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Priya Enterprise Vs ITO (ITAT Surat)
Cash Deposits and Sundry Creditors Explained in Books – Additions Deleted in Absence of Rejection of Accounts
The Surat Bench of the ITAT allowed the assessee’s appeal and deleted additions relating to unexplained cash deposits and sundry creditors. The Tribunal held that the cash deposits in the bank were duly explained with reference to partners’ capital, creditors, and earlier withdrawals, all of which were recorded in the audited books of account. As the Revenue neither found these explanations to be false nor rejected the books of account, the addition could not be sustained.
With respect to sundry creditors, the Tribunal observed that the assessee had furnished complete details of creditors along with evidence of subsequent repayments. The addition was made merely on the presumption that sundry creditors constituted a high percentage of total purchases, without bringing any adverse material on record. Once purchases were accepted and the identity and genuineness of creditors were not disproved, corresponding trade creditors could not be treated as unexplained. Accordingly, all additions confirmed by the CIT(A) were deleted and the appeal was allowed
FULL TEXT OF THE ORDER OF ITAT SURAT
This appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as “Ld. CIT(A)”] dated 31.07.2024, under section 250 of the Income-tax Act, 1961 [in short “the Act”] for the Assessment Year 2016-17.
Ground No.2:
2. The Assessing Officer made addition of Rs.15,12,000/-, being cash deposited in HDFC Bank account as unexplained money for want of documentary evidence. The Ld. CIT(A) confirmed the addition observing that the assessee had not furnished supporting evidence during assessment as well as appellate proceedings.
3. Before us, the assessee has filed a detailed chart explaining the source of cash deposits, which is placed at Page 69 of the paper book, demonstrating that the deposits were out of cash received from partners, creditors and earlier withdrawals, all duly recorded in the audited books of account. The same are reproduced as under:
4. These details were not found to be incorrect or false by the Revenue. It is a settled position of law that where cash deposits are duly reflected in regular books of account and explained with reference to recorded transactions, addition cannot be sustained. In absence of rejection of books of account, the impugned addition is unsustainable. Accordingly, the addition of Rs.15,12,000/- is deleted.
5. Before us, the assessee has submitted the list of sundry creditors and also the repayment of amount in the sundry creditors at page 73 and 74 of the paper books, which is reproduced as under:
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Ground No.3:
6. The AO made addition on the ground that sundry creditors constituted around 64% of total purchases and that the assessee failed to furnish documentary evidence. The Ld. CIT(A) confirmed the addition observing that identity and genuineness of creditors were not established.
7. Since the sundry creditors have been proved, and the payments have already been made, no addition on the grounds that there has been 64% of rise of the purchases are outstanding. The addition was made on the ground that sundry creditors constituted around 64% of total purchases and that the assessee failed to furnish documentary evidence. The Ld. CIT(A) has confirmed the addition made by Assessing Officer.
8. In view of the facts and circumstances of the case, we find that the additions made by the Assessing Officer are not supported by any cogent material. The cash deposits are duly explained with reference to the audited books of account and supporting details placed on record. Similarly, the addition on account of sundry creditors is based merely on presumption, without rejection of books of account or bringing any adverse evidence to disprove the identity or genuineness of the creditors. Once purchases are accepted, corresponding trade creditors cannot be treated as unexplained. Accordingly, the additions confirmed by the Ld. CIT(A) is deleted.
9. In the result, the appeal of the assessee is allowed.
The order is pronounced in the open Court on 23.01.2026.
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