DY. COMMISSIONER OF INCOME TAX, CIRCLE - 01,, VARANASI vs. SHRI GANESH PRASAD,, VARANASI

PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER:

This appeal, filed by Revenue, being is directed against the appellate order dated 08.09.2020 passed by learned Commissioner of Income Tax(Appeals), Varanasi(hereinafter called "the CIT(A)”) in Appeal No. CIT(A), Varanasi/10401/2019-20/71, for assessment year (ay): 2017-18, the appellate proceedings had arisen before Learned CIT(A) from assessment order dated 26.12.2019 passed by learned Assessing Officer (hereinafter called “the AO”) under Section 143(3)of the Income-tax Act, 1961 (hereinafter called “the Act”)(DIN & Order No. ITBA/AST/S/143(3)/2019-20/1023153898(1)).We have heard both the parties in Open Court proceedings through physical hearing mode.

ITA No.138/VNS/2020 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi 2. The grounds of appeal raised by Revenue in memo of appeal filed with Income Tax Appellate Tribunal, Varanasi (hereinafter called “the tribunal”), reads as under: “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,63,28,547/- and also failed to appreciated the facts that the aforesaid addition made by the AO u/s 69A of the I.T. Act, 1961 because the assessee was failed to substantiate the same during the course of assessment proceeding after allowing many opportunities.

2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the submission of the assessee without appreciating the fact that the AO has allowed maximum average sales for the month.

3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the submission of the assessee without calling for any remand report from the AO whereas the assessee has made wrong submission before him.

4. Right is reserve to alter, modify and to file any fresh ground of appeal.”

3. The brief facts of the case are that the assesse filed his return of income for impugned assessment year:2017-18, on 14.10.2017 declaring total income of Rs. 92,18,080/-. The assessee is engaged in the business of manufacturing of sweets and namkeen by use of Khoa, Chhena , milk, dry fruits , besan, maida, spices and vegetable as gas for cooking varieties of sweets. The case of the assessee was selected for framing scrutiny assessment, and accordingly notice under Section 143(2) of the 1961 Act was issued by AO on 20.08.2018 , which was claimed by AO to have been duly served upon the assessee. Thereafter, notices under Section 142(1) were issued by AO from time to time, and claimed to be served upon the assessee. As the assessment proceedings 2 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi in the case of the assessee was getting time barred on 31.12.2019, a show cause notice(SCN) dated 17.12.2019 was issued by AO for compliance on 19.12.2019 , which is reproduced hereunder:

ITA No.138/VNS/2020 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi 3b. The assessee in response thereof filed reply in which assessee duly explained before the AO with respect to commission paid and the basis on which such commission was paid by the assessee, which was found acceptable by the AO and matter rested there. However, the AO observed that assessee has not provided any reply on the issue of evidence of “Home Cash”. The AO further observed that so far as the consummation of packing material is concerned, the assessee submitted reply based on unverifiable facts, and that consumption of packing material is not commensurate with the total sales. The AO observed that the assessee has deposited total cash amounting of Rs. 2,02,50,000/- in the bank account No. 2988002100015734 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi held with Punjab National Bank during demonetization period. The assessee submitted his reply with respect to cash deposit exceeding Rs. One lakh in cash in the bank account during the year under consideration, as under:

The AO observed that the assessee has shown opening cash balance of Rs. 27,68,557/- as on 01.04.2016. On analyzing the reply of the assessee and the financial data available on record, the AO observed as under:

1.

2. That assessee had shown receipts of ranging from Rs. 26,08,137/- to 39,21,453/- from monthly cash sales throughout the year. Based on that it is seen assessee had maintained average cash balance amounting to Rs. 26 lakhs to 48 lakhs.

3. The consumption of packing material is not commensurate with the growth in sale of sweets. The consumption of packing material has declined drastically from 10.07% in 2015-16 to 7.03% in 2016-17. More specifically whereas sale of sweets has increased from Rs. 4,62,22,064/- in FY 2015-16 to Rs. 9,61,15,517/- in F.Y. 2016-17 however the packing material consumption has increased only from Rs. 4,65,663/- (sic. Rs. 46,56,653/-) in F.Y. 2015-16 to Rs. 67,59,628/- in F.Y. 2016-17.

4. However, balance is seen to have increased suddenly during the end of the month of October-2016 and particularly from 1st November 2016 to 8 November 2016 (i.e. just before demonetization). The end of October month there was cash balance Rs. 1,99,26,887/- and during period of 01.11.2016 to 08.11.2016 assessee had shown sudden increase in cash sales; i.e. within a period of 7 days the cash in hand was increased from average of 26 Lakhs to 1,99,26,887/- by end of the day on 08.11.2016 This increase was in the tune of more than 7.6 times.

5. On analyzing the reply of assessee it is seen that assessee had shown brought forward cash balance as on 01.04.2016 amounting to Rs.27,68,557. However at the end of month of April-2016 it was Rs.34,63,700/-. Further cash balance at the end of May-2016 it was Rs. 36,91,264/-. The cash balance starts increasing from the month of October-2016 and at the end of month it was Rs.1,99,26,887/-.

6. Hence, it is clear that the cash book and sales book for F.Y. 2016-17 was manipulated to bring in unaccounted money which was with the assessee. The assessee had credited bogus sales to bring in that money. The assessee was forced to do this because the 6 ITA No.138/VNS/2020 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi government of India undertook the task of demonetization to unearth the unaccounted black money. So the assessee had no other way but to bring in the unaccounted money into the books of account and the assessee chose the way of bogus sales. Therefore this historical sales started appearing between 1st November 2016 to 8th November 2016 due to crediting of bogus sales.

