Income Tax Appellate Tribunal - Delhi
Ito Ward 1(1), Faridabad vs Azad Malik, Faridabad on 22 April, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI "A" BENCH: NEW DELHI
BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER &
SHRI MANISH AGARWAL, ACCOUNTANT MEMBER
ITA No.83/Del/2025
[Assessment Year : 2017-18]
ITO vs Azad Malik
Ward-1(1) Shop No.16, HUDA Market,
Faridabad Sector-7, Faridabad
Haryana-121006.
PAN-ACCPM0101C
APPELLANT RESPONDENT
Revenue by Shri Ajay Kumar Arora, Sr.DR
Assessee by Shri Sandeep Jain, CA
Date of Hearing 04.02.2026
Date of Pronouncement 22.04.2026
ORDER
PER MANISH AGARWAL, AM :
The present appeal has been filed by the Revenue against the order dated 25.06.2024 of Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre ("NFAC"), Delhi ["Ld. CIT(A)"] in Appeal No. CIT(A), Faridabad/111301/2019-20 passed u/s 250 of the Income Tax Act, 1961 ["the Act"] arising out of assessment order dated 26.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18.
2. Brief facts of the case are that assessee is an individual and proprietor of M/s. Zevrat and deals in the business of jewellery of gold, silver items and some diamond products, filed its return of income on 26.10.2017, declaring income of INR 22,30,890/-. The case of the assessee was selected under CASS on the issue of cash ITA No.83/Del/2025 deposits during demonetization period. The AO observed that assessee had made cash sales of around INR 2.6 crores on 08.11.2016 which is very abnormal and thus, after giving the credit of the average sales of INR 60 lakhs made the addition of INR 2,04,10,542/- as unexplained credit u/s 68 of the Act and invoked the provisions of section 115BBE of the Act for charging special rate of taxes.
3. Against the said order, assessee filed an appeal before Ld. CIT(A) who vide order dated 25.06.2024, has deleted the additions made by the AO and allowed the appeal of the assessee.
4. Aggrieved by the order of Ld. CIT(A), Revenue is in appeal before the Tribunal. All the Grounds of appeal raised by the Revenue are with respect to the deletion of additions made by AO and further Revenue has challenged the action of Ld. CIT(A) in considering fresh evidences filed bey the assessee without obtaining the Remand Report from the AO.
5. Heard the contentions of both parties at length and perused the material available on record. In the instant case, assessee has made cash deposits of INR 3,70,07,000/- in SBN during demonetization period for which the immediate source was explained s out of the accumulation of cash sales made by the assessee. It is further observed that assessee has claimed cash sales of INR 3,52,29,108/- during the period from 01.11.2016 to 08.11.2016 and in particular on 08.11.2016, the assessee has claimed cash sales of INR 2,64,10,542/-. It is further claimed that the assessee after making Page | 2 ITA No.83/Del/2025 such sales, had disclosed NIL stock as on 08.11.2016 at the closing hours on 08.t11.2016 i.e. he day when demonetization was announced by the Hon'ble Prime Minister. It was claimed by the assessee that due to surge in sales, entire stock was sold by the assessee and assessee has earned higher gross profit rate @ 8.91 % during the year as against 6.68% declared in immediately preceding year. The assessee has also filed quantitative details of sales and purchases made. Ld. CIT(A) observed that trading results declared by the assessee have not been doubted by the AO and the sales have been accepted. Ld. CIT(A) further observed that average sales during the period from 04.11.2016 to 07.11.2016 was INR 24 Lakhs per day and further observed that the sales declared on 08.11.2016 was not doubted by the AO. Ld. CIT(A) further observed that once the source of cash deposit has not been doubted by the AO, the corresponding generation of the cash from such cash sales cannot be doubted. He therefore, defeated the addition made by the AO. The relevant observations made by Ld. CIT(A) as contained in para 6.4 to 6.6 of the order are as under:-
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6. Before us, Ld. Sr. DR for the Revenue has failed to controvert the findings of Ld. CIT(A) which are based on the fact that the assessee has doubted the cash out of the sales made in cash which were accepted by VAT authorities and such sales have also been accepted by the AO. Further, no defect was pointed out in the stock inventory submitted by the assessee and the assessee has declared better results during the year under appeal which has been accepted. The realization of cash sales is duly recorded in the cash book maintained on day to day basis which is evident from the perusal of the cash book submitted before the lower authorities and are available in paper book pages 147-153 filed by the assessee. Assessee has deposited SBN during the demonetization on various dates out of the cash available as on date with assessee as on the closing hours of 08.11.2016 i.e. the date when the demonetization was announced by the hon'ble prime minister and was the last day upto which the SBN could be accepted as valid currency. The AO is required to consider the records of the assessee such as stock register, bank statement, monthly sales summary, possibility of back-dating of cash sales or fictitious sales etc. before making any allegation about the genuineness of the cash deposited in SBN during Page | 16 ITA No.83/Del/2025 the demonetization period. No such adverse observations were made by the AO and trading results declared were accepted. The AO had not doubted the availability of stock with the assessee prior to cash sales. When the assessee has submitted complete details and thus discharges its onus, whereas no contrary material whatsoever was brought on record by the AO to disprove the details filed by the assessee. As observed above, assessee has already included the entire cash sales in the total sales and the profits have been derived which were offered for tax, thus taxing the same income twice once in the sales and other when the sale consideration was realised and deposited in the bank account which is doubted on conjectures and surmises.
