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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH, HON’BLE & SHRI MANJUNATHA. G, HON’BLE
PER MANJUNATHA. G, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-18, Chennai, dated 22.03.2022 and pertains to assessment year 2017-18.
The assessee has raised the following grounds of appeal: “1. The order of the learned Commissioner Of Income Tax (Appeals)-18, is Wrong, illegal and is opposed to law.
:-2-: ITA. No: 384/Chny/2022 2. The Ld. Commissioner of Income Tax (Appeals)-18 erred in sustaining the addition which is made only on the basis of suspicion and surmise. Suspicion however strong cannot take the place of evidence.
3. The Ld. Commissioner of Income Tax (Appeals)-18 erred in sustaining the addition made under section 68 r.w.s 115BBE of the Income Tax Act despite the fact that the appellant provided details relating to cash deposited in the bank account during the demonetized period.
The learned Commissioner of Income Tax (Appeals)-18 ought to have seen that cash deposit is made by the appellant during normal course of its business and that the appellants books are duly audited and the deposits are explainable with corroborative materials.
5. The CIT(A) ought to have seen that addition under the head unexplained credit is warranted only if the twin condition that if a sum is found recorded in the books of accounts maintained by the appellant and that no satisfactory explanation is offered by the assessee. In the instant case the appellant has satisfactory explanation and therefore no addition is warranted under section 68 of the Act.
The Ld. CIT(A) ought to have seen that deposits in bank account can be treated as unexplained only if no satisfactory explanation is offered by the assessee. In the instant case the appellant has satisfactorily explained that the bank deposits were made during the normal course of the appellants business and the same is corroborated with the cash book maintained by the appellant and the VAT returns.
7. The learned CIT(A) failed to appreciate the fact that the nature of the appellants business has undergone change from whole sale to retail sale of Jewellery and that the cash deposit is on account of retail sale of Jewellery which is supported by VAT returns.
The Learned CIT(A) while affirming the order of assessment failed to take into consideration the withdrawal made by the appellant which is available for the purpose of redeposit.
The Learned CIT(A) while accepting the opening stocks, purchases and the books of accounts maintained by the appellant ought to have seen that cash balance as per the :-3-: ITA. No: 384/Chny/2022 books as on 8.11.2016 amounted to Rs.3,32,47,647/- which formed the source for the bank deposits.
The learned CIT(A) ought to have seen that the appellant had maintained the stock in accounting software, books are duly audited and that the sales from the month of April of the impugned year have been duly incorporated in VẤT returns and that the closing cash balance as on 8.11.2016 supported by contemporaneous records would vindicate the stand of the appellant and explain that the source of cash deposit is on account of cash sales generated during the pre demonetization period. For these and other grounds that may be rendered at the time of hearing it is most humbly prayed that the Hon'ble Tribunal may be pleased to allow the appellants appeal and thus render justice.”
The brief facts of the case are that, the appellant company has filed its return of income for the assessment year 2017-18 on 06.11.2017, admitting total income of Rs. 1,13,49,750/- and said return has been revised on 08.12.2017, admitting total income of Rs. 1,13,49,750/-. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee has made cash deposits of Rs. 3,30,00,000/- into bank account during demonetization period. The Assessing Officer called upon the assessee to explain source for cash deposits, for which the appellant submitted that cash deposits to bank account is out of cash sales made during period prior to demonetization. The Assessing Officer, called for :-4-: ITA. No: 384/Chny/2022 comparative analysis of total sales, cash sales for two financial years and also period covered under demonetization period and after considering relevant submissions of the assessee opined that, there is a sudden increase in cash sales during demonetization period when compared to cash sales achieved for earlier financial years. Although, the assessee claims to have made more sales during demonetization period on account of Deepavali and Dhanteras, but on perusal of details filed by the assessee, it is undoubtedly clear that except in the month of October, 2016 and up to 08.11.2016, cash sales for other period is very minimum. Further, although the assessee claims to have unaccounted cash sales for earlier period and the same has been discovered during the course of search, an abnormal increase in sales during the month of October, 2016 only added strength to the suspicious that the assessee has artificially increased sales to cover up cash deposits to bank account during demonetization period. Therefore, rejected arguments of the assessee and made additions of Rs. 3,30,00,000/- as unexplained credit u/s. 68 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) and brought to tax as per provisions of section 115BBE of the Act. The :-5-: ITA. No: 384/Chny/2022 relevant findings of the Assessing Officer are reproduced as under: “2.4 The reply of the assessee is perused. In the earlier financial year 2015-16 the assessee had negligible