Income Tax Appellate Tribunal - Surat
Dcit, Circle-1(3), Surat, Surat vs K S Trading, Surat on 27 March, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
SURAT BENCH, SURAT
BEFORE DR. B.R.R. KUMAR, VICE-PRESIDENT
MS. SUCHITRA KAMBLE, JUDICIAL MEMBER
I.T.A. No. 234/SRT/2025
(Assessment Year: 2017-18)
DCIT, KS Trading,
Vs. 251/A, Plot No. 126, Sutaria
Circle 1(3),
Surat Town, Ghod Dod Road,
Surat-395007
[PAN : AAFFG 5140 A]
(Appellant) .. (Respondent)
Appellant represented by : Shri Mukesh Jain, CIT (DR)
Respondent represented by: Shri Rasesh Shah, CA
Date of Hearing 22.01.2026
Date of Pronouncement 27.03.2026
ORDER
PER DR. B.R.R. KUMAR, VICE-PRESIDENT:-
This appeal has been filed by the Revenue against the order dated 10.12.2024 passed by the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as the "Ld. CIT(A)"
for short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as the "Act" for short) for Assessment Year 2017-18.
2. The Revenue has raised following grounds of appeal :-
"i. On the basis of the facts and circumstances of the case and in law, the Id. CIT(A) has erred in allowing the appeal of the assessee and deleting the addition made by the AO of Rs,5,09,33,829/- on account of unaccounted cash within the meaning of section 68 of the Act as the assessee not produced any cogent evidences to prove that the cash deposits made in the Bank Accounts represent the business receipts.
ii. On the basis of the facts and circumstances of the case and in law, the Ld. CIT(A) has not appreciated that during the course of assessment proceedings on being provided ample opportunity of being heard the assessee could not explain the sources of cash deposits and in absence of the same the AO has rightly rejected the books of account of the assessee.ITA No. 234/SRT/2025
DCIT Vs. KS Trading Asst. Year : 2017-18
- 2- iii. On the basis of the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that during the year under consideration the assessee has paid interest of Rs. 1,61,87,004/- on loan taken from bank and also the bank loan has been increased from Rs.11,54,14,686/- in FY 2015-16 to Rs. 19,23,28,766/- in FY 2016-17 which shows that the explanation of the assessee w.r.t. huge cash balance is not reliable.
iv. On the basis of the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer."
3. The brief facts of the case are that the assessee is a partnership firm engaged in retail trading of readymade garments under the brand "G3". The return of income for A.Y. 2017-18 was filed declaring total income of Rs. 1,39,84,970/-. The case was selected for complete scrutiny. During assessment proceedings, the Assessing Officer noticed that the assessee had deposited cash of Rs. 8,16,24,000/- in bank accounts, out of which Rs. 6,50,26,000/- was deposited during the demonetization period. The Assessing Officer required the assessee to furnish details of cash sales, customer particulars, and documentary evidences to substantiate the cash deposits. According to the Assessing Officer, the assessee failed to furnish satisfactory evidence. The Assessing Officer rejected the books of account under section 145 of the Act and, after allowing opening cash balance of Rs. 1,40,92,171/-, treated the balance amount of Rs. 5,09,33,829/- as unexplained cash credit under section 68 of the Act.
4. Aggrieved, the assessee preferred appeal before the Ld. CIT(A), who, after considering assessment order, submissions of the assessee and the remand report dated 19.04.2024, deleted the addition. The findings of the Ld. CIT(A) are reproduced below:-
"Ground No 1 is directed against the AO rejecting the regularly maintained books of accounts of the appellant firm u/s. 145 of the Act. During the course of assessment proceedings, upon examination of return of income, the AO found that huge cash deposits of Rs. 8,16,24,000 have been made by the appellant, out of which Rs, 6,50,26,000has been deposited in SBNs. The AO found that since the appellant has the retail business of sale of fabrics and ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 3- dress materials, Rs. 1,65,98,000 worth of the cash deposited have been claimed to small denomination legal tender received from sales in the demonetization period. The AO found that as per upload ID 8259935965__5_Ann23.pdf, SBNs as above of Rs, 6,50,26,000 have been deposited in the bank account during the demonetization period. However, as per upload 8113558539___3__Annl 1 [Monthly cash].pdf, dated 08.11.2019, the cash on hand as on 09.11.2016 has been Rs. 6,45,59,58/-. Hence, the AO held that the so-called cash balance as cash-on-hand and the cash deposited do not match to the extent of Rs. 466417 (65026000-- 64559583). The AO also held that cash has been deposited in 10 rounds quite late after declaration of demonetization till 23.12.2016. Such a fact indicates that the accounted cash as claimed was not available with the assessee on books, and the books have been recast and manipulated to show cash on 08.11.2016.The AO also held that the fact that the appellant has made cash withdrawals even on 28,10.2016 indicates that the cash-on-hand would not be available to the extent claimed by the appellant The AO held that if there were cash available with the appellant, such sums would not have been withdrawn from the Bank.
6.2 The AO also held that the appellant has failed to explain the day-to-day usage of huge cash balance. Very little cash withdrawals/usage have been made during the year. Therefore, the cash build-up has not been for purpose of business and 'rt is fictitious. The AO held that during the course of assessment proceedings, the appellant failed to produce full name, verifiable address, PANo. of the so-called cash-givers, etc. The cash-book is unverifiable as discussed in the para above. The AO held that as there is no verifiable evidence as regards to the cash balance and the cash book is just a list created by the appellant, in regards to the cash-on-hand, it is just the version of the appellant versus the version of any person, hence, in the absence of these basic and primary documents, the cash book and results shown by the appellant become liable to be rejected u/s 145 of the I.T Act, 1961. Also, the AO held that want of a primary document is, in this particular case, a very serious defect because proper account books have not been furnished and have failed to portray the correct and true state of affairs. Therefore, AO held that in the absence of name, address) PANo. of all the cash-givers, etc. by which a proper check could be made is a: serious defect as to make the proviso to section 145 applicable. The AO held that the books of accounts specifically, the so-called cash book, maintained by the appellant has, therefore, been found to be defective, incomplete, unreliable and incorrect. The AO held that the accounts are incomplete, incorrect as well as do not follow the accepted methods of accounting or Accounting Standards, and the provisions of section 145(2) are therefore, clearly attracted in the present, case. The AO concluded that the cashbook is a Sham document and the cash build-up has been created on fabricated and pre-'planned basis so as to ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 4- explain cash deposits subsequently. Thus, the cash book and, in effect, the books of accounts of the appellant were accordingly rejected u/s. 145 of the Act.
