ITO vs Azad Malik

also produced before the AO. It is also noticed from the cash-book that average cash sales on the dates prior to 08.11.2016 were for-Rs. 10 lakhs (approx.) on 04.11.2016 Rs. 46 lakhs (approx.) on 05.11.2016 Rs. 22 lakhs (approx.) on 06.11.2016 Rs. 18 Lakhs (approx.) on 07.11.2016 Relevant pages of this cash-book are reproduced below –

It is noticed in this case that the AO was satisfied with books of account of the appellant as is evident from his discussion made in para 4 of the Order. He was satisfied that the appellant was engaged in trading of gold, silver items and some diamond products, the cash was deposited out of sale-proceeds of business, it was clear from bank account statement that cash was received from the customers, and the cash, received from the customers was deposited in the bank account. Even in the light of these findings, the AO took contrary view that the cash deposits were from undisclosed sources of income. He has not touched figures of purchase, sales and opening and closing stock of the goods which according to the appellant was source of cash sales and subsequent cash deposits. If the AO intended to treat cash deposits cum cash sales as unaccounted income, he should have demonstrated as to what happened to opening stock, purchases, sales and closing stock. These figures were not disturbed by him. In these circumstances and facts of the case, the addition made by the AO is arbitrary and not supported with any evidence. This addition is, therefore, deleted. The AO is directed to delete the addition of Rs. 2,04,10,542/- made u/s 68 of the Act.

6.5.

Notwithstanding the above and considering legal aspects of the case, the AO made the addition without rejecting books of account, maintained by the appellant. This action of the AO does not find favour of appellate authorities.

Hon'ble ITAT-Jaipur in the case of Mahesh Kumar Guptavs ACIT, Jaipur has held that the AO was not justified in making the addition without rejecting books of account. Relevant part of this judgement is reproduced below –

'9.7. In the light of the detailed discussions and finding that has been recorded by us in the preceding para we are of the considered view that the action of the id. AD making an addition under section 68 for an amount of Rs. 80,00,000/- as unexplained cash deposit without rejecting the books of account a unwarranted hased on the discussion so recorded here in above. Even the id. AO has no find any defects in the details submitted by the assessee and audited books were considered and accepted while finalizing the assessment, Similar view has been taken by this co-ordinate bench of Jaipur in the case of Chandra Surana in ITA No. 166/JP/2023 wherein the similar view has been taken. The relevant finding is reproduced here in below,

