ASSISSTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), TIRUPATI vs. MADDIPATLA NAGESWARA NAIDU, PUNGANUR

The brief facts of the case are that, the assessee is an individual and filed his return of income for AY 2017–18 on 30.10.2017 declaring total income of Rs.19,24,560/-. The assessee is running a wholesale trading business in the name of “Nandini Broilers”. The case was selected for scrutiny and during the course of assessment proceedings, the A.O. noticed that, the assessee has made cash deposits of Rs.1,44,11,000/- into bank account during the demonetization period. The A.O. called upon the assessee to explain the source for cash deposits. In response, the assessee submitted that, he is engaged in the business of wholesale trading in broiler chicken and the source for cash deposits during demonetization is cash receipts from sale of products and opening cash balance available as on 08.11.2016 for Rs.1,45,91,173/-. To support his arguments, the assessee has furnished the relevant details, including the cash book to prove the availability of opening cash balance as on 08.11.2016. 3. The A.O., after considering the relevant submissions of the assessee, observed that although the assessee claimed to have deposited cash out of opening cash in hand available as on 08.11.2016, but fact remains that out of total cash deposits, 98.76% is in specified bank notes amounting to Rs.1,44,11,000/-. Further, on examination of the details submitted by the assessee, the assessee has failed to furnish any details or receipts in respect of cash sales. Although the assessee has furnished cash book extracts, but on verification of the relevant cash book, it is observed that, the assessee has realized huge amount of sundry debtors, but failed to furnish details of sundry debtors, including their identity, genuineness and creditworthiness. Therefore, in the absence of relevant details, the source explained by the assessee for cash deposits during the demonetization period cannot be accepted. Thus, rejected the explanation of the assessee and made addition of Rs.1,44,11,000/- towards cash deposits made in Specified Bank Notes during the demonetization period starting from 09.11.2016 to 30.11.2016 as unexplained cash credits under section 68 of the Act, and brought to tax under section 115BBE of the Income-tax Act, 1961. 4. Aggrieved by the assessment order, the assessee preferred appeal before the learned CIT(A). Before the learned CIT(A), the assessee has furnished complete details of cash book along with details of comparative sales, cash sales and cash deposits made during the financial year 2016–17 and corresponding previous year for financial year 2015–16 and explained that, there is no abnormal deviation in cash sales made during the month of October, 2016 and November, 2016, when compared to earlier financial year and further, the assessee has made uniform cash deposits, throughout the year, including for the month of November, 2016 and therefore, the allegation of the A.O. that the source for cash deposits was not explained is incorrect.

The learned CIT(A), after considering the relevant submissions of the assessee and also taking note of the details submitted by the assessee, observed that, the assessee had furnished cash book for the entire financial year and upon perusal of the relevant cash book, it is noticed that, even before the demonetization period, the assessee has regularly deposited substantial amount of cash in the bank account out of cash sales. Further, the assessee had made cash deposits in the bank account during the demonetization period out of opening cash in hand available as on 08.11.2016 and the source for the said opening cash balance is out of cash sales made by the assessee during the period prior to demonetization. Further, from the cash book filed by the assessee, it is observed that, there is no abnormality in holding the cash balance during the period of demonetization and after demonetization, which is evident from the cash balance held by the assessee as on 08.11.2016 and from 30.10.2016 to 31.12.2016. The A.O. has not made out a case that the assessee has received Specified Bank Notes after 08.11.2016 and the same has been deposited into bank account. Since the entire cash deposits are out of opening cash balance as on 08.11.2016 and the source for the said cash deposits is balance of cash sales of the previous period, the A.O. ought not to have made additions to cash deposits as unexplained cash credits. Therefore, the learned CIT(A) directed the A.O. to delete the addition made towards cash deposits of Rs.1,44,11,000/- under section 68 of the Act.

Aggrieved by the order of the learned CIT(A), the assessee is now in appeal before the Tribunal.

The learned Senior A.R. for the Revenue, Dr. Sachin Kumar, submitted that although the assessee claims to have explained cash deposits during the demonetization period out of opening cash in hand, but fact remains that the assessee has not furnished relevant details, including details of sundry debtors, details of cash sales and also failed to explain as to why the assessee has maintained huge cash balance during the demonetization period. The learned Senior A.R. for the Revenue further submitted that, the learned CIT(A) has accepted the additional evidence filed by the assessee, including ledger extracts of cash sales without providing an opportunity to the A.O., contrary to Rule 46A of the Income-tax Rules, 1962. Therefore, he submitted that, the additions made by the A.O. towards cash deposits should be sustained or in the alternative the matter may be remanded to the file of the A.O. to verify the explanation of the assessee and decide the issue as per law.