6.3 The appellant during the course of appellate proceedings submitted detailed submissions which have been reproduced in para 5.1 of this order. l have carefully considered the facts and evidences on record. The AO has held that during the course of assessment proceedings, held that the appellant firm has failed to produce the full name, verifiable address, PAN of the cash givers (i.e. the customers purchasing the garments from the showroom). Thus, AO held that the absence of name, address, PAN of all the customers by which a proper check could be made is a serious defect which makes the proviso to section 145 applicable to the case of the appellant firm. It is seen that the source of the cash deposited by the appellant firm in its bank account during the demonetisation period is the retail cash sales of garments, as made by the appellant firm, from its showroom. Further, it is pertinent to note that in the year under consideration, the total retail sale of garments by the appellant firm was Rs, 56,94,89,805 and the total no. of bills prepared was 86127 and thus, the average amount of a single bill per customer works out to Rs. 6,612. It is a general practice in retail sale of garments in a show room, there is neither any practice to ask for the name, address and PAN of the customer, nor there is any requirement under the Act to maintain the name, address and PAN of the customers to whom retail sales are made, unless the individual bill amount exceeds Rs. 2 lacs. in the case of the appellant firm, not a single sale bill is exceeding the limit of Rs. 2 lacs and AO has also not brought out evidences against it. Therefore, the said observation of the AO that the absence of the name, address, PAN and signature of the retail customers of garments, is a serious defect which makes the proviso to section 145 applicable, is incorrect and not sustainable.
6.4 The Hon'ble High Court of Bombay in the case of R.B. Jessaram Fatehchand (Sugar Dept.) Vs. CIT (.1970) 75 ITR 33 (Bom) has held that there was no necessity whatsoever for the assessee to maintain address of cash customers and therefore, the rejection of the accounts of the assessee on the assessee's inability to supply address of parties who, had purchased goods in cash from it and the consequent additions made to the assessee's income were liable to be deleted. The Hon'ble Jaipur Bench of the ITAT in the case of ITO Vs. Rajkumar Nowal (2023) 146 Taxmann.com 581 '(Jaipur-Trib.) has held that the addition as made u/s. 68 in respect of cash deposited during demonetisation period out of cash sales on the ground of non-furnishing of address and PAN of the customers is liable to be deleted and the relevant extract of the said decisions is as follows.ITA No. 234/SRT/2025
DCIT Vs. KS Trading Asst. Year : 2017-18
- 5- "Where assessee engaged in jewellery business accumulated cash from sales, which was deposited in bank in demonetised currency and assessee explained that said practice was in line with trend of cash deposits in past year which was accepted by department in assessment framed in past and future and no material was brought on record by the revenue authorities to draw any adverse inference, the sales made could not be doubted on surmises and conjectures merely due to non- furnishing of address and PAN of customer and accordingly, the addition made u/s. 68 in respect of unaccounted sale cannot be sustained."
6.5 Secondly, the AO has held that there is no verifiable evidence as regards the cash balance and the cash book which is just a list created by the appellant firm in respect of the cash on hand. It is seen that the appellant firm has duly filed its monthly sales tax l VAT return showing the amount of total sales of each month from April 2016 to September 2016 prior to the date of demonetisation being 08- 11-2016. The detail of the total sales as per the audited regular books of accounts which were submitted before the learned AO and the total sales as reflected in the sales tax / VAT return which were filed before the date of demonetisation i.et 08-1 1-2016 is given in the following table.
Month Total sales as per Total sales reflected in Date of filing of sales
books submitted to the sales tax / VAT return tax/ VAT return
Assessing Officer filed before 08-1 1-16
April-2016 3,20,59,820. 3,20,58,944 27-05-2016
May-201 6 2,20,08,29 2y20,08,288 22-06-2016
June-2016 1,98,35,583 1,98,35,578 22-07-2016
July-2016 6,59,46,804 6,59,46,815 23-08-2016
August-2016 5,11,32,899 5, 11,32,906 26-09-2016
September-201 6 2, 78, 71, 315 2,78,77,782 26-10-2016
Total 21,88,54,715 21,88,60,313
6.6 Thus, the sales of the appellant firm, the cash in respect of which has
been deposited in the bank account, are verifiable with the VAT / sales tax returns filed with the sales tax l VAT department, prior to demonetisation. The Hon'ble Amritsar Bench of the Tribunal in the case of Balwinder Kumar Vs. ITQ (2023) 151 Taxmann.com 338 (Amritsar-Trib.) has held that where assessee deposited cash sales made during demonetization period in his bank account and admitted such sales as revenue receipts and books of account of assessee clearly reflected sufficient stock to affect such sales and the revenue authorities had accepted the opening stock, closing stock, purchases, direct expenses, sundry debtors, sundry creditors, all VAT returns without pointing out any defect therein, the AO could not blow hot and cold at the same time by partly rejecting the books of accounts and partly accepting the same, ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 6- which was bad in law, there was no case of making addition u/s. 69A towards alleged cash deposits in the bank account, The Hon'ble Chandigarh Bench of the ITAT in the case of Smt Charu Aggarwal Vs. DCIT (2022) 140 Taxmann.com (Chandigarh-Trib.) has held that where cash deposited post- demonetization by assessee was out of cash sales which had been accepted by Sales Tax/VAT Department and there was sufficient stock available with assessee to make cash sales, sales made by assessee out of existing stock were sufficient to explain deposit of cash (obtained from realization of sales) in bank account and, thus, cash deposits could not have been treated as undisclosed income of assessee.
