Bridge Medisales Private Limited Vs ITO (ITAT Mumbai)
Estimated Addition for Unreconciled Cash Deposits Cannot Attract Section 115BBE Without Proof of an Undisclosed Source: Mumbai ITAT
The assessee, a wholesale distributor of pharmaceutical products, had deposited ₹1.46 crore in cash in its disclosed bank account. It explained that the deposits represented collections from retailers against sales already recorded in its books. The AO treated the entire amount as unexplained cash credit under Section 68.
The CIT(A) noted that the assessee was carrying on an established business, its sales and bank accounts were disclosed in the audited accounts, and the Revenue had not identified any source other than business receipts. However, since the assessee could not furnish a complete item-wise reconciliation between each deposit and corresponding sale, the CIT(A) sustained 10% of the deposits- ₹14.68 lakh-on an estimated basis.
The Mumbai ITAT upheld this estimation and dismissed both cross-appeals. However, it held that Section 115BBE could not be applied to the estimated addition. Incomplete reconciliation may justify estimation of taxable income, but it does not automatically establish that the amount is unexplained income under Section 68 arising from an undisclosed source
List of Cases Discussed / Relied Upon
- Bridge Medisales Private Limited Vs ITO (ITAT Mumbai)
- Additional CIT v. A.L.N. Rao Charitable Trust (1995) 216 ITR 697 (SC)
- PCIT v. Wipro Ltd., (2022) 140 taxmann.com 223 (SC)
- Collector, Land Acquisition, Anantnag & Anr. v. Mst. Katiji & Ors., 167 ITR 471 (SC)
- N. Balakrishnan v. M. Krishnamurthy, (1998) 7 SCC 123
- TKS Builders Pvt. Ltd. v. ITO reported in (469 ITR 657)
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Present cross-appeals filed by the assessee and the revenue arise out of the order dated 12/02/2026 passed by NFAC, Delhi [hereinafter referred to as “Ld.CIT(A)”] for AY 2018-19.
The assessee has raised the following grounds of appeal:-
“1) The Learned CIT(A) erred in continuing 10% of the disallowance made by the AO on an estimated basis. The disallowance made without any cogent material, on an estimated basis without valid reasoning is bad in law and needs to be cancelled.
2) It is submitted that section 68 creates a statutory presumption- a fiction and the same needs to given a strict interpretation. It is submitted that under section 68, each & every entry (i.e. every cash credit) needs to be verified and explanation for each entry needs to be tested. It is further submitted that addition u/s. 68 cannot be made on notional basis. The Ld. CIT(A) failed to appreciate that, unlike a disallowance of expenditure, addition u/s. 68 cannot be made on ad hoc and/or estimate basis.
3. The learned CIT(A) erred in ignoring the fact that assessee’s request seeking personal hearing through video conferencing is not considered by the learned AO.
4. The learned CIT(A) erred in confirming the validity of the order where there was a breach of natural justice. The order passed by learned AO without entertaining the request for personal hearing through video conferencing may please be cancelled.
5. The learned AO erred in making disallowance without rejecting the books of the assessee. The books of the assessee were audited and no any adverse comment on the completeness of record/books is made by an independent Chartered Accountant. The validity of addition confirmed by CIT(A) where books were not rejected, may please be cancelled.
6. The learned AO confirmed the addition on the basis of information available in AIR. Addition merely on the basis of AIR and without making any further independent enquiries is bad in law and needs to be cancelled.
7. The learned AO had not disputed the sales and further made addition of cash deposited into the bank resulted into taxing the addition made on multiple times. This is bad in law and needs to be deleted.
8. On facts, whether the learned AO is justified in passing a backdated order on a later date without considering the request for adjournment.
Without prejudice to the above, it is prayed to set aside the order to the file of the learned JAO for de-novo assessment.
10. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal and/or to lay the additional evidences at the time of hearing.”
The revenue has raised the following grounds of appeal:-
“(i). “Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is justified in restricting the addition to 10% of the cash deposits and thereby deleting the balance addition of Rs. 1,32, 13,580/- out of the total addition of Rs. 1,46,81,756/- made by the Assessing Officer u/s 68 of the Income-tax Act, 1961, without appreciating the fact that the assessee failed to furnish satisfactory supporting documentary evidence such as bank statements, sale invoices, cash book and confirmations from customers to establish the source of cash deposits during the assessment proceedings.”