cash sales. Even during the financial year 2016-17 also, the assessee had booked cash sales only in the month of October and November (upto 8th Nov), 2016. The assessee has stated that the retail sales depends on festivals like Diwali and Dhanteras and marriage seasons which falls in October, November, December 'and January and hence the cash sales during the above stated period has also increased proportionately. No doubt, the sale is higher during the festival time of Diwali, but similar sales will be there during the remaining part of the year also. It is not that sales are made only in the month of Diwali. For a moment, if the assessee's argument that increase in cash sales during October 2016 was due to Diwali, then why there are no cash sales for the earlier year, i.e. during Diwali of 2015. As can be seen from the sales analysis submitted by the assessee, the cash sales during the other months are negligible. It is an improbable situation that in a span of 24 months except for few scattered cash sales only during a part of financial year 2015-16, maximum cash sales are there only in the month of October 2016. This is not a situation where the sales are proportionately increased as claimed by the assessee for the reason that increase is abnormal as evident from the table given above. Further, the assessee has stated that a search was conducted in the month of February 2016 and substantial gross profit was admitted before the Income Tax Settlement Commission for the financial year 2015-16 which goes to prove that there were cash sales during the financial year 2015-16. The assessee has also claimed that after the search, the company was recording the entire cash sales and credit sales in the books of accounts. The reply of the assessee is not acceptable. Firstly, though the amount admitted before the settlement commission was on account of unaccounted sales, there is no evidence of them being cash sales. Further, the total cash sales during the month of April 2016 to September 2016 is around Rs.9 lakhs only whereas the sale during 08th) October 2016 and November 2016 (upto was Rs.3,25,33,431. Therefore the claim that the company started recording the entire sales after the search in February 2016 is evidently false. Therefore, it is a case where, the cash that has been deposited during the demonetization period was unaccounted money of the assessee which is kept in the form of cash. Further, analysis of the cash book shows that cash balance maintained on a regular basis was only around Rs.80,000 to Rs.6 lakhs during the financial year 2015-16 and Rs.1 lakh to Rs.9 lakhs during the financial year 2016-17 up to September 2016. Suddenly in the month of October, the cash :-6-: ITA. No: 384/Chny/2022 balance has increased and as on 01-11-2019, the cash balance is Rs.2,58,92,080/-. This goes to show that the sale figure in cash during October 2016 is fictitious. This is clearly with an intention to manipulate the sales during the month of October and use it as a colourable device to generate sources for the cash deposited during the demonetization period. 2.5 In view of the above discussion, the amount of Rs.3,30,00,000/- being cash sales credited in the books of accounts and deposited in the bank during the demonetization period is treated as unexplained credits u/s 68 of the Act and brought to tax as per the provisions of section 115BBE.”
4. Being aggrieved by the assessment order, assessee preferred appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee has filed detailed written submission on the issue which has been extracted at Para 4 of Page 3 to 17 of ld. CIT(A) order. The sum and substance of the arguments of the assessee before the ld. CIT(A) are that, the source for cash deposits is out of opening cash balance available as on 08.11.2016 and same is out of cash sales made during the month of October, 2016 and up to 08.11.2016. The ld. CIT(A), after considering relevant submissions of the assessee and also taken note of relevant facts opined that the sales booked during the period of demonetization, more particularly in the month of October, 2016 and up to 08.11.2016 is abnormal when compared to sales in the earlier months. The ld. CIT(A), further observed that for abnormal increase in turnover the appellant has not shown any valid reason :-7-: ITA. No: 384/Chny/2022 especially when there are lot of jewellery shops in which the appellant is carrying on the business. Therefore, the ld. CIT(A) observed that, the arguments of the assessee that unaccounted cash sales prior to demonetization period was identified during search proceeds and assessee has offered profit from said unaccounted sales to tax and thus, if you compare corresponding cash sales during October, 2016 to unaccounted sales affected for earlier period, there is no abnormal increase in sales as noticed by the Assessing Officer is an afterthought and devoid of merits and cannot be accepted. Therefore, rejected arguments of the assessee and sustained additions made by the Assessing Officer towards cash deposits u/s. 68 r.w.s 115BBE of the Act. The relevant findings of the ld. CIT(A) are reproduced as under: “5.4 I have considered the submissions of the appellant and the findings of the A. The appellant had admittedly deposited Rs.3,30,00, 000 during This is claimed by the demonetization period in demonetized currencies. appellant out of cash sales made during the month of October, 2016 and upto 8th November, 2016. The sales booked during this period was in average. It is thus proved that the cash deposited was only because