6.7 The working of the GP and NP of the appellant firm for the current year as compared to the earlier year which was submitted to the AO during the course of assessment proceedings, are as under.
Working of GP & NP
Particulars 3103.2017 31.03.20216
Amount % Amount %
Sales / income 56,94,89,805 100.00% 61,89,53,609 100.00%
from operation
Less: Cost of goods 44,33,00,711 77.84% 48,16,28,360 77.81%
sold
Gross Profit 12,61,89,094 22.16% 13,73,25,249 22.19%
Less : Sales & 7,68,35,901 13.49% 8,79,96,849 14.12%
Administrative Ex.
Financial Expenses 1,95,31,769 3.43% 1,94,44,243 3.14%
Net Profit before 2,98,21,425 5.24% 3,04,84,158 4.93%
depreciation
Less Depreciation 1,15,90,596 2.04% 89,67,790 1.45%
Appropriation to 46,40,000 0.81% 56,87,003 0.92%
Partner
Net profit before 1,35,90,829 2.39% 1,58,29,365 2.56%
tax
6.8 From the above, it is seen that the GP as well as the NP of the appellant firm in the current year is similar with the earlier year. It may also be noted that the appellant firm's books of accounts have been accepted by the department in the scrutiny assessment carried out u/s. 143(3) of the Act in the earlier years Le, A.Y. 2014-15 and A.Y. 2015-16.
6.9 As per Section 153(3) of the Act, the AO can reject the books of accounts of the assessee only if he was not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting as provided in sub-section (1) of Section 145 of the Act has not been regularly followed by the assessee or the Income has not been computed ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 7- in accordance With the standards notified under sub-section (2) of Section 145 of the Act Section 145 of the Act reads as under - ' 145 (1) Income chargeable under the head "Profits and gains of business or profession or "income from other sources shall subject to the provisions of sub- section (2) be computed In accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(2) The Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income.
(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144'.
6.10 The Hon'ble jurisdictional High Court of Gujarat in the case of CIT Vs"
Vikram Plastics (1999) 239 ITR 161 (Guj) wherein it has been held that the books of accounts maintained by the assessee were not found by the AO to be incorrect or incomplete and that no material was brought on record by him to prove that purchases and expenses had been inflated or sales had been suppressed and therefore, the Hon'ble High Court has accepted the decision of the Tribunal regarding the deletion of the rejection of books of accounts.
6.11 The Hon'ble ITAT Ahmedabad in the case of Kshetrapal Gold Private Limited Vs ITO in ITA No: 105/Ahd/2024 Date of Judgement/Order :
22/10/2024 has held as under:--
"13. This dissatisfaction of the AO has to be vis a vis the correctness and completeness of the Books of the assessee for rejecting the same. And this power cannot be exercised in a subjective manner. The reason being that serious consequences follow the rejection of the Books of accounts of the assessee since it gives power to the AO to make a best judgement assessment.
The AO surely cannot reject the Books on his own whims and fancies. He has to give basis for finding the Books unreliable and not capable of revealing the true financial picture of the assessee. Books of accounts can be rejected as unreliable if important transactions are omitted therefrom or if proper particulars and vouchers are not forthcoming or there is an inherent lacuna in the system of accounting or where sales vouchers and stock registers were ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 8- not maintained or where there were deficiencies and discrepancies in the books of accounts or where bogus purchases were recorded and opening and closing stock was not verifiable. As pointed out by the Id. Counsel for the assessee, in terms of provision-s of Section 145(3) of the Act, the Assessing Officer is duty bound to find patent, latent and glaring defects in the books of accounts while rejecting the Books of the assessee. The reliance placed by the Id. Counsel for the assessee in the decision of the Hon'ble High Court of Gujarat in the case of CIT Vs. Vikram Plastics [1999] 239 ITR 161 (Guj) clearly holds that for the purpose of rejecting the books of accounts of the assessee, discrepancies and defects in the same need to be pointed out.
14. In the facts of the present case, admittedly no defects or discrepancies have been pointed out. The rejection of books of accounts is merely on the basis of surmises and conjectures of the Assessing Officer which he has based on a mere financial analysis of the sales and cash data of the assessee for the impugned year and the immediately preceding year. He has noted the sales to have increased abnormally as also the cash in hand with the assessee. He has noted that in the absence of any expenses to be incurred in cash, there was no reason for the assessee to maintain such cash in hand and he presumed, therefore, that these were all bogus entries of cash sales with the only purpose of introducing the unaccounted income of the assessee for facilitating deposit of it in bank account of the assessee during the demonetization period. There is not a single whisper about any discrepancy noted by the Assessing Officer in the sales recorded by the assessee. All evidences relating to which were admittedly placed before the Assessing Officer. The assessee had also stated all sales to be duly corroborated with corresponding purchases made of the same. All evidences relating to the purchase was also placed before the Assessing Officer. The assessee had also presented his stock register for examination before the Assessing Officer, but not a single document or evidence was examined or investigated by the Assessing Officer. Admittedly, no discrepancy in the books of accounts maintained by the assessee was pointed out before rejecting the books of accounts, and since it is settled law that the rejection of books of accounts can take place only when the books are found to be maintained in such a manner that true profits cannot be ascertained therefrom, for which it is necessary for the Revenue Authorities to pinpoint the defects in the maintenance of the same.