The learned counsel for the assessee, Shri K. A. Sai Prasad, submitted that, the assessee has not furnished any new evidence before the learned CIT(A). The assessee has furnished all the details before the A.O., including cash book for the relevant period, details of cash sales for the entire financial year, including corresponding earlier financial year. The assessee has also furnished details of sundry debtors from whom the cash has been realised before the demonetization period. The assessee has not accepted Specified Bank Notes during the demonetization period. There is no variation in cash sales when compared to the earlier period of the same financial year, or corresponding previous financial year. In the absence of any deviation in cash sales and cash deposits, the A.O. ought not to have made addition towards cash deposits into the bank account only on the basis of cash deposits in Specified Bank Notes, even though the assessee has substantiated the cash deposits by filing the relevant details. Therefore, he submitted that the learned CIT(A), after considering the relevant facts, has rightly deleted the addition made by the A.O. and thus, the order of the learned CIT(A) should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to cash deposits made into bank account during the demonetization period in Specified Bank Notes and also the explanation of the assessee that the same is out of opening cash balance as on 08.11.2016 as per the cash book maintained by the assessee for his business. The assessee has made cash deposits of Rs.1,44,11,000/- during the demonetization period from 09.11.2016 to 30.12.2016 and explained the source out of opening cash in hand of Rs.1,45,91,173/- as on 08.11.2016. The assessee has furnished relevant cash book extracts along with supporting evidence, including details of total sales, cash sales, cash deposits for the financial year 2016–17 and corresponding previous financial year 2015–16. The A.O. never disputed the fact that the assessee has explained the source out of opening cash balance as on 08.11.2016. However, the A.O. disputed the explanation of the assessee only on the ground that the assessee has realized substantial amount of cash from sundry debtors, however could not furnish details of sundry debtors so as to prove their identity, creditworthiness and genuineness. The A.O. further rejected the explanation of the assessee on the ground that the assessee has not furnished bills and receipts for cash sales made during the relevant period and therefore, made addition towards cash deposits of Rs.1,44,11,000/- made during the demonetization period in Specified Bank Notes as unexplained cash credits of the assessee.

We have given our careful consideration to the reasons given by the A.O. to make addition towards cash deposits under section 68 of the Act as unexplained cash credit, in light of various arguments of the assessee, and we ourselves do not subscribe to the reasons given by the A.O. for the simple reason that, the assessee has explained cash deposits during the demonetization period out of opening cash in hand as on 08.11.2016 which was at Rs.1,45,91,173/-, whereas the assessee has made cash deposits of Rs.1,44,11,000/- from 09.11.2016 to 30.12.2016. The assessee has also furnished the relevant cash book extracts which are available in the paper book filed by the assessee, and upon verification of relevant cash book from 01.04.2016 to 31.03.2017, we do not find any abnormal variation in cash sales made by the assessee during the months of October, 2016 and November, 2016 when compared to previous months of the financial year 2016–17 and corresponding period of earlier financial year 2015–16. The A.O. has also not made out any case of sudden increase in cash sales during the demonetization period when compared to earlier financial year. Since there is no deviation in cash sales declared by the assessee during the period of demonetization when compared to the earlier financial year and corresponding previous financial year, in our considered view, the explanation of the assessee out of cash in hand available as on 08.11.2016 cannot be rejected merely for the reason that the assessee has not furnished sales bills or cash receipts. In our considered view, going by the nature of business of the assessee and the turnover achieved in the financial year under consideration, the cash balance held by the assessee as on 08.11.2016 is commensurate with the business turnover of the assessee, which is evident from the total sales made by the assessee for the financial year 2016–17, which was at Rs.37.38 crores and out of which total cash sales for the entire financial year was at Rs.18.91 crores. If we consider the percentage of cash sales to total sales, it is almost more than 50% of total sales. Therefore, in our considered view, when the A.O. has not disputed the sales declared by the assessee, then the source explained by the assessee out of cash sales cannot be disputed merely for the reason of non-furnishing of sales bills or cash receipts.

We further note that, the CBDT has also issued a SOP to the A.O. to verify the source for cash deposits during the demonetization period, in case, if the assessee explains the source out of business receipts, and if we go through the relevant SOP, the CBDT has directed the A.O. to examine the cash sales in light of cash sales declared by the assessee for the earlier financial year and current financial year, and in case of any deviation, the A.O. is required to call for relevant details and examine the claim of the assessee. Going by the SOP issued by the CBDT, in our considered view, the A.O.

In the result, the appeal of Revenue is dismissed.

The Principal Commissioner of Income Tax, Tirupati. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file