of the inflation in sales shown by the appellant during October, 2016 and upto 8th Novenber, 2016. For such abnormal increase in the turnover, the appellant had not shown any valid reason especially when there are lot of jewellery shops in the area in which the appellant is carrying on business and the appellant had not shown any special reasons for such huge increase in the turnover during the said two months in particular. The AO has already brought on record that the past records of the appellant do not compare favourably as the cash on hand or the cash sales were very meagre in those years. The appellant has thus inflated the :-8-: ITA. No: 384/Chny/2022 sales and claimed the deposits as made out of such inflated cash sales. This was well and clearly brought out in the assessment order of the AO. The appellant never claimed before the AO that the deposits made were made out of earlier withdrawals made from the bank and the appellant had not also furnished any details in support of the argument made. The sales itself are considered as inflated one and therefore the fact that the appellant had disclosed the sales turnover for tax cannot be the reason for holding otherwise. The appellant's own undisclosed income by way of cash was only brought in the guise of cash sales and deposited in the bank account. In the written submission, the assessee has stated that the sales are genuine and hence the addition not to be made u/s 68. This is not acceptable as it has been clearly established that the cash sales during the relevant demonetization period mentioned above is not genuine and hence certain decisions quoted by the assessee are misplaced. For those credit entries in the books, the assessee has not proved the identity of the persons from whom those credits were received, genuineness of the transaction by furnishing confirmation letters from the concerned persons and the credit worthiness of the persons from whom the demonetized currencies were received and hence, the credits are squarely taxable u/s 68 and therefore the decisions cited by the assessee in this regard are misplaced. The assessee has stated that section 115BBE is not applicable for this year. This is also not correct, as it came into effect from 1.4.2016 itself and the impugned AY is 2017-18. The assessee further argued that addition u/s 68. cannot be made based on bank statement. This is also not correct, as the addition u/s 68 relates to bogus credits in the form of sales and the corresponding credits in bank account. I, therefore in view of the above reasons, confirm the order of the AO and sustain the addition of Rs.3,30,00,000 made as undisclosed income of the appellant and dismiss the grounds raised.”
The Ld. Counsel for the assessee, Shri. D. Anand, Advocate, submitted that the ld. CIT(A) erred in sustaining additions which has been made only on the basis of suspicion and summaries, even though the appellant had demonstrated with evidence that cash sales achieved during the period of demonetization is not abnormal when compared to cash sales achieved during immediate preceding financial year. The Ld. :-9-: ITA. No: 384/Chny/2022 Counsel for the assessee, referring to chart explaining unaccounted sales for assessment year 2013-14 to 2016-17 admitted during the course of search submitted that, on an average there was unaccounted sales of about Rs. 150 crores per year for earlier five financial years and the same has been discovered during the course of survey. If you consider the average unaccounted cash sales of earlier period to cash sales reported during the month of October, 2016 and up to 08.11.2016, there is no sudden increase in cash sales as observed by the ld. Assessing Officer. Further, the Assessing Officer has not disputed the fact that the assessee has produced sales bills and also there is no discrepancy in stock available to support sales achieved during the period of demonetization. Unless the Assessing Officer proves that sales booked before demonetization period is artificially increased without any support of stock in trade, then the findings of the Assessing Officer may be accepted. But, fact remains that the Assessing Officer failed to point out any discrepancy in stock in trade and sales reported by the assessee. Therefore, having accepted the sales and also taxed profit earned out of said sales in the regular assessment, making addition toward cash deposits as unexplained credit is incorrect.
:-10-: ITA. No: 384/Chny/2022 6. The ld. DR, P. Sajit Kumar, JCIT, on the other hand supporting the order of the ld. CIT(A) submitted that, the assessee could not explain sudden increase in sales for the month of October, 2016 and up to 08.11.2016, when compare to previous financial year. Further, the arguments of the assessee that even in earlier period there was unaccounted sales, which was not reported in regular books of accounts and if you consider unaccounted cash sales to sales reported for the month of October, 2016, there is no increase is devoid of merits, because even after October, 2016, the cash sales reported by the assessee is very minimum. Further, except for the month of October, 2016 and up to 08.11.2016, there is no increase in cash sales in the current financial year when compared to earlier financial year. The Assessing Officer has rightly brought out these facts to reject arguments of the assessee and made additions towards cash deposits u/s. 68 of the Act. The ld. CIT(A), after appraising relevant facts rightly upheld additions made by the Assessing Officer and their order should be upheld.