15. We are in agreement with the ld Counsel for the assessee that the rejection of books of accounts by the Assessing Officer In the present case was not in accordance with law.
The act of the Assessing Officer therefore, In rejecting the books of accounts of the assessee Is therefore set aside ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 9- The ground No. 2 of the assessee's appeal is accordingly allowed. "
6.12 I find that the only basis for rejecting the books of accounts of the appellant was that very little cash Withdrawals/usage have been made during the year the appellant failed to produce full name, verifiable address, PANo. of the so-called cash- givers, etc., no verifiable evidence as regards to the cash balance and the cash book is just a list created by the appellant, the so-called cash book, maintained by the appellant has, therefore, been found to be defective, incomplete, unreliable and incorrect, the accounts are incomplete, incorrect as well as do not follow the accepted methods of accounting or Accounting Standards etc. it is seen that the AO has not doubted the sales and purchases, the Books of accounts reflected sufficient stock with the appellant for making the sales, and the rejection of books of accounts was based only on comparative analysis of the financial data of the appellant of the preceding year and the impugned year, more particularly that relating to cash sales and deposit made by the appellant and the cash in hand available with the appellant and not based on any defect found in the books maintained by the appellant. Therefore, l am of the considered view that the rejection of the books of accounts of the appellant is not sustainable and the same is deleted. The appeal on Ground No 1 is thus treated as allowed.
7.1 Ground No 2 to 3 are directed against the AO treating the cash of Rs. 5,09,33,829 deposited by the appellant firm in its regular bank accounts during demonetization period, as unexplained cash credit u/s. 68 of the Act. the AO during the course of assessment proceedings held that the appellant had failed to satisfactorily prove that the Cash deposited during demonetization period are normal business receipts and therefore, the amount of Deposits during Demonetisation period to the tune of cash sale on 08.11.2016, represented income from undisclosed sources. The AO held that the appellant has manipulated cash book and unexplained sums have been accommodated in various past months. The AO held that the sales shown by the appellant and the cash deposited have been sourced from unexplained sources and that the appellant has failed to discharge it onus u/s 68 to establish genuineness of the transaction, the identity' and creditworthiness of customers. The appellant's cash book as well as the quantum of cash-on- hand as on 08.11.2016, was rejected by the A0, and only amount of Cash on hand was given credit to being the opening cash of Rs. 1,40,92,171 for the year. Hence, the amount of Rs. 5,09,33,829 [65026000-14092171] was added to the income of the appellant as unaccounted sources and unexplained cash on hand.ITA No. 234/SRT/2025
DCIT Vs. KS Trading Asst. Year : 2017-18
- 10- 7.2 The appellant during the-course of appellate proceedings submitted detailed submissions which have been reproduced in para 5.1 of this order. I have carefully considered the facts and evidences on record. The following is the details of cash deposited in the bank in the current year as compared to the earlier year.
Current year Earlier year
Particulars A.Y. 17-18 A.Y. 16--17 Diff. in (% age)
Cash deposits in bank
-24. 1
Total cash deposit in the bank for the year 33,27, 76,500 43,85, 18, 703 1%
Total cash deposit in the bank from 1st April
to 8th November
1 7,65, 12, 700 23,60,37,968 -25.22%
Total cash deposit during 9th November to
31st December
6,50,26,000 8,99,96,305 -27.70%
New Notes deposited during 9th November
to 31st December
1,65,98,000 --
7.3 From the above table, it is seen that the total cash deposited in the bank has reduced to Rs. 33.27 crores from Rs. 43.85 crores in the earlier year and thus, there is a total reduction of -24.11% in the current year in the cash deposited in the bank. In the current year, the total cash deposited in the bank during the period from 1st April to 8th November has reduced to Rs. 17.65 crores from Rs. 23.60 crores in the corresponding period in the earlier year and thus, there is a total reduction of -25.22% in the cash deposited in the bank in the current year from 1st April to 8th November as compared to the earlier year. In the current year, even the cash deposited during the demonetization period of 9th November to 31st December has reduced to Rs.6.50 crores (Rs. 8.16 crores including Rs. 1.65 crores being deposited in new notes) from Rs. 8.99 crores in the corresponding period in the earlier year i.e. a total reduction of -27.70% even in the cash deposited in the demonetization period in the current year. Even during the short period of demonetization from 09-11-2016 to 31-1 2-2016, when there was a huge cash crunch in the entire country, the appellant has deposited new notes of Rs.v1,65,98,000 in the bank, which proves that the appellant has regular cash sales and the cash deposited were out of sales.
Current year Earlier year Diff. in
Particulars A.Y. 17-18 A. Y. 16-17 (%age)
Total cash sales
Total cash sales from 1st 35,71,64,554 43,48,08,120 -17.86% -
April to 8th November 24,42,78,918 26,36,21,844 7.34%
ITA No. 234/SRT/2025
DCIT Vs. KS Trading
Asst. Year : 2017-18
- 11-
7.4 Further, the details of total cash sales and total cash sales from 1st April to 8th November during the FY 2016-17 and 2017-18 are as under:-
7.5 From the above table, it is seen that the current year, the total cash sale has reduced to Rs. 35.71 crores from Rs.43.48 crores in the earlier year and thus, there is a total reduction of -17.,86% in the total cash sales in the current year, the total cash sale for the period 1st April to 8th November has reduced to Rs 24 42 crores from Rs 26 36 crores In the earlier year and thus there Is a reduction of - 7 34% in the cash sales prior to demonetization.
