Assistant Commissioner Of Income Tax vs Lyallpur Uniforms Private Limited

1)

Whether, on the facts and circumstances of the case and in law, the Ld. CIT(Appeal) has rightly deleted the addition amounting to Rs. 3,90,32,360/- made u/s 68 r.w.s 115BBE of the Act?

2)

Whether, on the facts and circumstances of the case and in law, the Ld.CIT(Appeal) has rightly deleted the addition of Rs. 3,90,32,360/-made u/s 68 r.w.s 115BBE of the Act on the basis that the addition was merely made on surmises, conjectures, suspicion, presumptions and assumptions?

3)

Whether, on the facts and circumstances of the case and in law, the Ld. CIT(Appeal) has rightly deleted the addition amounting to Rs. 3,90,32,360/-made u/s 68 r.w.s 115BBE of the Act on the basis that the cash receipts represent the sales which has been offered for taxation but ignoring the fact that there is a gap of period between cash sales and cash deposit.

4)

Whether, on the facts and circumstances of the case and in law, the Ld. CIT(Appeal) has rightly deleted the addition of Rs. 3,90,32,360/- made u/s 68 r.w.s 115BBE of the Act on the basis that the assessee had sufficient stock to effect the sales but ignoring the fact that cash deposit include the cash receipts from the debtors ignoring the fact that section 40A(3) of the Income Act which restricts the limit of Rs. 20,000/-. Further no relevant documentary evidence for the same has been furnished by the assessee with respect to the cash receipt.

5)

Whether, on the facts and circumstances of the case and in law, the Ld.CIT(Appeal) has rightly deleted the addition of Rs. 3,90,32,360/- made u/s 68 r.w.s 115BBE of the Act ignoring the fact that what circumstances it was possible to accumulate such huge cash in the hands of the assessee.

6)

Whether, on the facts and circumstances of the case and in law, the Ld. CIT(Appeal) erred in ignoring the Judgement of the Hon’ble Gujarat High Court in Sitaram Ramchanddas Patel Vs ITO[2018] 95 taxmann.com 290 (Gujarat) which held that WHARE assessee failed to prove capacity of concerned persons who alleged to have given unsecured loan and/OR gift, impugned addition made under sec. 68 was to be confirmed.

7)

Whether, on the facts and circumstances of the case and in law, the Ld. CIT(Appeal) erred in ignoring Judgement of the Hon’ble Gujarat High Court in Sitaram Ramchanddas Patel Vs ITO[2018] 95 taxmann.com 290 (Gujarat)which held that WHARE assessee failed to prove capacity of concerned persons who alleged to have given unsecured loan and/OR gift, impugned addition made under sec. 68 was to be confirmed. Reference can also be made to Kamal Motors v. CIT [2003] 131 Taxman 155 (Raj.). It was held that the responsibility is on the assessee to discharge the onus that the cash creditor is a man of means to allow the cash credit.

“….3.1.The appellant is a private limited company, it filed its return of income for AY 2017-18 declaring an income of Rs. 86,09,430/-. The return of income filed by the appellant was duly processed by CPC u/s 143(1) of the Act. The case was later selected for scrutiny under CASS. A notice u/s 143(2), dt. 24/09/2018 was issued and served on the appellant. The appellant company is engaged in the business exports and retailing of School uniforms. During the course of assessment proceedings, various details on business activity related issues were raised by the AO keeping in view of the facts of the case, through statutory notices issued from time to time. In response appellant submitted the requisite details.

3.2.

