Unexplained Moneys / Cash Credits: Sections 68 or 69A Cannot Be Invoked When Source Declared in Books
Issue:
Whether the Assessing Officer (AO) or Commissioner (Appeals) can invoke the provisions of Section 68 (Cash Credit) or Section 69A (Unexplained Moneys) of the Income-tax Act, 1961, for cash deposits made during the assessment year 2017-18, if the assessee has already declared the source for these cash deposits in their books of account.
Facts:
For the assessment year 2017-18 (the year of demonetization), the case involved cash deposits made by the assessee. The core contention was that the assessee had already declared the source for these cash deposits in their books of account. The question before the court was whether, in such a scenario, the tax authorities could still make additions under Section 68 or 69A.
Decision:
Yes, the court held that the Assessing Officer/Commissioner (Appeals) cannot invoke the provisions of Section 68 or 69A when the assessee has already declared the source for cash deposits in the books of account. The decision was in favor of the assessee.
Key Takeaways:
- Fundamental Condition for Section 68: Section 68 specifically states, “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…”1 The crucial prerequisite for Section 68 is that the sum is found credited in the books and the explanation is unsatisfactory. If the source is declared and recorded in the books, the initial explanation is provided.
- Fundamental Condition for Section 69A: Section 69A deals with situations where the assessee is found to be the owner of any money, bullion, jewelry, etc., and such money is not recorded in the books of account. If the cash deposits (money) are recorded in the books, Section 69A does not apply.
- Books of Account as Primary Evidence: The existence and proper maintenance of books of account, where transactions including cash deposits and their sources are duly recorded, are critical. If the source is declared and explained within the books, the onus shifts significantly to the AO to prove that the entries are false or that the explanation is not genuine, rather than invoking deeming provisions.
- Distinction between “Not Explained” and “Explanation Not Accepted”: While the AO can reject an explanation if it’s unsatisfactory, the starting point for Sections 68/69A is generally the absence or unsatisfactory nature of an explanation. If the source is clearly declared in the books, the AO must specifically challenge the genuineness or truthfulness of that declared source.
- Favor of Assessee: This decision provides significant protection to taxpayers who maintain proper books of account. It implies that a cash deposit recorded in the books, with its source declared, cannot be automatically added as unexplained income under these deeming provisions, thereby upholding the sanctity of properly maintained accounts.
IN THE ITAT DELHI BENCH ‘E’
Mohit Sukhija
v.
NFA
Ms. Madhumita Roy, Judicial Member
and Manish Agarwal, Accountant Member
and Manish Agarwal, Accountant Member
IT Appeal No. 4661 (Delhi) OF 2024
[Assessment year 2017-18]
[Assessment year 2017-18]
MAY 30, 2025
Anil Chopra, CA for the Appellant. Virender Kumar Singh, Sr. DR for the Respondent.
ORDER
Manish Agarwal, Accountant Member. – This is an appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, New Delhi [“Ld. CIT(A)”], dated 29.08.2023 in Appeal No. NFAC/2016-17/10164171 passed u/s 250 of the Income Tax Act, 1961 (the Act, in short) for Assessment Year 2017-18.
2. This appeal filed by the assessee is delayed by 343 days. For the delay, assessee filed an application for condonation of delay wherein it is stated that assessee was out of country when the order of Commissioner of Income Tax (Appeal) was passed and served through e-filing portal. Therefore, he was not aware about the order of ld. CIT(A) and the appeal could not be filed in time. He also filed the copy of the passport having Visa and details of travelling outside India, in support of the claim that he was out of India during the period when the order was served upon him. He further stated that as soon he returned to India and came to know about the order of ld. CIT (A), immediately he filed the appeal and therefore, prayed for the condonation of delay in filing the appeal.
3. After considering the application filed by the assessee and the reason stated therein, we find that the assessee has sufficient cause for delay in filing the appeal and therefore, the delay is condoned and appeal is admitted for adjudication.
4. Brief facts of the case are that the assessee is an individual and e-filed his return of income on 24.08.2017 declaring total income at Rs.3,18,960/-. The said return was revised on 29.12.2017 wherein the total income was revised at Rs.3,18,750/-. The AO had information that the assessee has deposited cash of INR 10,45,500/- in Specified Bank Notes (SBN) in the bank account No.2010004597420 maintained with INDUSIND Bank during the demonetization period and therefore, the case was reopened and notice u/s.148 of the Act was issued however, the assessee did not file return of income. Thereafter, various notices u/s.142(1) of the I.T. Act, 1961 were issued to the assessee on 15.11.2021, 24.12.2021 & 07.02.2022. In response, the assessee filed computation of income, details of cash deposits during the demonetization period and bank statement of IndusInd Bank vide Account No.2010004597420 according to which the assessee has deposited SBN of Rs.14,92,500/- and not of Rs.10,45,500/-, during the demonetization period. After having considered the submissions made by the assessee, the ld. AO passed the assessment order u/s. 144 rws 147 rws 144B of the Act dated 29.03.2022, determining the total income of the assessee at Rs. 18,11,250/- by making addition of Rs.14,92,500/- u/s. 69A towards unexplained money being cash deposited during demonetization period in SBN.