2.6

We have heard both the parties and perused the materials available on record. From the assessment records, it is noted that the AO made an addition of Rs.2,90,93,500/- in declared income by holding that said amount of cash deposited by the assessee in his bank account during the demonetization period is nothing but the undisclosed income of assessee which was shown under the garb of cash sales and thus it is liable to be added u/s 68 of the Act and taxable @ 60% under the provision of Section 115BE of the Act. It is also noted from the order of the id. CIT(A) at para 4.1 wherein the id. CIT(A) has described para 1.4 of assessee written submission that complete regular books of accounts, bill, vouchers and day to day stock register having complete quantitative Mahesh Kumar Gupta vs ACIT, Circle-04, Jaipur details have been maintained by the assessee. The said books of accounts are audited. A copy of audited statement of account along with complete quantitative details have been submitted along with the return of income. The assessee maintained manual item wise stock register. The said stock register was bulky and so could not be produced in e- proceedings but was produced before the AO in course of hearing as is evident from submission dated 27-09-2019. The fact of maintenance of stock register manually is stated in Tax Audit Report also. Thus the cash sales transaction is recorded in regular books of accounts, sales are made out of stock-in-trade. The assesses also filed copies of sales invoice No. 82 to 158 of Bangaluru and 110 to 216 of Kolkata outlets before AO which were of 28-10-2016 and these were earlier produced before Investigation Wing in F.Y. 2016-17 i.e. after the sales were made and same were verified by the Investigation Wing also. This view of the Id. CIT(A) indicates that the assessee has maintained regular books of accounts, bills, vouchers and day to day stock register having complete quantitative details and said books of accounts are audited. The assessee vide submission dated 27-09-2019 had produced stock record during the course of hearing. The cash sales transactions are recorded in regular books of accounts and the sale are made out of stock in trade for which no adverse finding had been observed by the AD except for the change in the methodology in issuing bills as mentioned at page 7 to 8 of the assessment order. Further the Id. CTT(A) observed that the AD had treated the cash deposited in the bank during the demonetization period in demonetized currency as unexplained cash credit u/s 68 of the Act although the nature and source of the cash deposits being proceeds arising out of cash sales etc. was evident from the entries to the audited books of accounts of the assessee in this case, the books of account of the assessee had been audited by an independent auditor. The cash sales and receipts are duly supported by relevant bills which were produced in the course of assessment proceedings before the AD and it is not the case of the AO that the assessee did not have sufficient stock for making the sales. Hence, it cannot be said that the figures of sains and purchases are not supported by the quantitative details and the AO did not make any enquiry on the material supplied by the assessee. Thus the AO neither brought any material on record to establish that the sale bills are bogus nor provided any evidence that such sales are bogus. It is also an open fact that the demonetization of Rs. 500/- and Rs. 1000/- note was declared by the Hon'ble Prime Minister at 8 PM on 8-11-2016 and after this announcement the persons reached the jewellery shop to buy jewellery in exchange of notes. Thus all such scenario indicates that the assessee had duly substantiated its claim from the documentary evidences and also with the facts It is also observed from the assessment order that the AO had not rejected the books of account of the assessee as no contrary material was available with him to reject the books of account of the assessee. As regards the addition of Rs.2.90,93,500/- made by the AO by applying the provisions of Section 68 of the Act, it is noted that provisions of Section 68 are not applicable on the sale transactions recorded in the books of accounts as sales are already part of the income which is already credited in P&L account. Hence, there is no occasion to consider the same as income of the assessee by invoking the provisions of Section 68 of the Act. In view of the above deliberations and case laws relied upon by both the parties, we find that the AO was not justified in making an addition of Rs.2.90,93,500/- u/s 68 of the Act which has rightly been deleted the Id. CIT(A) and we concur with his findings. Thus the appeal of the Revenue is dismissed.

9.8

Respectfully following the consistent view and after considering the factual matrix of the cash on hand in our considered view the addition made cannot sustain and therefore, we vacate the addition of Rs. 80,00,000/- made under section 68 of the Act as the same cannot be made without rejecting the books of account of the assessee regularly maintained by the assessee and the said cash deposited is duly supported by the entries passed in the books of account and part of the sale accepted by the AO. In terms of these observations ground no. 1 raised by the assessee is allowed."

'4.3.3 Therefore, considering the facts and circumstances of the case, It is seen that when the booksof accounts maintained in the regular course of business and stand accepted by the Assessing Officer, then there is no justification for the A.O. to invoke the provisions of section 68 of the Act to make an addition of Rs.2,39,00,000/- in the hands of the assessee firm. It is further seen that oncethe sales, purchases as well as stocks and the trading resultas declared by the assessee firm are accepted by the Assessing Officer on the basis of regularly maintained books of accounts then there is no justification to disbelieve the deposit of cash in the bank accounts which is also fully reflected and recorded in the same books of accounts, more so when no discrepancy has been pointed out. Reliance for above submissions is placed on following orders of ITAT

1.

SINGHAL EXIM VS IT (ITA. NO. 6520/DEL/2018) (DELHI-ITAT);

2.

PAWAN KUMAR R MODI VS ITO ((ITA NO2345/MUM/2014 (MUMBAI-ITAT)) It has been held in both the cases that provisions of Section 68 are not applicable where cash deposit is found recorded in books of account and the source and nature is verifiable from such books of accounts.