(ii). “Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in accepting the general explanation of the assessee that the cash deposits represented realization of sales without verifying the direct nexus between individual cash deposits and corresponding sales transactions.”
(iii). “Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in granting substantial relief to the assessee by estimating the addition at 10% of the cash deposits on an ad-hoc basis despite recording that the cash deposits were not fully verifiable with supporting documentary evidence.”
(iv). The appellant craves leave to add, amend, or alter any of the above grounds of appeal before or during the course of hearing, in the interest of justice.”
2. Brief facts of the case are as under:-
The assessee is a company engaged in the business of wholesale distribution and stocking of pharmaceutical products. For AY 2018-19, the assessee filed its return of income on 10/10/2018, declaring total income of Rs.59,75,410/-, which was processed u/s. 143(1) of the Act. No scrutiny assessment was conducted for the year under consideration. Subsequently, information was received through the Insight Portal under the category of High Risk CRIU/VRU information, indicating cash deposits of Rs.1,46,81,756/- in the assessee’s account maintained with Janata Sahakari Bank Ltd. during FY 2017-18. On the basis of the said information, proceedings u/s. 148A were initiated.
2.1. In response to the notice u/s.148A(b), the assessee submitted that it was a pharmaceutical wholesaler/stockist supplying medicines to a large number of retailers in the Konkan region and that the cash deposits represented collections from customers against sales already recorded in the books of account. It was submitted that the total sales during the year were approximately Rs.17.27 crore, out of which cash collections amounted to approximately Rs.1.94 crore, the balance having been realised through banking channels. The assessee also stated that the cash collected from retailers was deposited into its designated bank accounts on the same day or the following day.
2.2. The assessee further submitted that the relevant bank account was duly reflected in its books of account and audited financial statements and furnished, inter alia, party-wise details and ledger extracts in support of its contention. However, the Ld.AO observed that the assessee had not furnished adequate documentary evidence such as bank statements, sale invoices, cash book, confirmations from customers and relevant ledgers pertaining to the year under consideration. The Ld.AO, therefore, proceeded with the reassessment proceedings.
2.3. Accordingly, an order u/s.148A(d) was passed on 30/08/2024 and notice u/s.148 was issued on the same date. In response to the notice u/s.148, the assessee filed its return on 29/11/2024, again declaring income of Rs.59,75,410/-. Thereafter, notice u/s.143(2) and notices u/s.142(1) were issued. The assessee furnished a partial response to the notice u/s.142(1) dated 20/05/2025, whereas no response was recorded to certain subsequent notices and show-cause notices.
2.4. The Ld.AO, not being satisfied with the explanation furnished by the assessee, treated the cash deposits of Rs.1,46,81,756/- as unexplained money u/s. 68 of the Act and also regarded the same as undisclosed sales/under-reported income. Consequently, the assessment was completed u/s.147 r.w.s. 144B vide order dated 12/09/2025, determining the total income at Rs.2,06,57,166/-, as against the returned income of Rs.59,75,410/-.
Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A).
3. Before the Ld.CIT(A), the assessee challenged, inter alia, the validity of the reassessment proceedings, the action of the Ld.AO in completing the assessment without considering its request for adjournment and video-conferencing hearing, and the addition of Rs.1,46,81,756/- u/s.68. It was contended that, the cash deposits represented realisation of recorded sales and that the same could not be brought to tax again as unexplained cash.
3.1. The Ld.CIT(A), after considering the assessment records and submissions of the assessee, noted that the assessee was carrying on an established business, had disclosed the relevant bank accounts in its audited financial statements and had recorded its sales in the books. The Ld. CIT(A) further observed that the Ld. AO had not brought any material on record to establish that the cash deposits represented income from any source other than the assessee’s business receipts. However, since the linkage between the individual cash deposits and corresponding sales realisations was not fully established with complete documentary evidence, the Ld.CIT(A) considered it appropriate to make a reasonable estimation. Accordingly, 10% of the cash deposits of Rs.1,46,81,756/-, i.e. Rs.14,68,176/- approximately, was sustained as income from unexplained sources and the balance addition was deleted.