From the above chart it is established that the sale in the month of October and November has been in increasing trend. The Assessing Officer has vide para 9 of his assessment order intentionally ignored the sales of October and November months. Whereas it is the trend in our Indian culture and according to the nature of Appellant's business that generally the sales in festive month i.e. October and November months remain abnormal/substantially higher in this line of activity as compared to other months.. Therefore the contention made by the Assessing Officer vide para 4 hereinabove and addition made is not valid on this score. It will not be out of place to mention here that all the above sales was cross verifiable from the copies of VAT returns duly furnished during assessment proceedings. The Assessing Officer has also not pointed out any defect in the VAT returns furnished during assessment proceedings by the Appellant. Thus VAT at applicable rate has also been duly paid by the Appellant on the self- disclosed sales and accounted for by him which is a fact on record. Thus treating the taxable turnover of the Appellant as per VAT Act as undisclosed turnover/unaccounted income of the Appellant is totally based on presumptions and surmises of the Assessing Officer. The shop of the Appellant was also surveyed on 14.10.2009 near Diwali and it is a tested work by department that sale of the Appellant on Diwall is more than the sale effected any month of F.Y. That due to demonetisation of currency, the Appellant was enquired about the deposit of cash in bank more than Rs. 2 Crore. The Appellant has explained the Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi same to the Ld. Addl. Director of Income Tax Investigation, Varanasi in compliance to the notice dated 09.12.2016 u/s 131(1A) of the Act. That kindly refer the para-4 of the said letter sent to Addl. Director of Income and quoted hereunder:- "...4. That the Balance Sheet for F.Y. 2013-14, 2014-15 & 2015-16 are attached along with the detail of sales of the month when the festival Deepawall was during these year. It is important to mention that the fourth son of the assessee Ravi Kumar severely suffered from Jaundice and his position become almost precarious as told by Dr. Shalabh Gupta and Dr. Hemant Gupta and examination on 25.10.2016 and as per their advice the family members along with him rushed to Medanta Hospital on 7th November, 2016 and therefore the cash collection of the Deepawall sales were deposited in the bank account on 11.11.2016.” The Appellant vide his reply dated 12.03.2019 has stated as under:-" “...........d.. That to effect such a high sale, and to collect the cash itself a tedious task and anybody of the family members i.e. son of the assessee could not get time to deposit the amount in the bank. The sales of sweets is not a trading commodity, It is sold when manufacture and it is possible when raw materials are collected. To collect raw material, to produce the same to make the arrangement of utensils, fuel, variety of raw material like dry fruits, khoa, chhena and to watch the production can only be experienced and in case, your honour have a time, the assessee is ready to display the manufacturing work during the Diwall season or even today. The cash memo issued by the assessee for sale of the sweets clearly justify that atleast 200 persons were supplied the goods in a day. e. That all the sale proceeds during the period of Diwali was kept at home. So far as the modus operandi of the receipt is concerned, the assessee has received the amounts in cash and in the evening the amount has been transferred to the locker of the home. The assessee has also maintained a ledger account in the books of the account regarding home cash balance, same quoted here under…”

