ARIF,SHIMOGA vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, SHIMOGA

Shri Arif vs ACIT, Circle - 1 Nehru Nagar, Sagar I.T. Office, No.75, 100ft Road Shimoga 577401 Gopal Gowda Extension PAN – ADAPA8762G Shimoga 577201 (Appellant) (Respondent) Assessee by: Shri Nitesh Ranjan, CA Revenue by: Shri Ganesh R. Ghale, Standing Counsel Date of hearing: 16.01.2023 Date of pronouncement: 16.01.2023 O R D E R Per: Chandra Poojari, A.M. This is an appeal filed by the assessee against the order of the learned CIT(A),/NCAC, Delhi dated 10.08.2022 for AY 2017-18.

Shri Arif v The learned CIT (Appeals) has erred in upholding the order of the learned Assessing Officer invoking the provisions of section 68 of the Act, despite the fact that the appellant duly explained that the impugned cash deposits ws proceeds from sales made during the period. vi The learned CIT (Appeals) has erred in confirming the additions of cash deposits made during the demonetization period without rejecting the sales amount and closing stock during the period, thereby bringing the same amount to tax twice – Rs.11,50,000/-. vii The learned CIT (Appeals) has erred in confirming the cash deposits as cash credits under section 68 of the Act, when such cash was from sales duly supported by bills. viii The learned CIT (Appeals) has erred in confirming the additions by comparing the cash balance as of 31-Mar-2016 with the cash balance on 09-Nov-2016 and not relying on the sales register and cash book, and by stating that they were self-generated. ix. The learned Assessing Officer and learned CIT (Appeals) failed to appreciate that the quantum of sales claimed by the Appellant was also supported by the quantum of purchases made by the Appellant from IOC limited. x The order of the learned Assessing Officer and learned CIT (Appeals) is purely based on surmises and conjectures without any logical reasoning.”

Shri Arif period with the average sales of prior three months. According to the learned A.R. the learned AO ought to have considered the average sales of the entire year instead of the average sales of three month to compare the sales in 10 days during the demonetisation period. He submitted that the assessee’s books of accounts has been audited and the assessee also filed the VAT return which has been accepted by the Sales Tax authorities and the AO has not doubted the purchase account or stock account and he isolately considered the sale of 10 days during the demonetisation period and observed that the assessee has inflated sales during this period. The learned A.R. relied on the following judgements and submitted that without doubting the purchase or stock figures the AO cannot reject the sales declared by the assessee: - i. Smt. Charu Aggarwal vs. DCIT (2022) 140 taxmann.com 588 (Chandigarh) ii. Bansal Rice Mills vs. ITO (2022) 120 Taxman 155 (Chandigarh) iii. PCIT vs. Agson Global (P.) Ltd. (2022) 134 taxmann.com 256 (Delhi) iv. Lakshmi Rice Mills vs. CIT (1974) 97 ITR 258 (Pat.) v. CIT vs. Akshit Kumar (2021) 124 taxmann.com 123/277 Taxman 423 (Delhi) 5. The learned D.R. relied on the orders of the lower authorities.

7. Now coming to the sustaining of addition towards inflated sales, in my opinion, it amounts to double addition as the said amount is considered in the Shri Arif Profit & Loss Account and included in the already declared income of the assessee. In my opinion, there is a merit in this plea of the assessee. This inflated sales, if any, already had gone into the computation of income and making further u/s. 69A of the Act amounts to double addition which shall be avoided. In view of this, I direct the AO to exclude this amount from the income of the assessee. Thereafter, he has to make separate addition of the same amount under Section 69A of the Act provided if the assessee is not able to reconcile its sales with reference to the deposit of money into assessee’s bank of account. While doing so, the AO has to consider the average daily sales of one year before the demonetisation period and if the assessee’s sales during the demonetisation period found to be more than the average sales of prior one year, then only that difference amount can be considered for computation of inflated sales. The assessee shall furnish full details of one year’s sales prior to the demonetisation period and the AO has to consider the average daily sales and compare it with the sales of demonetisation period. On the basis of this average sales, the sales during demonetisation period to be compared and fund flow/cash statement of the relevant period to be produced so as to demonstrate that the assessee is having sufficient cash balance to deposit into bank account. If there is shortage in cash balance, then only addition to be made to that extent. With this observation, I remand this issue to the file of the AO for fresh consideration.