AI Structured Summary
Not yet generated for this judgment
Judgment
PER MANISH AGARWAL, ACCOUNTANT MEMBER :
The present appeal is filed by assessee against the order dated 11.09.2025 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-12/10779/2019-20 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 28.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18.
Brief facts of the case are that the assessee is an individual and is engaged in the business of trading of abrasives industrial adhesives Power tools machinery hardware bearing industrial consumable items. The return of income was filed on 31.01.2017, declaring total income of INR 53,81,510/-. The case was selected for scrutiny for the reasons (i) mis-match in expenditure of personal nature reported in Audit Report and ITR and (ii) Cash deposit in Specified Bank Notes (SBN) during the demonetization period. Thereafter, notice u/s 143(2) of the Act followed by notices u/s 142(1) alongwith questionnaire were issued from time to time which were replied by the assessee. The AO observed that assessee has made total cash deposits of INR 60,97,500/- during the demonetization period which is not in parity with the cash deposit in immediately preceding assessment year and also in the year under appeal prior to October, 2016. The AO further observed that the assessee has not provided identity of the buyers in the cash memos issued and further there was an abnormal rise in sales and accordingly, the total cash deposits of INR 33,13,368/- is held as unexplained u/s 68 of the Act and made the addition of the same.
In first appeal, Ld.CIT(A) confirmed the findings of the AO and dismissed the appeal of the assessee by confirming the addition made by AO.
Aggrieved by the said order, the assessee is in appeal before the Tribunal by taking various Grounds of appeal mentioned in the appeal memo.
Before us, Ld.AR for the assessee has not pressed Ground of appeal No.2 hence, the same is hereby, dismissed.
The remaining Grounds of appeal raised by the assessee are with respect to the confirmation of addition of INR 33,13,368/-and further applying the provisions of section 115BBE of the Act for charging special rate of tax therefore, they are taken together for consideration.
Before us, it was the claim of the assessee that entire cash deposited was duly backed by respective cash sale invoices and the turnover shown in the VAT returns and ITR was duly matched and no VAT return was revised. The assessee further claimed that there was sufficient stock in trade which justified the cash sales made. It was the arguments of the assessee that without invoking he provision of section 145(3) of the Act, the cash sales made during the year under appeal was added as unexplained credit which tantamount to double additions as the profit declared on such cash sales has already been assessed to tax. He prayed accordingly.
Per contra, Ld. Sr. DR for the Revenue argued that assessee has shown abnormal increase in sales in the month of October, 2016 which is to cover up the source of cash deposits in SBN during the demonetization period in the bank. He thus, relied upon the order of AO and Ld.CIT(A) and requested for the confirmations of the orders of lower authorities.
Heard the contentions of both the parties at length and perused the material on record. In the instant case, the AO has allowed the credit of maximum cash balance (except in four months from July-16 to Oct-16) as genuine. Assessee has filed month-wise party-wise details of cash receipts placed at pages 260 to 288 of the Paper Book alongwith reply dt. 16.12.2019 to the AO. Besides this, assessee also filed month-wise summary of the cash receipts/paid which is placed at page 258 of PB. The assessee further filed the copies of the purchases and sales register, comparative sale summary, purchase invoices and sales invoices. The books of accounts were duly audited by the Auditor wherein turnover of INR 45,91,34,450/- was declared. The AO has not doubted the availability of stock with the assessee nor the sales have been doubted. The trading results declared by the assessee were accepted which includes cash sales made during the month of October, 2016. The AO has not made any enquiry from any of the party regarding payment to the assessee in cash though all the preliminary details were provided by the assessee. Once the AO has accepted the books of accounts, it cannot be held that the cash recorded therein as on the date of demonetization was unexplained cash which is duly backed by respective cash sales bills.
The realization of cash sales is duly recorded in the cash book maintained on day-to-day basis The AO is required to consider the records of the assessee such as stock register, bank statement, monthly sales summary, possibility of back-dating of cash sales or fictitious sales etc. before making any allegation about the genuineness of the sales and cash deposited in SBN during the demonetization period. The AO had not doubted the availability of stock with the assessee prior to cash sales. When the assessee has submitted complete details and thus discharges its onus, whereas no contrary material whatsoever was brought on record by the AO to disprove the details filed by the assessee. As observed above, assessee has already included the entire cash sales in the total sales and the profits have been derived which were offered for tax, thus taxing the same income twice once in the sales and treating the part of the cash balance as unexplained without reducing the same from the total sales declared. At this juncture provisions as contained in section 68 is reproduced 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.”
From the perusal of the provisions of section 68 of the Act it is very clear that assessing officer can make addition u/s 68 only under two circumstances, i.e.
Appellant does not offer any explanation about nature and source of such credit; or
Explanation offered by Appellant is not upto the satisfaction of Ld. AO.