7. At this juncture, provisions as contained in section 68 is reproduced as under:
68. "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
8. From the perusal of the provisions of section 68 of the Act it is very clear that Assessing Officer can make addition u/s 68 only under two circumstances, i.e.
(i) Appellant does not offer any explanation about nature and source of such credit; or
(ii) Explanation offered by Appellant is not upto the satisfaction of Ld. AO.
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9. In other words, whenever Appellant provides explanation, before rejecting the same, ld. AO has to record dissatisfaction as to why the explanation furnished by Appellant is not acceptable. As is evident that assessee not only offered explanation regarding nature and source of such credits but also substantiated the same with documentary evidences in the shape of Audited Financial Statements, Sale Register, Purchase Register, Stock Register and Cash book. No specific defects whatsoever have been brought out on record by the ld. AO in those evidences and books of accounts so furnished. It is not understood as to how the addition could be made by AO when the source of such cash deposits, being cash sales, was duly accepted by him. Even no discrepancy was pointed out by the VAT department in respect of purchases and sales made by the assessee. Therefore, addition so made u/s 68 of the Act without finding out any specific defects in books of account and also without rebutting the evidences produced is unjustified.
10. The Hon'ble Delhi High court in the case of CIT v. Kailash Jewellery House in ITA No. 613/2010 (Delhi High Court) has held as under:
"In the facts of above case cash of Rs.24,58,400/- was deposited in bank account. The Assessing Officer made the addition on the ground that nexus of such deposit was not establish with any source of income. The assessee claimed that it was duly recorded in the books on account of cash sales and was considered in the Profit and Loss Account. The Assessing Officer had verified the stock and cash position as per books and had accepted the same. Complete books of account and cash book was submitted to the Assessing Officer and no discrepancy was pointed out. On this basis CIT(A) deleted the addition. Tribunal also observed that it is not in dispute that sum of Rs.24,58,400/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. Therefore, cash sales could not be treated as undisclosed income and no addition could be made once again Page | 18 ITA No.83/Del/2025 in respect of the same. The Hon'ble High Court dismissed the appeal filed by the Department."
11. The Co-ordinate bench of ITAT Delhi in the case of S. Balaji Mech-Tech Private Ltd Vs. ITO in ITA No. 556/Del/2024 vide order dt. 25.09.2024 has observed as under:
18. "Coming to the issue of stock movement and excess sales, we observed that the assessee has submitted relevant stock reconciliation and auditors report of stock movements and there is no negative stock movement which will indicate that the assessee has booked excess sales without there being proper purchases.
19. In our considered view, there are chances that during the demonetization period the regular customers may have choose to buy the spare parts and bearing by making payment by cash so that their excess SBN is transferred. We noticed that the credit sales has come down during this period and the sales of the assessee is more or less maintained during this period. Therefore, it shows that the changes in the patterns recorded in the sales are not abnormal.
20. Whether the recording of cash sales which is already declared in the books of account will attract the deeming provisions of sec.68 or 69A of Act. We observed that the assessee has declared all the cash transactions in its books of account and merely because the cash deposits are more during the demonetization period, whether the CIT(A) can invoke the provisions of section 69A of the Act. As per provisions of the section, it is necessary that the assessee be found with the money, the same is not recorded in the books accounts maintained by it for any source and not offers any explanation or such explanations are not found to be satisfactory to the AO. In this case, the assessee has already declared the cash sales in its books of account and offers the explanation as cash sales, which the lower authorities has accepted it as regular business transactions because they have not rejected the book results and brought to tax the total sales declared by the assessee in its books. Since the cash were already recorded and explanation is already part of the book results, there is no avenue for the CIT(A) to reject such explanations.
