HMY Impex Pvt Ltd vs ITO, Ward 11(2)

ORDER

“1.1.

That on the facts and in law, the learned Commissioner of Income Tax (Appeals) has erred in dismissing the appeal of the appellant and in confirming the addition of Rs. 52,62,016/- made by the Assessing Officer, which is arbitrary, unjustified, illegal and contrary to the facts and circumstances of the case.

1.2.

That the order passed by the learned CIT(A) is bad in law and liable to be quashed as it is based on incorrect facts, wrong assumptions and non-application of mind.

1.3.

That the learned CIT(A) has erred in confirming the addition by wrongly invoking section 69A of the Act, whereas the Assessing Officer himself had made the addition under section 68 of the Act, thereby changing the very foundation of the assessment in a prejudicial manner.

2.1.

That on the facts and in law, the learned authorities below erred in making and sustaining the addition of Rs. 52,62,016/- as unexplained cash credit under section 68 of the Act, ignoring the fact that the cash deposited during the demonetisation period was fully explained and duly recorded in the audited books of accounts.

2.2.

That the learned Assessing Officer as well as the learned CIT(A) failed to appreciate that the cash deposited in the bank account during the period 09.11.2016 to 31.12.2016 was out of cash sales made/ cash received from debtors prior to 09.11.2016 when the specified bank notes were legal tender and in circulation.

2.3.

That the learned Assessing Officer failed to point out any specific entry in the books of accounts which was found to be non-genuine or unexplained and therefore the very invocation of section 68 of the Act is without jurisdiction.

2.4.

That the learned authorities below erred in law in treating duly recorded business. receipts arising out of sales as unexplained cash credit, ignoring the settled position of law that section 68 cannot be invoked where transactions are recorded in regular books of accounts and supported by stock movement and VAT returns.

2.5.

That the addition has been made merely on conjectures, surmises and suspicion, without rejecting the books of accounts under section 145(3) of the Act.

2.6.

That the learned authorities below further erred by making double addition in the hands of the appellant as the profit on sale has already been offered for taxation.

2.7.

That the learned Assessing Officer has adopted a completely arbitrary and artificial method of estimating cash sales by taking average daily cash sales of preceding and succeeding years, which is unknown to law and contrary to settled principles of income-tax jurisprudence.

2.8.

That the learned authorities below failed to appreciate that business sales are never uniform and depend upon market conditions, seasonality, festive demand and commercial realities.

3.1.

That the learned CIT(A) has grossly erred in recording incorrect facts in the impugned order, thereby rendering the order perverse and unsustainable in law.

3.2.

That the learned CIT(A) has wrongly observed that the appellant deposited cash of Rs. 1,07,76,500/- in demonetised currency, whereas the actual amount deposited was only Rs. 56,25,000/-.

3.3.

That the learned CIT(A) has wrongly recorded that the assessment was framed ex-parte, whereas the assessment order was passed after detailed scrutiny and replies filed by the appellant.

3.4.

That the learned CIT(A) has confirmed the addition under section 69A of the Act without giving any opportunity to the appellant to rebut such change of section, thereby violating principles of natural justice.

4.1.

That the learned Assessing Officer and the learned CIT(A) erred in levying tax at the rate of 60% under section 115BBE of the Act, which is legally unsustainable.

4.2.

That the amendment to section 115BBE brought by the Taxation Laws (Second Amendment) Act, 2016 is prospective in nature and cannot be applied retrospectively from 01.04.2016.

4.3.

That the levy of enhanced tax rate violates settled principles of law that substantive amendments creating new liabilities cannot operate retrospectively.

5.1.

That the learned CIT(A) has erred in holding that the assessment order was an ex-parte order and that the appellant failed to participate in assessment proceedings, which is factually incorrect and contrary to record.

5.2.

That the appellant had duly responded to notices and had furnished complete details including cash book, stock register, VAT returns, monthly cash flow statements and sales and purchase summaries.

5.3.

That the impugned order is vitiated due to complete non-consideration of voluminous documentary evidences filed by the appellant.

6.1.

That the learned Assessing Authorities erred in levying interest under section 234B and 234C of the Act

6.2.

That the learned Assessing Authorities erred in wrongly initiating penalty proceedings initiated under section 271AAC of the Act ………….”

“10.