5. Against the said order, assessee preferred appeal before the ld. CIT(A) who vide impugned order, has dismissed the appeal of the assessee.
6. Aggrieved by the said order of ld. CIT(A), assessee filed present appeal before the Tribunal on the strength of following grounds of appeal:
| 1. | That Ld. CIT(A) has erred in not considering the documents produced in the proceedings of the case and in passing biased with preset mind ignoring the facts and circumstances of the case. |
| 2. | That Ld. CIT(A) had erred in sustaining addition under section 69A of Income Tax Act, 1961 amounting Rs. 14,92,500 even after the nature and sources of cash deposit was made known and duly explained. |
| 3. | That Ld. CIT(A) had erred in sustaining the demand of AO asking for books and accounts knowing the fact that Income Tax Return for the said period had been filed under section 44AD of Income Tax Act, 1961 and book s are not maintained. |
| 4. | That appellant has not got opportunity of being heard in the course of assessment proceedings for the sake of natural justice. |
| 5. | That the appellant craves to leave to add, alter, modify, amend or delete any of the ground of appeal of hearing and all above grounds are without prejudice to each other |
7. All the affective ground of appeal are related to the addition of Rs. 14,92,500/- made u/s 69A by treating the cash deposited during demonetization period in SBN as unexplained u/s 69A of the Act.
8. Before us, the Ld. AR of the assessee submitted that during the year under appeal, assessee was trading in spices on retail basis under the name of style as M/s Ambey Bhawani Associate Co. The said firm is registered with VAT authorities and having TIN. The assessee has filed his return of income u/s 44AD on presumptive basis where the total income was declared at Rs. 4,14,024/- on total turnover of Rs. 49,03,470/- comprising of cash sales of Rs.30,25,930/- and through banking system at Rs. 18,77,540/-. Ld. AR submitted that out of the cash sales, assessee has deposited SBN during the demonetization period. He further submitted that while dismissing the appeal of the assessee, ld. CIT(A) has observed that total cash sales declared by the assessee in the return was of Rs. 12,05,300/- which is incorrect fact. As stated above, assessee had made cash sales of Rs 30,25,930/- which is evident from the copy of the ITR filed, available in the paper book, wherein at page 4 of the paper book, under the title “Details of income from business or profession” the figure of cash sales at Rs.30,25,930/- is stated. Ld. AR further submitted that the AO has not doubted the sales declared thus, the cash deposit out of such cash sales could not be held as unexplained investment. Ld. AR argued that when sales have already been offered for tax, the cash generated out of such sales could not be doubted and if cash deposits out of such cash sales is taxed, it would tantamount to double taxation. He also filed a written submission which is as under:
This case is related to cash deposited during demonetisation period amounting Rs. 14,92,500 where appellant filed return of Income U/s 44AD and AO made additions U/s 69A of Income Tax Act. Cash was deposited in the current bank account in the name of firm M/s Ambey Bhawani Associate Co. in Indusind Bank out of trading receipts during the year. The firm is registered with VAT number 0627105065 at add Plot No. 160 Sector-2 Food Park Ambala Haryana.
The order passed by ld. AO is bound to be quashed as in the course of assessment proceedings Ld. AO failed to appreciate the fact that appellant had filed return of income for the period U/s 44AD of Income Tax and went on asking balance Sheet Profit & Loss Account Cash Book etc. from the appellant. Ld AO went on making additions U/s 69A of income tax Act while passing ex-parte order U/s 144. Making ‘addition of Rs. 14,92,500 the whole of the amount deposited in bank during monetization period. There are various judgments from which assessee finds favour in case of CIT v. Surinder Pal Anand Haryana High Court in which it was held that the assessee is not obliged to explain each and every entry unless such entry has no nexus with the business.
The order passed by Ld AO is bound to be quashed when he without reasonable cause failed to appreciate the fact that the appellant is trading in spices and most of the business is happening in cash. The turnover of Rs. 49 lacs is not in dispute of which Rs. 30,25,930 were reported as cash sales in return of income for the period is also not in dispute. Ld AO asked for cash deposited prior to demonetization period in reply a chart was given which show cash deposited from 18/10/2016 to 29/10/2016 was Rs. 4,28,500page no 12 of written submissions. Similarly after demonetization period from 15l Jan 2017 to 31 Jan 2017 the cash deposited is on 7th Jan. Rs. 78,000, 30th Jan. 2017 Rs. 1,46,000 and on 31st Jan. 2017 Rs. 1,52,000 aggregating Rs. 3,76,000. In the preceding year also the turnover is reflected as Rs. 56 lacs. From the business. In the course of proceedings the appellant also furnished VAT return. However Id AO went on making additions of whole of amount deposited in the bank during demonetization. Supreme Court in case of Lakhmichand Baijnath v. CIT clearly held ” When an amount is credited in business books it is not an unreasonable inference to draw that it is a receipt from business. The view was upheld by ITAT Cochin Bench in case of Balakrishna Reddar and Sons VITO for cash entries appearing in the bank statement of the appellant.