3.2. In respect of the challenge to the validity of the reassessment proceedings, the Ld.CIT(A), relying upon the decision of the Hon’ble Delhi High Court in TKS Builders Pvt. Ltd. v. ITO reported in (469 ITR 657), held that the JAO and FAO have concurrent jurisdiction to issue notice u/s.148 and that the initiation of reassessment proceedings by the JAO could not be held invalid merely because the subsequent proceedings were conducted under the faceless assessment scheme. The Ld.CIT(A) further held that tangible information regarding the cash deposits was available with the Department and that the procedure prescribed u/s. 148A had been followed.
Aggrieved by the aforesaid order of the Ld. CIT(A), the assessee as well as the revenue are in appeal before the Tribunal.
4. We have considered the rival submissions and perused the material available on record. The Revenue is aggrieved by the action of the Ld. CIT(A) in restricting the addition of ₹1,46,81,756/- made by the Ld. AO under section 68 of the Act to 10% thereof, whereas the assessee is aggrieved by the sustenance of the addition to the extent of ₹14,68,176/-.
5. It is noted that the assessee was carrying on an established business and the sales recorded in its books have been accepted by the Revenue. The relevant bank accounts were also disclosed in the audited financial statements. The Ld. CIT(A), after examining the assessment records and the material furnished by the assessee, specifically recorded that the Ld. AO had not brought any material on record to establish that the cash deposits represented income from any source other than the assessee’s business receipts.
5.1. At the same time, the assessee could not establish, with complete documentary evidence, the nexus between each of the cash deposits and the corresponding sales realisations. The item- wise reconciliation of the cash deposits with the recorded sales was not completely furnished by the assessee. The Ld.CIT(A), taking into consideration the aforesaid factual position, restricted the addition to 10% of the cash deposits.
5.2. In our considered view, the approach adopted by the Ld.CIT(A) is reasonable in the peculiar facts of the present case. The Revenue failed to establish that the cash deposits, to the extent sustained, represent credits from a source other than the disclosed business receipts. At the same time, the assessee having failed to completely reconcile the individual cash deposits with the corresponding sales realisations, the Ld.CIT(A) was justified in making a reasonable estimation of the portion which could not be satisfactorily linked with the disclosed business receipts.
5.3. Accordingly, we find no infirmity in the order of the Ld.CIT(A) in restricting the addition to 10% of the cash deposits, amounting to Rs.14,68,176/-. The ground raised by the Revenue seeking restoration of the entire addition is accordingly dismissed. The corresponding ground raised by the assessee seeking deletion of the addition sustained by the Ld.CIT(A) is also dismissed.
5.4. We further find it necessary to deal with the applicability of section 115BBE to the amount sustained. Section 115BBE prescribes a special rate of tax in respect of income referred to, inter alia, in Section 68. However, the mere fact that an addition has been sustained on an estimated basis does not, by itself, establish that the amount so sustained represents income of the nature contemplated u/s 68 of the Act.
5.5. In the present case, the finding of the Ld.CIT(A), which we have affirmed hereinabove, is that the assessee was carrying on an established business, the sales recorded in the books were accepted and the Ld.AO had not brought any material to establish that the cash deposits represented income from any source other than the assessee’s business receipts. The estimation was necessitated only because the assessee could not completely establish an item-wise reconciliation between the cash deposits and the corresponding sales realisations.
5.6. The incomplete reconciliation justifies the estimation of a portion of the deposits as unexplained for purposes of determining the taxable income, but does not, in the absence of a finding that the estimated amount represents income from an unexplained source, warrant its characterisation as income referred to in section 68 for purposes of section 115BBE.
5.7. Thus, although the addition of Rs.14,68,176/- is sustained as an estimated addition on account of the incomplete reconciliation, there is no corresponding finding that the said amount represents unexplained income arising from an undisclosed source. The Revenue has also not brought any material on record to establish such an independent source.
5.8. We, therefore, hold that the amount of Rs.14,68,176/- sustained in the present proceedings is not liable to be subjected to the special rate of tax prescribed under section 115BBE. The Ld.AO is accordingly directed not to apply section 115BBE to the addition of Rs.14,68,176/- sustained herein.
5.9. This direction is consequential to the suo moto finding recorded by us regarding the nature of the amount sustained and does not amount to granting any relief in respect of the quantum addition itself. The addition of ₹14,68,176/- shall remain sustained, but the same shall not be taxed by invoking section 115BBE.
In the result, appeal filed by the assessee is dismissed and the appeal filed by revenue is dismissed.
Order pronounced in the open court on 21/08/2026.
