Entire Sales Receipts Can’t Be Treated as Unexplained Income: ITAT Restricts Rs. 11.52 Crore Addition on Cash Deposits

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has granted significant relief to an assessee by holding that once sales have been accepted by the Assessing Officer (AO), the corresponding cash receipts deposited in bank accounts cannot automatically be treated as unexplained cash credits and restricted the addition by directing application of a reasonable Gross Profit (GP) rate instead of sustaining the entire addition of ₹11.52 crore. The bench of Yogesh Kumar U.S. (Judicial Member) and Manish Agarwal (Accountant Member) has observed that the department had not identified any defects in these documents. It held that the AO had merely relied upon the assessee's inability to explain the minute operational aspects of the business during statements recorded several years after the transactions took place. The dispute related to Assessment Year (AY) 2011–12 where the assessee, Jasbir Singh, had filed his income tax return declaring income of ₹1.59 lakh. Subsequently, the department obtained information indicating substantial cash deposits in two bank accounts — cash deposits of ₹9.11 crore in an Axis Bank account and ₹2.41 crore in an IndusInd Bank account. Since the deposits appeared disproportionate to the income disclosed in the return, reassessment proceedings were initiated under Section 148 of the Income Tax Act. The AO ultimately treated the aggregate cash deposits of ₹11.52 crore as unexplained cash credits under Section 68 and added the same to taxable income. The assessee challenged the addition and argued that during the relevant year he had commenced a new business activity involving import of mobile phones from China and their sale in the domestic market through wholesale and retail channels. According to the assessee, cash sales generated cash receipts which were subsequently deposited into the bank accounts. He submitted documentary evidence including import invoices, bills of entry, shipping documents, sales invoices and Import Export Code (IEC) registration certificates to substantiate the business transactions. The assessee also relied on audited financial statements reflecting turnover exceeding ₹15.76 crore, while explaining that despite high turnover the business had suffered losses, resulting in a very small disclosed income. The department disputed the genuineness of the explanation. The Department argued that during statements recorded by tax authorities, the assessee had failed to explain the operational details and business model relating to the alleged mobile trading activity. The Department contended that the business story was merely an afterthought and suggested that another unidentified person may have actually carried on the activity in the assessee’s name, with the cash belonging to such person. The Tribunal noted that the assessee had placed extensive documentation relating to imports and sales before the authorities. It observed that the assessee had obtained an IEC certificate, imported mobile phones from China through proper channels, and maintained supporting records including invoices, shipping details and inventory summaries. Importantly, audited accounts and tax audit reports had also been produced and were never rejected by the AO. The Tribunal noted that the business activity had been conducted in 2011, whereas the statement was recorded in 2018, and the assessee had already closed the business after suffering losses. Therefore, the inability to recall business details could not by itself justify rejection of the business explanation. The Tribunal has held that the Assessing Officer had accepted the turnover disclosed by the assessee and had not invoked Section 145(3) of the Act for rejection of books of accounts. The Bench stated that once sales are accepted, the corresponding sale proceeds deposited in bank accounts cannot simultaneously be characterized as unexplained cash. At most, the issue could relate to possible suppression of profits rather than complete non-genuineness of receipts. The ITAT held that taxing the entire amount of cash deposits would be unjustified. The Tribunal observed that the assessee had disclosed a GP rate of 0.70% on turnover of ₹15.76 crore and determined that a GP rate of 1% would be fair and reasonable to cover any possible revenue leakage. Consequently, the addition of ₹11.52 crore was substantially reduced and the balance addition was deleted. Case Details Case Title: Jasbir Singh Versus ITO Citation: JURISHOUR-1385-ITA-2026(DEL) Case No.: ITA No.4929/Del/2024 Date: 22.05.2026 Counsel For Appellant: Gunjan Jain, CA Counsel For Respondent: Dayainder Singh Sidhu, CIT DR Click Here To Read Order Read More: ITAT Remands Mitsui Prime Transfer Pricing Dispute Back to AO, Flags Double Addition and Comparable Selection Issues

Entire Sales Receipts Can’t Be Treated as Unexplained Income: ITAT Restricts Rs. 11.52 Crore Addition on Cash Deposits

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