly, the Assessing Officer is directed to delete the same. In regard to the impugned addition relating to unexplained credits of Rs.2,50,000/-, we find that the assessee has given satisfactory explanation. The Assessing Officer failed to note that the assessee’s wife is also assessed to tax with PAN BYNPK0595C and has filed return of income for A.Y. 2017-18 declaring total income of Rs.1,59,540/-. The assessee has also declared a total income of Rs.3,35,620/- for the year. Considering all these, the source of the credits stands satisfactorily explained. Therefore, we direct the AO to delete the impugned addition of Rs.2,50,000/-. As relief is allowed on merits, the legal pleas raised become academic and are not adjudicated.
11. In the result, appeal of the assessee is allowed.
Order pronounced on 10.09.2026.
