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Facts
The assessee, a partnership firm dealing in LPG gas cylinders, filed its return for AY 2017-18. The AO made additions for unexplained cash credit and cash deposits during demonetization. The CIT(A) confirmed some of these additions.
Held
The Tribunal held that the cash credits in the partners' capital accounts were explained by their sufficient opening balances and business activities. Regarding cash deposits during demonetization, it was held that cash sales formed a major part of turnover and were not rejected by the lower authorities, thus establishing the source.
Key Issues
Whether cash credits to partners' capital accounts and cash deposits during demonetization were sufficiently explained by the assessee.
Sections Cited
250, 133(6), 142(1), 269SS, 271AAC(1), 68, 69A, 44AB
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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, VP &
(Assessment Year: 2017-18) Anukool Gas Service, ITO, Ward-20(1)(1), 1st Floor, Piramal Chambers, Shop No.3, 20/24, Rajkotwala Building, 13th Lane, Near Duncan Lalbaug, Mumbai-400012. Vs. Road, Nagpada, Kamathipura, Mumbai-400008. PAN: AAHFA6147P Assessee) : Revenue) Assessee by : Shri Vimal Punmiya, AR : Shri Surendra Mohan, Sr.-DR Revenue by Date of Hearing 20.11.2025 : : 03.12.2025 Date of Pronouncement O R D E R
Per Padmavathy S, AM:
This appeal by the by the assessee is against the order of the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi [In short 'CIT(A)'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 17.03.2025 for Assessment Years (AY) 2017-18. The assessee raised the following grounds of appeal:
1. The Learned CIT(Appeals), NFAC has erred in law and on facts and circumstances of the case in upholding the addition of Rs.36,50,000/- as Anukool Gas Service Unexplained Cash Credit" in the name of the Partners of the Appellant Firm. relying on the findings of the A.O without giving any reasons.
2. The Learned CIT(Appeals), NFAC has erred in law and on facts and circumstances of the case in upholding the additions of Rs.88,06,610/- made by the A.O with regard to cash deposits of specified bank notes (SBN) during the demonetisation period, relying on the findings of the A.O without giving any reasons.
3. The Learned CIT (Appeals), NFAC has erred in law and on facts and circumstances of the case in not giving sufficient opportunity to Appellant to represent its case, thus passing orders without following principles of natural justice.
4. The Learned CIT(Appeals), NFAC has erred in law and on facts and circumstances of the case in not referring or seeing the voluminous submissions and explanations furnished by the Appellant with regard to Ground Nos. 1 and 2. The learned CIT(Appeals), NFAC has accepted the A.O's findings which are based purely on suspicion and surmises, without understanding the nature of transactions.”
The assessee is a partnership firm having gas agency of Bharat Petroleum Corporation Ltd. carrying on the business of supply of LPG Gas Cylinders to Household Consumers. The assessee filed the return of income for AY 2017-18 on 18.09.2017 declaring a total income of Rs. 8,38,470/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer (AO) called on the assessee to furnish various details and the AO also called for the bank statements and KYC details from Bank of India through notice u/s. 133(6). The AO after perusing the bank statements and the response filed by the assessee issued a show-cause notice to the assessee to furnish the details of cash credits to the capital account of the partners and also the details of cash deposited into the Bank A/c in Specified Bank Notes (SBN) during demonitisation period. The assessee submitted the details of cash sales and other details as called for by the AO. The AO after perusing the details furnished by the assessee held that the reasons are not acceptable and treated the amount as unexplained cash credit by holding that Anukool Gas Service “6. Addition of Rs.36,50,000/- as unexplained cash credit: On going through the financials of the assessee firm, it was seen that the partners, Shri Kunal Agarwal and Smt. Shashi Agarwal had brought in cash of Rs.34,00,000/- and Rs.2.50,000/-Now, the assessee has submitted the capital accounts and has stated that the cash brought in by the partners were genuine. There was no reference of the same in the audit report nor had the assessee in its response to notice u/s 142(1) bring it to the notice of the undersigned. It is only after the showcause notice was issued the assessee has tried to clarify the same. The submission of the assessee is not acceptable. The fact remains that the cash amount of Rs.36,50,000/- brought in by the partners have been deposited in the bank account of the assessee during the demonetization period, which has been accepted by the assessee, that it is capital brought in by the partners. The assessee has committed a default by accepting cash amounting to Rs.36.50,000/- from the partners and depositing the same into its bank account. Proceedings u/s 269SS of the Act are being initiated separately for the above default. Since, the explanation offered by the assessee is not acceptable, the amount of Rs.36,50,000/- as discussed above is added to the total income of the assessee u/s 68 of the Act. Further, proceedings u/s 271AAC(1) of the Act are being initiated separately for under- reporting of income to the extent of Rs.36,50,000/-
