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Judgment
PER ANUBHAV SHARMA, JM:
This appeal is filed by the assessee against the order u/s 250 of the Income Tax Act [hereinafter referred to as ‘the Act’] dated 02.09.2025 passed by National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the First Appellate Authority] in regard to assessment order dated 29.12.2019 u/s 143(3) of ACIT, Circle-8(2), Delhi [hereinafter referred as ‘the AO].
Heard and perused the records. The assessee is a Company and engaged in the business of retail and wholesale of invitrodiagnostics and medical devices and it has filed its ROI declaring an income of Rs 39,73,530/- and the same income has been duly assessed by the AO while making impugned additions on the basis of cash deposited cash after demonetization amounting to Rs 45,79,500/-. The AO called for the explanation of the assessee and concluded that
The Ld. CIT(A) affirmed the order of the AO and now the assessee is in appeal raising following grounds;
“1.The order passed by the Ld. CIT(A) is bad in law and on facts of the case.
2.The LdGIT(A) has failed to appreciate that the AO has made the additions of Rs 45,79,500/- and 17,07,211/- in utter disregard of principle of natural justice, in as much as the AO has neither provided the material used against the assessee nor provided any opportunity to cross examine the revenue witness, relled against assessee, despite specific request of assessee.
3.The Ld.CIT(A) has erred in ignoring that books of account of assessee were duly audited and no defect whatsoever has been pointed out either by AO or Auditors of the Company.
4.The Ld.CIT(A) has erred in affirming the action of AO vis-à-vis rejection of books of account of the assessee, ignoring that the AO has wrongly applied the provisions of section 145(3) of the Act.
5.The Ld.CIT(A) has further erred in ignoring that the cash deposited during demonetization period, was duly recorded by the assessee in its books of account and the same has been derived from the sales proceeds and debtors.
6 The Ld.CIT(A) has erred in affirming the addition of Rs 45,79,500/- on account of cash deposited by the assessee in its bank account and also taxing the amount u/s 115BBE
7.The Ld.CIT(A) has further erred affirming the addition of Rs 17,67,211/-made by the AO after rejecting the audited books of the assessee by applying g.p. rate of 10.12%
8.The Assessing Officer erred in issuing notice u/s 143(2) of the Income Tax Act. 1961 dated 24.09.2018 in violation of CBDT Instruction F.No. 225/157/2017/ITA-II dated 23.06.2017 Therefore, the said notice is invalid, and assessment framed pursuant thereto is vitiated in law.
9.The Ld. CIT (A) has further erred in holding the levy of interest under section 2348. 234C of the Act
10.The Ld. CIT (A) has erred in not adjudicating the ground of penalty u/s 271(1)(C) of the Act.
11.Assessee craves leave to add alter modify any of the above grounds of the appeal
We find that the ground number 1 and 11 are general in nature and ground number 10 related to the initiation of penalty proceedings under section 271(1) (C) of the Act. In other grounds the assessee has challenged the action of AO, making an addition of Rs 45,79,000/- on account of alleged bogus sales and Rs. 17,67,211/- on account of estimation of g.p. after rejecting the books of the assessee
Ld. Counsel has submitted that the assessee in order to explain the source of the cash has explained the assessee has received amounts from its debtors and has also made cash sales, up to the period of demonetization. The breakup of total cash is mentioned in assessment order at page number 5 The total cash available with assessee was 78,43,442/-. It is submitted that the AO has reproduced a chart at page number 5 of his order. Perusal of this chart would show that assessee was having sufficient opening cash balance of Rs. Rs 50,39,000/-, in the month of October 2016and the AO has not brought any material on record to dislodge this factum and has made the additions on surmises and conjecture basis.
It is next submitted that the AO has completely overlooked the replies filed by the assessee and the copy of reply of the assessee with respect to observation of the AO vis-à-vis cash withdrawal are at Page number -42 of the PB. Ld. Counsel has pointed out that AO asked for details vis-à-vis sale of semiconductors and assessee submitted same at Page number 44 of the PB and in fact, the observations of the AO has nothing to do with the issue involved in the present appeal. As with regard cash realized from debtors, it is submitted that there were outstanding debtors, marked as trade receivables in balance sheet of assessee at the beginning of financial year amounting to Rs 6,33,35,814 and from these debtors the assessee has received an amount of Rs 33,66,701/- during the year under consideration.It is next submitted that the assessee has provided a list of total 27 debtors to the AO during the course of assessment proceedings. This list is extracted by the AO in the body of assessment order at page number 2 to 4 of the assessment order. It is submitted that out of these 27 debtors the AO has issued summons to only two debtors and had taken adverse inference against the assessee. It is submitted that this kind of approach has already been disapproved by the Hon'ble Apex Court in the land mark judgment of Anis Ahmed reported in 297 ITR 441(SC) where Hon'ble Supreme Court ruled that an Assessing Officer cannot draw adverse inferences solely because third-party witnesses failed to appear, particularly when the assessee has provided valid evidence-Reply of the assessee at page number 45 of the Paper Book.
