MODILAL RAWATMAL SIROHIYA,UDAIPUR vs. ITO, WARD-1(2), UDAIPUR

आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, AM:

This appeal by the assessee is directed against the order dated 31.10.2023 passed by the National Faceless Appeal Centre, Delhi[hereinafter referred to as "the CIT(A)"], under section 250 of the Income-tax Act, 1961[hereinafter referred to as "the Act"], for

2 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya the assessment year 2017-18, arising from the assessment order dated 22.12.2019 passed by the Income Tax Officer, Ward-1(2), Udaipur, under section 143(3) of the Act.

Facts of the Case

Source stated by the assessee Amount Capital introduced by Shri Prakash Chand Sirohiya, Rs.1,90,000/- partner Capital introduced by Smt. Shanu Sirohiya, partner Rs.1,90,000/- Cash sales to unidentifiable persons Rs.3,89,154/-

3 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya Realisation from 133 identifiable trade debtors Rs.41,25,846/- Total Rs.48,95,000/- 4. The assessee furnished a list of 133 debtors in support of the amount of Rs.41,25,846/-. The Assessing Officer thereafter required the assessee to furnish the sales and purchase ledgers, cash book, daily stock register, cash-sale and credit-sale bills, particulars of the persons to whom credit sales were made, confirmations from the debtors, their identity documents, VAT returns and the cash-in-hand position on the specified dates. Thirteen persons were selected for verification on a sample basis, and the assessee was also required to produce them for examination. 5. The Assessing Officer noticed that the average daily sales during the relevant financial year were Rs.19,595/-, whereas the cash deposited on 16.11.2016 amounted to Rs.48,95,000/-. He further observed that the average cash in hand was Rs.20.18 lakh, whereas the cash in hand as on 08.11.2016 was Rs.50.12 lakh. The Assessing Officer also questioned certain withdrawals made from the bank despite the availability of cash in hand. 6. By show-cause notices dated 19.12.2019, the Assessing Officer proposed to treat Rs.43,00,079/-, being the difference between the total deposit of Rs.48,95,000/- and the opening cash balance of Rs.5,94,921/-, as unexplained cash credit. According to the assessee, the notices were issued electronically at 23:01

4 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya hours and 23:49 hours on 19.12.2019, while compliance was required by 17:00 hours on 20.12.2019. 7. In response, the assessee furnished confirmations from the partners concerning capital introduction aggregating to Rs.3,80,000/-. Regarding the trade debtors, the assessee submitted that its customers predominantly belonged to rural areas, were less educated and were reluctant to appear before the income-tax authorities. It was also explained that such customers ordinarily made payments in cash and that the assessee required cash for purchasing second-hand gold and silver ornaments. 8. The Assessing Officer did not accept the assessee’s explanation regarding the amount of Rs.41,25,846/-. According to him, the assessee failed to furnish confirmations from the debtors and failed to produce the selected persons for examination. He held that the assessee had not established the identity and creditworthiness of the persons or the genuineness of the receipts. 9. The Assessing Officer accordingly treated Rs.41,25,846/- as unexplained cash credit under section 68. The returned income of Rs.1,20,910/- was consequently assessed at Rs.42,46,756/- under section 143(3). Separate penalty proceedings under section 271AAC(1) were also initiated.

5 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya 10. It is material to note that, although the Assessing Officer proposed rejection of the books under section 145(3), the assessment order does not ultimately reject the books of account. Nor were the disclosed sales, purchases, closing stock or trading results disturbed. The proposed addition of Rs.43,00,079/- was also not ultimately made. The final addition was confined to the amount of Rs.41,25,846/- stated to have been realised from trade debtors. 11. The assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee contended that it maintained regular books of account and item-wise stock particulars and that the sales were reflected in the VAT returns filed under the applicable composition scheme. It was submitted that the cash deposited represented recorded cash sales, realisation from trade debtors and capital introduced by the partners. Since the sales had already been credited to the trading account and offered to tax, the subsequent realisation from the debtors could not again be taxed under section 68. 12. The assessee also furnished certain confirmations, ledger accounts and identity documents of the debtors. The learned CIT(A) issued notice dated 16.10.2023 requiring the assessee to clarify whether these documents had been furnished before the Assessing Officer and whether the assessee sought their

6 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya admission as additional evidence. The learned CIT(A) recorded that no reply was furnished to the said notice. 13. The assessee also contended that the Assessing Officer had allowed only about seven working hours to furnish the extensive details called for in the notices dated 19.12.2019. It further challenged the application of section 115BBE on the ground that the deposits represented disclosed business receipts. 14. The assessee also furnished certain confirmations, ledger accounts and identity documents of the debtors, stated to be placed at pages 19 to 45 of the paper book before the learned CIT(A). The learned CIT(A), through notice dated 16.10.2023, required the assessee to clarify whether these documents had been furnished before the Assessing Officer and whether their admission was sought as additional evidence. The learned CIT(A) recorded that no reply was furnished to the said notice. 15. The learned CIT(A) held that the assessee had failed to provide details of the sales giving rise to the trade debtors, the dates on which the sales were accounted for and evidence showing that the corresponding income had already been offered to tax. He further held that the identity and creditworthiness of the payers and the genuineness of the receipts had not been established.