7.6 The month-wise summary of cash, giving the detail of cash sales, cash deposited in the bank, closing cash balance at the end of each month etc. for the current year as also for the earlier year upto 31st December, are as under:--
A. Y. 2017-18 (Current year) Detail of Month-wise Cash Sales & Cash Deposit from Apr.16 to Dec.16 ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 12- A. Y. 2016-17 (Earlier year) Detail of Month-wise Cash Sales & Cash Deposit from Apr.15 to Dec.15 ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 13- 7.7 It may be noted that in the current year, Diwali was in the month of October, 2016 i.e. 30-10-2016, whereas in the earlier year, it was in month of November, 2015 i.e. 11-11-2015. The appellant also submitted the comparison of the cash deposited in the bank in the current year as also for 2 earlier years and 1 subsequent year giving separate bifurcation of total cash deposit, cash deposited prior to demonetisation period and cash deposited in the demonetisation period.ITA No. 234/SRT/2025
DCIT Vs. KS Trading Asst. Year : 2017-18
- 14- 7.8 From the above data, in the current, the cash sales for the period 1st April to 31st December was the lowest as compared to the earlier 2 years i.e. A. Y. 201 5-16 & A.Y. 2016-17 as also to the subsequent year Lea A.Y. 2018-19. In the current year, the total cash deposited in the bank for the entire year was also the lowest as compared to the earlier 2'years Le. A.Y. 2015-16 & A. Y. 2016-17 as also to the subsequent year i.e. A.Y. 2018- 19. ln the current year, the total cash deposited in the bank for the period 1st April to 8th November and from 9th November to 31st December was also the lowest as compared to the earlier 2 years i.e. A.Y. 2015-16 & A.Y. 2016-17 as also to the subsequent year i.e. A. Y. 2018--19. Therefore, I find that there was no irregularity in the cash deposited by the appellant firm during the demonetisation period and the same was in fact lower in the current year.
7.9 The AO added the whole cash deposit during 9th November to 31st December after reducing the Cash on hand as on 01-04-2016. It cannot be that the appellant firm did not have a single rupee of cash on hand from the sales made for the period 01-04-2016 to 08--1 1» 2016, except the opening balance of cash as on 01-04-2016. The Hon'ble Vishakhapatnam Bench of the ITAT in the case of ACIT, Central Circle-1, Vishakhapatnam Vs. Hirapanna Jewellers (2021) 128 Taxmann.com 291 (Vishakhapatnam Trib) has held as follows.
When the assessee-jeweller had explained the source of cash deposits as cash sales and advance received against sales and had even produced the sales bills and admitted the same as revenue receipt as well as offered it to tax and there was no defect in the purchase and sales and the same were matching with inf/ow and outflow of stock and the audit report u/s. 44AB clearly showed reduction of stock position matching with the sales and the AO not having disturbed the closing stock and not having found and proper defects in the books of accounts, trading account and P & L account, the addition made u/s. 68 on account of cash deposited in the bank account, was rightly deleted by the CIT(A).
7.10 The Hon'ble Delhi Bench of the Tribunal in the case of DCIT Circle- 4(2) New Delhi Vs Bawa Jewellers Pvt Ltd In ITA No 352/Del/2021 for AY 2017 18 vide order dated 09 06- 2023 has upheld the order of the learned CIT(A) deleting the addition made u/s 68 of the Act m respect of cash deposits made by the assessee In the bank account during demonetization period, out of cash sales, by holding that no discrepancy was found in the stock, purchase and sales of the assessee and the assessee has amply demonstrated with evidence that the cash sales and the cash deposits during the FY 2015-16 & 2016-17 were almost same and there is only a minimal increase in cash ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 15- deposits during FY 2016- 17. In passing the said order the Hon'ble Bench has placed reliance on the decision of the Hon'ble High Court of Delhi in the case of PCIT Vs Agson Global (P) Ltd, the decision of the Vishakhapatnam Bench of the Tribunal In the case of ACIT Vs Hirapanna Jewellers as also the decision of the Chandigarh Bench of the Tribunal in the case of Smt. Charu Aggarwal Vs. ACIT.
7.11 The Hon'ble Chandigarh Bench of the Tribunal in the case of DCIT Vs. Roop Fashion (2022) 145 Taxmann.com 216 (Chandigarh- Trib.) has held that where cash deposited in bank by assessee during demonetization period was out of cash sales and realization from trade debtors which was duly shown in books of account and Assessing Officer did not point out any specific defect in books of account maintained by assessee and no inflated purchases or suppressed sales were found, such cash deposit could not be treated as unexplained money of assessee was to be deleted.
7.12 The appellant submitted that in the SCN as issued by the Assessing Officer during the course of assessment proceedings, wherein no explanation has been called for in respect of the cash on hand at the end of each month of the current year and the earlier year. The appellant firm has proved that the sales tax VAT returns for the month of April 2016 to September 2016 were already filed prior to demonetisation and the cash sales as per the said sales tax l Vat returns fully tallies with the cash book and hence, there is no question of any recasting or manipulation. With regards to the deposition of cash in 10 instalments, the appellant submitted that in view of the speech given by the Hon'ble Prime Minister of India on 08-11-2016, where the citizens of the country were advised not to panic and rush to the banks in depositing the demonetised currency since the bank would accept the demonetised notes upto 31-12-2016, accordingly, the appellant firm deposited its cash on hand, in 10 rounds regularly from 16-11-2016 to 23- 12-2016. It is seen that the said cash was not collected by the bank in a single instance but the same was collected on 3 different days i.e. 1641-2016, 1741- 2016 & 18-11-2016 and thereafter, the bank did not provide the facility of collecting the cash to the appellant firm and accordingly, the appellant submitted that it had sent its employees to the bank for deposition of the cash in smaller instalments on account of reason of safety, out of the total cash of Rs. 6,50,26,000, cash of Rs. 4,16,31,500 stands deposited immediately on 3 consecutive days i.e. 16-11-2016, 17-11-2016 & 18-11-2016 which was collected by the bank employee from the appellant firm's premises. Thus, almost 64% of cash stands deposited immediately by the appellant firm.
