Huge Cash Sale in a Particular Month cannot be a reason for treating it as Undisclosed Income: ITAT [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that merely having a huge cash sale in a particular month cannot be a valid reason to treat such receipts as undisclosed income.

The appeal was filed by Cumin Infotech Private Limited, New Delhi, challenging the order of the Commissioner of Income Tax (Appeals)-NFAC, Delhi, which upheld an addition of ₹24,06,635 made by the Assessing Officer (AO) under Section 68 of the IncomeTax Act, 1961, treating cash deposits as unexplained money for the Assessment Year 2017–18.

The assessee, engaged in information technology-related activities, had filed its return of income declaring nil income. The AO, during scrutiny assessment under Section 143(3), treated part of the cash deposits amounting to ₹24,06,635 out of ₹33 lakh as unexplained money. The explanation furnished by the assessee that the deposits represented sales proceeds from October 2016 to March 2017 was rejected by the AO without assigning specific reasons.

On appeal, the CIT(A) sustained the addition and, notably, altered the section from 68 to 69A of the Income Tax Act.

Shri Naman Gupta, Chartered Accountant, appeared for the assessee, contending that the AO neither doubted the audited books of account nor pointed out any defects in purchases, sales, opening stock, or cash balance. He argued that the books had not been rejected, and thus, the addition was baseless. He further submitted that the CIT(A) had no authority to change the applicable section from 68 to 69A, citing the Delhi ITAT ruling in Toffee Agricultural Farms Pvt. Ltd. v. ITO.

The assessee relied on multiple precedents including PCIT v. Akshit Kumar [2020], ACIT v. Ram Lal Jewellers Pvt. Ltd. [2023] , Mahesh Kumar Gupta v. ACIT [2007] , and Gopal Jaiswal v. ITO [2023].

The Departmental Representative, Shri Sanjay Kumar, Sr. DR, supported the orders of the lower authorities.

Judicial Member Shri Challa Nagendra Prasad observed that the Assessing Officer had not recorded any finding disputing the purchases, sales, or cash in hand, nor pointed out any defect in the books of account. The AO had also failed to explain why the assessee’s explanation that deposits were from sales proceeds was rejected.

The Tribunal referred to the Mumbai ITAT’s decision in ACIT v. Ram Lal Jewellers Pvt. Ltd., which held that a higher cash-sale ratio during the demonetisation period could not, by itself, justify an addition for unexplained income if the transactions were duly recorded in the books.

Applying the same principle, the Bench held that “simply because there was a huge cash sale in a particular month cannot be a reason for treating it as an undisclosed income from undisclosed sources.”

Accordingly, the ITAT directed deletion of the ₹24,06,635 addition made under Section 68/69A, allowing the appeal in favour of the assessee.

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