The Hon'ble ITAT, New Delhi in the case of Agson Global Pvt. Ltd. in ITA No3741 and many others/Del/2019 vide their order dated 31.10.2019 has examined this issue and detail and has decided the issue in favour of appellant. Therefore, considering the facts and circumstances of the case and the judicial position discussed above, the action of the AO is not tenable and accordingly the addition of Rs 2,39,00,000/- made by the Assessing Officer is hereby deleted."

7.

"We have heard both the parties and perused the material placed on record. In the instant case, the assessee has admitted the receipts as sales and offered for taxation. The assessing officer made the 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 :

From the perusal of section 68, the sum found credited in the books of accounts for which the assessee offers no explanation, the said sum is deemed to be income of the assessee. In the instant case the assessee had explained the source as sales, produced the sale bills and admitted the same as revenue receipt. The assessee is engaged in the jewellery business and maintaining the regular stock registers. Both the DDIT (Inv.) and the AO have conducted the surveys on different dates, independently and no difference was found in the stock register or the stocks of the assessee. Purchases, sales and the Stock are interlinked and inseparable. Every purchase increases the stock and every sale decreases the stock. To disbelieve the sales either the assessee should not have the sufficient stocks in their possession or there must be defects in the stock registers/ stocks. Once there is no defect in the purchases and sales and the same are matching with inflow and the outflow of stock, there is no reason to disbelieve the sales. The assessing officer accepted the sales and the stocks. He has not disturbed the closing stock which has direct nexus with the sales. The movement of stock is directly linked to the purchase and the sales. Audit report u/s 44AB, the financial statements furnished in paper book clearly shows the reduction of stock position and matching with the sales which goes to say that the cash generated represent the sales. The assessee has furnished the trading account, P& L account in page No.7 of paper book and we observe that the reduction of stock is matching with the corresponding sales and the assessee has not declared the exorbitant profits. Though certain suspicious features were noticed by the AO as well as the DDIT (Inv.), both the authorities did not find any defects in the books of accounts and trading account, P&L account and the financial statements and failed to disprove the condition of the assessee. Suspicion however strong it may be, it should not be decided against the assessee without disproving the sales with tangible evidence.

In the case of CIT v. Associated Transport (P.) Ltd. [1996] 84 Taxman 146 (Cal.) the Tribunal found that the assessee had sufficient cash in hand in the books of account of the assessee, therefore, held that there was no reason to treat this amount as income from undisclosed sources and it was not a fit case for treating the said amount as concealed income of the assessee. The revenue moved to Calcutta High Court against the order of the tribunal and the Hon'ble High Court has confirmed the order of the Tribunal while deleting the penalty, Hon'ble Calcutta high court held as under:

"The Tribunal was of the view that the assessee had sufficient cash in hand. In the books of account of the assessee, cash balance was usually more than Rs. 81,000. There is no reason to treat this amount as income from undisclosed sources. It is not a fit case for treating the amount of Rs. 81,000 as concealed income of the assessee and consequently imposition of penalty was also not justified in this case."

In the case of LalchandBhagatAmbica Ram v. CIT [1959] 37 ITR 288 (SC), the Hon'ble Apex Court decided the matter in favour of assessee of the ground that it was clear on the record that the assessee maintained the books of accounts according to the mercantile system and there was sufficient cash balance in its cash books and the books of account of the assessee were not challenged by the Assessing officer. If the entries in the books of accounts are genuine and the balance in cash is matching with the books; it can be said that the assessee has explained the nature and source of such deposit.

In the case of Lakshmi Rice Mills v. CIT [1974] 97 ITR 258 (Pat.) Hon'ble Patna High court held as under: "It is, in my view, a fundamental principle governing the taxation of any undisclosed income or secreted profits that the income or the profits as such must find sufficient explanation at the hands of the assessee. If the balance at hand on the relevant date is sufficient to cover the value of the high denomination notes subsequently demonetised and even more, in the absence of any finding that the books of account of the assessee were not genuine, the source of income is well disclosed and it cannot amount to any secreted profits within the meaning of the law." All the decisions cited supra suggest that once, the assessing officer accepts the books of accounts and the entries in the books of accounts are matched, there is no case for making the addition as unexplained. Hon'ble Delhi High court considered the issue of taxing the opening stocks in the case of Principal Commissioner of Income Tax, 20, Delhi. v. Akshit Kumar, [2021] 124 taxmann.com 123 (Delhi), and upheld the order of the ITAT in deleting the addition related to sales. The Hon'ble High Court has extracted the relevant part of the order of the ITAT which reads as under:

"17.