With reference to the second point in the showcause notice regarding the cash deposit amount of Rs.1.24.56.610/- as mentioned in the online reponse, the assessee has now stated that the cash deposited was out of cash brought in by the partners and cash sales as well as advance collected from the debtors as booking amount for later sales. The assessee's explanation is not acceptable as the same is an after-thought on account of the showcause notice issued. In the online response, the assessee had stated that the amount of Rs.1,24,56,610/- was from cash in hand and from money received from debtors. However, now the assessee states that the same was from the partners and advance collected from the debtors as booking amount for later sales. A debtor would first need to clear his dues and then give advances against his future purchases, which makes the explanation of the assessee untenable. The fact remains that the assessee has accepted cash from the partners and its debtors, in cash, and deposited the same in its bank account which again is a violation of the provisions of section 269SS. Out of the amount of Rs.1,24,56,610/-, an amount of Rs.36,50,000/- has been covered in para 6 above. The balance amount of Rs.88.06.610/- (12456610-3650000) is the amount which has supposedly been received from the debtors, in cash, for which no documentary evidence has been provided. It is also a fact that though the assessee's books were audited, there is no reference to the above. Now, the assessee cannot claim that the data was cumbersome earlier. In view of the above, the unexplained amount of Rs.88,06,610/- is added to the total income of the assessee u/s 68 of the Act. Further, proceedings u/s 271AAC(1) of the Act are being initiated separately for under reporting Anukool Gas Service of income to the extent of Rs.88,06,610/- Proceedings u/s 269SS of the Act are being initiated separately for the above default.
8. Addition of Rs.54,06,202/- u/s 69A: With reference to the third point in the show- cause notice regarding the non-disclosure of receipts from M/s. BPCL & L&T and on which TDS was deducted by the said parties, the assessee in its explanation has stated that it is part of turnover on which expenses have been claimed which are more than the receipts. The contention of the assessee is not acceptable due to the fact that the assessee was a distributor of gas cylinders etc. and hence the sale of the same would appear in the sales in the trading account. The contract receipts would need to be reflected in the P/L account which has not. Whether expenses were more or less than the receipts is not the issue here. The fact remains that the amount of Rs.54,06,202/- has not been included in the P/L account and hence has escaped assessment. In the show- cause notice, the assessee was required to explain to the issues raised with complete documentary evidence. Just by submitting self made ledger accounts at his juncture has not proved beyond doubt that the said amount is included in the turnover. Hence, it is inferred that the amount of Rs.54,06,202/- has not been included in the P/L account and hence has escaped assessment. The amount of Rs.54,06,202/- is added to the total income as unexplained money u/s 69A of the Act. Penalty proceedings u/s 271AAC(1) for under-reporting of income are initiated separately.
Subject to the above remarks, total income of the assessee is computed as under:
Income as per return of income dated 18/09/2017 : Rs. 8,38,470/- Add: Unexplained cash credit (as per para 6) : Rs. 36,50,000/- Add: Unexplained cash credit (as per para 7) : Rs. 88,06,610/- Add: Unexplained cash credit (as per para 8) : Rs. 54,06,202/- TOTAL INCOME: : Rs.1,87,01,282/- Rounded off to : Rs.1,87,01,280/-”
Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) confirmed the addition made by the AO to the extent of Rs. 88,06,610/- towards cash deposited in SBN and the cash credit in the name of the partner to the tune of Rs. 36,50,000/-. Aggrieved the assessee is in appeal before the Tribunal.
The ld. AR submitted that assessee is a LPG Gas Cylinder Agent and every gas cylinder sold by the assessee are tracked by BPCL though the software Anukool Gas Service installed and the rates are also fixed by the BPCL. The ld. AR further submitted that the assessee is maintaining regular books of accounts and are audited u/s. 44AB of the Act. The ld. AR submitted that the assessee furnished all the details before the AO and that the assessee was authorised to accept SBN vide notification no. S.O.3408(E) dated 08.11.2016 and S.O.3416(E) dated 09.11.2016 issued by Ministry of Finance permitting SBN for making payments on purchase of LPG. The ld. AR also submitted that BPCL has its own software installed at all its authorized gas dealers in India and the invoices, cash-memo, etc. are generated only through the software provided by BPCL. The ld. AR argued that the entire purchases, sale and stock are monitored through the software installed by BPCL and the assessee therefore cannot manipulate the stock as alleged by the AO. The ld. AR further argued that during the FY relevant to the AY under consideration there were no system of UPI payments and therefore the major part of the turnover is in cash and BPCL does not permit to accept any payment other than cash. The ld. AR also took the bench through the cash flow statement for the FY 2015-16 and 2016-17 to submit that on a year on year basis there is not much variation in the cash deposited into the bank account and therefore the allegation of the revenue stating that the deposit in unexplained is not justified. The ld. AR also furnished the stock statement of the LPG Cylinder, the ledger copies of the partners (page 9 to 31 of PB). Accordingly, the ld. AR argued that the cash deposited during demonization period is sourced from the cash sales of the assessee and therefore cannot be added u/s. 68 of the Act. With regard to the cash credits in partner's capital account the ld. AR submitted that as on 01.04.2016 the partners in the individual capacity had sufficient cash balance as under:
(i) Shri Kunal Agarwal - Rs. 60,20,907/- (ii) Smt. Shashi Agarwal - Rs. 5,50,021/-
The ld. AR submitted that out of the above opening balances, the partners have brought in additional capital to manage the shortfall in the bank balance for the purpose of smooth clearance of the cheques issued to BPCL in advance. The ld. AR further submitted that the partners are filing regular returns in the individual capacity and that one of the partners is carrying on a proprietary business of retail trading of all types of consumer electronics which is subject to tax audit. Accordingly, the ld. AR submitted that the cash credit in the partners' capital accounts is duly explained by the assessee before the lower authorities which have not been considered.
