Cash deposits can be treated as legitimate business income if adequately explained and if no defects in accounting are found, rather than being taxed under deemed income provisions.

ORDER

PER SATBEER SINGH GODARA, JM This assessee’s appeal for assessment year 2017-18, arises against the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [in short, the “CIT(A)/NFAC”], Delhi’s DIN and order no. ITBA/NFAC/S/250/2023-24/1060281087(1), dated 30.1.2024 involving proceedings under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).

2. Case called twice. None appears at the assessee’s/respondent’s side. He seems to have not appeared on the earlier hearings as well. We make it clear that today is the eight hearing in the Revenue’s instant appeal. We accordingly proceeded ex-parte against the assessee.

3. It next transpires during the course of hearing that the Revenue/appellant is aggrieved against the CIT(A)/NFAC’s detailed discussion reversing the Assessing Officer’s assessment findings treating the assessee’s/respondent’s cash deposits during demonetization amounting to Rs.5,89,13,065/- as unexplained under section 68 r.w.s. 115BBE of the Act in assessment order dated 18.12.2019 as under:

“1. We have heard the rival parties and have gone through the material placed on record. We find the pertinent question to be decided by us is as to whether the surrendered amount can be taxable u/s 115BBE read with section 69A of the Act or it was to be taxed as a regular business receipt. To decide the issue, it is important first to visit the statement of the Director of the assessee which was recorded during the course of survey. We have particularly gone through answer to question No. 35 wherein the Director of the assessee has clearly stated that the figures noted in the diary represented sales unrecorded in the books of account and these figures related to the period April 2015 to August 2015. For the sake of completeness, question No. 35 and its answer are reproduced below:

1. 1 find that the above answer to question, put up by the search authorities, clearly states that the amount, recorded in the diary represented unrecorded sales and after that the search authorities did not put any question to the assessee regarding explanation of these sales recorded in the diary. In the assessment order also, we find that the Assessing Officer did not raise any further query regarding unrecorded sales and therefore, he did not doubt the sales and therefore, accept the same. If he was not satisfied with the explanation of assessee regarding unrecorded sales, he should have recorded his dissatisfaction regarding the explanation of assessee. He did not record any such dissatisfaction and neither any further clarification sought from the assessee. He did not allow any set off against such unrecorded sales and rejected the contention of the assessee by simply saying that the assessee had recorded unreasonable higher expenditure to set off the surrendered amount. In this respect, it is important to reproduce the findings of the Assessing Officer, which are as under “So, it is clear that the assessee has retracted his and not filed its income correctly. Assessee has done so by making false and incorrect entries in its books of account by first including income figure of Rs. 1,51,00,000/- and then claiming bogus expenses for the same. The assessee company has done this by claiming unreasonably high expenditures under the head freight, advertisement, travelling expenses and manure processing charges totaling Rs. 1,48,88,937/- (77, 19, 030 + 23, 46, 436 + 36, 20, 125) but it could not produce any supporting evidence to substantiate its claim.” The learned CIT(A) also mistook the surrendered sales as undisclosed income of the assessee and confirmed the addition. However, he deleted th