ITA No.138/VNS/2020 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi In order to substantiate his claim, the Appellant has already attached the copy of Balance Sheet & P/L Account for last years, copy of cash book for A.Y. 2017- 18 (the copy of cashbook for the month of Oct-14, Nov-15 and Oct & Nov-16 are separately attached), copy of ledger account of Sales and copy of Stock register for A.Y. 2017-18 before the Assessing Officer during the course of assessment proceedings before him which is being attached herewith before your good-self for your kind perusal. That there is no provision of Law of the country either in the Notification or Circular issued for demonetization of currency that SBN or i.e. old currency prior to 08.11.2016 will be an amount to be taxed under the provision of Income Tax Law Including the Chapter-VI i.e. section 68, 69, 69A, 698, 69C and 69D of the IT Act, 1961 and thereby the provision of section 1158BE is also inapplicable. The Appellant is unable to understand that under which notification or circular or any other publication the Ld. Assessing Officer has treated the currency deposited in the bank is liable to tax u/s 69/69A of the Act. That the additions u/s 69A cannot be made on estimated basis. The Assessing Officer has made the additions on estimated basis on his own presumptions and surmises. Therefore the Ld. Assessing Officer has erred in :- (i) not taking into account this aspect of fact and erred and acted illegally adding back the difference of sales of November and sales of August and October 2016. (ii) adding back Rs.1,63,28,547/- as unexplained money u/s 69A of the Income Tax Act, 1961. That kind attention of your goodself is invited to the various judicial pronouncements which reads as under:- Decision of Hon'ble Income Tax Appellate Tribunal, Agra Bench in Appeal Number: in case of "Sh. Amit Jain Vs ITO(ITAT Agra)" A.Y. 2013-14 pronounced on 22.03.2019 whereby Hon'ble ITAT has been kind enough to hold as under: Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi "Conclusion: Since the cash deposit made by assesse was from the business activities of glass bangle trading business, therefore, no addition under section 69 over and above the returned income would be warranted." Therefore, the Assessing Officer has erred in invoking the provisions of section 69A of the Act in respect of the transactions recorded in the books of the appellant as the Appellant is maintaining proper books of accounts and other records of source of income and the amount deposited in bank account and thesame is fully explainable hence, consequently the additions made on this count are liable to be deleted under the facts and circumstances of the case. NON INVOKATION OF SECTION 145(3) OF THE INCOME TAX ACT, 1961 The Appellant during the course of assessment proceedings already fully explained to the Assessing Officer that the books of accounts were duly maintained by the him and the Appellant also submitted the books of accounts containing copies of Balance Sheets, P/L Account, copy of bank statements, various ledgers accounts, copy of cash book for FY 2015-16 and 2016-17 and the said accounts were duly audited u/s 44AB of the Income Tax Act, 1961 by an Independent Auditor but without pointing out specific defects in the books of accounts so maintained and/or and the audit report u/s 44AB of the Income Tax Act, 1961, the additions have been made to the Retuned Income on estimated basis which needs to be quashed accepting the Income Returned by the Appellant. Even the Assessing Officer neither questioned further nor any queries relating thereto were raised by the Assessing Officer which is evident from the fact that no further notice u/s 142(1)/Show Cause Notice challenging the above submissions of the Appellant were issued by the Assessing Officer. And the auditor was also never confronted by the Assessing Officer nor were the books of accounts rejected by him by invocating the provisions of section 145(3) of the Income Tax Act, 1961. The Appellant has during the course of assessment proceedings submitted the copy of ledger account of "Home Cash Book” to the Assessing Officer which forms part of the books of accounts being maintained on day to day basis by the Appellant. Therefore Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi without rejecting the books of accounts and invoking the provisions of section 145(3) of the Income Tax Act, 1961, no adverse inference is liable to be drawn in the matter. The Appellant has during the course of assessment proceedings vide his reply dated 03.12.2019 submitted the comparative chart of consumption of packing materials for 3 years alongwith copy of ledger account of packing goods for A.Y. 2017-18 which has been duly accepted by the Assessing Officer but on the other hand the Assessing Officer has tried to establish a link of packing material consumed with the sales of the Appellant on wrongful footing. It is a local custom that the bulk purchasers of sweets on festive season are in the practice of getting their own packing boxes printed with their firm's names and logo etc. which are supplied to the Appellant for packing of sweets. Since the Appellant does not incur any cost on such packing material, there cannot be any relation between the packing expenses vis-à-vis sales of the Appellant on this account. Hence this aspect is irrelevant and based on flimsy grounds while making addition u/s 69A of the Income Tax Act, 1961 and invocation of the provisions of section 115BBE of the Income Tax Act, 1961. Otherwise also, the 1st Appellate Authority has got coterminous power with that of the Assessing Officer and the appellate authority can consider what the Assessing Officer has failed to consider (owing to non-availability of such information with him during the course of assessment proceedings) so that justice is done to the appellant. PRAYER In view of the submissions made herein fore, it is respectfully prayed that Firstly: your honour be pleased to quash the order dated 21.12.2019; and Secondly: In any case delete the addition/disallowance for sums aggregating Rs.1,63,28,547/- so that the demand created over and above the same is cancelled.” Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi 4b. The Ld. CIT(A) deleted the entire additions as were made by AO, vide appellate order dated 08.09.2020, by holding as under: “Decision: Appellant filed return of income for the AY. 2017-18 on 14.10.2017 declaring total income of Rs. 92,18,080/- from the business of manufacture of sweets and namkeen and sales thereof in the name and style of M/s New Rajshree Sweets. Appellant is maintaining regular books of accounts, which are subject to statutory audit. AO has not invoked the provision of S. 144 of the Act while making the assessment and has also not rejected the books U/s 145(3). Appellant admittedly deposited Rs. 2,00,00,000/- in his bank account during the time of demonetisation. Appellant explained the source of it to be from the regular business turnover during the sale on Diwali of 2016. It is also seen that such huge sale has been affected prior to Diwali every year. AO contended that appellant had deposited cash amounting to Rs. 1,00,000/- to 19,00,000/- in the bank account regularly, but there was increase in cash deposit during the period of demonetization period. Appellant deposited Rs. 2,00,00,000/- on 11.11.2016 &Rs. 2,50,000/- on 15.12.2016. AO analysed the financial data and gave a finding that the appellant deposited cash only after making payments, in cash for purchases, in bank and this cash was generated from sales of the regular business. However AO held that Rs. 2,02,50,000/- claimed to part of total sale, without factoring purchase, is against the general cash deposit profile of the assessee in the past. As per AO appellant had maintained average cash balance amounting to Rs. 26 lakhs to 48 lakhs. AO observed that the sale of sweets has increased from Rs. 4,62,22,064/- in F.Y. 2015- 16 to Rs. 9,61,15,517/- in F.Y. 2016-17 and also the packing material consumption has increased from Rs. 4,65,663/- in F.Y. 2015-16 to Rs. 67,59,628/- in F.Y. 2016-17. On analyzing the cash movement trend AO observed that the cash balance starts increasing from the month of October- 2016 and at the end of month it was Rs. 1,99,26,887/- and therefore held that the cash book and sales book for F.Y. 2016-17 of appellant are 18 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi manipulated to bring in unaccounted money of the assessee by showing bogus sales. On the basis of the maximum sales declared by the appellant for the month of August 2016 of Rs. 39,21,453/-, AO estimated the sales done during the month of October, 2016 as Rs. 39,21,453/- and taxed the remaining Rs. 1,63,28,547/- u/s 69A of the Act. Appellant has submitted that complete details of month wise cash sales and cash deposits, monthly sales/purchase, Stock register, cash book, ledger account of Home Cash Book from A.Y. 2015-16 to A.Y. 2017-18 and copy of VAT returns form F.Y. 2015-16 to June, 2017 were furnished to AO in prescribed tabular format given in the notice. AO has made the said addition u/s 69A of the Act which could not have been applied, legally. Appellant has submitted that all the sales of his business are in cash therefore the deposits in the banks accounts is always cash. Rs. 2,02,50,000/- that was deposited in the bank account is the part of the sale of the week of Diwali 2016 duly recorded in books of account supported by Sale and corresponding Purchase vouchers. Dussehra and Diwali festival are celebrated either in October or November of every year. The total sales account during the period of Dussehra and Diwali has been mentioned in the chart hereunder shows consistent increase in sales every year. A.Y. Relevant Period Total Sales Amount (Rs.) 2015-16 01.10.2014 to 31.10.2014 13154229 2016-17 01.11.2015 to 30.11.2015 18381467 2017-18 01.10.2016 to 31.10.2016 26491790 This fact was brought to the notice of AO during assessment proceedings which has been overlooked by him by wrongfully treating sales for the month of August as average sales just to inflate the quantum of addition. AO has admitted that cash balance as on 31/10/2016 was Rs. 1,99,26,887/- and cash balance as on 08/11/2016 was Rs. 2,05,43,396/-. Thus the cash collection on account of sales/debtors of Diwali sales from 01/11/2016 to 08/11/2016 was Rs. 21,11,363/- only. AO has in para 9 of his assessment order intentionally ignored the sales of October and 19 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi November months which are consistently increasing every year for the last three years. These sales are verifiable from the copies of VAT returns duly furnished during assessment proceedings. The Assessing Officer has also not pointed out any defect in the VAT returns furnished during assessment proceedings by the Appellant. Regarding Home Cash Account appellant submitted that to manage such a high sale during the festival time, appellant does not get time to deposit the amount in the bank hence the cash is taken to home for deposit later as perconvenience and after making payments for purchases. All these transactions are duly accounted for by opening a separate Ledger in the name of 'Home Cash' showing the genuineness of the entries in the books of accounts vis.-a-vis. submissions being made by appellant. The Assessing Officer has made the additions on estimated basis on his own presumptions and surmises. So the additions u/s 69A cannot be made on estimated basis. I have gone through the facts and the written submissions filed along with the details enclosed therewith by the AR of the appellant. The entire additions have been made only on the basis of adding back the figure of sales arrived on the basis of sales of a particular month, purely on estimate basis. AO has not rejected books of accounts of the assessee u/s 145(3) and not invoked the S. 144 of the Act. Appellant uploaded details of complete cash books, complete purchase & sales, details of expenses, VAT returns, along with other documents on ITBA module. Appellant produce purchase, sales register, expenses register, stock register and cash book before the AO. AO has not asked for any further details from the appellant. It is also not disputed by AO that the appellant has filed its Monthly VAT Returns within due time. AO failed to treat them as good proof without making any enquiry from VAT authorities. It is clear from the above that the assessment has been made without giving any weightage on the audited books of accounts and VAT returns produced before AO. It is trite law now that AO cannot make any assessment on guess work without reference to any evidence or material brought on record. It is prima facie evident that the AO is purely conjecturing while making the said addition by adopting the figure of sales of August 2016 as the figure for sales of October 2016 and Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi taxing remaining Rs. 1,63,28,547/- i.e. Rs. 2,02,50,000- 39,21,453/- as the unaccounted money of the appellant, without bringing any adverse evidence on record. AO has taxed this amount u/s 69A which can be invoked only if the assessee is found to be owner of any money, bullion, jewellery or other valuable article and such money etc. that is not recorded in the books of account, if any, maintained by the assessee for any source of income, which in this case is not so as all the transactions are recorded in the regular books of accounts, and once the first limb is not satisfied then the question of the assessee offering any explanation about the nature and source of acquisition of such money, etc. or the reaching the satisfaction level by AO does not arise. The appellant has properly recorded such cash in the books of accounts maintained by the appellant. Therefore, the provisions of section 69A r.w.s. 115BBE cannot be invoked in the case of the appellant. It is true that the addition has been made without invoking S. 144 or Sec. 145(3) of the Act. Still where the Assessing Authority proposes to proceed to make an order of assessment to the best of his judgment, the basis for the proposed assessment should be put to the assessee and an opportunity shouldbe given to the assessee to show cause as to why assessment should not be made on the basis proposed. That, before the Assessing Officer can assume jurisdiction U/S 144 of 1.T. Act, he must record the finding in the first instance that there has been a non-compliance with any of the various defaults mentioned in that section. That, as regards the correctness and completeness of accounts of appellant is concerned, the AO has not brought any specific defect on records to challenge the correctness of the books of account. In assessment order AO has admitted that the appellant has filed statement of bank accounts, acknowledgments of monthly VAT returns, Monthly details of Purchases and Sales, Monthly Stock Register, Cash Book. AO's calculation of the final available cash-in-hand is a matter of pure guess work. Without commenting on the veracity of the claim of the appellant, it is a fact that the appellant did furnish comparative detail of cash sales/ cash deposits for financial year 21 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi 2015-16 and 2016-17 and submitted details of purchase, sale for the year under consideration along with the stock register and cash book. No discrepancies were pointed out by AO in those books of accounts or in the details filed. Once, AO has accepted the availability of physical stock on all the dates when sales are being made then how can cash generated out of such sales in the above months on those dates, be held as unexplained. It is therefore clear that appellant explained the availability of cash with the sale of existing available stock proving the factum of sales resulting into the availability of cash that was deposited into the bank accounts. Books of accounts have been audited and cash-in-hand on 08.11.2016 is also certified by the auditors. No adverse finding has been given by the auditors in the stock position on the date of sales. From the analysis of data for FY 2015-16 and 2016-17, it is clear that increase in cash deposits is parallel with increase in purchases and sale as comparison to preceding year. Appellant has discharged the initial onus that lay upon him by the statute. Now the AO has to establish that the stock sold on the day of demonetization was either not existing or the bills of purchases of those stock are bogus then only the cash sales made on that evening can be challenged. AO's analysis of cash flow mentioned in the assessment order at best can be a starting point for doubt but the assessment has to be made on the basis of material collected during the assessment proceedings. Doubt however strong cannot take the place for evidence, is a well settled legal proposition. Appellant sold the material that was purchased earlier than the demonetization announcement happened and same was duly existing in the existing stock tally physically. AO has also not factored the purchases made out this available cash before making the addition. AO has not brought any adverse material on records to prove that the amount received from sales or their corresponding purchases are bogus so the addition made by AO is totally based on assumptions. These sales have been accepted by the VAT authorities. AO accepts these deposits to be from the business of the appellant and part of them as undisclosed on the basis of a self-generated formula without any adverse material on ITA No.138/VNS/2020 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi record. It is clear that the same has been done on the basis of pure guess work not according to any accounting principles or under any statutory provisions. AO disregarded and failed to take into account the relevant material on record and has based its findings on mere conjectures and surmises. Decision of Hon'ble Income Tax Appellate Tribunal, New Delhi Bench in in case of "Smt. Kanika Rathi, New Delhi vs Ito, New Delhi held as under:- "8.1 Therefore, it is clear that all the above details were filed before the AO, which clearly show that the assessee had sufficient cash-in-hand generated out of her trading business, which was further deposited in the bank account. 8.2 We further note that Id. CIT(A) has upheld the impugned addition made by the AO by completely disregarding the submissions and explanations of the assessee, and by further alleging that the documentary evidences submitted by the assessee are sham and have been created just to prove the source of cash deposit. We further observe that Ld. CIT(A) has sustained the addition by completely deviating from the issue under consideration and by indulging into mere surmises and conjectures. The allegation of the Ld. CIT(A) that if the business of the assessee would have been genuine, there would have been some purchase or sale transactions through banking channels as well is completely misplaced, so much so that the business income of the assessee has been duly accepted by the AO as well which is evident from the fact that the addition has been made to the returned income of the assessee. Keeping in view of the facts and circumstances of the case as explained above, we are of the considered view that since the assessee has duly explained the source of complete cash deposit made during the year, the addition made by the AO and sustained by the Ld. CIT(A) is bad in law and liable to be deleted. Therefore, we delete the addition in dispute and allow the ground raised by the assessee. 23 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi In the result, the Appeal filed by the Assessee stands allowed." In view of the above judgment it is necessary that every fact for and against the appellant must be considered with due care and the AO must give its finding in a manner which would clearly indicate what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusions reached by the AO should not be coloured by any irrelevant considerations and if there are any circumstances which required to be explained by the appellant, the appellant should be given an opportunity of doing so. On no account whatever should the AO base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings will be liable to be set aside. In view of these facts and circumstances, the addition made by AO is held to be not sustainable. Hence, the addition made by the AO is deleted. These grounds are allowed. Ground no. 14 to 17 are general.”