7.13 ln Point 7.3(iv) on Pg. 9 of the assessment order, the AO has held that the appellant firm has made withdrawals of cash from the bank, which indicates that cash on hand to the extent claimed was not available with the ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 16- appellant firm. It is seen that the said withdrawals have been made by the 'E- Commerce Branch' of the appellant firm. It was submitted that the appellant firm's showroom is in the area of Ghod Dod Road, Surat whereas its E- Commerce Branch which packs and delivers the goods on the basis of online orders, is in the area of Ichhapore, Surat which is far off from the showroom. Therefore, when some petty cash is required by the E--Commerce Division for sending couriers, parcels etc., or for other payments such as advance wages / salary, small packing material etc., the same is withdrawn directly from the bank due to administrative convenience, instead of coming to the showroom to collect the cash. Therefore, the cash withdrawals primarily made by the E--Commerce Branch of the appellant firm which is located at a different area cannot lead to a conclusion that the cash on hand was not available with the appellant firm.
7.14 In Point 7.3(vi) & 7.3(vii) on Pg. 11 & 12 of the assessment order, the AO has held that there is no necessity of keeping huge cash balance and there is no reason or logic of the appellant keeping huge amount of cash instead of depositing the cash in the bank to earn interest. However, I find that cash on hand out of cash sales is a regular feature the appellant firm's business of retail sales of garments from year to year and is not only an abnormal feature in the current year as can be seen from the details given in the following table.
Detail of cash sales
Detail of cash in hand
Current
Earlier year Earlier year year Subsequent
Particulars A.Y. 15-16 A.Y. 16-17 AY, 17-18 year A.Y; 18-19
Cash Sales from 1st 33,59, 27,07,90,88
April to 31st December 37,28,78,705 18,900 2 39,28,77216
Particulars 31-3-2014 31-3-2015 3,1-3/42016 08-11-2016 31-3-2018
Cash on hand 73,64,591 78,31,563 1,40,92,171 6,45,59,583 40,28,181
showroom '.
Cash in safe deposit
vault
1,00,00,000 3,30,00,000 -- - 3,00,00,000
Total cash on hand
1,73,64,591 4,08,31,563 1,40,92,171 6,45,59,583 3,40,28,181
ITA No. 234/SRT/2025
DCIT Vs. KS Trading
Asst. Year : 2017-18
- 17-
7.15 Further, the AO in the last para on Pg. 10 of the assessment order has held that she is not considering the sales of the appellant firm as unexplained or unaccounted. Therefore, when the cash sales stands offered as income in the regular books of accounts of the appellant firm and the same is even accepted by the AO then bringing to tax the consequent cash deposited in the bank amounts to double taxation.
7.16 In the case of CIT vs. Vishai Exports Overseas Ltd. (Tax Appeal No. 2471, 2473, 2475 & 2476 of 2009) the AO had made addition u/s. 68 of the Act, by holding the sales made by the assessee were bogus. The aforesaid addition as made by the AO was deleted by the CIT(A), as well as the Tribunal. ln this regard, the jurisdictional Hon'ble High Court of Gujarat while upholding the order passed by the Tribunal, held that the Tribunal has rightly deleted the addition made by the AO, by observing that when the assessee had already offered sales realization and such income is accepted by the AO as the income of the assessee, addition of the same amount once again u/s. 68 of the Act, would tantamount to double taxation of the same income.
7.17 The Hon'ble ITAT, Ahmedabad, in the case of ITO vs, Sojitra Textiles Pvt. Ltd (ITA No 3125 & 3159/Ahd/2007) has held that when the amounts received by the assessee were already shown as Sales Income and excuse duty / VAT were paid on such sale the said amounts cannot be once again taxed u/s 68 of the Act The Hon'ble High Court of Delhi In the case of CIT vs Kailash Jewellery House (ITA 613/2010) has held that when the amount added by the AO was credited to the Sales A/c of the assessee and the same Is Included In the profits disclosed by the assessee In its return of income the said sales cannot be treated as undisclosed Income and no addition can be made once again in respect thereof.
7.18 In Para 5 on Pg. 2 &3 of the remand report,, the AO has pointed out some glaring important facts of the appellant's case and whereby he has given the following table. ' ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 18- 7.19 The AO has tried to emphasize that the appellant is paying huge interest to the bank and that the amount of loan taken by it from the bank has increased from Rs. 11,54,14,686 in the F.Y. 2015-16 to Rs. 19,23,28,786 in the F.Y. 2016-17 meaning that the appellant was in need to funds and hence, had taken more loan from the bank. Therefore, the AO has held that on one hand, the appellant is taking more loan from the bank, paying more interest and at the same time, keeping huge cash in hand which is neither earning nor saving any money. the AO has stated that in the year under consideration, the appellant has paid interest of Rs. 1,61,87,004 to the bank despite the fact that it was having opening cash of Rs. 1,40,92,171 and maximum cash in hand of Rs. 6,45,59,583 during a single day, during demonetisation period. The AO has held that had there being actual cash in hand of such huge amount then any prudent business entity would have deposited the same into the bank account and saved the cost of interest.
7.20 In response, the appellant submitted the following data of the total cash sales of the earlier 2 years, the current year and the subsequent year showing the following - Average cash sales per day, and. the No. of days of cash sales lying with the appellant as at the end of each of the year.
Details of cash sales and cash on hand.
ITA No. 234/SRT/2025DCIT Vs. KS Trading Asst. Year : 2017-18
- 19- 7.21 From the above data, the appellant has submitted that the cash on hand lying with the appellant as on 31-03-2015 was equivalent to the cash sale of 31 days, Similarly, the cash on hand lying with the appellant as on 31- 03- 2016 was equivalent to the cash sale of 12 days Further the cash on hand lying With the appellant as on 31-03-2017 (i.e. at the end of the current year) was equivalent to the cash sale of only 10 days and lastly, the cash on hand lying With the appellant as on 31-03-2018 (i.e. the subsequent year after demonetisation) was equivalent to the cash sale of 24 days Thus the cash on hand lying With the appellant as at the end of each of the above years (including the cash lying In the safe deposit vault) is equivalent to only a few days of cash sales Therefore considering the amount of cash in Isolation Is not a correct conclusion.
