Income Tax Officer vs Anju Goyal

1.

Whether the CIT(A) was justified in deleting the addition of Rs. 12,88,13,324 solely on the basis of audited accounts and generic confirmations, without assesses proving the nature and source of each bank credit with proper reconciliation?

2.

Whether the C1T(A) erred in holding that section 69A is not applicable merely because the assessee recorded the credits in its books, despite the tact that the credits remained unexplained in substance?

3.

Whether the C1T(A) was correct in shifting the burden of proof onto the AO for making enquiries, ignoring the settled principle that the initial onus u/s 69A lies on the assessee?

4.

Whether reliance on audited accounts, without substantive verification of transactions, can be considered as sufficient explanation under law to delete the addition on account of excess bank credits?

5.

The appellant craves to amend, modify, alter, add or forego any ground(s) of appeal at any time before and during the hearing of an appeal.

“4.1

I have considered the facts of the case, assessment order and submission made by the appellant. The appellant has raised 5 grounds of appeal. Ground of appeal nos. 1 & 2 are related and against the addition made by the AO of Rs.12,88,13,324/-u/s.69A of the IT Act. The ground of appeal no.3 is technical in nature, where appellant agitated that AO has not followed the SOP prescribed by CBDT during the assessment proceedings. Ground of appeal no.4 is against initiating the penalty proceedings u/s.274 r.w.s. .271AAC(1) of the IT Act. Ground of appeal no.5 is general in nature, not to be adjudicated upon. The above-mentioned grounds are adjudicated as below.

4.2

Ground of appeal nos.1 & 2: As per the assessment order, the appellant is an individual who is proprietor of firm M/s. Tushar Rice Traders. The appellant has e- filed her return of income on 7/10/2022 declaring total income of Rs.14,56,070/-. The case was selected for scrutiny. During the assessment proceedings AO observed that sales and purchases shown in the P&L account of the appellant was Rs.51,77,11,860/- and Rs.51,62,29,516/- respectively whereas bank statement of HDFC A/c of the appellant in the name of Proprietary concern M/s.Tushar Rice Traders has total credits & debits of Rs.64,65,25,184/- and Rs.64,29,67,842/-respectively. Hence, AO asked the appellant to justify the excess credits and debits in the bank account compared to sales and purchases shown by the appellant in the P&L account with documentary evidences. However, the appellant stated that the variation was mainly due to advances made, expenses incurred, TDS etc. The appellant also submitted an annexure mentioning various sales and purchase parties and heads of receipts & expenditure. The appellant further provided that HDFC Bank Ltd Book stating it being bank account as per tally. The appellant also submitted before the AO that the difference in bank account receipts and sale receipts is mainly due to business advance received or advance paid earlier received back. However, AO has not accepted contention of the appellant and stated that the appellant failed to provide any documentary evidences in support of her contention that how much of the credits in the bank account has been treated as advances in excess of sales/any other trade receipts shown against that party. The AO further held various confirmations filed by the appellant have been filed without any contest thereof as to how they justify the excess credit to the tune of Rs.12,88,13,324/-. Even the bank book submitted by the appellant do not have any narration of even a single entry. Based on the above inference, AO held that onus to establish and burden of proof to prove nature and source of credits in the HDFC Bank Account No.50200030733296 lies with the appellant and appellant failed to discharge her onus. Therefore, AO added difference of Rs. 12,88,13,324/- between total credits in bank account and total sales of the appellant as unexplained money u/s.69A of the IT Act and added it to the total income of the appellant.