The AO noticed that the appellant company had deposited a sum of Rs. 3,90,32,360/- in specified bank notes (SBN) in its bank accounts maintained with Bank of Baroda, HDFC bank and ICICI Bank during demonetization period (09/11/2016 to 30/12/2016). The AO also noticed that there was an abnormal increase in cash deposit during such period. The AO inter alia asked the appellant to explain the source of such cash deposit. The AO also asked the information on cash deposits in bank during AY 2016-17 and AY 2017-18; details of monthly cash sales and details of parties from whom cash was received from time to time. In response, the appellant submitted information and data in the tables as asked by the AO. From the information filed by the appellant the AO inferred that the appellant had included receipt from debtors to justify large cash receipts during AY 17-18. As per AO’s payment in cash by debtors is not permissible beyond the prescribed limit u/s 40A(3). Therefore, including payments made by debtors in cash is not a valid explanation. The AO noticed that total cash sales including cash received from debtors during November and December, 2016 add up to Rs. 3,20,45,913/- (Rs. 21760512 + Rs. 10285401/-), whereas total cash deposited adds up to Rs. 6,03,35,730/- (Rs. 25044160 + Rs. 35291570/-).There is a gap of Rs 3,17,10,183 which is not supported by Sales figures. The appellant has included figures of payments made in cash by the debtors in its cash sales and cash deposit figures. However, no detail of debtors was provided by the appellant, who had discharged their debt in cash. The AO has pointed out that the appellant had deposited Rs. 50 Lakhs, 40 Lakhs, 20 Lakhs and 50 Lakhs on 29.11.2016, 30.11.2016, 01.12.2016 and 02.12.2016 respectively which is abnormal in view of the trend of cash deposits made by the appellant in past. On being asked by the AO, the appellant had submitted that in normal course of business it used to deposit smaller amount of cash but always kept large amount of cash in hand. Due demonetization all amount of cash in hand had tobe deposited and this was the reason for depositing bigger amount of case on the different dated during the demonetization period.

3.3.

The AO was not satisfied with the submission of the appellant for the reason that:

1.

The appellant failed to substantiate its claim satisfactorily that payments form the debtors were received in cash. It failed to provide list of specific debtors with their ledger account in support of its contention that debtors actually paid large amounts in cash.

2.

The appellant has given general reply to explain the reason for depositing large amount of cash of Rs. 1,60,00,000/- in its bank account just in four days during the demonetization period. In view of the above findings, the AO held that sum of Rs. 3,90,32,360/- represents undisclosed income of the appellant and was deposited in the bank a/c during demonetization period. Accordingly, the AO made the impugned addition of Rs. 3,90,32,360/- u/s 68 read with section 115BBE of the Act….”

“….4.3.3. A perusal of the assessment order shows that the impugned addition of Rs. 3,90,32,360/- was made by the AO for the following reasons:

i.

Total sale during the months of November and December 2016 was of Rs. 3,20,45,913/- whereas total cash deposits during these months were at Rs. 6,03,35,730/-. Gap of Rs. 3,17,10,183/- was not supported by sales figure.

ii.

The appellant company had deposited large amount of cash totaling to Rs. 1,60,00,000/- in a short duration of 4 days which is abnormal.

iii.

The appellant has explained that the source of cash deposits was partly pertained to the payments received from debtors in cash. The AO is of the view that no debtor can make payment in cash more than prescribed limit of Rs. 20,000/- under the provision of section 40A(A) of the Act.

iv.

Since the appellant company had failed to explain source of SBNs amounting to Rs. 3,90,32,360/- the AO made addition u/s 68 read with section 115BBE of the Act.

4.3.4.

During the assessment proceedings, being asked by the AO, the appellant had furnished comparative data of cash deposit in F.Y. 2015-16 and 2016-17 which shows that the appellant had deposited cash at Rs. 19.24 crores in the immediate proceedings assessment year (i.e. F.Y. 2015-16) whereas it has deposited cash in the financial year under reference (i.e. F.Y. 2016-17) at Rs. 20.54 crores. Similarly, during corresponding period of demonetization in the immediate preceeding year (from 09.11.2015 to 31.12.2015) the appellant had deposited total cash at Rs. 3.30 crores which has slightly increased upto Rs. 3.52 crores in during demonetization period (09.11.2016 to 31.12.2016). During F.Y. 2015-16 and 2016-17 total cash receipts (including cash receipt from debtors) were at Rs. 21.62 crores and 19.12 crores respectively. From the above data, it transpires that the appellant company is engaged in the business of manufacturing and supplying school uniforms through its outlets more than 175 spread over the different part of the country. Cash sale through these outlets is normal phenomenon of the appellant’s business. In preceding financial years also, the appellant has been depositing large amount of cash in its bank. From the data provided by the appellant, no abnormal increase in cash deposits due to the demonetization is found.