7.22 The appellant firm also submitted that In the said year the appellant firm had 4 brothers as Its partners and the appellant firm was running 3 different showrooms where some cash on hand was kept by each of the brother since there was an ongoing proposal of split in the family and ultimately, the other 3 brothers have even retired from the appellant firm in the F.Y. 2015-16.
7.23 In para 7.3 on Pg. 4 of the remand report, the AO has stated that the appellant has not furnished complete set of bills and as per its convenience has furnished only some of the sale bills. However, I find that there is no finding in the assessment order that the appellant had not furnished the sales bill during the assessment proceedings, inspite of the same being called for by the then AO. ln Para 7.3 on Pg 4 of the remand report, the AO has stated that the appellant vide its letter dated 15-07-2023, on its own has set a principle that nobody in a retail showroom issues a bill with the name and address of the customer and its mobile number, However, as discussed earlier, in practice, in the retail showroom of sale of garments, no person at the cash counter obtains the full name, verifiable address and PAN of the customer buying the garments in cash unless the bill amount exceeds Rs. 2 ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 20- lacs per bill. There is also no requirement under the Income Tax Act to maintain the name, address and PAN of the customers to whom retail sales are made, unless the individual bill amount exceeds Rs. 2 lacs and it is even an accepted fact by the AO in Para 7.8(c) on Pg. 23 of the assessment order that not a single cash sale bill in the case of the appellant is exceeding Rs. 2 lacs. ln Para 7.4 on Pg. 4 of the remand report, the AO has stated that the claim of the appellant that as per para 7.8(c) on Pg. 23 of the assessment order, the then AO has accepted that not a single sale bill is exceeding Rs. 2 lacs, is factually incorrect since the then AO has commented about most of the bills and not all the bills. Further in the remand report, the AO has held that on the contrary, the then AO has held that the appellant has raised most of the bills below Rs. 2 lacs for cash sales to conceal the identity of the customers. However, it is seen that during the course of assessment proceedings, the appellant has submitted its entire cash book before the then AO which is on record and from wherein it is clearly verifiable that none of the cash sales bill exceeds Rs 2 lacs Further even if It was the allegation of the AO that the appellant has raised most of its inv0ices below Rs 2 Iacs for cash sales to conceal the identity of the customers it is not proved by the AO The AO has not highlighted even a Single bill which was manipulated by the appellant to show it below Rs 2 lakhs 7.24 ln Para 17 on Pg 8 & 9 of the remand report the present AO has stated that the appellant has made one strange claim that certain cash was lying at safe deposit vault. lt is seen that the entry of Withdrawal of Rs 15,00,000 from the safe deposit vault in the month of April 2015 and May 2015 each is clearly reflected in the cash book submitted to the AO during the assessment proceedings and thus the said fact was before the AO during the assessment proceedings The appellant has duly submitted the ledger account of safe deposit vault from its audited books of accounts and has even submitted the cash book showing the cash withdrawal from the safe deposit vault. In the para 17.1 of the remand report, the AO has further stated that in the return of income for A.Y. 2015--16, the closing cash on hand was of Rs. 78,31,563 which would be the opening balance as on 01-04-2015, however, in the submission dated 15-07: 2023, the appellant is claiming opening cash balance as on 01- 04-2015 at Rs. 1,59,42,881 instead of Rs. 78,31,563.
A.Y.. 2016-17 (Earlier year) Detail of Month-wise Cash Sales & Cash Deposit from Apr. 15 to Dec. 15 ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 21- 7.25 From the above month-wise detail of cash, it is evident that the appellant has shown opening cash as on 01-04-2015 at Rs. 78,31,563 only and not at Rs. 1,59,42,881. The appellant submitted that in Point no. 5.2(iii)(a), on Pg, 30, due to apparent mistake, the appellant had stated that over and above the cash lying in the safe deposit vault, it had cash of Rs. 1,59,42,881 in its showroom, however, the said amount of cash is the opening balance as on 01-05-2015 instead of 01-04-2015 which has been mistakenly mentioned from the above table.
7.26 The AO in the remand report stated that there is no mention of safe deposit vault in the ROI. In this regard, the relevant extract of the cash and bank balance as forming part of the audit report of the appellant along with the breakup of the cash and the balance with the banks for the year ended 31-03-2015 and the earlier year ended 31-03-2024 shows that that the cash on hand as at the yearend lying at the showroom was Rs. 78,31,563 and the balances with the banks was a total amount of Rs. 5,05,48,582. On going through the breakup of the balances with the banks, it can be seen that cash of Rs. 3,30,00,000 has been lying in the safe deposit vault.
7.27 I am of the considered view that when the purchases were accepted, the and the respective sales including cash sales accepted, then addition u/s 68 of the Act cannot be made in respect of the amount which were found to be properly recorded into the books of accounts and no negative inference towards such transactions in the books of accounts were drawn by the A0. The AO has not recorded any adverse finding with regard to the various ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 22- details furnished by the appellant before him. The addition is made for the deposit of cash including SBN during demonetization period on the ground that there is no reason for assessee to hold such huge cash and that the cash deposit on account of cash sales are unaccounted. The amount of sales which includes the disputed cash deposited is already offered to tax by the appellant by reflecting the same in the trading / P&L Account which fact is not doubted by the AO and the AO has accepted the total sales offered by the appellant under the head Profits and Gains from Business or Profession. ln that case, if the cash deposits are added under section 68 of the Act, then it would result in taxing the impugned amount twice, once as a sales income and secondly as an addition under section 68 of the Act. in the case of CIT Vs Vishal Export Overseas Ltd [TA No. 2471 of 2009] the Hon'ble Gujarat High Court has held as udder: 5 The Tribunal however, upheld the deletion of Rs. 70 lakhs under section 68 of the Act observing that when the assessee had already offered sales realisation and such income is accepted by the Assessing Officer to be the income of the assessee, addition of the same amount once again under section 68 of the Act would tantamount to double-taxation of the same income. 6. Having heard learned counsel for the parties and having perused the documents on record, we are in agreement with the above view of the Tribunal."
