GOKULADOSS SATHISH KUMAR,CUDDALORE vs. ITO, WARD-5,, CUDDALORE

The solitary raised by the assessee in his grounds of appeal is that the ld.CIT(A) has erred in confirming the order of the Assessing Officer, wherein the assessment order was passed by the AO by rejecting the Cash book and

The brief facts of the case emanating from the records are that the assessee, an individual, is engaged in the business of trading in palm oil under the proprietary concern, M/s.Sathish Agencies at Cuddalore. For the Assessment Year 2017-18, the assessee filed the return of income electronically on 30.10.2017 declaring a total income of Rs.5,81,110/- and agricultural income of Rs.32,000/-. The return of income was initially processed u/s.143(1) of the Act. Subsequently, the case was selected for complete scrutiny under the Computer Assisted Scrutiny Selection (CASS) system. In the course of assessment proceedings, notices u/s.143(2) and 142(1) of the Act were issued and duly served upon the assessee. During the scrutiny proceedings, the AO noticed that the assessee had deposited substantial amounts in specified bank notes (SBNs) during the demonetization period from 09.11.2016 to 30.12.2016. The total cash deposits made during the said period aggregated to Rs.2,18,40,500/- in various bank accounts maintained by the assessee. The AO called upon the assessee to explain the source and nature of the said cash deposits.

During the course of assessment proceedings, the AO examined the cash book and other records furnished by the assessee. On such examination, it was observed that the cash balance available with the assessee as on 08.11.2016 was Rs.1,30,42,848/-. However, the assessee had deposited cash aggregating to Rs.2,18,40,500/- in SBNs during the demonetization period commencing from 09.11.2016. The AO noted that the amount of SBN deposits exceeded the cash balance reflected in the books of account as on 08.11.2016 and, therefore, called upon the assessee to explain the source of such deposits.

The AO further observed that there was a substantial increase in the cash balance during the period from 01.11.2016 to 08.11.2016. According to the cash book, the cash balance had increased from Rs.16,80,696/- as on 31.10.2016 to Rs.1,30,42,848/- as on 08.11.2016. The assessee attributed the increase to cash sales amounting to Rs.1,38,27,472/- during the said eight-day period and reported total sales of Rs.3,49,01,592/- for the month of November 2016.

Upon comparison with the corresponding period of the preceding financial year, the AO noted that no such abnormal increase in sales was reflected in November 2015, wherein the total sales for the entire month were only Rs.1,43,91,654/-. The AO also observed that the average monthly sales of the assessee for the period from April 2016 to October 2016 worked out to Rs.1,27,51,294/-, whereas the sales reported for November 2016 amounted to Rs.3,49,01,592/-. Based on this comparative analysis, the AO was of the view that there was an unusual and significant rise in sales during November 2016, particularly in the period immediately preceding demonetization, and accordingly proceeded to examine the genuineness of the cash sales and the resultant cash deposits made during the demonetization period.

The AO concluded that the assessee to boost the cash sale during 01.11.2016 to 08.11.2016 in order to accommodate cash deposited in SBNs, to bring his unaccounted money increased the cash sales. Further, the cash balance as on 08.11.2016 was only Rs.1,30,42,848/-, however the cash deposited during the demonetised period was Rs.2,18,40,500/-. The AO asked the assessee to submit the details of SBNs deposited, but the assessee failed to file any reply. In view of the above the AO rejected the cash book of the assessee and concluded the assessment by making addition of Rs.2,18,40,500/- by treating the cash deposit as unexplained money u/s.68 of the Act and passed an order u/s.143(3) of the Act dated 31.12.2019.

Aggrieved by the order of the ld.CIT(A) the assessee is in appeal before us.

The ld.AR for the assessee assailing the action of the ld.CIT(A) argued that the ld.CIT(A) has just confirmed the order of the AO without considering any of the evidence furnished before him. The ld.AR drew our attention to the paper book filed consisting of 368 pages, wherein the assessee had filed a cash book, day book, monthly sales, purchases for the financial years 2014-15 to 2016-17, VAT returns of Tamilnadu and Pondy for F.Y. 2015-16 & 2016-17 and also Audited financials for A.Y. 2015-16 to 2017-18, before the ld.CIT(A) as per the reply dated 19.03.2021 (page No.1 & 2 of the Paper book) in response

The ld.DR supported the orders of the authorities and prayed for confirming the same as the findings of the AO is exhaustive and clear.

We have heard the rival submissions and perused the material available on record. We have also carefully gone through the assessment order, the impugned order of the ld.CIT(A), and the paper book filed by the assessee. The primary basis for the addition made by the AO is that the assessee had deposited cash aggregating to Rs.2,18,40,500/- in SBNs during the demonetisation period, whereas the cash balance reflected in the books as on 08.11.2016 was only Rs.1,30,42,848/-. The AO further noticed a substantial increase in cash sales during the period from 01.11.2016 to 08.11.2016 and concluded that such sales were artificially inflated to accommodate unaccounted cash in the guise of business receipts. On the said premise, the entire cash deposits were treated as unexplained money and brought to tax.

At the same time, we find merit in the contention of the assessee that extensive documentary evidence, including cash book, day book, sales and purchase details, VAT returns and audited financial statements for the relevant years, were furnished before the ld.CIT(A). The assessee has specifically contended before us that neither the AO nor the ld.CIT(A) carried out any detailed verification of the denomination-wise particulars of the SBNs deposited or the corresponding purchases relating to the sales which were alleged to be non-genuine.

We observe that the issue involved requires a thorough factual verification. While the AO has doubted the genuineness of the cash sales on

In our considered view, the correctness of the addition cannot be adjudicated conclusively without examining (i) the exact quantum of SBNs deposited by the assessee and its correlation with the cash balance available in the books, and (ii) the genuineness of the sales recorded during the period from 01.11.2016 to 08.11.2016 with reference to corresponding purchases, stock records, VAT returns and other supporting evidences. Since these crucial factual aspects have not been properly verified by the lower authorities, the matter requires fresh examination.

Accordingly, in the interest of justice, we set aside the orders of the lower authorities and restore the matter to the file of the AO for de novo consideration. The AO shall verify the denomination-wise details of SBNs deposited during the demonetisation period, examine the cash book and bank records, and also verify the corresponding purchases, stock position, VAT returns and other relevant evidences relating to the sales recorded during the period from 01.11.2016 to 08.11.2016, which have been alleged to be non-genuine. Thereafter, the AO shall decide the issue afresh in accordance with law after affording adequate opportunity of being heard to the assessee and after considering all evidences and explanations that may be furnished by the assessee.