In the instant case, it is an undisputed fact that the entire cash sales in question were duly recorded in the regular books of account, which were audited, and the corresponding revenue receipts and profits thereon were offered to tax in the return of income. The Assessing Officer has not rejected the books of account u/s 145(3) of the Act, nor has he pointed out any defect in purchases, sales, quantitative stock records, or closing stock, the details of which were furnished by the assessee. Once the books of account are accepted as correct and complete, individual entries therein cannot be selectively disbelieved on mere suspicion or conjecture. The addition u/s. 68 of the Act has been made solely on the basis of a comparison of cash-sale figures of earlier months and an assumption that the increase during the month of October and November 2016 is unrealistic. Once the assessee started business w.e.f. Jan., 2016 as per VAT registration, the finding of the Assessing Officer that the assessee had no cash sales during F.Y. 2014- 15 and 2015-16 stands dissipated. It is not disputed that the assessee deals in gold and silver ornaments and in such business, the business fluctuations, seasonal demand, market behaviour on festive and marriage season etc. are such factors, which may lead to sharp variations in sales, and the Income-tax Act does not authorize the Assessing Officer to substitute actual recorded sales with hypothetical or estimated figures based on perception of business trends, that too without rejecting the books of account. It is well settled that section 68 of the Act applies to unexplained cash credits, not to sales receipts recorded in the trading account. Cash sales, when duly entered in the books and supported by corresponding stock movement cannot be treated as unexplained cash credit merely because the Assessing Officer considers the declared volume of sales to be excessive. It is not established that the sales were fictitious. Nothing has been brought on record to show that the cash in question has been generated from any undisclosed source. The entire cash sales were credited in the sale account and the profit derived there from has been included in the income declared by the assessee in its return, there was no justification to treat the cash sales as unexplained cash credit and no such addition could be made u/s. 68, which would amount to double taxation in the hands of assessee. The cash sales, being part of regular business transactions recorded in audited books of account, were offered to tax, and no defect or falsity has been proved by the Assessing Officer.

11.

In the identical factual situation, the coordinate Bench of ITAT Delhi in the above referred Ankit Garg (supra), has deleted such additions holding as under:

"9.

Considered the rival submissions and material placed on record. We observe from the record that the assessee had declared all the cash sales in the books of account, same was duly audited. The tax authorities have not rejected the books and it is not the case of Revenue that these are not recorded in the books of account. The relevant documents submitted by the assessee contain stock reconciliation, stock movements, VAT records and no discrepancies were recorded by the authorities below. No discrepancies were recorded with regard to purchases. All the purchases and stock movements were accepted by the authorities below.

10.

The Assessing Officer sent an Inspector to verify one of the creditors and because of negative report, he completed the assessment with the belief that all the cash sales relevant for cash deposits are non-genuine and proceeded to make the addition u/s 68 of the Act. The Assessing Officer had not even bothered to give opportunity to the assessee to report such negative findings by the Inspector.

11.

It is also fact on record that all the sales were recorded in the books, cash deposits are booked by cash book. The tax authorities had proceeded to make addition on the basis of presumption without there being any material.

12.

On similar issues, we find force from the following case laws:-

 The Hon'ble Delhi High Court in the case of CIT v. Kailash Jewellery House in ITA No. 613/2010 (Delhi High Court): The Delhi High Court held that "cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same." under similar circumstances, deleted the addition made u/s 68 on account of cash deposit during the demonetization into bank by making following observations:

"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.24,58,4001/- 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."

 ITAT (Delhi) in S. Balaji Mech-Tech Private Ltd Vs. ITO, Ward 22(1) (ITA No. 556IDeV2024): The Tribunal held that "the AO/CIT(A) cannot invoke the provisions of section 68 or 69A when the assessee 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." under similar circumstances, deleted the addition made u/s 68 on account of cash deposit during the demonetization into bank by making following observations:

"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."

 ITAT (Delhi) in Pilani Industrial Corporation Limited & ACIT, Circle-21(2) (ITA No. 16061Dell2023): The Tribunal held that "treating cash deposits as unexplained exclusively based on entries in the books without rejecting them is lawfully prohibited"

"10.

From perusal of above material fact especially treating the cash deposit as unexplained cash on basis of books of account without rejecting the same is legally not permissible as per ratio of judgment in Lalchand Bhagat Ambica Ram's case (supra). Therefore, the impugned orders dated 18.12:2019 and 31.03.2023 are not legal and sustainable and deserve to be set aside."

“3.

Having heard learned counsel for revenue and having perused the record, we find no good ground to offer any interference in the present appeal. The assessee is a trader in gold and silver jewellery and ornaments. At the time of demonetisation, it disclosed cash sales amounting to Rs. 9,00,04,277, on 8th Nov 2016. That was disbelieved by the Assessing Authority. The CIT (A) and the Tribunal had examined the issue and returned categorical finding that the cash sales were supported by sale invoices duly recorded in its books of accounts. The stock register supported the sales disclosed by the assessee. The returns were filed under UP VAT Act, 2008. The entire sales were recorded therein. In short, no adverse material was found by the appeal authority to disbelieve the explanation furnished by the assessee.

4.

The above are findings of fact based on material and evidence on record and may not call for interference by this Court. Merely because suspicion may exist, it may not be sufficient for the revenue authorities to base their conclusions thereon. In absence of evidence to support the grounds being pressed, the appeal lacks merit and is accordingly dismissed. No order as to costs.”