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Facts
The assessee, engaged in manufacturing sugar and other products, filed its return for AY 2017-18. The Assessing Officer (AO) made an addition of Rs. 91.77 lakhs under Section 68 for unexplained cash credits during the demonetization period, citing a sudden spike in cash sales and disproportionate cash deposits. The assessee had explained the deposits as stemming from earlier bank withdrawals and cash sales related to a government directive to liquidate stock.
Held
The Tribunal found that while the assessee attempted to explain the source of cash deposits, there was an element of failure in explaining some of it, especially since only one out of eight buyer parties responded to notices. The Tribunal directed a lump-sum addition of Rs. 5 lakhs, not to be treated as a precedent. Regarding Section 115BBE, following a Madras High Court ruling, the addition was to be taxed under normal provisions, not under Section 115BBE.
Key Issues
Whether the addition made by the AO on account of unexplained cash credits during demonetization is justified, and whether the levy of tax under Section 115BBE is applicable.
Sections Cited
68, 133(6), 115JB, 115BBE, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI ‘F’ BENCH,
Before: Ms. MADHUMITA ROY, & SHRI NAVEEN CHANDRA
ORDER PER NAVEEN CHANDRA, A.M:-
This appeal by the Revenue is directed against the order of the NFAC, Delhi dated 09.10.2023 for A.Y 2017-18.
The Revenue has raised the following grounds of appeal:
“1. Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 91,77,000/- on account of cash deposit during demonetization period.? 2. Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) was right in deleting the additions of Rs. 91,77,000/- without appreciating that the parties to whom cash sale was made had not filed any response in pursuance to notices u/s 133(6) of the Act during Assessment proceedings? 3. The appellant craves leave to add, alter, amend, append or delete any of the above grounds of appeal."
3. Briefly stated, the facts of the case are that the assessee is engaged in the manufacture of white crystal sugar of molasses from sugarcane and production of ethanol, liquor, and CO2 gas. The assessee filed its return for A.Y 2017-18 declaring a total income of Rs. 17.81 crores under normal provisions and Rs.62.59 crores as book profits under Section 115JB of the Income-tax Act, 1961 [the Act, for short]. The case was selected for scrutiny and assessment was completed u/s 143(3) of the Act after making an addition of Rs. 91.77 lakhs u/s 68 of the Act unexplained cash credits during the demonetization period.
4. Aggrieved, the assessee went in appeal before the ld. CIT(A) who allowed the appeal of the assessee. Now the Revenue is aggrieved and has come in appeal before us.
5. Before us, the ld. DR vehemently supported the order of the Assessing Officer. The ld AR stated that the Assessing Officer added a sum of Rs.91.77 Lakhs to the income of the assessee as there was a sudden spike in cash sales and disproportionate cash deposited in FY 2016-17 vis a vis the previous year. The AO issued notices u/s 133(6) to 8 buyer parties which remained uncompiled with except one which confirmed the purchase from the assessee at Rs 750/- in cash as against Rs 11.58 lakh claimed by the assessee.
6. Per contra, the counsel for the assessee vehemently stated that the AO did not consider the directive of the Government dated 08.09.2016 for sugar stock liquidation and the same was only applicable in FY 2016-17 and not in FY 2015-16. Hence, the comparison of cash sales of FY 2016-17 with FY 2015-16 is fundamentally flawed and incorrect.
The ld. counsel for the assessee continued by saying that the ld. CIT(A) categorically noted that VAT returns reconciled with financials. The ld. counsel for the assessee contended that the Assessing Officer overlooked that the cash deposit stemmed from earlier bank withdrawals as well as out of cash sales made pursuant to the Government's directive dated 08.09.2016 for sugar stock liquidation, a distress sale accepted by the CIT(A) and never disputed by the Assessing Officer. It is the say of the ld AR that section 68 is not applicable in the present case as the assessee had duly explained in detail the source and legitimacy of the cash deposits made during the demonetization period.
The ld. counsel for the assessee further submitted that the Assessing Officer without conducting any independent inquiry, proceeded to make an addition u/s 68 of the Act solely on the basis that the parties did not respond to the notice issued u/s 133(6) of the Act. However, at the same time, while not disputing the sale of stock, the Assessing Officer questioned the genuineness of the cash deposits despite there being no discrepancies in the stock records and no qualification in the tax audit report, as rightly noted by Ld. CIT(A) also. Moreover, the Performa-PII submitted to the Page 4 of 8 the legitimacy of the transaction has been duly substantiated by the company.
The ld. counsel for the assessee continued by saying that the percentage of such cash sale was miniscule in comparison to the total sale.
It was further submitted that the Assessing Officer has not disputed the fact that the cash sales were out of existing stock. Since the said sales have been duly accounted for and offered to tax, and have been accepted, any addition of the same amount u/s 68 of the Act would result in double taxation of the same income.
We have heard the rival submissions and have perused the relevant material on record. In the instant case, we find that the assessee has attempted to prove the entire source of cash deposit during demonetization as cash withdrawals from bank as well as sales due to a government directive requiring sugar mills to liquidate stock by 31.10.2016. Although the assessee, prima facie, appears to have discharged its onus of explaining source of cash deposit, it’s contentions to prove the source, hardly deserves to be accepted in entirety especially
Page 5 of 8 when the AO’s notice u/s 133(6) to the Buyers who purchased sugar in cash, all but one, did not respond. One buyer Mr Saksham Agarwal who responded, as per the assessee had purchased 11,58,000/- worth of sugar in cash, but he confirmed having purchased sugar in cash worth only Rs 750/-. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention that cash deposits have been made out of cash withdrawals from bank as well as sales due to a government directive, cannot be fully justified on the basis of comparative cash deposits of previous year. In this factual matrix, there is some element of failure to explain some of the cash deposit, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of ₹ 5 lakh only would be just and proper with a rider that the same shall not be treated as a precedent, so as to cover all loopholes. The ground of appeal no 1 to 2 are partly allowed.
11. In so far as assessee's levy of tax at a higher rate under section 115BBE of the Act is concerned, we find that the Madras High Court in the Writ petition in the case of S.M.I.L.E. Microfinance Ltd. Vs. ACIT, W.P. (MD)
No.2078 of 2020 & 1742 of 2020, dated 19.11.2024 (Madras) has held that Page 6 of 8 (A.Y. 2017-18) Rai Bahadur Narain Singh Sugar Mills the impugned statutory provision would come into effect on the transaction done on or after 01.04.2017 only. Accordingly, we direct the AO to tax the addition under normal provisions of tax and not under the provisions of 115BBE. allowed.
Order pronounced in open court on 28.05.2025.