SANTOSH THANMAL MUTHA,MUMBAI vs. INCOME TAX OFFICER, WD-34(3)(4), MUMBAI

The appellant has raised the following grounds of appeal: 1.On facts and circumstances of the case and in Law, Ld. CIT(A) erred in confirming the rejection of appellant’s books of account u/s.145(3), since the proposal to reject the books of account was not made in the show-cause notice; 2.On facts and circumstances of the case and in Law, Ld. CIT(A), without any justification and without pointing any specific defect in recorded entries, erred in confirming the rejection of appellant’s audited books of account u/s.145(3) of the Act; 3.On facts and circumstances of the case and in Law, Ld. CIT(A) erred in confirming the addition u/s.68 of cash deposits made in bank account during demonetization period of Rs.61,44,000/-, though the source of cash is out of realisation of sales of jewellery made in retail jewellery shop and credited in audited P & L account; 4.The Ld. CIT(A), before confirming the addition u/s.68 of cash deposits made in bank account of Rs.61,44,000/-, ought to have considered the understated vital facts, being: a) The source of cash deposits is out of realisation of sale proceeds of jewellery made in normal course of business in appellant’s retail jewellery shop; b) The appellant had furnished exhaustive documents such as sales bills, corresponding purchase bills, monthly summary of sales and purchase, Quantity tally, stock register, cash book, bank statements, party-wise details of purchase, VAT returns, etc. to establish the sales of jewellery/ornaments and realisation of sale proceeds; c) The addition had been made on the basis of assumption and surmise, without carrying any enquiry or investigation and without bringing any contrary material/evidence on record; 5. Without prejudice to Ground Nos. 3 and 4, Ld. CIT(A) having confirmed the addition u/s.68 of cash deposits corresponding to recorded cash sales of Rs.61,44,000/-, ought to issue directions to the AO to exclude/reduce the sales credited in audited P & L account and to allow the business loss of equivalent amount;

The brief relevant facts of the case are that, Assessee is an individual, engaged in the business of trading of gold, gold bars and jewellery, being proprietor of M/s Sai Santosh Jewellers, filed his return of income under section 139(1) on 30th October 2017, declaring the total income of ₹7,25,850/-. The return of income was selected for the complete scrutiny through CASS, vide issue of notice under section 143(2), dated 09-08-2018. Subsequently, the assessing officer has issued query letters under section 142(1), but, the Assessee failed to comply with those notices. Finally, a show cause notice issued on 19-12-2018, asking to submit details and explanation for the cash deposits of ₹61,44,000/- into bank account during the demonetisation period from 08-11-2016 to 30-11-2016, the Assessee furnished response on 10-02-2017 stating that source of cash deposits were cash sales effected by him during the period up to 08–11–2016. Considering that, AO, observed that there was no cash deposits during the year till 10–11–2016, suddenly between 11–11–2016 to 19–11–2016, deposited huge cash of ₹61,44,000/- in bank account. That being not ordinary cash deposit pattern, noticed complete irregularity in cash deposits during the whole year, that do not demonstrate genuine business receipts, rather, the sales shown by the Assessee is manipulated to adjust the corresponding cash deposits into bank account. Accordingly, the books of accounts were also incorrect, and rejected holding that Assessee failed to justify the cash deposits, by proper explanation for cash deposit of Rs. 61,44,000/- thus, treated as unexplained cash credit u/s 68 of the Act, and levied tax u/s 115BBE of the Act @ 60%.

The Assessee, being aggrieved by the assessment order preferred an appeal before the Learned Commissioner of Income Tax (Appeals), raising following grounds of appeal:

Through aforementioned documents, Assessee explained that sales in the month of October, 2016 increased due to marriage season starts during November, 2016, due to demonetisation announcement at 8 PM. People rushed to the jewellery shops for purchase of gold/gold ornaments between 8 PM to 12 midnight within time period of four hours. Further submitted that entire cash deposits represents the cash sales made to retail customers in tune of less than 2 lac, recorded such sales into regular books of accounts, appearing in profit and loss account, reported in the return of income with profit, and offered such profit for taxation in the return of income. In support of cash sales, he has furnished sales bills, cash, Book, stock register, audited books of accounts, bank statements and contended that there was sufficient cash balance available in the cash Book before 8-11- 2016, as the cash sales between 25-10-2016 to 07-11-2016 were Rs.65,21,850/- and same has been used for cash deposit of Rs.61.44 lac into the bank account. The Assessee claimed that entire sales affected have been reported in VAT returns, deposited VAT collection to VAT Dept, having VAT registration certificate effective from 08/07/2016. Prior to that date said jewellery shop was operating by Assesse’s father Shri Thanmal Mutha. Later on, during the year, looking to the old age of the father, the shop with all stock in trade available at the year end on 31st March 2016 inherited to Assessee for future operation and at his disposal. 7. The learned Commissioner of Income Tax (Appeals) after examination, upheld the rejection of books of accounts u/s 145(3), and sustained the addition u/s 68 of ₹61,44,000/- with findings that Assessee failed to explain cash flow pattern, lack of consistency in record keeping and absence of customer details. 8. The Assessee being aggrieved by the order of Ld. CIT(A), is in appeal before the Tribunal. Before us, the learned authorised representative of the Assessee reiterated the arguments, furnished documents and contended that sales, purchases, stock summary with quantity movement etc have not been doubted by Commissioner of Income Tax, Appeals. 9. The Ld. AR invited our attention to the accumulation of cash through cash sales of Rs.65,21,850/-(PB-28) effected between 25-10-2016 to 07-11-2016, just prior to date of demonetisation announcement on 08–11–2016 and used that accumulated cash for deposition into Kotak Mahindra bank account number 9412394424 during that period. 10. The Ld. AR further pointed out that learned assessing officer did not pointed out any specific defect or error in the books of accounts, moreover, it is settled that, without pointing out specific defect or error in the books of accounts, the provisions of section 145(3) cannot be invoked. 11. During the hearing, it is also submitted that recorded sales are part of audited profit and loss account with disclosure in the return of income, without disturbing that, simultaneously, it cannot be treated as an unexplained cash credit under section 68 of the Act. 12. Having placed reliance of following judgments, stated that consistently held that addition u/s 68 of the Act for cash deposits against recorded and declared sales cannot be made: I. Lalit R. jagawat (HUF) vs. DCIT, ITA No.634/Mum/2025 II. DCIT vs. HB Estate Developers Limited, ITA No. 5535/Del/2024, (Delhi ITAT) III. CIT versus S.D. Investment and Trading Company, 306 ITR 31, (Bombay High Court). 13. Without prejudice to ground numbers 1 to 4, Assessee further urged that in case addition u/s 68 for cash deposits of ₹61,44,000/- is sustained, than Assessee would be allowed to reduce corresponding sales from total sales reported in the profit and loss account, which would result into business loss and same shall be available for set of with the income from other sources, being addition and section 68 of the Act. 14. Per contra, learned DR relied upon the order of lower authorities. 15. We have carefully considered the rival submissions, perused the material on record, gone through the judgements relied upon by the Assessee. We may here in observe that Assessee has continued the inherited gold trading jewellery business and that being his first year of operation, before the assessing office did not furnish comparative cash chart. While, before First Appellate Authority, furnished documents in support of his business operations, VAT returns, cash sales bills containing VAT collection, quantity summary etc., to support the genuineness of business operations, movement of the quantity through purchases, sales, cash sales statement and summary of cash deposits into bank account. 16. We find that Assessee issued sales invoices to the customers by charging VAT at the prescribed rate of state VAT, reported sales, VAT liability, VAT credit on purchase invoices, in his periodic VAT returns filed to VAT department. 17. The delivery of gold bar(s)/ornaments made through on hand basis and not through any courier or transport service, under the circumstances proof of delivery would not possible. The pattern of cash deposit found irregular by Ld. CIT(A), being the first year of business of Assessee, the pattern of cash deposit could not have compared and made the basis for confirming the additions. The cash sales invoices for less than Rs.2,00,000/- are found in parlance with normal business transactions invoices, a trader cannot bound to collect customer’s verified details like PAN, Address etc, unless the law necessitates, at that time there was no such provision compel Assessee to do so. It is an undisputed fact that without reduction of cash sales from the total turnover, corresponding cash receipts cannot be simultaneously treated as unexplained cash credit u/s 68 of the Act. 18. We found force in the contention of the Assessee, that unexplained cash credit under section 68 of the Act and cash sales both cannot get birth from one transaction. The learned Assessing Officer and Learned Commissioner of Income Tax (Appeals) failed to discharge the onus to support their presumption of fictitious cash sells affected by the Assessee. Thus, we are inclined to contentions that cash sales of the Assessee cannot be treated as unexplained cash credit under section 68 of the Act, as that has been already considered as trading receipts for determination of profit from business, otherwise it leads to double taxation, which has not been specifically provided under the income tax act, 1961.

Accordingly, we hold that cash deposit of ₹61,44,000/- during the demonetisation period was out of the available cash balance, thus, source of cash deposit is treated as explained being generated from the accepted cash sales. In the result, the ground numbers 1-4 of the Assessee are allowed, remaining grounds of appeal becomes academic and needs no further adjudication.

In the result, the appeal filed by the Assessee stands allowed.