Sales of two incomparable years cannot be compared. ITAT directed addition to be deleted after verification
In a recent judgment, ITAT Delhi held that sales of two incomparable years cannot be compared to treat the increase in sale as unexplained money the basis that sales recorded by the assessee was comparatively less during previous assessment year.
ABCAUS Case Law Citation:
4539 (2025) (04) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A), National Faceless Appeal Centre in confirming addition under section 69A of the Income Tax Act, 1961 (the Act) made by Assessing Officer (AO) on account of cash deposit in bank account.
The appellant assessee was engaged in the trading of fabrics under a Proprietorship firm. The case of the assessee was selected for scrutiny under CASS specifically for the issue that assessee had deposited large value of cash during demonetization period.
Accordingly, notices u/s 143(2) & 142(1) were issued and served on the assessee directing the assessee to file relevant information. In response, assessee submitted the relevant information.
During assessment proceedings, AO observed that the assessee had deposited large amount of cash during demonetization period i.e. 08.11.2016 to 31.12.2017 in his Current Account in the bank in the name of firm.
The assessee submitted that it generated cash sales during the year and also received cash from its retail customers and any retail customers deposited cash more than Rs.2 lakhs, the assessee submitted that it deducted the TCS and deposited the same. Further, the assessee submitted a comparative month-wise sale made by the firm from April 2016 to 08.11.2017.
The AO, upon analyzing the comparative statement submitted by the assessee, observed that during the pre-demonetization period, assessee has deposited much less cash in banks as cash sales and during demonetization period, assessee has deposited approx. three time more cash i.e. sales of October 2016 and November sales upto 08.11.2017.
With the above information, a show-cause notice was issued to the assessee to explain the transactions and in response for justification of the sales.
The assessee submitted that he started the firm in F.Y. 2015-16 only and therefore the sale was less. Further the assessee firm was appointed one of two distributors for Delhi for some popular brands of fabrics and almost 95 of the sale pertains to their products only.
The AO rejected the submission and made addition of excess cash deposited as unexplained money. Aggrieved with the above order, assessee preferred an appeal before the CIT (A) which was rejected.
Before the Tribunal the assessee submitted that the cash sales recorded by the assessee was only 5% of the total sales. It was submitted that assessee during the current FY, assessee was appointed by two distributors for Delhi and almost 95% of the sales pertained to their products. The reason for vast difference in sales figures with respect to the preceding previous year was due to the fact that in FY 2015-16, the business of the firm had barely started whereas in FY 2016-17, the business had established and got the distributorship of a major player in the market.
It was submitted that during October and November being the festive season, it was a particular reason for increase in cash sales. He submitted that the above factual issues were submitted before the CIT (A) and CIT(A) rejected the same. He prayed that assessee had deposited during demonetization period the cash sales recorded by the assessee out of festival season.
The Tribunal observed that AO was of the view that assessee had registered sales only during demonetization period whereas the fact on record disclosed differently. Assessee had recorded cash sales more than previous year due to increase of its business during current assessment year due to its being appointed as distributorship of two sales houses. The sales had increased mainly during October 2016 and November 2016. It was fact on record that assessee had recorded cash sales even after 08.11.2016.
The Tribunal opined that it was a fact on record that assessee’s business had increased compared to previous assessment year and also assessee had recorded cash sales even after 08.11.2016 and assessee had recorded huge cash sales during October and November correspondingly even credit sales had increased manifold during October to January. The facts clearly showed that assessee had source for cash deposits made during the pre-demonetization and also subsequently.
The Tribunal opined that AO proceeded to make the addition merely on the basis of sales recorded by the assessee comparatively less during previous assessment year and he has completely overlooked the fact that assessee had sales of cash of selling the fabric during festival season mainly in October and November.
The Tribunal opined that the details of two incomparable years cannot be compared as the fact was not denied that the assessee had recorded huge cash sales and credit sales during the festival season and the sales recorded during the current assessment year cannot be compared with previous assessment year due to increase of business recorded only during the current assessment year.
Therefore, the Tribunal held that assessee had a source of cash deposits. Hence, the addition made by the AO was not justified.
Accordingly, the Tribunal directed the assessee to submit a quantity-wise details of opening purchases and sales recorded of credit as well as cash sales during the year matching with the closing tock declared in the financial statement. The AO was directed to verify the same and if the quantity details are properly recorded in the financials statement, the additions proposed by him should be deleted.
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