9. In view of the above submission, it is prayed by ld. AR that the addition made on account of cash deposit in SBN deserves to be deleted.
10. Per contra, ld. Sr. DR vehemently supported the order of lower authorities and stated that assessee has made cash deposit during demonetization in SBN with Indusind bank and claimed the said was made out of cash sales without any evidence to support the claim. It is submitted by ld. Sr. DR that the AO has made threadbare analysis of the cash deposited into bank and sales made by the assessee during the year under appeal. He further submitted that the assessee has not filed any details before the AO or before ld. CIT(A) with regard to the purchases etc. thus, the cash sales is not established by the assessee. He thus prayed for the confirmation of the additions made by the lower authorities.
11. We have heard the rival submissions and perused the materials available on record. In the instant case, the assessee has declared income on presumptive basis where he has declared total sales of Rs. 49,03,470/- which includes cash sales of Rs. 30,25,930/-. It is also seen that the assessee had filed VAT returns where the turnover is duly matched with the turnover declared by the assessee in ITR. Further, the VAT returns were accepted by the VAT authorities who are independent government agency and found no error in the VAT returns filed by the assessee. Assessee has deposited cash during the demonetization out of the cash available 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. As observed above, assessee has already included the entire cash sales in the total sales and the profits have been derived which was 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. Thus, the source of cash deposited as out of the cash sales should not be doubted without bringing on record any contrary material.
12. The Co-ordinate Bench of Mumbai, ITAT in the case of ACIT v. Ramlal Jewellers (P.) Ltd under similar circumstances, deleted the addition made u/s 68 on account of cash deposit in SBN during the demonetization into bank by making following observations:
“Section 68 of the Income-tax Act, 1961- Cash credit(Cash deposit in bank)- Assessment year 2016-17- Assessee-company was engaged in jewellery business – During assessment proceedings, Assessing Officer noted that immediately after demonetization assessee had shown inflated cash sales and also made deposits in bank account which was completely abnormal as compared to earlier year and also subsequent year – He, therefore, taxed cash deposits under section 68 – It was seen that assessee had maintained regular books of account which was subject to audit and had produced entire sale bills, stock register and purchases and also quantitative tally of sales and corresponding stock – Addition undersection 68 on account of cash deposits could not be made simply on reason that during demonetization period, cash deposits vis-a-vis cash sales ratio was higher – Whether once, it had been established that sales representing outflow of stocks was duly accounted in books of account and there was no abnormal profit during year, then there was no justification to treat deposits made in bank account out of cash sales to be income from undisclosed sources – Held, yes Whether, therefore addition made under section 68 was to be deleted -Held, yes [Para 14] [In favour of assessee]”
13. The Hon’ble Delhi High court in the case of CIT v. Kailash Jewellery House [IT Appeal No. 613 of 2010, dated 9-4-2010] 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 in respect of the same. The Hon’ble High Court dismissed the appeal filed by the Department.
14. The Co-ordinate Bench of ITAT, Delhi in the case of S. Balaji Mech-Tech Private Ltd v. ITO (Delhi – Trib.)/ITA No. 556/Del/2024 vide order dated 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 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.”
15. Further, in the case of Fine Gujaranwala Jewellers v. ITO[2023] 40 (Delhi – Trib.)/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 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.
23. 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.
24. In the result, appeal filed by the assessee is allowed.
16. Further reliance in this regard is being placed on the Judgment of ITAT, Visakhapatnam in the case of Asstt. CIT v. Hirapanna JewellersITD 608 (Visakhapatnam – Trib.)/2021 (5) TMI 447 , dated: 12-5-2021 held as under:-
“9. In view of the foregoing discussion and taking into consideration of all the facts and the circumstances of the case, we have no hesitation to hold that the cash receipts represent the sales which the assessee has rightly offered for taxation. We have gone through the trading account and find that there was sufficient stock to the sales and we do not find any defect in ccoun effect the stock as well as the sales. Since, the assessee has already admitted the sales as revenue receipt, there is no case for making the addition u/s 68 or tax the same u/s 115BBE again. This view is also supported by the decision of Hon’ble Delhi High Court in the case of Kailash Jewellery House (supra) and the Hon’ble Gujarat High Court in the case of Vishel Exports Overseas Ltd. (supra), Hence, we do not see any reason to interfere with the order of the Ld. CIT(A) and the same is upheld.”
17. In view of the above discussion and facts of the case and further by respectfully following the ratio laid down Hon’ble High Court and various Benches of ITAT in above stated cases, we hereby delete the addition of Rs. 14,92,500/- made u/s 69A of the Act towards cash deposited in the bank account during demonetization period. All the grounds taken by the assessee are allowed.
18. In the result, the appeal of the assessee is allowed.