Thus, in our opinion the sale made by the assessee out of his opening stock cannot be treated as unexplained income to be taxed as 'income from other sources'; firstly, the stock was available with the assessee in his books of account and trading in such stock including purchase, sale, opening and closing stock (quantity wise and value wise) has been accepted by the department year after year and in some years under scrutiny proceedings, therefore, non existence of stock or business cannot be upheld; secondly, the sale of stock in the earlier years and the sale of balance left out stock in subsequent years has been accepted or has not been disturbed, then to hold that no stock was sold in this year and remained with the assessee will be difficult proposition; thirdly, inquiry and inspection by the AO done much after the closure of business may not be persuasive for the past events especially in wake of facts as discussed above; and lastly, once neither any item in the trading account, nor gross profit has been rejected, then one part of credit side of the trading account, that is, sales cannot be discarded completely so as to hold that it is unexplained money."

7.2.

In the instant case the assessee has established the sales with the bills and representing outgo of stocks. The sales were duly accounted for in the books of accounts and there were no abnormal profits. In spite of conducting the survey the AO did not find any defects in sales and the stock. Therefore we do not find any reason to suspect the sales merely because of some routine observation of suspicious nature such as making sales of 270 bills in the span of 4 hours, non availability of KYC documents for sales, non writing of tag of the jewellery to the sale bills, non-availability of CCTV footage for huge rush of public etc. The contention of the assessee that due to demonetization, the public became panic and the cash available with them in old denomination notes becomes illegal from 09.11.2016 and made the investment in jewellery, thereby thronged the jewellery shops appear to be reasonable and supported by the newspaper clippings such as The Tribune, The Hindu etc. It is observed from the newspaper clippings that there was undue rush in various jewellery shops immediately after announcement of demonetization through the country.

8.

The Ld.DR placed reliance on various decisions. In the case of SumatiDayalVs. CIT (supra), CIT vsDurga Prasad More 82 ITR 540) both the cases are related to the circumstantial evidences in the absence of direct evidence. In the instant case, the facts clearly support that the assessee has made the sales and there were sufficient stocks to meet the sales. Thus, the facts of the assessee's case are clearly distinguishable. The Ld.DR further relied on the decisions of Kale Khan Mohammad Hanif, 50 ITR1 (SC), wherein, the Hon'ble Supreme Court held that the AO is permitted to make addition of unexplained cash credits even though the income is estimated on sales. In the instant case, the AO had accepted the sales and no unexplained cash credits were found, thus, the case law relied upon by the Ld.DR is also distinguishable on the facts of the case. The Ld.DR relied on the decision of CIT VsP.MohanaKala, 161 Taxmann 169, CIT vs Devi Prasad Vishwanath Prasad 72 ITR 194(SC) both the cases refer to the sums found credited in the books of account but not offered as income, whereas in the instant case the assessee admitted the same as sales and offered for taxation, hence, the case laws has no application in the assessee's case. The Ld.DR also relied on the decision in Naresh Kumar Tulshanvs. 5th ITO, ITAT Bombay (supra), the decision was related to the addition u/s 69A representing huge deposit of cash in bank for which the initial source was declared as past profits and subsequently explained as withdrawal from partnership firm without relevant matching entries in the banks, therefore, the coordinate bench of ITAT held that withdrawal of such huge amount in high denomination was not practicable. The Ld.DR also relied on the decision of J.M.J.Essential Oil Company Vs. ITO, 100 taxmann.com 181 in the cited case, the assessee effected large sales in one month of each year continuously for two years and the assessee is eligible for deduction u/s 80IC and the AO observed that the assessee was inflating the sales and claiming the huge deductions. No such cash inflow is involved due to demonetization. Whereas in the assessee's case there were no such deduction or the exempt income and the profits were also not abnormal. The assessee explained the reason for huge sales with evidence and thus the case law relied up on by the DR is distinguishable. The Ld.DR relied on various case laws and all the case laws more or less are related to the additions made u/s 68 as unexplained cash credit and in none of the cases the assessees have admitted the same as income. Therefore, we find that the case laws relied up on by the Ld.DR has no application in the instant case and the same are distinguishable. 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 effect the sales and we do not find any defect in 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 Vishal 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."