We have heard both the parties, perused materials available on record and gone through orders of the authorities :-11-: ITA. No: 384/Chny/2022 below. There is no dispute with regard to the fact that cash deposits of Rs. 3,30,00,000/- after demonetization is supported or backed by opening cash in hand available as on 08.11.2016. It is also undisputed fact that cash balance available as on 08.11.2016 is out of cash sales achieved for the month of October, 2016 and up to 08.11.2016. The appellant has reported cash sales of Rs. 2.53 crores for the month of October, 2016 and Rs. 72 lakhs for the month of November, 2016 till 08.11.2016. The cash sales are supported by necessary sales invoice/cash bills. The cash sales are also supported by necessary stock in trade. In fact, the Assessing Officer never disputed the fact that, the assessee has reported cash sales which is covered by necessary cash bills/invoices and also there is no discrepancy in stock in trade employed in the business of the assessee. Further, the assessee has reported cash sales to GST authorities, which is evident from GST return filed for the relevant assessment years. The assessee explained that source for cash deposit is out of cash sales achieved in the month of October, 2016 and up to 08.11.2016. The Assessing Officer made additions towards cash deposits u/s. 68 of the Act, on the ground that there is an abnormal increase in cash sales for the month of October, :-12-: ITA. No: 384/Chny/2022 2016 and up to 08.11.2016, when compared to cash sales for the month of October, 2015 and November till 08.11.2015. According to the Assessing Officer, the assessee has booked artificial cash sales to cover up cash deposits into bank account during demonetization period. The Assessing Officer, has analyzed the issue in light of total sales achieved in the financial year 2015-16 & 2016-17 and more particularly for the month of October, 2015 and October, 2016, to come to the conclusion that there is an increase in sales for the month of October, 2016 before demonetization.
8. We have given our thoughtful consideration to the reasons given by the Assessing Officer to make additions towards cash deposits u/s. 68 of the Act, and we do not subscribe to the reasons given by the Assessing Officer for the simple reason that, the Assessing Officer has not disputed cash sales reported by the assessee which is covered by necessary cash bills/invoices. There is no iota of any evidence with the Assessing Officer that cash sales reported by the assessee is not genuine one and not supported by necessary stock in trade employed in the business. In fact, there is no observation in the assessment order with regard to any :-13-: ITA. No: 384/Chny/2022 discrepancies with regard to the sales achieved for the month of October, 2016 and corresponding stock in trade employed by the assessee. The Assessing Officer had also not disputed the fact that the assessee has paid necessary GST applicable on cash sales and reported to GST authorities. From the above, it is undoubtedly clear that source for cash deposits is out of opening cash in hand available as on 08.11.2016 and the same is covered by cash sales achieved for the month of October, 2016 and up to 08.11.2016. Therefore, we are of the considered view that, once there is no dispute with regard to the sales reported by the assessee and corresponding evidence, then merely for the reason that there is a sudden increase in sales, source explained for cash deposits during demonetization period cannot be disputed. In other words, the Assessing Officer having accepted the fact that cash sales reported by the assessee is supported by necessary evidence including stock in trade, he cannot reject explanation of the assessee regarding source for cash deposits during demonetization period. Further, the arguments of the assessee that there is an increase in sales in the month of October, 2016 and up to 08.11.2016, due to festival season and marriage season is also bonafide and acceptable, because :-14-: ITA. No: 384/Chny/2022 it is a customary practice in Indian society to buy gold during Diwali and Dhanteras. If you compare sales achieved prior to sales achieved during the period of Diwali and Dhanteras, obviously there is a huge difference in sale achieved for these period. Further, the appellant has also supported his argument in light of cash sales discovered during the course of search. In fact, there was a search in the case of appellant and during the course of search, unaccounted cash sales was discovered which runs into several crores and average unaccounted sales works out to Rs. 150 crores per annum. If you consider average unaccounted cash sales per year and then compare with cash sales reported by the appellant during the month of October, 2016 and up to 08.11.2016, there is no abnormal increase in sales as observed by the Assessing Officer. Therefore, we are of the considered view that, the assessee is able to explain source for cash deposits out of opening cash in hand available as on 08.11.2016 and said cash in hand is supported by cash sales reported for the month of October, 2016 and up to 08.11.2016. The Assessing Officer and CIT(A), without appreciating relevant facts rejected arguments of the assessee and made addition towards cash deposits as unexplained cash credit u/s. 68 of the Act and :-15-: ITA. No: 384/Chny/2022 brought out u/s. 115BBE of the Act. Thus, we set aside the order passed by the ld. CIT(A) and direct the Assessing Officer to delete additions made towards cash deposits amounting to Rs. 3,30,00,000/- u/s. 68 r.w.s. 115BBE of the Act.