7 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya 16. The learned CIT(A) also held that the defects in the cash book rendered the books unreliable for computing the profits of the assessee. He accordingly proceeded to reject the books under section 145(3). The authorities relied upon by the assessee were distinguished on facts. The learned CIT(A) further held that section 115BBE, as amended in 2016, was applicable to the assessment year 2017-18. The addition of Rs.41,25,846/- was upheld and the appeal was dismissed.

8 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya debtors arising from sales already recorded in the regular books and offered to tax. Once the sales had been accounted for as business receipts, taxing their subsequent realisation under section 68 would result in double inclusion of the same income.

“So far as question No. 2 is concerned, apparently when the Tribunal has found as a fact that the assessee was receiving money from the customers in hands against the payment on delivery of the vehicles on receipt from the dealer the question of such amount standing in the books of account of the assessee would not attract section 68 because the cash deposits becomes self-explanatory and such amounts were received by the assessee from the customers against which the delivery of the vehicle was made to the customers.” 21. Reliance was also placed upon ACIT v. Shri Chandra Surana, ITA No.166/JP/2022, order dated 15.12.2022, wherein the Jaipur Bench held:

“As regards the addition of Rs.2,90,93,500/- made by the AO by applying the provisions of Section 68 of the Act, it is noted that

9 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya provisions of Section 68 are not applicable on the sale transactions recorded in the books of accounts as sales are already part of the income which is already credited in P&L account. Hence, there is no occasion to consider the same as income of the assessee by invoking the provisions of Section 68 of the Act.” 22. The learned AR further relied upon ACIT v. Shri Mahendra Kumar Agarwal, ITA No.172/JP/2022, order dated 22.11.2022. The relevant observations read as under:

“We agree with the findings of ld. CIT(A) that the AO has not brought any material on record to establish that the sale bills are bogus nor any evidence indicating that such sales was bogus and merely having some doubt by twisting the data and giving some findings which are not alone sufficient to justify the addition the income so assessed in not tenable in the eye of law.” 23. The learned AR also relied on following decisions of Co- ordinate Benches:

10 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya failed to establish the alleged realisation from the 133 trade debtors by furnishing contemporaneous evidence and producing the parties for examination. According to him, the assessee had not discharged the burden imposed by section 68. The learned DR accordingly submitted that the addition sustained by the learned CIT(A) called for no interference. 25. We have considered the rival submissions and perused the material available on record. Ground Nos.1 and 2 are interconnected and concern the addition of Rs.41,25,846/- under section 68 and the opportunity afforded to the assessee. These grounds are therefore considered together. 26. The admitted position is that the assessee deposited Rs.48,95,000/- in its disclosed ICICI Bank account. The assessee furnished a specific explanation for the entire amount. The Assessing Officer accepted the capital contribution of Rs.3,80,000/- and did not make any addition in respect of cash sales of Rs.3,89,154/-. The dispute is confined to Rs. 41,25,846/-, which the assessee claimed to have realised from 133 identifiable trade debtors. 27. The assessment order itself records that the assessee furnished a list of 133 debtors. Therefore, the assessee did not merely offer a general or unidentified source. It identified the nature of the receipts as realisation of trade receivables and

11 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya furnished the list of persons from whom the amounts were stated to have been received. 28. A credit sale gives rise to a trade receivable. When the debtor subsequently pays the amount, the transaction ordinarily results in the conversion of the trade receivable into cash. The income element is accounted for when the sale is recorded in the trading account. The subsequent collection of the outstanding amount does not, by itself, generate a separate item of income. 29. Section 68 may undoubtedly be invoked where the explanation regarding the nature and source of a credit is absent or is not satisfactory. However, where the explanation is that the amount represents realisation from trade debtors arising from recorded sales, the explanation must be examined in the context of the books, trading account and the treatment of the corresponding sales. The entire receipt cannot be assessed again merely because all the customers could not be produced, unless the Revenue establishes that the sales or debtor balances were fictitious or that the deposit originated from an independent, undisclosed source. 30. In the present case, the Assessing Officer did not reject the books under section 145(3). He did not disturb the declared sales, purchases, stock position or trading results. No specific sale entry was found to be false. No discrepancy was identified in the quantitative movement of stock. The Assessing Officer also did