7.28 In the case of DCIT Vs Kundan Jewellers Pvt Ltd [ITA No. 1035/Mum/2022] dated 29.05.2023 it was held as under:--
"4. The CIT(A) has considered the details of sales, the stock register and the turnover is consistently maintained. The assessee has submitted the details of cash sales/receipts and party wise details of sales above Rs.2 lakhs and when a query was raised to Ld.AR on submissions of details were the cash sales are below Rs.2 Lakhs, The Ld.AR mentioned that the assessee has submitted details of sales below Rs2 lakhs and highlighted rule 114B of the l T Rules r.w,s139(a)(5)(c) of the Act and there was no KYC required. Further the Ld.AR demonstrated the sample Tax Invoice below Rs.2 lakhs in the demonetization period and the invoice contains, name and address etc. Further there is no significant increase in the cash sales out of total sales, whereas for F.Y.2016-17 it is @ 31.27% and in comparison to F.Y. 2015-16 @ 31.44%, the Ld.AR referred to the cash flow statement, cash book and demonstrated the details of deposits made out of the cash sales and the assessee has been consistently maintaining the stock of Rs.68.07 crs for the F.Y 2015-16 and for F.Y 2016-17 it was maintained at Rs.65.38crs and the cash sales are part of the stocks maintained which is not disputed. Further the addition has been made only on the basis that after demonetization, the ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 23- demonetized notes could not have been accepted as valid tender. Since the cash sales proceeds/receipts received from 11 the customers are reflected in the Audited Profit & Loss account as income and if the cash deposits are added under section 68 of the Act that will amount to double taxation once as sales and again as unexplained cash credit which is against the principles of taxation. The AO has not pointed out any specific adversity but made a generalize addition without considering the factual aspects and primary evidences. The A.O has failed to make further enquiries on the information tiled and the assessee has discharged the initial burden placed by submitting the information and details. We find the CIT(A) has dealt on the facts, provisions of law, notes and judicial decisions. The Ld. DR could not controvert the findings of the CIT(A) with any new cogent material or information on the disputed issues to take different view. We considered the facts, circumstances, submissions and ratio of judicial decisions as discussed above are of the view that the CIT(A) has passed a reasoned and conclusive order. According/y, we do not find any infirmity in the order of the CIT(A) and uphold the same and dismiss the grounds of appeal of the revenue."
7.29 In view of the above facts and discussion, I am of the considered view that the addition of Rs 5,09,33,829 as unaccounted and unexplained cash is not sustainable and is directed to be deleted. The appeal on Ground No 2 and 3 are thus treated as allowed."
5. We have carefully considered the rival submissions and perused the material available on record, including the detailed findings recorded by the Ld. CIT(A). The Ld. CIT(A) has given extensive and reasoned findings on both issues, i.e. rejection of books u/s 145 of the Act and addition u/s 68 in respect of cash deposits during demonetisation. The Ld. CIT(A) has examined the remand report in detail and addressed each objection raised by the Assessing Officer with cogent reasoning. The Revenue has not brought on record any material to controvert the factual findings recorded by the Ld. CIT(A). In view of the detailed factual findings recorded by the Ld. CIT(A) that (i) no specific defect in the books of account was pointed out by the Assessing Officer, (ii) purchases, stock records, VAT returns and sales were accepted, (iii) gross profit and net profit ratios were consistent ITA No. 234/SRT/2025 DCIT Vs. KS Trading Asst. Year : 2017-18
- 24- with earlier years, (iv) cash deposits were duly recorded in the regular books and
(v) the addition u/s 68 in respect of accepted sales would result in double taxation as held in the case of CIT v. Vishal Export Overseas Ltd. (supra), we find no infirmity in the order of the Ld. CIT(A) deleting the rejection of books u/s 145 of the Act and the addition of Rs. 5,09,33,829/-. Accordingly, the grounds raised by the Revenue are dismissed.
6. In the result, the appeal of the Revenue is dismissed.
The order is pronounced in the open Court on 27.03.2026 Sd/- Sd/-
(SUCHITRA KAMBLE) (DR. B.R.R. KUMAR)
JUDICIAL MEMBER VICE-PRESIDENT
Ahmedabad; Dated 27/03/2026
btk
आदे श की ितिलिप अ ेि षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. थ / The Respondent.
3. सं बंिधत आयकर आयु / Concerned CIT
4. आयकर आयु (अपील)/ The CIT(A)-
5. िवभागीय ितिनिध,आयकर अपीलीय अिधकरण ,/DR,ITAT, Surat,
6. गाड फाईल /Guard file.
आदे श ानुस ार/ BY ORDER, TRUE COPY सहायक पंज ीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण ITAT, Surat
1. Date of dictation ........16.02.2026.........
2. Date on which the typed draft is placed before the Dictating Member ... ...16.02.2026/23.03.2026......
3. Other Member..........24.03.2026
4. Date on which the approved draft comes to the Sr.P.S./P.S .... ....25.03.2026.............
5. Date on which the fair order is placed before the Dictating Member for pronouncement .........27.03.2026...
6. Date on which the fair order comes back to the Sr.P.S./P.S .........27.03.2026..................
7. Date on which the file goes to the Bench Clerk ........27.03.2026.........
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order Date of Dispatch of the Order