NEW JOTHI REXINE HOUSE,CHENNAI vs. ITO, NCW-12(1), CHENNAI

Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee firm submitted that the assessee is into the business of manufacturing and wholesale and retail trading in school bags, travelling bags, executive bags, trolly bags, complement bags, etc. and also umbrellas, raincoats and accessories. Being a trader of bags, majority of the receipts are in cash basis and the said cash generated out of the sales are deposited in their bank accounts as and when required. The assessee stated that the turnover of the firm was Rs.3,61,70,393/- during the financial year 2016-17. Since the said amount has already been reported under sales of the firm and offering the corresponding net profit as income of the firm, making the addition of cash deposits made out of sales to the total income again results in double taxation. Further, the cash

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), submitted that the ld.CIT(A) has erred in confirming the additions made by the AO without appreciating the source of cash deposit explained by the assessee along with the supporting evidences. The ld.AR filed a paper book-1 consisting of 495 pages having the return of income, financial statements, details of cash sales, sales register, invoices raised by the appellant, bank statement, 26AS, cash book, etc., and paper book-2 consisting of CST returns from June 2016 to June 2017 and paper book-3 consisting of VAT returns from June 2016 to June 2017. The ld.AR submitted that the assessee’s turnover for the AY 2017-18 was Rs.3.61 crores and the cash deposits has been made out of the regular business collections. The ld.AR took us through the sales register from page No.14 to 35 of paper book-1 and the sales invoices raised by the assessee along with the cash book page No.372 to 392 of the paper book-1 and submitted that the cash balances were available before the demonetisation period, and hence, the source for cash deposits made in the bank account is out of normal business transactions. Further, referring to the paper books 2 and 3, the ld.AR submitted that the transactions which have been made were reported in the monthly returns filed and both under VAT Act and CST Act. Further, the ld.AR submitted that the authorities have not rejected the books of account maintained and audited by the assessee and without tampering the turnover declared by the assessee, the additions made u/s.69 of the Act as unexplained investment amounts to double taxation. Therefore, the ld.AR prayed for deleting the same by allowing the grounds of appeal raised by the assessee. In support of the above arguments, the ld.AR relied on the decision of the coordinate Bench of the Tribunal in the case of TASMAC in ITA No.431/Chny/2023 dated 07.10.2024.

Per contra, the ld.DR supported the orders of the authorities and submitted that the assessee has not explained the source for SBNs deposited

We have heard the rival submissions, perused the orders of the authorities below and carefully examined the material available on record, including the paper books filed by the assessee. The short issue which arises for our consideration is whether the cash deposits of Rs.28,50,000/- made by the assessee in Specified Bank Notes (SBNs) during the demonetisation period can be treated as unexplained investment under section 69 read with section 115BBE of the Act.

It is an undisputed fact that the assessee is a partnership firm engaged in the business of manufacture and trading of school bags, travelling bags, executive bags, trolley bags, umbrellas, raincoats and other accessories. It is also not in dispute that the assessee has disclosed a turnover of Rs.3,61,70,393/- for the relevant previous year and the books of account of the assessee were duly maintained and audited. The case of the Revenue is primarily founded on the premise that substantial cash deposits were made only during the demonetisation period and, therefore, the source of such deposits remained unexplained.

We find from the assessment order that the AO has not rejected the books of account maintained by the assessee nor has he invoked the provisions of section 145(3) of the Act. The sales disclosed by the assessee have also not been disturbed. The turnover returned by the assessee has been accepted and no adverse finding has been recorded either with regard to the genuineness of the sales or with regard to inflation of cash sales. Once the books of account are accepted and the turnover recorded therein is not doubted, the corresponding cash generated from such sales cannot be brushed aside merely because the deposits were made during the

Before us, the assessee has produced comprehensive documentary evidence in the form of sales registers, tax invoices, cash book, bank statements, audited financial statements and monthly VAT and CST returns. On perusal of the cash book placed at pages 372 to 392 of Paper Book-I, it is evident that the assessee had sufficient cash balance available prior to 08.11.2016, the date on which demonetisation was announced. The sales register and corresponding invoices also indicate continuous business activities carried on by the assessee in the ordinary course. The monthly VAT and CST returns furnished in Paper Books-II and III further demonstrate that the sales recorded in the books had already been reported before the respective statutory authorities contemporaneously and were not created subsequently as an afterthought to explain the cash deposits.

The ld.CIT(A), while sustaining the addition, has observed that the assessee did not reconcile the cash sales with the cash book and bank deposits and had failed to establish the availability of cash as on 08.11.2016. However, during the course of hearing before us, the assessee has produced the complete reconciliation supported by the cash book, sales register and statutory returns. The Revenue has not pointed out any discrepancy in these records. Neither the AO nor the ld.CIT(A) has brought any material on record to demonstrate that the sales recorded by the assessee are fictitious, inflated or otherwise not genuine. The addition has been sustained solely on the basis that the pattern of cash deposits was abnormal during the demonetisation period. In our considered opinion, suspicion, however strong, cannot take the place of evidence.

We also find considerable force in the contention of the ld.AR that the impugned addition results in taxing the same receipt twice. The cash deposited

Section 69 of the Act can be invoked only where the assessee is found to have made investments which are not recorded in the books of account and the assessee either offers no explanation about the nature and source thereof or the explanation offered is not satisfactory. In the present case, the cash deposits have been duly recorded in the books of account and the source thereof has been explained as cash generated from regular business sales, which are also reflected in the books maintained in the normal course of business. Therefore, the very foundation for invoking section 69 is absent.

We further notice that except referring to the timing of deposits during the demonetisation period, the AO has not conducted any independent enquiry to disprove the sales, verify the customers, or establish that the cash represented any unaccounted income of the assessee. The Revenue has also not brought on record any evidence to indicate inflation of sales, back-dating of invoices or manipulation of books. In the absence of any such adverse material, the explanation offered by the assessee, supported by contemporaneous documentary evidence, cannot be rejected merely on presumptions.

The reliance placed by the ld.AR on the decision of the Coordinate Bench of the Tribunal in the case of TASMAC in ITA No.431/Chny/2023 dated 07.10.2024 also supports the proposition that where cash deposits during the demonetisation period are duly reflected in the regular books of account and

Considering the entirety of the facts and circumstances of the case, we are of the considered view that the assessee has satisfactorily discharged the initial burden cast upon it by producing the books of account, cash book, sales register, invoices, bank statements and VAT/CST returns evidencing that the cash deposited in SBNs represented business receipts generated in the normal course of business. The Revenue has failed to rebut the said evidence by bringing any contrary material on record. Therefore, the addition of Rs.28,50,000/- made u/s.69 r.w.s 115BBE of the Act is unsustainable.

We, therefore, set aside the order of the ld.CIT(A) and direct the AO to delete the addition of Rs.28,50,000/- made u/s.69 r.w.s 115BBE of the Act.

In the result, the appeal filed by the assessee is allowed.