12 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya not record a finding that the impugned amount exceeded the cash balance appearing in the books. 31. The addition was made principally because confirmations from all the debtors were not furnished and the persons selected for sample verification were not produced. The list of 133 debtors was, however, admittedly available with the Assessing Officer. No notices under section 133(6) were issued to those persons, nor was any independent enquiry undertaken to disprove the recorded transactions. Failure to produce every customer cannot, in the absence of an enquiry or contrary material, establish that the entire amount represented undisclosed income. 32. The limited time afforded for compliance is also relevant. The detailed notices were issued late on 19.12.2019, whereas compliance was required by 17:00 hours on 20.12.2019. Within this interval, the assessee was required to furnish extensive books, bills, stock records, VAT returns, confirmations and identity documents and also produce customers residing in rural areas. An adverse inference founded substantially upon non- production within such a short period must be approached with circumspection. 33. The learned CIT(A) rejected the books under section 145(3) on the ground that the alleged defects in the cash book rendered them unreliable. The Assessing Officer had proposed such rejection but did not ultimately invoke section 145(3). The learned

13 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya CIT(A) has not identified any particular entry in the sales ledger, stock register or trading account which was false or incomplete. The mere fact that a substantial part of the business was conducted in cash is not, by itself, a defect warranting rejection of the books. 34. Further, even after rejecting the books, the learned CIT(A) did not estimate the business income by applying any reasonable profit rate. Instead, he sustained the separate addition of the entire gross receipt of Rs.41,25,846/-. Rejection of books under section 145(3) does not automatically establish that every cash receipt appearing therein is unexplained income. An addition under section 68 must still rest upon an examination of the nature and source of the particular credit and the material available on record. 35. The learned CIT(A) also recorded that the assessee did not respond to the notice dated 16.10.2023 concerning the admission of the confirmations, ledger accounts and identity documents as additional evidence. Even if those additional documents are excluded from consideration, the addition must nevertheless be examined on the material available before the Assessing Officer. Such material included the disclosed bank account, the specific break-up of the deposit and the list of 133 debtors. The Revenue did not carry out any verification from those persons or bring any

14 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya material showing that the corresponding sales and debtor balances were fictitious. 36. The assessment order further contains inconsistent sales figures. At one place, the sales for financial year 2016-17 were stated to be Rs.17.52 lakh, while at another place, they were stated to be Rs.71.52 lakh. The average daily sales were computed by adopting Rs.71,52,168/-. Such an internally inconsistent statistical comparison may justify further scrutiny, but it cannot constitute substantive evidence that the entire realisation from trade debtors was undisclosed income. 37. The Hon’ble jurisdictional Rajasthan High Court in Smt. Harshila Chordia held that customer receipts against business transactions do not attract section 68 once the nature of the receipts is established. The coordinate Bench decisions in Shri Chandra Surana, Shri Mahendra Kumar Agarwal, Himalaya Spinning Mills and Shri Aditya Jhanwarsimilarly recognise that business receipts arising from sales already recorded and offered to tax cannot again be assessed under section 68 without material establishing that the sales were bogus. 38. The decision in Shri Ramesh involved money deposited directly by customers and an addition under section 69A. It is distinguishable to that extent, though the general principle concerning accepted business receipts supports the assessee. The decision in Smt. Mandeep Kaur Hansra concerned loans or

15 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya advances supported by affidavits and examination of the lenders and therefore does not directly govern the present controversy. 39. In the facts before us, the sales and trading results were not disturbed by the Assessing Officer. The source disclosed by the assessee was realisation of trade receivables generated from those sales. The Revenue did not establish any separate undisclosed source of the deposited cash. Assessing the entire amount of Rs.41,25,846/- again under section 68 would consequently result in double inclusion of the same underlying business receipts. 40. We accordingly hold that the addition of Rs.41,25,846/- sustained by the learned CIT(A) cannot be upheld. The Assessing Officer is directed to delete the same. Ground No.2 is allowed. Ground No.1, insofar as it concerns the addition and denial of adequate opportunity, is also allowed. The general challenge to the assessment as a whole does not require separate adjudication. 41. Ground No.3 concerns the application of section 115BBE. Since the underlying addition under section 68 has been deleted, the application of section 115BBE does not survive. Ground No.3 is allowed as consequential. 42. Ground No.4 concerns interest charged under sections 234A, 234B and 234C. Charging of interest under the said provisions is consequential. The Assessing Officer is directed to

16 ITA No. 426/Jodh/2023 Modilal Rawatmal Sirohiya recompute the interest, if any, while giving effect to this order. Ground No.4 is disposed of accordingly.

Order pronounced on 04.09.2026.

Sd/- Sd/- (SAKTIJIT DEY) (MAKARAND VASANT MAHADEOKAR) VICE PRESIDENT ACCOUNTANT MEMBER

Jodhpur, Dated 04.09.2026 ANKIT, PS

आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : अपीलाथी / The Appellant 1. प्रत्यथी / The Respondent. 2. संबंधधत आयकर आयुक्त / The CIT(A) 3. 4. आयकर आयुक्त(अपील) / Concerned CIT धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, जोधपुर/ DR, ITAT, Jodhpur 5. 6. गार्ड फाईल / Guard file.

आदेशानुसार/BY ORDER, सत्याधपत प्रधत //True Copy// उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, जोधपुर / ITAT, Jodhpur