INCOME TAX OFFICER WARD-12(2)(1)), MUMBAI vs. G G ENGINEERING LIMITED, MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

(i) Saraswat Co-operative Bank Ltd A/c. No.284500100000359 - Rs.65,55,000/- (ii) ICICI Bank Ltd A/c. No.242105000010 -Rs. 7,99,000/- Total Rs.73,54,000/- ========== 3.1. The ld. AO in order to ascertain the details like KYC including the current address of the company and also to ascertain the nature and source of cash deposits made by the assessee during the demonetisation period, issued notice u/s.133(6) of the Act dated 28/06/2019 to the Managers of related branches of aforesaid banks. Response from banks were received by the ld. AO containing bank statements and deposits slips. Later, a notice u/s.142(1) of the Act was issued to the assessee on 28/11/2019 requesting the assessee to submit the details of cash deposited during the whole year under consideration. In response to the M/s. G.G.Engineering Limited said notice, the assessee submitted the audited financial statements, sales and purchase register for F.Y.2016-17 and bank statements for the whole year under consideration. The assessee filed the movement of cash containing the opening balance of cash as on 01/04/2016, cash received from customers in respect of sales, cash received back from various parties to whom advances were given in earlier years, cash withdrawn from banks, cash deposited in bank and closing cash balance as on 31/03/2017, month wise, before the ld. AO. Since assessee has made cash deposit of Rs.73,54,000/- during the demonetisation period in specified bank notes, the ld. AO show-caused the assessee as to why the same should not be treated as unexplained money in the hands of the assessee u/s.69A of the Act. In response to the said show-cause notice, the assessee filed a letter dated 18/12/2019 stating that it had opening cash balance as on 09/11/2016 of Rs.21,46,705/- and it had received monies in cash from 15 parties for cancellation of contract of sale amounting to Rs.54,66,000/- and these two put together was available as a cash source with the assessee to make cash deposits in the bank account during the period 09/11/2016 to 31/12/2016. The assessee also stated further that it is also made cash sales to various parties which is also available as a cash source with the assessee to explain the cash deposits. The ld. AO however, did not heed to the aforesaid contentions of the assessee in view of the fact that assessee had received cash from 14 persons of Rs.3,75,000/- each and from one person of Rs.2,16,600/- totalling to Rs.54,66,600/- for cancellation of sales for which assessee has only submitted in written paper in similar hand writing containing the confirmation letters from those parties for having made payments to the assessee in cash. The said letter did not contain PAN of those parties. The ld. AO disregarded these confirmation letters as self-created documents. Moreover, he also observed that no person can accept from others specified bank notes after the announcement of demonetisation by the M/s. G.G.Engineering Limited Government of India. Accordingly, he made addition of Rs.73,54,000/- u/s.69A of the Act treating the cash deposits as unexplained money of the assessee.

3.2. The ld.CIT(A) observed that assessee has furnished the cash book of the company for the whole F.Y.2016-17, from which it is evident that as on 09/11/2016, the assessee had opening cash balance of Rs.21,46,705/- which would partially explain the cash deposits made during the demonetisation period. Hence, to this extent, the ld. CIT(A) deleted the addition as the cash book of the assessee was not rejected by the ld. AO. With regard to remaining sum of Rs.52,07,295/- (Rs.73,54,000/- - Rs.21,46,705/-), the ld. CIT(A) deleted the addition of Rs.52,07,295/- by observing as under:-

“6.2 As regard to the addition of balance Rs. 52,07,295 (being Rs. 73,54,000 - Rs.21,46,705).

The appellant in its submission has stated that it was the sole manufacturer of steel components required for an affordable housing project which focused on developing houses for individuals in low lying affected areas and backward areas of the country. Since the project was spread across the nation, the Appellant had hired some sub-contractors for undertaking the said activity and the Appellant had advanced money the contractors to undertake the project on behalf of the Appellant. The sub-contractors were from local contractors undertaking civil and development work in backward area where the project was to be undertaken and that we were informed by them that they did not have PAN. They had provided us with their address which was duly provided to the Ld. A.O during the course of the hearing However, subsequently the project was not completed and amount advanced remained with the contractors. It was further submitted that the Appellant was pursing for the money from the contractors however, the contractors did not refund the money on cash flow grounds. The said amounts were recorded in the audited books of accounts of the Appellant The appellant further that as per its books of account the opening balance in its Schedule to Balance Sheet Note 9 under the head Other Loan and Advances was Rs.65.52.000 and that the closing balance was Rs 10,85.400. And this reduction in the M/s. G.G.Engineering Limited amount is on account of the receipt of Rs. 5207295 from the persons to whom the advances were given and as these amounts were long overdue and were not returned by the persons, however in the impugned period of demonetization the persons came forwarded and repaid the money and as the appellant was in need of money therefore its own money and deposited the same in the bank And as the money received was already recorded in its books of account therefore it doesn't attract provision of 69A of the Act. The submission of the appellant is considered. The AO in his order has used the only fact that the above cash amount was deposited in the bank and accordingly proceeded with adding the same. As seen from the submission the amount was standing in the books of account and in the subsequent year the loans were reduced to that extent in its books of account. Therefore, Invoking section 69A of the Act is not correct. The addition made by the AO of Rs. 5207295/- is hereby deleted. The Grounds of appeal are allowed.”