In other words, whenever Assessee provides explanation, before rejecting the same, ld. AO has to record dissatisfaction as to why the explanation furnished by Assessee is not acceptable. As is evident that assessee has not only tendered the explanation about the nature and source of cash receipts but also substantiated the same with documentary evidences in the shape of Audited Financial Statements, Sale Register, Purchase Register, Stock Register and Cash book. No specific defects whatsoever have been brought out on record by the ld. AO in those evidences and books of accounts so furnished. Therefore, addition so made u/s 68 of the Act without finding out any specific defects in books of account and also without rebutting the evidences produced is unjustified more particularly when the credits represent the sales on which the profits have already been offered for tax. Thus, provisions of section 68 of the Act are not applicable.
The Hon’ble Delhi High Court in the case of CIT v. Kailash Jewellery House in ITA No. 613/2010 (Delhi High Court) has held as under:
“In the facts of above case cash of Rs.24,58,400/- was deposited in bank account. The Assessing Officer made the addition on the ground that nexus of such deposit was not establish with any source of income. The assessee claimed that it was duly recorded in the books on account of cash sales and was considered in the Profit and Loss Account. The Assessing Officer had verified the stock and cash position as per books and had accepted the same. Complete books of account and cash book was submitted to the Assessing Officer and no discrepancy was pointed out. On this basis CIT(A) deleted the addition. Tribunal also observed that it is not in dispute that sum of Rs.24,58,400/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. Therefore, cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. The Hon’ble High Court dismissed the appeal filed by the Department.”
The Co-ordinate bench of Mumbai ITAT in the case of ACIT v. Ramlal Jewellers (P.) Ltd. Reported in [2023] 154 taxmann.com 584 (Mumbai -Trib.) under similar circumstances has deleted the addition made u/s 68 on account of cash deposit in SBN during the demonetization period by making following observations:
“Section 68 of the Income-tax Act, 1961- Cash credit(Cash deposit in bank)- Assessment year 2016-17- Assessee-company was engaged in jewellery business - During assessment proceedings, Assessing Officer noted that immediately after demonetization assessee had shown inflated cash sales and also made deposits in bank account which was completely abnormal as compared to earlier year and also subsequent year - He, therefore, taxed cash deposits under section 68 - It was seen that assessee had maintained regular books of account which was subject to audit and had produced entire sale bills, stock register and purchases and also quantitative tally of sales and corresponding stock -Addition undersection 68 on account of cash deposits could not be made simply on reason that during demonetization period, cash deposits vis-a-vis cash sales ratio was higher - Whether once, it had been established that sales representing outflow of stocks was duly accounted in books of account and there was no abnormal profit during year, then there was no justification to treat deposits made in bank account out of cash sales to be income from undisclosed sources - Held, yes Whether, therefore addition made under section 68 was to be deleted -Held, yes [Para 14] [In favour of assessee]”
The Co-ordinate Bench of ITAT Delhi in the case of S. Balaji Mech-Tech Private Ltd Vs. ITO in ITA No. 556/Del/2024 vide order dt. 25.09.2024 has observed as under:
18.“Coming to the issue of stock movement and excess sales, we observed that the assessee has submitted relevant stock reconciliation and auditors report of stock movements and there is no negative stock movement which will indicate that the assessee has booked excess sales without there being proper purchases.
19.In our considered view, there are chances that during the demonetization period the regular customers may have choose to buy the spare parts and bearing by making payment by cash so that their excess SBN is transferred. We noticed that the credit sales has come down during this period and the sales of the assessee is more or less maintained during this period. Therefore, it shows that the changes in the patterns recorded in the sales are not abnormal.
20.Whether the recording of cash sales which is already declared in the books of account will attract the deeming provisions of sec.68 or 69A of Act. We observed that the assessee has declared all the cash transactions in its books of account and merely because the cash deposits are more during the demonetization period, whether the CIT(A) can invoke the provisions of section 69A of the Act. As per provisions of the section, it is necessary that the assessee be found with the money, the same is not recorded in the books accounts maintained by it for any source and not offers any explanation or such explanations are not found to be satisfactory to the AO. In this case, the assessee has already declared the cash sales in its books of account and offers the explanation as cash sales, which the lower authorities has accepted it as regular business transactions because they have not rejected the book results and brought to tax the total sales declared by the assessee in its books. Since the cash were already recorded and explanation is already part of the book results, there is no avenue for the CIT(A) to reject such explanations. This expression "explanation is found not satisfactory to the AO" is purely relates to the money found with the assessee which are not recorded in the books of account. In this case, the above expression has no relevance since the assessee had already declared the cash sales in its books. In the similar situation, the coordinate bench has held in the case of J.R.Rice India (P) Ltd as under:
"At the cost of repetition, to the extent of sales made, the stock position is also correspondingly reduced by the assessee which goes to prove the genuineness of the claim of the assessee. On examination of the cash book of the assessee, it is found that the assessee had cash balance of Rs. 55.94 lakhs as on 8-11-2016, i.e., the date on which demonetization was announced, which sufficiently explains the source of deposit of Rs. 52.60 lakhs in specified bank notes. Apart from this, the assessee had duly furnished the month wise details of sales, month wise details of purchase, corresponding freight charges incurred month wise, month wise power and fuel expenses and month wise selling expenses in the form of rebate and discount. The assessee also furnished the quantitative details of goods month wise for rice, sugar, chana dal and wheat flour before the Assessing Officer. All these facts clearly go to prove the genuineness claim made by the assessee that cash deposits of Rs.52.60 lakhs has been made out of cash balance available with the assessee and, hence, there is absolutely no case made out by the revenue for making addition under section 68."