4.3.5.

From the data of cash deposits in the F.Y. under reference and in the preceding years, the AO inferred that the appellant had included receipt from debtors to justify large cash receipts during AY 17-18. Payment in cash by debtors is not permissible beyond the prescribed limit u/s 40A(3). Therefore, the AO is of the opinion that payments received from debtors in cash are not a valid explanation to explain and justify the source of cash deposits. As per the inference deduced by the AO from the above discussed data of cash deposits made by the appellant during F.Y. under reference and during immediate preceding financial year, it is evident that the AO has not questioned the genuineness of the cash deposits made by the AO out of payment received by it from its debtors. The appellant had provided details of debtors along with copy of ledger account of debtors during the assessment proceedings, but the AO did not acknowledged the same. Only objection of the AO is that the appellant had violated provision of section 40A(3) of the Act by accepting payments in cash from its debtors. Section 40A(3) is reproduced as under for reference:

"40A.(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure."

4.3.6.

A plane reading of the provision of section 40A(3) shows that it is meant for curving and discouraging the payment in cash against any purchases or expenditure against which deduction is claimed. In the instant cash, the appellant company hasnot made any payment in cash exceeding to Rs. 20,000/- a day to any party rather it has received payments in cash from its debtors. The appellant company is the receiver of cash income against the retail sales of uniforms across multiple outlets. The AO has not pointed out any payment made to any party by the appellant in cash exceeding to Rs. 20,000/- in a day. Therefore, there is no application of Section 40A(3) of the Act to the facts of the instant case. The AO has misplaced the provision of Section 40A(3) of the income tax Act. Hence, the contention and inference deduced by the AO is misplaced and incorrect.

4.3.7.

Regarding gap of Rs. 3,17,10,183/- between the total cash sale during the months of November and December 2016 shown at Rs. 3,20,45,913/- and total cash deposits during these months at Rs. 6,03,35,730/-, the appellant has, at fist, pointed the calculation mistake done by the AO showing that the said gap between the two figures is Rs. 2,82,89,817/- (i.e. Rs. 6,03,35,730 - 3,20,45,913) not Rs. 3,17,10,183/- as mentioned by the AO in the assessment order. Secondly, the appellant has pointed out that the AO did not take into account the cash balance of Rs. 2,65,59,378/- as on 01.11.2016. The AO had also did not consider the cash received from debtors. Therefore, as per appellant’s submissions there is no gap between the cash available with the appellant and cash deposited by it.

4.3.8.

The appellant has claimed that the actual amount of SBNs. / Demonetized currency deposited in the bank during the demonetization period is Rs. 1,97,00,000/- only not Rs. 3,90,32,360/- as mentioned by the AO in the assessment order. In its written submission the appellant has contended that during the assessment proceedings, the appellant had submitted this fact to the AO, but the AO did not take any cognizance of the submission of the appellant. During the VC conducted by this office this office on 17.09.2024, the A/R of the appellant company strongly put the above fact before me. I asked the appellant to furnish confirmation(s) from the bank(s) in this regard. In response, the appellant furnished copies of confirmations about the amount of SBNs deposited by it during the demonetization period.

4.3.9.

The assessing officer made the impugned addition u/s 68 as unexplained cash credit of the same amount which was accounted in the books as sales. In this regard, it is worthwhile to look into section 68 which reads as under:

“68.

Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year:”

4.3.10.