"13.

The Id. CIT(A) has duly analyzed the sales & purchases,stock, cash and compared it with F.Y. 2014-15, F.Y. 2015-16and also F.Y. 2016-17. The day wise cash book has beenexamined, the same have been incorporated in this order. Thecomparative data of purchase and stock for four years to determine the regularity of the cash sales has been examined.No defects have been pointed in purchase, sale and stock. Therehave been substantial cash sales in all the four years and theAO has accepted sales in cash for all the years except for theperiod between 11.11.2016 to 15.11.2016. In the other years,about 88% of the stock has been sold in cash and the samecash has been deposited in the bank for which the revenue hasno objection. No discrepancy in the VAT return has been found out. No specific defects in the books of accounts of the assesse have been found out and there was no negative stock on any ofthe dates which only goes to prove that the cash sales havebeen made against the available stock. Further, the AssessingOfficer has accepted the sales and hence the proceeds of thesales cannot be considered u/s 68 of the Income Tax Act, 1961.The Id. CIT(A) has rightly placed reliance in the comparablejudgments of the Tribunal in the case of Agson Global Pvt.Ltd.vs. ACIT (supra) and ACIT, Central Circle Vs. Hirapanna Jewellers, Vishakhapatnam (supra).

14.

Having gone through the entire record viz., Assessment Order, submissions of the assessee before the AO, submissions of the assessee before the Id. CIT(A), arguments of the Id. DR, arguments of the Id. AR and the order of the Id. CIT(A), we find no reason to interfere with the analysis, logic, ratio and reasonableness of the order of the Id. CIT(A). 15. In the result, the appeal of the Revenue is dismissed."

'13. The Id. CIT(A) has duly analyzed the sales & purchases, stock, cash and compared it with F.Y. 2014-15, F.Y. 2015-16 and also F.Y. 2016-17. The day wise cash book has been examined, the same have been incorporated in this order. The comparative data of purchase and stock for four years to determine the regularity of the cash sales has been examined. No defects have been pointed in purchase, sale and stock. There have been substantial cash sales in all the four years and the AO has accepted sales in cash for all the years except for the period between 11.11.2016 to 15.11.2016. In the other years, about 88% of the stock has been sold in cash and the same cash has been deposited in the bank for which the revenue has no objection. No discrepancy in the VAT return has been found out. No specific defects in the books of accounts of the assessee have been found out and there was no negative stock on any of the dates which only goes to prove that the cash sales have been made against the available stock. Further, the Assessing Officer has accepted the sales and hence the proceeds of the sales cannot be considered u/s 68 of the Income Tax Act, 1961. The Id. CIT(A) has rightly placed reliance in the comparable judgments of the Tribunal in the case of Agson Global Pvt. Ltd. vs. ACIT (supra) and ACIT, Central Circle Vs. Hirapanna Jewellers, Vishakhapatnam (supra).

14.

Having gone through the entire record viz., Assessment Order, submissions of the assessee before the AO, submissions of the assessee before the Id. CIT(A), arguments of the Id. DR, arguments of the Id. AR and the order of the Id. CIT(A), we find no reason to interfere with the analysis, logic, ratio and reasonableness of the order of the Id. CIT(A).

15.

In the result, the appeal of the Revenue is dismissed."

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.”

“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.”

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 dated 27.03.2023, wherein it was held as under:

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.

21.

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.

22.

In the result, appeal filed by the assessee is allowed.”