Further, in the case of Fine Gujaranwala Jewellers Vs. ITO (ITA No. 1540/Del/2022) vide order dated 27.03.2023, the coordinate bench has deleted the addition by making following observations:
22.“In the case in hand the reason for disbelieving the cash deposit is that the assessee has been deposited below Rs. 2 lakh in every transactions that lead to the conclusion of the Assessing Officer that the same has been done to avoid the application of provision of section 285BA read with Rule 114E of the Act. The said observation made by the Assessing Officer without any material in his hand. There is no prohibition under law to make sale transaction below Rs. 2 lakhs as such the assessee had at liberty to manage his own affairs. From the action of the assessee in raising the sales bill below Rs. 2 lakhs the Assessing Officer cannot interpret as the sale are bogus only to give colour to non-genuine transaction as genuine transaction. The evidence brought on record by the Assessing Officer are not enough to hold that sales were not genuine. More so, the other wing of the Govt has already accepted the sale transaction under VAT, hence, the Assessing Officer is precluded from making contrary findings on the issue when the sales are not doubted. The other contention of the ld. DR is that the assessee has not maintaining stock register properly and date wise stock position are not given. The Assessing Officer made the said observation without rejecting the books of account form which true profit and loss accounts could be ascertained and there is no quarrel on this issue. The lower authorities cannot place reliance on the circumstantial evidence which is only conjectures and surmises and the said approach of the ld CIT(A) is devoid of merit it deserves to be rejected. Further, the income of the assessee has to be computed by the Assessing Officer on the basis of available material on record and it is very important to have a direct evidence to make an addition rather than circumstantial evidence. When the assessee gives any reply or submission or any documents to the Assessing Officer, it is duty of the Assessing Officer to examine the same in the light of the available evidence. In the present case the Assessing Officer and the ld CIT(A) have concluded the findings on the basis of conjectures and surmises. The Assessing Officer has to establish the link between the evidence collected by him and the addition to be made. The entire case has to be dependent on the Rule of evidence, the assessee in this case explained the source of bank deposits are from cash sales. The Assessing Officer proceeded to disbelieve the explanation of the assessee on the presumption basis without bringing the corroborative material on record. The Assessing Officer is required to act fairly as reasonable person and not arbitrarily capriciously. The assessment should have been made based on the adequate material and it should stand on its own leg. The Assessing Officer without examining any parties to whom the goods are sold by the assessee, came to conclusion that the sales are not genuine, without even rejecting the books of account which is in our opinion is erroneous.
23.Respectfully, following the above decisions, we are inclined to allow the grounds raised by the assessee with the observation that the AO/CIT(A) cannot invoke the provisions of section 68 or 69A when the assessee is already declared the source for cash deposits in the books of accounts and the lower authorities without their being any material to support on their contrary view, the provisions of section 68 or 69A cannot be invoked.
24.In the result, appeal filed by the assessee is allowed.”
The Visakhapatnam bench of Tribunal in the case of ACIT, CC-1 Visakhapatnam V. M/S Hirapanna Jewellers And (Vice-Versa), 2021 (5) TMI 447, dated: 12-5-2021 held as under:-
"9.In view of the foregoing discussion and taking into consideration of all the facts and the circumstances of the case, we have no hesitation to hold that the cash receipts represent the sales which the assessee has rightly offered for taxation. We have gone through the trading account and find that there was sufficient stock to the sales and we do not find any defect in account effect the stock as well as the sales. Since, the assessee has already admitted the sales as revenue receipt, there is no case for making the addition u/s 68 or tax the same u/s 115BBE again. This view is also supported by the decision of Hon'ble Delhi High Court in the case of Kailash Jewellery House (Supra) and the Hon'ble Gujarat High Court in the case of Vishel Exports Overseas Ltd. (supra), Hence, we do not see any reason to interfere with the order of the Ld. CIT(A) and the same is upheld."
In view of the above discussion and looking to the facts that the AO has accepted the trading results and has not invoked the provision of section 145(3) of the Act, thus by respectfully following the judgements of hon’ble jurisdictional high court and of the coordinate benches of Tribunal, we hereby delete the addition of INR 33,13,368/- made u/s 68 of the Act towards the cash deposited during the demonetization period.
With respect to the application of the provisions of section 115BBE of the Act on the addition made u/s 68 of the Act, since we have already deleted the additions made u/s 68 of the Act, therefore, no addition remained in which of section 115BBE of the Act could be applied. Accordingly, the remaining Grounds of appeal raised by the assessee are allowed.
In the result, appeal filed by the Assessee is partly allowed.