Section 68 of the Act provides that if money found credited in the books of accounts of an assessee and the assessee offers no explanation about the source of such money, the said sum is deemed to be income of the assessee. In the instant case the appellant had explained the source of cash deposited in its bank account as cash sales which have been admitted as revenue receipt in the books of account. The appellant is engaged in the business of manufacturing and trading of school uniform and maintains the regular books of account including records of purchases, sales and stocks. Purchases, sales and the Stock are interlinked with each other. Every purchase increases the stock and every sale decreases the stock. Once there is no defect in the purchases and sales, there cannot be any doubt on the availability of stock. The assessing officer accepted the purchases and closing stock which has direct nexus with the sales. The movement of stock is directly linked to the purchase and the sales. The AO did not find any defects in the books of accounts such as trading account, P&L account and the financial statements. The relevant documents including cash books for A.Y. 2016-17, 2017-18 and 2018-19 were furnished by the appellant during the assessment proceedings. The appellant has furnished these documents during the appellate proceedings also. The AO has not pointed out any deficiency or inconsistency in the cash book filed by the appellant. A perusal of cash books of the appellant shows that the appellant had kept large amount of cash in hands in previous and subsequent financial years also. The AO did not question the veracity of the cash books and cash sales made by the appellant. He has not rejected books of account of the appellant, meaning thereby he has accepted the trading result of the appellant company accepting the sales (which includes cash sales, a part of which was deposited in the bank during demonetization period) on which the appellant has declared net profit and offered the same to be taxed. Therefore, it is clear that the addition u/s 68 made by the AO on account of cash deposits tantamount to double taxation.

4.3.11.

In view of the foregoing discussion and taking into consideration of all the facts and the circumstances of the case, I have no hesitation to hold that the cash receipts represent the sales which the assessee has rightly offered for taxation. I have gone through the trading account and perused the detail of sales made by the appellant and found that there was sufficient stock to affect the sales and I do not find any defect in the stock as well as the sales made by the appellant. Since, the appellant has already admitted the sales as revenue receipt which has also not been disturbed by the AO himself, there is no case for making the addition u/s 68 or tax the same u/s115BBE.

4.3.12.

On the issue in hand, apart from the case laws the referred by the appellant, reliance is also placed on the following judicial pronouncements: - (i) CIT v. Kailash Jewellery House in [IT AppealNo. 613 of 2010, dated 9-4-2012]

(ii)

Hon'ble Gujarat High Court in [IT Appeal No. 2471 of 2009, dated 3-7-2012] in CIT v. Vishal Exports Overseas Ltd.

(iii)

ACIT, Visakhapatnam vs. Hirapanna Jewellers [2021] 128 taxmann.com 291 (Visakhapatnam - Trib.)

(iv)

ITO vs. Raj Kumar Nowal [2023] 146 taxmann.com 581 (Jaipur -Trib.)

4.3.13.

In view of the facts of the case and judicial pronouncements referred above and discussed in forgoing paragraphs 4.3.1 to 4.3.12, I am of the considered opinion that the appellant had provided plausible explanation about the source of cash deposited in its bank account during the demonetization period. Therefore, the AO is directed to delete the addition of Rs. 3,90,32,360/- made by him u/s 68 read with section 115BBE of the Income Tax Act. Accordingly, 1, 3 & 4 and Additional Ground no. 1, 2, 3, 4 and 5 of the appeal are allowed….”

“…4. The Ld. CIT(A) has rightly held that the books of accounts of appellant have not been rejected and the purchases stand accepted. We find sufficient force in the argument that corresponding sales cannot be suspected. We also find force in the argument that assessee’s VAT orders for F.Y 2016-17 also support his case of genuine sales having undertaken. Accordingly, we are of the considered view that there is no case for any interference to the order of the Ld. CIT(A) at this stage. The same is, therefore, confirmed and all the grounds of appeal raised by the revenue are dismissed…”

“…6. The Revenue’s stand, on the other hand, is that it was the assesee’s onus only to plead and prove all the relevant facts by satisfying the genuineness/creditworthiness of its explanation tendered during scrutiny as per PCIT v. NRA Iron & Steel Pvt. Ltd (2019) 412 ITR 161 and Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC). We find no merit in the Revenue’s instant former substantive ground once it has come on record that the assessee had duly explained the source of these cash deposits to regular trading activity in electronics business etc. by filing all the relevant detailswhich have gone unrebutted from departmental side. The Revenue fails in its instant first and foremost substantive grievance in very terms…”