The ld. DR on the other hand submitted that the assessee has not discharged the onus of substantiating the cash deposit in SBN and in this regard relied on the following observations of the CIT(A).
There is twin requirement to repel the provisions of deemed income u/s 68 to 69D, i.e. by explaining: (i) its nature, and (ii) the source. Following the rule that no word in any statute can be considered redundant, the implication of both the words i.e. nature and 'source' must be understood in their respective contexts. The word nature in context of ss 68 to 69D would normally refer to the nature of activity/transaction which resulted in the generation of impugned income. The word 'source' in the same context would refer to nexus of such income generating activity/transaction with name and identity, creditworthiness of person with whom such activity/ transaction was done along with proving the genuineness of transaction also. The requirement of proving these 3 essential ingredients to prove the source in order to escape the rigours of the deeming fiction has been upheld universally. The conjoint burden of proving the 'nature and source' is therefore, not restricted to merely claiming the nexus of any activity/ transaction to a particular credit/ income/ asset but also requires to establish with cogent evidence the nexus of such activity/ transaction with source also by providing the name and identity, creditworthiness of person with whom the activity/ transaction was done along with proving the genuineness of transaction. The burden of proving 'nature' and as well as 'source' though interlinked, but both need to be independently discharged.
Anukool Gas Service 7. We heard the parties and perused the material on record. The AO made additions towards cash credits in the partner's capital account and the cash deposit in SBN during the demonetisation period. With regard to the addition made towards cash credits in the partner's capital account, we notice that both the partners were having sufficient opening cash balance and accordingly the source for the cash credit is established by the assessee. Further, from the perusal of the submissions made, we notice that the partners are running individual businesses which are subject to tax audit and that the partners are also filing tax returns in their individual capacity. It is also brought to our attention that the partners have brought in the capital in order to make good the short fall in the bank balance so that the cheques given in advance to BPCL can be honoured. We also notice from the perusal of the AO's observations that the addition is made primarily for the reason that there is no mention in the audit report in this regard and that the assessee has furnished the details only after issue of show cause notice. The AO has treated the amount deposited as unexplained by stating that the assessee should not have accepted cash credits without considering the explanation provided by the assessee. Considering the facts and circumstances of the case and the documentary evidences, we are of the considered view that the assessee has discharged the onus of proving the identity, credit worthiness and genuineness of the cash credits in the partner's capital account and therefore the addition made towards unexplained cash credit cannot be sustained.
With regard to the cash deposited in SBN during demonetisation period, we notice that the assessee being an agent of LPG cylinder of BPCL, has maintained stock statements and the issue of cylinders including the pricing is monitored by BPCL through the software installed in assessee's system. The assessee as a LPG cylinder agent is authorised by Ministry of Finance to receive SBN and this fact Anukool Gas Service has not been considered by the lower authorities. During the course of hearing the ld AR drew our attention to the following cash flow statements for FY 2015-16 & FY 2016-17 to submit that there is abnormal movement in the cash sales made by the assessee- Anukool Gas Service 9. Further our attention was also drawn to the stock statements, daily cash statements to substantiate the fact that in the line of business of the assessee, cash sales forms the major part of the total sales. From the perusal of the orders of the lower authorities, we notice that the books of accounts including the sales of the assessee have not been rejected and no adverse findings have been recorded with regard to the various details submitted by the assessee. We further notice that the purchases of the assessee are exclusively from BPCL which is reflected in the stock statements and the assessee's accounts are subject to audit under the Maharashtra Value Added Tax Act 2003. In view of these discussion, we hold that the AO is not correct in treating the cash deposited as unexplained, when the cash sales which is the source for the cash deposit has not be rejected. Accordingly we direct the AO to delete the addition made in this regard.
In result, the appeal of assessee is allowed.