This expression "explanation is found not satisfactory to the AO" is purely relates to the money found with the assessee which are not recorded in the books of account. In this case, the above expression has no relevance since the assessee had already declared the cash sales in its books. In the similar situation, the coordinate bench has held in the case of J.R.Rice India (P) Ltd as under:
"At the cost of repetition, to the extent of sales made, the stock position is also correspondingly reduced by the assessee which goes to prove the genuineness of the claim of the Page | 19 ITA No.83/Del/2025 assessee. On examination of the cash book of the assessee, it is found that the assessee had cash balance of Rs. 55.94 lakhs as on 8-11-2016, i.e., the date on which demonetization was announced, which sufficiently explains the source of deposit of Rs. 52.60 lakhs in specified bank notes. Apart from this, the assessee had duly furnished the month wise details of sales, month wise details of purchase, corresponding freight charges incurred month wise, month wise power and fuel expenses and month wise selling expenses in the form of rebate and discount. The assessee also furnished the quantitative details of goods month wise for rice, sugar, chana dal and wheat flour before the Assessing Officer. All these facts clearly go to prove the genuineness claim made by the assessee that cash deposits of Rs.52.60 lakhs has been made out of cash balance available with the assessee and, hence, there is absolutely no case made out by the revenue for making addition under section 68."
Further, in the case of Fine Gujaranwala Jewellers Vs. ITO (ITA No. 1540/Del/2022 dated 27.03.2023, wherein it was held as under:
22. In the case in hand the reason for disbelieving the cash deposit is that the assessee has been deposited below Rs. 2 lakh in every transactions that lead to the conclusion of the Assessing Officer that the same has been done to avoid the application of provision of section 285BA read with Rule 114E of the Act. The said observation made by the Assessing Officer without any material in his hand.
There is no prohibition under law to make sale transaction below Rs. 2 lakhs as such the assessee had at liberty to manage his own affairs. From the action of the assessee in raising the sales bill below Rs. 2 lakhs the Assessing Officer cannot interpret as the sale are bogus only to give colour to non-genuine transaction as genuine transaction. The evidence brought on record by the Assessing Officer are not enough to hold that sales were not genuine. More so, the other wing of the Govt has already accepted the sale transaction under VAT, hence, the Assessing Officer is precluded from making contrary findings on the issue when the sales are not doubted. The other contention of the ld. DR is that the assessee has not maintaining stock register properly and date wise stock position are not given. The Assessing Officer made the said observation without rejecting the books of account form which true profit and loss accounts could be ascertained and there is no quarrel on this issue. The lower authorities cannot place reliance on the circumstantial evidence which is only conjectures and surmises and the said approach of the ld CIT(A) is devoid of merit it deserves to be rejected. Further, the income of the assessee has to be computed by the Assessing Officer on the basis of available material on record and it is very important to have a direct evidence to make an addition rather than circumstantial evidence. When the assessee gives any Page | 20 ITA No.83/Del/2025 reply or submission or any documents to the Assessing Officer, it is duty of the Assessing Officer to examine the same in the light of the available evidence. In the present case the Assessing Officer and the ld CIT(A) have concluded the findings on the basis of conjectures and surmises. The Assessing Officer has to establish the link between the evidence collected by him and the addition to be made. The entire case has to be dependent on the Rule of evidence, the assessee in this case explained the source of bank deposits are from cash sales. The Assessing Officer proceeded to disbelieve the explanation of the assessee on the presumption basis without bringing the corroborative material on record. The Assessing Officer is required to act fairly as reasonable person and not arbitrarily capriciously. The assessment should have been made based on the adequate material and it should stand on its own leg. The Assessing Officer without examining any parties to whom the goods are sold by the assessee, came to conclusion that the sales are not genuine, without even rejecting the books of account which is in our opinion is erroneous.
21. Respectfully, following the above decisions, we are inclined to allow the grounds raised by the assessee with the observation that the AO/CIT(A) cannot invoke the provisions of section 68 or 69A when the assessee is already declared the source for cash deposits in the books of accounts and the lower authorities without their being any material to support on their contrary view, the provisions of section 68 or 69A cannot be invoked.
22. In the result, appeal filed by the assessee is allowed."
12. In view of the above discussion, we find no error in the order of Ld. CIT(A)in deleting the additions made by AO which order is hereby, upheld. Accordingly, all the grounds of appeal taken by the revenue are dismissed.
13. In the result, appeal of the Revenue is dismissed.
Order pronounced in the open Court on 22.04.2026.
Sd/- Sd/-
(ANUBHAV SHARMA) (MANISH AGARWAL)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date:- 22.04.2026
*Amit Kumar, Sr.P.S*
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ITA No.83/Del/2025
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
6. Guard File
ASSISTANT REGISTRAR
ITAT, NEW DELHI
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