AO’s Rejection of Grocery Cash Claim Invalid: ITAT Rules No Valid Reason, Orders Deletion of ₹10.09 Lakh Addition [Read Order]

In a recent ruling, the Pune Bench of the Income Tax Appellate Tribunal (SMC) has struck down a ₹10.09‑lakh addition made to a grocery trader’s income, holding that the Assessing Officer (AO) had no valid reason to reject the assessee’s explanation that the cash deposits represented business receipts.

The appellant, Somnath Kannure, proprietor of Veerbhadreshwar Kirana Stores, had filed his return of income on 7/11/2017, declaring turnover from his grocery business in Solapur. The reassessment proceedings were initiated through a notice under Section 148 dated 28 July 2022, approved by the Principal Commissioner ofIncome Tax–4, Pune.

Appearing for the assessee, Deepak Gadgil submitted that notice under section 148 dated 28/07/2022 and order under section 148A(d) dated 28/07/2022 have been approved by Principal Commissioner of Income Tax for AY 2017-18, so it is bad in law.

On the other hand, the Department, represented by Shri Sandeep Sathe (DR), supported the orders of the Assessing Officer and the CIT(A) but did not produce any contrary authority.

After hearing both sides, the tribunal observed that the notice under Section 148 and the order under Section 148A(d) were both issued on 28 July 2022—well beyond three years from the end of AY 2017–18. The approval was obtained from the Principal Commissioner instead of the Principal Chief Commissioner, contrary to Section 151(ii).

The tribunal observed Ramesh Bachulal Mehta v. ITO (Bombay HC), Core Logistic Co v. ACIT (Madras HC), and Alag Property Construction Pvt. Ltd. (Bombay HC)

The bench, Vinay Bhamore (judicial member), Dipak P.Ripote (accountant member ), observed that the assessee had explained the alleged cash deposits of ₹10,09,700 as part of his Kirana business turnover of ₹93.71 lakh, supported by his return of income.

The Assessing Officer had accepted that the assessee was running a grocery shop, but failed to rebut the explanation. The Bench accepted the contention that cash receipts are common in rural retail trade and found no justification for the addition.

The tribunal noted that “In these facts and circumstances of the case, we are of the opinion that there was no valid reason before the AO to reject the claim of the assessee that cash of Rs.10,09,700/- belongs to the business of the assessee. Hence even on merit, we direct the AO to delete the impugned addition.”

Accordingly, the Appeal filed by the Assessee was allowed.

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