5. Being aggrieved by the appellate order passed by ld. CIT(A) , Revenue has now filed an appeal before the tribunal. The Ld. Sr. DR submitted that the assessee has introduced concept of ‘Home Cash Book’ which is claimed to be a separate cash book apart from regular cash book, but no details were submitted before the AO and it is not known whether any such cash book actually existed or not . Our attention was drawn to para 2/para 3 of assessment order. It was submitted by ld. Sr. DR that huge amount of cash sales were shown just before announcement of demonetization by Government of India on 08.11.2016, and cash of Rs. 2.00 crores were deposited by assessee in his bank account on 11.11.2016 i.e. immediately after Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi announcement of demonetization . It was submitted by ld. Sr. DR that during demonetization period, the assessee deposited cash of Rs. 2,02,50,000/- in his bank account, out of which cash of Rs. 2.00 crores were deposited on 11.11.2016 while cash of Rs. 2,50,000/- was deposited in his bank account on 15.12.2016.It was submitted that the assessee was having cash of Rs. 27.68 lacs on 01.04.2016 ,and average cash balance was from Rs. 26 lacs to Rs. 48 lacs. The assessee is in the business of manufacturing of sweets and namkeen. It was submitted that there was a sudden increase in cash just before demonetization, and our attention was drawn to para 3-9 of assessment order passed by the AO. It was submitted that net addition of Rs. 1.63 crores were made after giving benefit of cash sales. The ld. Sr. DR would rely on assessment order passed by the AO. The ld. Sr. DR drew our attention to grounds of appeal raised by Revenue and prayers were made to uphold the assessment order. 5b. The ld. Counsel for the assessee submitted that during demonetization period, the assessee deposited cash in his bank account with PNB, aggregating to Rs. 2,02,50,000/- out of which Rs. 2.00 crores were deposited on 11.11.2016 just after announcement of demonetization by GOI. Our attention was drawn to para 4 of assessment order . It was submitted that the assessee was having cash in hand of Rs. 1.99 crores on 31.10.2016 and Rs. 2.01 crores on 03.11.2016 just prior to announcement of demonetization, which was deposited in his bank account. Our attention was drawn to page 23-36 of the paper book, where regular cash book from 01.11.2016 to 08.11.2016 is placed. Our attention was also drawn to page 21-22 of paper book filed by assessee with tribunal, where Home Cash book from 29.10.2016 till 15.12.2016 is placed. Our attention was drawn to page 127/paper book-II 25 ITA No.138/VNS/2020 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi filed by the assessee , to contend that the assessee had cash balance of Rs. 1.99 crores as on 31.10.2016 and further amount of Rs. 2.00 lacs was transferred on 3.11.2016 to home cash book, which was used to deposit cash of Rs. 2.00 crores in his bank account. Our attention was drawn by ld. Counsel for the assessee to page 7 and 9 of PB, which is part of statement of fact filed before ld. CIT(A), and submitted that during festival seasons of Diwali and Dushera in October-November , there are always increase in cash sales, and such high cash generated from sales during festival seasons is deposited every year in the bank. It is submitted that the assessee has offered higher sales to taxation by including in gross sales and then claim for deduction for purchases and other expenses are made. It was submitted that these are normal business receipts which have suffered taxation and no case is made out for making additions u/s 69A read with Section 115BBE of the 1961 Act. The ld. Counsel for the assessee relied upon the appellate order passed by ld. CIT(A) and submitted that there is no infirmity in the appellate order passed by ld. CIT(A). The ld. Counsel fro the assessee relied upon appellate order passed by ITAT, Bangalore in vide order dated 13.12.2021. The ld. Sr. counsel for the assessee prayed that the appellate order passed by ld. CIT(A) be affirmed. 5c. The Ld. Sr. DR in rejoinder relied upon the judgment and order(s) of Hon’ble Supreme Court in the case of McDowell and Company Limited v. Commercial Tax Officer, 1986 AIR 649, 1985 SCR(3) 791, Judgment and order of Hon’ble Supreme Court in the case of Sumati Dayal v. CIT , 1995 AIR 2109, 1995 SCC Supl. (2) 453 , Judgment and order of Hon’ble Supreme Court in the case of Durga Prasad Maurya. Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi 6. We have considered rival contentions and perused the material on record including cited case laws. We have observed that the assessee is engaged in the business of manufacturing of sweets and namkeen by use of khoa, chhena, milk, dry fruits , besan , maida spices and vegetable as well as gas for cooking variety of sweets. The assessee filed return of income for ay: 2017-18 on 14.10.2017 declaring total income of Rs. 92,18,080/- . The case was selected by Revenue for framing scrutiny assessment and accordingly statutory notices u/s 143(2) and 142(1), were issued by the AO (as mentioned in assessment order), which were claimed to have been duly served on the assessee. There is no dispute as to the issuance and service of notices between rival parties. The assessee participated in assessment proceedings, which culminated into an assessment order dated 26.12.2019 passed by the AO u/s 143(3) , wherein income of the assessee assessed by the AO was Rs. 2,55,46,630/- as against returned income of Rs. 92,18,080/-, by invoking provisions of Section 69A read with Section 115BBE . The assessee filed first appeal with ld. CIT(A) who allowed the appeal and deleted the solitary addition of Rs. 1,63,28,547/- made by the AO, vide appellate order dated 08.09.2020. The AO during the course of assessment proceedings observed that there are cash deposits of Rs. 2,02,50,000/- during the demonetization period ( from 09.11.2016 to 30.12.2016) by the assessee in his PNB account number 2988002100015734. The Government of India demonetized bank notes of Rs. 500 and Rs. 1000(referred to as Specified Bank Notes(SBNs)) , which stood demonetized vide GOI , Gazette notification no. 2652 dated 8.11.2016 issued by Department of Economic Affairs, Ministry of Finance , GOI in SO 3407E, effective from 09.11.2016. The effect of demonetization of existing bank notes of denomination of Rs. 1,000 and Rs. 500 which were in circulation until 08th November, 2016 , were that they Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi were withdrawn from circulation effective from 09.11.2016 and cease to be legal tender, post announcement of demonetization . As per FAQ issued by RBI, the reasons for demonetization and scheme , were given as under: “1. Why was the Scheme of Withdrawal of Legal Tender Character of the old Bank Notes in the denominations of ₹ 500 and ₹ 1000 introduced? The incidence of fake Indian currency notes in higher denomination has increased. For ordinary persons, the fake notes look similar to genuine notes, even though no security feature has been copied. The fake notes are used for antinational and illegal activities. High denomination notes have been misused by terrorists and for hoarding black money. India remains a cash based economy hence the circulation of Fake Indian Currency Notes continues to be a menace. In order to contain the rising incidence of fake notes and black money, the scheme to withdraw legal tender character of the old Bank Notes in the denominations of ₹ 500 and ₹ 1000 was introduced.