3.3. At the outset, we find that assessee had opening cash balance as on 09/11/2016 of Rs.21,46,705/- in its cash book. Hence, this money is very much available for explaining the cash deposits made during the period 09/11/2016 to 31/12/2016 partially. Further, cash book filed by the assessee has not been rejected by the ld. AO. No defect has been found by the ld. AO in the cash book or in the audited financial statements furnished by the assessee before the ld. AO. Hence, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the extent of Rs.21,46,705/- as cash source partially available with the assessee to explain the cash deposits made by the assessee.

3.4. The assessee had submitted that it had advanced monies to certain sub-contractors in earlier years. The assessee had submitted that those monies had been received back from those sub-contractors during the demonetisation period in specified bank notes which had been deposited by the assessee in the bank account in specified bank notes during the period 09/11/2016 to 31/12/2016. The advances given to those sub- contractors had been duly reflected in the books of accounts of the M/s. G.G.Engineering Limited assessee in earlier years and the balance sheet of the assessee as on 31/03/2017 clearly reflects under the asset side – “other loans and advances”, where the closing balance is reflected at Rs.10,85,400/- as against Rs.65,52,000/- as on 31/03/2016. This categorically goes to prove that during the year, assessee had recovered the advances in the sum of Rs.54,66,600/-. All these transactions are duly reflected in the books of accounts of the assessee which are duly subjected to audit. In fact, the assessee has also furnished the details of monies recovered in the sum of Rs.54,66,600/- from 15 parties. The assessee had also furnished the confirmation letters from these 15 sub-contractors, though in a hand written paper in similar wordings. These confirmations are enclosed in pages 20-50 of the paper book filed before us. These confirmations duly confirm the fact of those suppliers paying back the monies due to the assessee in cash during the year under consideration. The amounts received back from these sub-contractors / suppliers had been duly reflected in the cash book of the assessee which also becomes cash source available with the assessee to explain remaining cash deposits made in the sum of Rs.52,07,295/-. It is not in dispute that assessee had furnished the month wise movement of cash containing various receipts, cash withdrawals from bank, cash deposits in bank account together with opening and closing cash balances thereon. There was absolutely no negative cash balance in the books of the assessee company. This cash book filed by the assessee has not been rejected by the ld AO. Hence, the entire cash deposits made by the assessee during the demonetisation period stands clearly explained with proper sources. The assessee had indeed satisfactorily explained the nature and source of such cash received by it which has been eventually deposited in the bank accounts. Hence, the entire cash deposits become explained by the assessee. Hence, there cannot be any addition that could be made in the sum of Rs.52,07,295/-. This fact has been duly appreciated by the ld.

M/s. G.G.Engineering Limited CIT(A) while granting relief. None of the aforesaid facts have been controverted by the Revenue before us. Hence, we do not deem it fit to interfere in the said order of the ld. CIT(A).

“[Unexplained money, etc]

69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.”

4.1. From the bare perusal of the aforesaid provisions, Section 69A of the Act would come into operation only when - (a) The assessee is found to be owner of any money, bullion, jewellery etc.

In the instant case, it is duly proved by the assessee that assessee is the owner of the money.

(b) Such money, bullion, jewellery, Article etc., should not have been recorded in the books of accounts of the assessee

In the instant case, assessee had duly recorded the cash received from sub-contractors and the opening cash balance as on 09/11/2016 in its books of accounts.

(c) Assessee does not offer any explanation about the nature and source of acquisition of money or explanation offered by the assessee is not satisfactory to the ld. AO

In the instant case, assessee had duly explained the nature and source as to how it got those monies in cash.

4.2. The aforesaid three conditions are to be satisfied cumulatively for the purpose of applicability of provisions of Section 69A of the Act. Even if the explanation given by the assessee is not to the satisfaction of the ld. AO still the applicability of provisions of Section 69A of the Act fails in view of the cumulative conditions imposed in the said section. Hence, we hold that provisions of Section 69A of the Act could not come into operation at all in the facts and circumstances of the instant case. Hence, the addition of Rs.73,54,000/- deserves to be deleted on this legal ground also.

M/s. G.G.Engineering Limited 5. In the result, appeal of the Revenue is dismissed.

Order pronounced on 31/01/2023 by way of proper mentioning in the notice board.