“….3. We have heard the rival submissions and perused the materials available on record. The Assessee Company is engaged in the business of retail trading of home décor products including furniture, sculptures, lights etc. The return of income for the assessment year 17-18 was electronically filed by the Assessee on 13-01-2018 declaring loss of Rs. 4,71,475/-. During the course of scrutiny assessment proceedings, the learned AO noted that Assessee had made cash deposits of Rs. 53,82,150/- in HDFC Bank Ltd, East Patel Nagar, Delhi during the demonetization period in specified bank notes. The Assessee submitted that the said cash deposits were made out of cash sales which are already disclosed in the books of accounts and in the income tax return. The assessee submitted that during the assessment year 2017-18, it had made cash sales of Rs. 53,50,422/- out of total sales of Rs. 58,37,645/-. The assessee also submitted that major part of cash sales had taken place in the months of October 2016 to 8-11-2016. The assessee explained the reason of huge sales made in cash during this period by attributing the same to various auspicious festival occasions including Diwali. Since the assessee was engaged in the business of selling of home decor items, it is the usual practice for the customers to make huge purchases of home decor items during the festive occasions including the period of Diwali. The assessee specifically stated that the sales made by the assessee had been duly disclosed in the audited books of accounts and also in the income tax return. The assessee had sufficient cash balance to explain the cash deposits and hence nothing could be treated as unexplained there on. The learned AO however disbelieved the entire contentions and observed that similar cash deposits were not made by the assessee in the earlier year. The assessee to buttress this argument submitted that the business itself was started only in October 2016 and hence the same is not comparable with that of the earlier year. The assessee specifically stated that the retail showroom in Delhi started in October 2016. This showroom was taken on rent from Mrs. Rajini Apan from July 2016, post which showroom fit outs took 3 to 4 months and the assessee being a new showroom, lot of retail sales took place during the months ofOctober to 8th November 2016. The assessee also submitted the complete copies of sale bills, cash book, VAT returns (both original and revised) and purchase invoices. The assessee also submitted that it had sufficient stocks in its kitty as is evident from the stock register and to the extent of sales, the stocks were duly reduced and reflected in the books of accounts of the assessee. The learned AO however disregarded all these contentions and proceeded to add the cash deposits made in SBN during the demontization period in the sum of Rs 53,82,150/- as unexplained money under section 68 read with section 115BBE of the Act. This action of the learned AO was upheld by the learned NFAC.

4.

We find that the lower authorities had not rejected the books of accounts and book results of the assessee. The assessee had made cash sales of home décor items from its new showroom started in October 2016 only. It is quite normal and usual practice for the customers to make purchase of home décor items during the festive occasions including Diwali that too from new showroom. It is a fact that assessee had made cash sales thereon and had duly reflected the sales in the books of accounts and in the income tax returns. On perusal of the cash book, we find that the said cash sales are duly reflected as receipts thereon and there is absolutely no negative cash balance with the assessee, meaning thereby – the cash deposits made during the whole year including the demonetization period is squarely covered and explained out of cash balance available with the assessee. To the extent of sales made by the assessee, the stocks of home décor items had been duly reduced. The assessee had furnished the sale invoices, purchase invoices, stock registers, VAT returns (both original and revised) cash book , entire books of accounts before the learned AO. None of these documents and records were even rejected by the learned AO. The assessee had filed revised VAT returns for the third quarter only to change the input tax credit figure thereon. The sales figure in original VAT returns and revised VAT returns remain unchanged. The sales made by the assessee had not been doubted by the revenue. Hence the revenue having accepted the sales made by the assessee, ought not tohave made separate addition on account of cash deposits by treating it as unexplained. Otherwise, the same would amount to double addition made by the learned AO. On this count itself, the addition made on account of cash deposits deserves to be deleted. Further, the Hon’ble Madras High Court in the case of SMILE Microfinance Limited vs ACIT in WP (MD) No. 2078 of 2020 and WMP (MD) No. 1742 of 2020 dated 19-11-2024 had categorically held that enhanced rate of tax at 60% as provided in section 115BBE of the Act could be made applicable only from Assessment Year 2018-19 onwards and cannot be applied for earlier years. Hence we hold that cash deposits made by the assessee is duly explained and no addition is warranted thereon. Accordingly, the grounds raised by the assessee are allowed…”