2. What is this scheme? The legal tender character of the bank notes in denominations of ₹ 500 and ₹ 1000 issued by the Reserve Bank of India till November 8, 2016 (hereinafter referred to as Specified Bank Notes) stands withdrawn. In consequence thereof these Bank Notes cannot be used for transacting business and/or store of value for future usage. The Specified Bank Notes (SBNs) were allowed to be exchanged for value at RBI Offices till December 30, 2016 and till November 25, 2016 at bank branches/Post Offices and deposited at any of the bank branches of commercial banks/Regional Rural Banks/Co-operative banks (only Urban Co-operative Banks and State Co-operative Banks) or at ITA No.138/VNS/2020 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi any Head Post Office or Sub-Post Office during the period from November 10, 2016 to December 30, 2016” The purpose of demonetization of old bank notes of denomination of Rs. 500 and Rs. 1000 by withdrawing its legal tender character , was to curb the menace of fake notes and black money. However , to allow genuine and bonafide people not to suffer due to the sudden demonetization of these old bank notes of denomination of Rs. 500 and Rs. 1000 wherein they ceased to be legal tender, government allowed a window to exchange for value such demonetized old bank notes notes of denomination of Rs. 500 and Rs. 1000 as well allowed deposit of such demonetized bank notes in bank accounts, during specified period. While reviewing deposit of cash pattern followed by the assessee in the past, the AO observed that there was never a cash deposit of more than Rs. 20,00,000/- in the bank every month, but the assessee has deposited Rs. 2,00,00,000/- in cash in his bank account on 11.11.2016 which is just after announcement of demonetization by GOI on 08.11.2016. The assessee sought to explain that there was a separate ‘Home Cash Book’ maintained by assessee apart from regular cash book, but the assessee did not file any evidence before AO as to maintenance of Home Cash book. The AO was also not satisfied about reduction in consumption of packing material vis-à-vis increased sales shown during the year under consideration, which has fallen from 10.07% in financial year 2015-16 to 7.03% in financial year 2016-17. The AO observed that sales have increased from Rs. 4.62 crores in financial year 2015-16 to Rs. 9.61 crores in financial year 2016-17, however, the packing material consumption has only increased from Rs. 46,56,653/- in financial year 2015-16 to Rs. 67,59,628/- in financial year 2016-17. The AO 29 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi observed that the assessee regularly deposits cash in the bank account w.r.t. cash received from sale proceeds after paying for purchases , but during the demonetization period , the assessee deposited cash of Rs. 2.00 crores on 11.11.2016 claimed to be from sale proceeds without factoring for purchases, which is against the regular cash deposit profile of the assessee. The details of cash deposits by assessee in his bank accounts, are reproduced by the AO in assessment order at page 4, which is reproduced hereunder:

ITA No.138/VNS/2020 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi The AO also observed that the assessee had shown receipts of ranging from Rs. 26,08,137/- to Rs. 39,21,453/- from monthly cash sales throughout the year. The AO observed that the assessee has maintained cash balance amounting to Rs. 26 lacs to Rs. 48 lacs , during the year, but suddenly cash increased in the month of October, 2016 which reached to Rs. 1,99,26,887/- by 31.10.2016 . The cash balance as on 03.10.2016 as per above chart was Rs. 49.30 lacs, which increased to Rs. 1.99 crores as at 31.10.2016 and further to Rs. 2.01 crores as at 11.11.2016 . The cash sales of the assessee for the month Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi April, 2016 to September, 2016 are reproduced by the AO in its assessment order at page 6, as under: Month Cash Sales April ,2016 3280522 May,2016 3058628 June ,2016 2884982 July ,2016 3808270 August ,2016 3921453 September ,2016 2673140 The assessee claimed sale of Rs. 2,52,30,256/- for October, 2016. The AO concluded that the assessee has manipulated cash sales and sales book for financial year 2016-17 to introduced unaccounted money, by crediting bogus sales owing to demonetization introduced by GOI to unearth unaccounted/black money. The ld. CIT(A) accepted the contentions of the assessee , in the first appeal filed by the assessee, and deleted the entire additions. The Revenue has specifically raised ground of appeal that wrong contentions were raised by the assessee before ld. CIT(A) which were accepted by ld. CIT(A) without verification and also without calling for remand report from the AO. We have observed that there are merits in the grounds of appeal raised by Revenue. We have observed that there is specific finding of the AO in the assessment proceedings that the assessee has failed to provide any reply on the issue of evidence of ‘Home Cash Book’. It is observed that the assessee has claimed to have cash balance of Rs. 2,01,07,896/- in ‘Home Cash Book’ on 11.11.2016 , which was claimed by the assessee to have been deposited to the tune of Rs. 2.0 crores in the assessee’s PNB bank account on 11.11.2016. The ld. CIT(A) accepted this ‘Home Cash Book’ and balance claimed to be available in it which was utilized by the assessee to 32. Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi deposit cash of Rs. 2,00,00,000/- in assessee’s bank account with PNB on 11.11.2016. The ld. CIT(A) did not consider that no such evidences were filed by assessee before the AO as to the maintenance of this ‘Home Cash Book’ and it did not stood scrutiny of the AO during assessment proceedings . The appellate proceedings before ld. CIT(A) are merely extension of assessment, the purport of the same is to compute correct income of the assessee chargeable to income-tax as per mandate of the 1961 Act, so that correct income for the assessment year could be brought to income-tax in the hands of the correct assessee, and correct amount of income-tax be computed , levied and collected by Revenue from the correct assessee for the correct assessment year. That is also the reasons that the powers of ld. CIT(A) are co-terminus with the powers of the AO, which also included powers of enhancement. Reference is drawn to the provisions of Section 251(1)(a) of the 1961 Act, which reads as under : “Powers of the Commissioner (Appeals) 251(1) In disposing of an appeal , the Commissioner(Appeal) shall have the following powers- (a) In an appeal against an order of assessment , he may confirm , reduce, enhance or annul the assessment *** *** *** *** *** *** *** ***”

