SAGARMAL KHEMRAJ DAGALIA,MUMBAI vs. INCOME TAX OFFICER 23(3)(5), MUMBAI

2 The CIT(A) failed to appreciate that the Assessing Officer (AO) did not grant a fair opportunity to the appellant to explain the source of cash deposits, despite the appellant's compliance with notices under Section 143(3).

On Addition under Section 69A read with Section 115BBE 2.1 The CIT(A) erred in upholding the addition of Rs. 99,00,000/-under Section 69A as "unexplained money" without appreciating that:  The cash deposits were sourced from legitimate business turnover of Rs. 7,06,47,278/- (including cash sales of Rs. 70,93,803/-) and cash withdrawals of Rs. 37,50,000/-  The appellant's business of manufacturing/trading silver utensils inherently involves cash transactions, which were duly reflected in audited financial statements.

2 The CIT(A) ignored the appellant's submission that the cash deposits during demonetization were from:  Rs. 37,50,000/-: Out of earlier cash withdrawals (supported by bank statements).  Rs. 61,50,000/-: Out of sales made in October 2016 (pre- demonetization). 2.3 The authorities failed to consider that the appellant had no prior history of tax evasion and had consistently disclosed business income.

On Non-Consideration of Evidence 3.1 The CIT(A) wrongly concluded that the appellant did not provide evidence (e.g., sale registers, GST returns, customer lists) despite the appellant's reliance on audited accounts and bank statements.

2 The CIT(A) ignored the principle that the burden shifts to the Department once the appellant provides a plausible explanation (supported by CIT v. Orissa Corporation Pvt. Ltd., 159 ITR 78 (SC)).

On Comparative Analysis of Cash Deposits 4.1 The CIT(A) erroneously compared cash deposits during demonetization with preceding/post periods without considering:  Business exigencies (e.g., festive season sales in October- November 2016).  The appellant's reduced bullion trading in AY 2017-18, leading to higher cash holdings from silver utensil sales. 5. On Interest and Penalty 5.1 The CIT(A) erred in confirming:  Interest under Section 234B of Rs. 25,03,842/-, which is unsustainable if the addition is deleted.  Penalty proceedings under Section 271AAC, which are premature and without basis. 6. On Legal Precedents 6.1 The CIT(A) misapplied judgments like Chuharmal v. CIT (172 ITR 250) and Srilekha Banerjee v. CIT (1964 AIR 697), as the appellant had discharged the initial burden of proof.

Relief Sought 7.1 The addition of Rs. 99,00,000/-under Section 69A be deleted. 7.2 Consequential relief from interest and penalty be granted.”

The assessee is an individual engaged in manufacturing and trading in silver utensils and articles and the assessee is engaged in bullion trading also. The assessee filed the return of income for AY 2017-18 on 28.10.2017 declaring a total income at Rs.9,82,150/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer (AO) during the course of assessment proceedings noticed that the assessee has made a cash deposit of Rs. 99,00,000/- during the demonetization period. The AO called on the assessee to furnish the details pertaining to the cash deposit and the assessee in response submitted a copy of return filed along with computation, capital account, P&L A/c, Audit report and other annexure for AY 2016-17 and 2017-18. The AO issued a notice under section 133(6) to Kotak Mahindra Bank to collect the details the denominations of the cash deposited by the assessee along with the details pertaining to the cash deposit during earlier year. The AO held that the details submitted by the assessee are not sufficient to explain the source of cash deposited during the demonization period and that the cash deposited during demonization period is abnormally high as compared to the previous Financial Year (FY). Accordingly, the AO treated the entire cash deposit of Rs. 99,00,000/- as unexplained in the hands of the assessee. Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) confirmed the addition made by the AO by placing reliance on various decisions and also by holding that the assessee has not discharged the onus of submitting the relevant details before the Appellate Authority. The assessee is in appeal before the Tribunal against the order of the CIT(A).

There is a delay of 289 days in filing the appeal before the Tribunal and the assessee filed a petition for condoning the delay along with an affidavit. It is stated in the affidavit that the assessee having serious health issues due to which he could not concentrate on its regular business and compliance notice including income tax proceedings. It is further stated that the assessee being a senior citizen of 69 years took several months to recover due to which there was a delay in filing the appeal before the Tribunal. It is also submitted that the delay is not intentional and is due to reasons beyond the control of the assessee. Accordingly, it is prayed that the delay may be condoned. The ld. DR vehemently opposed the condonation submitting that the assessee has not been cooperative even during the proceedings before the lower authorities.

Having heard both the parties and perused the material on record, we are of the view that there is a reasonable and sufficient cause for the delay in filing the appeal before the Tribunal. Therefore following the Hon’ble Supreme Court decision in the case of Collector, Land Acquisition Vs. MST.Katiji & Ors., (167 ITR 471) (SC) we condone the delay of 289 days in filing the appeal and admit the appeal for adjudication. 5. The ld. AR submitted that the assessee has submitted the relevant details before the lower authorities explaining that the source for the cash deposit is the cash sales made by the assessee in this regard the ld. AR drew our attention to the cash book and the cash sales register (page 7 to 15 of PB). The ld. AR argued that the AO has accepted the sales and has not rejected the books of accounts. Accordingly the ld. AR argued that no addition under section 68 can be made when the sales is not rejected.

The ld. DR on the other hand submitted that the assessee has not made any submissions before the CIT(A) and even before the AO has made only one submission. The ld. DR further submitted that the evidences now submitted in terms of cash book and cash sales register cannot be accepted. In summary the ld. DR supported the orders of the lower authorities.

We heard the parties and perused the material on record. During the course of assessment proceedings, the AO noticed that the assessee has made a deposit at Rs. 99,00,000/- in cash during the demonization period. The AO issued various notices calling for details and the assessee responded to last of the notices where he submitted certain details such as capital account, profit and loss account, etc. We notice that before the CIT(A) no further details are submitted by the assessee and from the perusal of the order of the CIT(A) it is not coming out clearly whether the CIT(A) issued any notices to the assessee calling for in further details. We further notice that in the trading a/c the assessee has declared sales of Rs. 7,06,47,278/- which according to the assessee includes the cash sales of Rs. 71,78,930/-. From the perusal of AO's order, we notice that the AO has recorded a finding based on the reply from Kotak Mahindra Bank that the assessee that the assessee has deposited cash of Rs. 3,500/- from 01.04.2016 to 08.11.2016 whereas from 09.11.2016 to 30.12.2016 the assessee has deposited a cash of Rs. 99,00,000/-. Though the assessee is contending that the source for the cash deposit is the cash sales, from the orders of the lower authorties it is not clear whether the cash book and the sales register have not been factually examined since no factual findings are recorded in their orders. Further the cash sales as declared by the assessee needs verification in terms of the purchases, stock register, etc. Therefore we deem it fit to remit the appeal back to the CIT(A) for verification of the issue contended on merits by calling for the necessary details as may be required in this regard to decide the issue in accordance with law. The CIT(A) is further directed to keep in mind the settled position that if the source of cash is out of sales substantiated by the purchases / existence of stock then no addition can be made under section 68 towards cash deposit. The assessee is directed to submit the required documents and evidences in support of the claim that the source for cash deposit is the sales and co-operate with appellate proceedings. It is ordered accordingly.

In result, the appeal of the assessee is allowed for statistical purposes.