Ld. Counsel submitted that the observations made by the AO vis-à-vis anomalies of cash received from two debtors is not reliable at all, as no cross examination of those debtors have been provided. Further the assesse has explained that they admitted the making of cash payment to assessee. However, in order to save themselves from the rigors of law with respect to making of payment via cash they have made false statements therefore their confirmation will not be reliable.
It is next submitted for assessee that in Para 6 of the assessment order at page number-13, the AO has held that the sales made by the assessee are taxable under section 68 of the Act. It is submitted that provisions of section 68 are not applicable to those entries which are routed through profit and loss account. According to ld. Counsel, it is settled position of law that provisions of section 68 of the Act are applicable to unexplained cash credit, here is a case where the credit entry of sale has been duly explained and purchases corresponding to such sales have been accepted. Reliance was be placed on following judgments, wherein it is held that provisions of section 68 are not applicable to those entries which are routed through profit and loss account;
ITO Vs Baba Alloys Pvt ltd 5533/Del/2011-Copy filed with Bench at the time of hearing.
DIT (Exemp) vs Keshav Charitable Foundations 278 ITR 152(Del)-followed by coordinate bench in Baba alloys(Supra)
Sanjay Sharma Vs ACIT 3520/Del/2019- filed with bench.
Manoj Aggarwal Vs DCIT 310 ITR 99(AT) referred in Sanjay Sharma(Supra)
Then ld. Counsel submitted that without disturbing the book results the AO cannot allege that sales are bogus.Ld. Counsel submitted that while finalizing the assessment the AO has taken the returned income of the assessee as correct, which figure was arrived after including the alleged bogus sale, which means the AO on one hand has accepted the trading result as correct and on the other hand he has doubted the sales and rejected the books which is not permissible.
Regarding the rejection of Books and estimation of g.p. making an addition of Rs 17,57,211 ld. Counsel submitted that the books of the assessee are audited and the auditors have not pointed out any defect vis-à-vis recording of cash sales. The auditors have certified that the assessee was having debtors and has received the amount from those debtors. A reference was made to the following judgment wherein the coordinate bench after referring to the plethora of decisions of the High Courts have held in ACIT Vs Intermedia Cable communication 2012 SCC Online 1234, as follows;
"While discussing the same, we have demonstrated the need for enlisting the accuracies and incompleteness of the accounts of the assessee. In other words, we have approved the existing dictum that 'acceptance of the books of account of the assessee is the rule' and the 'rejection of books is an exception'. In this case, the assessee is under statutory obligation to maintain the books specified in sec. 2(124) of the Income Tax Act. It is a case where books or accounts are duly audited by the statutory auditors as required under the statute. They are under obligation to provide categorical findings about the verification of the books of account, constant following of the method of accounting adopted, accuracies or completeness if any of the books of accounts. In a case where books are maintained and the same were audited it is the rule that the AO shall accept the said books so long as he has not found out any defects or incompleteness of transactions or discrepancies or any inaccuracies, whatever may be the name given to them. Further, it has been the rule that when the books are rejected by the AO by invoking the provisions of sub-section 3 of sec. 145 of the Act, the onus is on the AO to pin-point or enlist the deficiencies or inaccuracies in the said books of account of the assessee. Without pointing out the same either directly expressing in the order or indirectly by implication, the AO cannot resort to rejection of the accounts of the assessee and further, he cannot resort to the best judgment assessment in the manner prescribed in sec. 145(3) of the Act"
It is next submitted by ld. Counsel that total sale is around 37.14 Crore and the cash sale is only Rs. 94,03,664/which is 2.5% the total sales. It is submitted that the cash sale is very meager of the total sales. Further in previous years also there was cash sales in same ratio, therefore on the basis of principle of consistency also the revenue has no case.It is once again reiterated that the AO has relied on the same books while finalizing the assessment which means one hand he is accepting the books results as correct and on the other hand he is estimating the g.p. after making a guess work which is arbitrary in law.
Ld. DR had submitted that assessee has shown value of Rs.67,000/- and cash sales receipt has been shown in lower denomination of Rs.20,000/- to justify the cash sales. Ld. Counsel thus relied the orders of lower tax authorities and submitted that circumstances do not justify accepting the genuineness of sales.
After taking into consideration the facts and circumstances we find that the whole case of assessee rests on the principal that tax authorities had accepting the trading results and no deficiency has been pointed out in the books of account. It is also established that cash sales is 2.5% of the total sales and the cash sales component is not new or artificially escalating in the present assessment year. If assessee has accepted sales consideration wherein pattern of lesser denominations and not the complete consideration at a time that cannot lead to a conclusive opinion that the assessee has not made cash sales and unaccounted income was introduced.
In the light of aforesaid circumstance we sustain ground and the appeal of the assessee. The impugned addition is deleted.