Further, there are two parties before ld. CIT(A) in an appellate proceedings conducted by ld. CIT(A) , firstly the assessee who being aggrieved by an assessment framed by the AO has filed an appeal, secondly the AO whose assessment order is subject matter of appeal before ld. CIT(A). Principles of natural justice demand that both the parties shall be given opportunity of being heard , before being condemned and any prejudice is caused. Reference is drawn to provisions of Section 250(2) of the 1961 Act, which reads as under: “Procedure in appeal 250. (1) *** *** *** *** 33 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi (2) The following shall have the right to be heard at the hearing of the appeal- (a) the appellant, either in person or by an authorized representative ; (b) The Assessing Officer , either in person or by a representative. *** *** *** ***” Fair hearing and adherence of principles of natural justice are the most important pillars of the judicial proceedings , and proceedings before ld. CIT(A) are quasi judicial in nature. The Ld. CIT(A) never issued notice of hearing to the AO nor called for AO’s comments/remand report with respect to the details/evidence filed with respect to the ‘Home Cash Book’. Further, the ld. CIT(A) failed to see that the tax auditors have certified in Form No. 3CD that only one cash book is maintained by the assessee at the address : S-6/117, Golghar, Katchhari, which is the principal place of business of the assessee, and no such ‘Home Cash Book’ is maintained by the assessee as certified by the tax-auditors. The relevant portion of the copy for Form No. 3CD certified by tax-auditor , is reproduced hereunder:

ITA No.138/VNS/2020 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi The assessee has filed copy of details of sale and purchase for the entire year, claimed to be file with VAT department , as under:

The ld. CIT(A) also failed to appreciate that the assessee has shown sales of Rs. 2,52,30,256/- in the month of October, 2016 vis-à-vis sale of Rs. 29,82,969/- in the month of September, 2016 , and the normal and regular behavior pattern of the assessee suggested that cash is normally and regularly deposited in Bank by assessee after paying for purchases in cash, but it is only in November, 2016 the assessee claimed to have deposited huge cash in bank account without paying for purchases, which is against the normal and regular business conduct of the assessee. The assessee is dealing in perishable items mainly sweets and namkeen, which have a limited shelf life, and regular purchases are required to be made . The ld. CIT(A) failed to see and analyse that the closing sundry creditors in the audited accounts are to the tune of Rs. Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi 1,45,84,818/-, as at 31.03.2017. The ld. CIT(A) failed to see as to how such a huge sundry creditors for purchases to the tune of Rs. 1.46 crores were built up as at year end , when purchases are normally paid regularly from the sales proceeds itself , before depositing in the bank. The ld. CIT(A) failed to see that the cash amount of Rs. 2.00 crores which stood deposited in PNB on 11.11.2016 , continued to remain in the said bank account until 15.12.2016, when one payment of Rs. 41,08,233/- to Mr. Ram Lal Kishore . The assessee took FDR of Rs. 1.60 crores on 02.03.2017 from the same bank account , which was mainly the remaining amount of deposit of cash during demonetization period. Thus, the ld. CIT(A) ought to have investigated as to why and on what account payment to Mr Ram Lal Kishore was made and whether the same was paid to clear regular liabilities for purchases for business purposes or not, and further why the alleged sale proceeds to the tune of Rs. 2.00 crores so deposited in PNB on 11.11.2016 was not utilized for payment of normal creditors for purchases made. Perusal of the above chart of monthly sales and purchases would reveal that the Gross Profit ratio was 20.89% in August 2016 as well in September, 2016 and ld. CIT(A) ought to have investigated as to how it increased to 39.68% in October , 2016. The ld. CIT(A) also ought to have investigated whether it was feasible and viable to have more than 100% jump in turnover during the year under consideration, which jumped from Rs. 4.62 crores in financial year 2015-16 to Rs. 9.61 crores in financial year 2016- 17 , in the backdrop of allegation of introducing bogus sales during demonetization , while the consumption of packing material fell from 10.07% in preceding year to 7.03% in the impugned assessment year, the assessee having submitted before ld. CIT(A) that during festival season , the customers bring their own packing material/boxes and hence the cost is lower, and the Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi ld. CIT(A) accepted this contentions of the assessee without verification of the pattern of consumption of packing material during preceding years, and more so when there is a specific allegations of booking of bogus sales by assessee to deposit cash in bank during demonetization period to introduce unaccounted money by the assessee. The ld. CIT(A) was also required to analyse as to how sales more than doubled during the year and whether the assessee is introducing unaccounted/undisclosed cash in its books of accounts/bank account under the garb of sales, and bogus purchases are allegedly booked to inflate expenses and reduce profits. It is also observed that ld. CIT(A) has referred to in its appellate order(page 13) that the assessee has contended that complete details of month wise cash sales and cash deposits, monthly sale/purchase, stock register , cash book, ledger account of Home Cash Book from A.Y. 2015-16 to A.Y.2017-18 and copy of VAT returns from F.Y. 2015-16 to June, 2017 before the AO which contention of the assessee were accepted by ld. CIT(A) and it is stated by ld. CIT(A) that the AO admitted that these documents were filed, but however, the paper book certified by the assessee did not contain the aforesaid documents in entirety to have been filed by assessee before the AO nor factum of submission of all the document by the assessee before the AO is discernible from the assessment order. Thus, there is perversity in the order passed by ld. CIT(A) to that effect. The ld. CIT(A) in its order has stated that the AO admitted cash of Rs. 1,99,26,887 on 31.10.2016 and cash balance of Rs. 2,05,43,396/- on 08.11.2016, this finding recorded by ld. CIT(A) is perverse rather the AO has specifically averred in his assessment order that the assessee has manipulated cash book by introducing bogus sales. It is also averred by ld. CIT(A) in his order that the AO made addition on the basis of guess work and estimates, We ITA No.138/VNS/2020 Assessment Year: 2017-18 DCIT, Circle-1, Varanasi v. Mr. Ganesh Prasad, Varanasi are afraid that this finding is again perverse finding recorded by ld. CIT(A) as the AO made additions based on the cash deposit of Rs. 2,02,50,000/- during demonetization , which as per AO , the assessee could not give satisfactory explanations. The Revenue has raised specific ground that ld. CIT(A) erred in accepting submissions of the assessee without asking for remand report from the AO and infact wrong submissions were made by assessee before ld. CIT(A), which ld. CIT(A) accepted without verification and without calling for remand report from the AO. We find merit in the ground raised by Revenue, and we are of the considered view that this appellate order of ld. CIT(A) is not sustainable in the eyes of law , and is liable to be quashed, and the matter need to be set aside and restored to the file of the ld. CIT(A) for fresh adjudication after giving proper and adequate opportunity of being heard to both the assessee as well the AO . We clarify that we have not commented on the merits of the issue in this appeal.The appeal of the Revenue is allowed for statistical purposes. We order accordingly.

7. Thus, the appeal filed by Revenue in for ay: 2017-18 is allowed for statistical purposes . Order pronounced on 07.02.2023 at Varanasi, U.P , in Open Court.