4.2.1

During the appellate proceedings, the appellant submitted that she was engaged in the business of trading of rice and pulses and is duly registered under Goods & Services Tax (GST) regime. The appellant claimed that she was regularly filing GST returns and appellant reported a duly audited business turnover of Rs.51,77,11,860/-. The appellant further submitted that in the course of trading activities, the appellant engages in various transactions such as receipt of advances from customers, sales returns, purchase returns and inter-party adjustments. These types of transactions, by their very nature result in multiple credit and debit entries in the appellant’s bank account which may not necessarily correspond to the entries in the GST return. The appellant further submitted specific instances like advance receipts and refunds, third party settlement and adjustments, transactions with related parties and detailed reconciliation statements accounting for the differences between the bank credits and reported turnover which was submitted during the assessment proceedings. She further submitted that said reconciliation clearly demonstrates that the alleged difference is fully explainable and verifiable and also submitted ledger confirmation of the parties in the paper books which she had already submitted before the AO. She also submitted that the furnishing of ledger confirmations from the parties has substantiated the genuineness, nature of the transactions, source and creditworthiness of the source. The appellant further contended that as per the notification and provisions of section 12 of the CGST Act, 2017, such advances do not trigger liability to pay GST, nor are they reported as turnover in GST return unless the supply is executed. Therefore, appellant stated that credit entries in the bank account representing such advances cannot be equated to unreported sales or unaccounted money, as erroneously inferred by the AO. Further, the appellant contended that considering the facts of her case, invoking Sec,69A of the IT Act was erroneous as all the transactions were recorded in the books of account duly maintained by her and explanation was fully offered to the AO and also submitted various case laws in favour of the appellant.

4.2.2

I have considered the submission of the appellant. On perusal of the facts of the case and findings of the AO, it is seen that the alleged addition was due to difference between receipts in the bank account and receipt of the sales as declared by the appellant in the P&L account. The AO has asked the appellant to reconcile the same, the explanation provided by the appellant was not upto the satisfaction of the AO and AO has made addition u/s.69A of the IT Act. Two questions arise from the action of the AO in this case. One is whether the explanation offered by the appellant is sufficient to explain the difference between bank receipts and sales receipts. Second question is whether the purported difference can be eligible for making additions u/s.69A of the IT Act. In this respect, for the first question the appellant’s books of account are duly audited by the auditor. The books of accounts of any assesses includes cash book, bank book, sales receipt, purchase receipts, journal etc., and all the books are maintained in tally, which are duly audited by the auditor and audit report has been issued by the auditor. The AO has not raised any objection or remark with respect to audit report issued by the auditor and its not the case of the AO that books of account were not properly audited. If at all AO had felt that the books are not properly audited, he could have rejected books of account and audit report and would have asked for special audit. However, no such actions were contemplated by the AO as per the assessment order. The AO’s main concentration is only on P&L account of the appellant, whereas he has not made any comments about the genuineness of the entries in the balance sheet which contains the entries claimed by the appellant with respect to advance receipts and refunds, third party settlements and adjustments and transactions with related parties. This is a glaring error on the part of the AO. Further, AO has not gone into verification of the confirmations submitted by the appellant during the course of assessment by making enquiries u/s.133(6) or 131 of the IT Act. No such action appears to have been done by the AO. Apart from that AO has not commented upon appellant’s claim that she was regularly filing the GST returns and all the transactions were duly reflected as per the provisions of the GST Act. In view of the above facts, AO's observation holding the difference between bank receipts and sales receipts appear to be not justified and does not have any strength to support his contention that these receipts were unaccounted. Moving to the second question whether the difference in receipts reflected in books of account can be added u/s.69A of the IT Act. Whatever the difference of receipts found by the AO of Rs. 12,88,13,324/- were duly reflected in the books of account and duly audited by the auditor as claimed by the appellant. However, it is not the case of the AO that these receipts were not accounted for by the appellant in the books of account. His only contention was that the appellant has not provided satisfactory explanation without going into the root of such transactions by making elaborate enquiries. Since the receipts were duly accounted for in the books of accounts, same cannot be treated as not recorded in the books of account if any maintained by the appellant for any source of income as required under the provisions of sec. 69A. Therefore, it can be rightly concluded that under the law, accounted entries in the books of account cannot be a subject matter of addition u/s.69A of the IT Act. Both the questions which arose in the course of this appeal proceedings as mentioned supra are answered in favour of the appellant. Therefore, addition made by the AO under this section is not justifiable. In view of the above facts and circumstances, the addition of Rs. 12,88,13,324/- made by the AO u/s.69A of the IT Act is hereby deleted. Ground of appeal no.1 & 2 are allowed.

4.3

Ground of appeal no.3: In this ground, the appellant has pointed out that AO has not followed the SOP prescribed by the CBDT. This ground is technical and procedural oriented ground. Since the ground nos.1 & 2 are answered in favour of the appellant, this ground does not require any separate adjudication. Therefore, the ground of appeal no.3 of the appellant is dismissed.”