MAZDA AND CO,THANE vs. ACIT CIRCLE, PALGHAR

The brief facts of the case are that the assessee, Mazda & Co., is a partnership firm engaged in the wholesale trading of beer and wines. The assessee filed its return of income for A.Y. 2017-18 on 04.11.2017 declaring total income of ₹7,48,810/-. The Assessing Officer selected the case for scrutiny and, during the assessment proceedings, examined the cash deposited in the assessee’s bank accounts during the demonetization period. The Assessing Officer asked the assessee to produce the cash book, sales register, debtor register and details correlating the cash deposits with sales. The assessee submitted that it normally sold goods on credit to regular retailers, hotels and beer shops and subsequently collected the outstanding amounts from those debtors, partly in cash, which it deposited in its bank accounts. The assessee furnished the cash receipt party book, petty cash book, sales register and debtor ledgers. Significantly, the Assessing Officer himself recorded that the receipts were towards realization from debtors and there was a direct nexus between the debtor realizations and the cash deposited in the bank. However, the Assessing Officer held that the assessee could not have accepted Specified Bank Notes (“SBNs”) after 08.11.2016 and further observed that the assessee had not furnished confirmations from the debtors. The Assessing Officer therefore treated SBN deposits of ₹49,27,000/- as unexplained. The Assessing Officer also rejected the explanation for the cash deposit of ₹5,00,000/- in Allahabad Bank, which the assessee had made out of existing petty cash/cash in hand, because the assessee had also made small cash withdrawals despite having a substantial cash balance. The Assessing Officer made an addition of ₹52,27,000/- under section 69A of the Act.

Before the learned CIT(A), the assessee explained that it was a distributor in the regulated liquor trade and normally supplied goods on credit to regular customers and collected the outstanding amounts subsequently. The assessee contended that the impugned cash were recovery of such trade receivables and relied upon its books, party-wise sales and purchase details, sales-tax records, cash receipt book, debtor ledgers, bank statements and the correlation between sales invoices and subsequent collections. The assessee also submitted that purchases as well as sales were subject to TCS and the relevant TCS details and returns had been furnished, thereby providing an independent statutory trail of the business transactions. The learned CIT(A), however, held that the assessee had not established the debtor realizations through supporting evidence and also upheld the Assessing Officer’s objection regarding the ₹5,00,000/- deposited out of petty cash. The learned CIT(A) further noticed that ₹49,27,000/- and ₹5,00,000/- aggregated to ₹54,27,000/-, whereas the Assessing Officer had made an addition of ₹52,27,000/-, and therefore directed the Assessing Officer to verify and correct/enhance the addition to ₹54,27,000/-. The learned CIT(A) accordingly dismissed the appeal.

The assessee is in appeal before us against the order passed by the learned CIT(A) dismissing the appeal of the assessee.

We have heard the rival contentions and perused the material available on record, including the submissions of the learned Counsel for the assessee and the documents placed in the Paper Book.

We find merit in the contention of the assessee that the provisions of section 69A are not applicable to the facts of the present case. The assessee has explained that the cash deposited in the bank accounts were from collections from its regular customers against earlier credit sales and, in part, cash already available in hand. The Cash Receipt Party Book placed in the Paper Book records the date-wise cash collections from various customers along with receipt numbers.

Thus, the assessee has not merely given a general explanation for the deposits. The assessee has shown a complete trail from the sales recorded, outstanding debtor balances and subsequent cash collections to the deposit of such cash in the bank. The Assessing Officer has also not rejected the books of account or the sales recorded therein. In these circumstances, once the source of the cash is realization of trade receivables and existing cash in hand, the same cannot be treated as unexplained money merely because part of the collection was received in SBNs during the demonetization period. We therefore hold that the conditions required for making an addition under section 69A are not satisfied in the present case.

We find merit in the contention of the assessee that the provisions of section 69A are not attracted in the facts of the present case. The assessee has explained that the cash deposited in the bank accounts were realized towards outstanding trade receivables from its regular customers and, to the extent applicable, cash already available in hand. The assessee has also demonstrated from the material placed in the Paper Book that the relevant sales were recorded in the books, the corresponding amounts were outstanding in the debtor ledgers, the subsequent cash collections were recorded in the Cash Receipt Party Book and the amounts so collected were thereafter deposited in the bank accounts. Thus, the assessee has not only identified the nature and source of the cash but has also supported the explanation through the books of account and supporting business records.

In these circumstances, merely because part of such collections was received in Specified Bank Notes during the demonetization period, the same cannot, by itself, lead to the conclusion that the cash was unexplained money. Once the assessee has established that the impugned were from realization of recorded business receivables and existing cash balance, the conditions necessary for invoking section 69A are not satisfied.

We therefore find that the Assessing Officer was not justified in making the addition of ₹52,27,000/- under section 69A, and the learned CIT(A) was also not justified in sustaining the addition or in proposing its correction/enhancement to ₹54,27,000/-. Accordingly, we set aside the finding of the learned CIT(A) on this issue and direct the Assessing Officer to delete the addition made under section 69A of the Act. Consequently, the application of section 115BBE to the said amount also does not survive.

Accordingly, the grounds raised by the assessee on this issue are allowed. 12. In the result, the appeal of the assessee is allowed.