SIGMA ORGANICS & CHEMICALS P.LTD.,INDORE vs. ITO-4(3), INDORE, INDORE

In response to these notices, the assessee submitted reply before the assessing officer, along with documentary evidences.

The Assessing Officer has issued another show cause notice u/s 142(1) of the Act, dated 01.12.2019, which is reproduced by the Assessing Officer on page No.2 to 3 of the assessment order. In this notice, the Assessing Officer asked the assessee to explain the cash deposited in the bank account and also asked the assessee to expain that why the cash sales of the Raipur Branch Rs.11,50,000/-, has not been deposited in the HDFC Bank in the Raipur Branch instead of head office, Indore.

In response to the above show cause notice of the Assessing Officer, the assessee submitted its written reply before the Assessing Officer, which is reproduced below:

Aggrieved by the above addition made by the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the Assessing Officer. The Ld. CIT(A) noticed that assessee-company made sales of new product, namely, “DIYA” to the new buyers but some of the DIYA sales were made during the Diwali festival and some of the DIYA sales were made after/next day of the Diwali festival, therefore, such sale falls in the definition of preponderance of probability and therefore Ld. CIT(A) noticed that the conclusion reached by the Assessing Officer is correct and this way, Ld. CIT(A) dismissed the appeal of the assessee.

Further, aggrieved by the order of the ld.CIT(A), the assessee is left with no other alternative but to knock on the doors of the Tribunal with this appeal praying for justice.

Shri Ashish Goyal, Learned Counsel for the assessee, begins by pointing out that there is no abnormal increase in the sales/turnover of the assessee, as compared to the previous year. The turnover/sales of the assessee in the current year under consideration is more or less same as compared to the previous year and subsequent year and the cash sales has already been reported in audited profit and loss account and moreover, the assessee has paid the tax, on the cash sales made, during the assessment year, under consideration by way of offering the net profit component on such cash sales. Therefore, learned Counsel submitted that to make the addition again despite of the fact that sales made during the demonetization period had already been suffered taxation, is tantamount to double addition in the hands of the assessee, which is not the object of the taxation system in India. The income or the item, which has suffered for taxation once, should not be taxed again.

Shri Goyal, Ld. Counsel for the assessee, further submitted that some cash was transferred from Raipur Branch to Head Office, Indore, for the same, the assessing officer objected and mentioned in the assessment order that such cash should have been deposited in the HDFC Bank account in Raipur Branch, instead of head office, Indore. In this regard, the learned Counsel submitted that assessee- company has more than three bank accounts, at different locations, and it is prerogative of the business-man to decide, where the cash sales amount is to be deposited, that is, whether it is to be deposited in the Branch Office, bank account or it is to be deposited in the bank account of Head Office Indore. How the business activities are to be conducted, the businessman will decide and the assessing officer cannot dictate the assessee to do a particular business activity in a particular way. The Ld. Counsel also stated that cash sales made in the Raipur Branch has not been doubted by the Assessing Officer, however, the main objection of the Assessing Officer, was that why not the assessee has not deposited the cash in the HDFC Bank account in Raipur Branch, instead of Indore Branch- Head Office. The Ld. Counsel submitted that cash was needed in the head office, therefore, amount of cash sales was deposited in the bank account of head office, Indore. It is not necessarily that the cash sales made in the Raipur Branch must be deposited in the Raipur Branch itself, particularly when the Assessing Officer did not find any irregularity in the cash sales made in the Raipur Branch. Therefore, disallowance made by the Assessing Officer, on this account, is not acceptable, at all, particularly, when the Assessing Officer nowhere has stated that the sales made by the Raipur Branch is bogus.

Shri Goyal, Ld. Counsel for the assessee, also submitted that Assessing Officer has made the addition u/s 69A of the Act, which is not correct because Section 69A of the Act applies only where there is unexplained money, bullion, jewellery or other valuable article and such money, bullion, jewellery or other valuable article is not recorded in the books of accounts, however, in the assessee’s case under consideration, cash sales, have been already recorded in the books of accounts of the assessee, which is audited by a chartered accountant, hence provisions of section 69A of the Act is not applicable to the assessee-company under consideration. The learned Counsel again reiterated that in the assessee’s case under consideration ‘the money’ which is cash sales ( that is, cash sales had already been recorded in the books of accounts, therefore provisions of Section 69A of the Act is not applicable to the assessee under consideration, hence the addition made by the Assessing Officer u/s 69A of the Act by resorting the provisions of Section 69A of the Act is not sustainable in the eye of law and therefore the entire assessment proceedings is vitiated and therefore the assessment order itself should be quashed. As the money (cash sales) was recorded in the books of account of the assessee, whereas the Assessing Officer resorted the Provisions of Section 69A of the Act presuming that the money (cash sales) has not recorded in the books of accounts. Hence, the assessment order framed by the Assessing Officer may be quashed on this technical issue. 13. On the other hand, Ld. DR for the revenue submitted that cash was deposited by the assessee before the demonetization period and during the demonetization period and after the demonetization period also, however, the assessee has failed to prove the genuineness of the cash deposited in the bank account, during demonetization period. The Ld. DR also accepted that the assessee’s business is a cash oriented business and in the previous year, the assessee has deposited the cash in the bank account in the same pattern and assessee has also deposited cash in the bank account in the same pattern in the subsequent years, however, since the assessee, on the occasion of Diwali festival, sold DIYA to the customers, in cash, and such sale of DIYA is abnormal in nature.

The ld. DR further pointed out that just because books of accounts of the assessee- company are audited, does not mean that the addition cannot be made in the hands of the assessee.

The ld. DR also pointed out that just because the assessing officer made addition, under section 69A of the Act, which is not applicable to the assessee under consideration, does not vitiate the assessment proceedings.

In the rejoinder, Ld. Counsel for the assessee submitted that tax should be imposed by the assessing officer, as per the relevant provisions of the Income tax Act ( that is, under correct section), and when the assessing officer did not make the addition, under correct section of the Income tax Act and made addition under wrong section, namely section 69A of the Act, then entire assessment proceedings are bad in law, and therefore assessment order framed by the assessing officer, itself should be quashed.

Without prejudice to the above, and considering the smallness of the amount, Ld. DR for the Revenue has also agreed that to protect the interest of the revenue, 10% estimated disallowance may be made in the hands of the assessee, to which, learned Counsel for the assessee, does not raise any objection and learned Counsel for the assessee fairly agreed that 10% estimated disallowance may be made in the hands of the assessee. 18. We have heard, the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We note that assessee-company is engaged in trading/commission agency business in the field of chemicals/PVC resins since last many years. During the year in question the assessee- company has sold PVC resins to small Diya manufacturers, before the Diwali season and hence there was increase in cash sales of the assessee- company. Since, the assessee-company, accumulated the cash sales, with the view to make the payment to the creditors. In the ordinary course of its business activities, the assessee -company could not deposit the cash in hand so accumulated in its bank, till 08.11.2016 and after declaration of demonitization of old currency notes of Rs.500/- and Rs.1,000/- (SBN) on 08.11.2016, the assessee- company was under pressure and had moved to bank to deposit its available cash, in bank and during the period of demonitization, the total amount representing SBN of Rs.48,56,000/- was deposited in bank accounts. We note that all sales/purchases were recorded. The Day-to-day quantitative details of goods traded in, were maintained by the assessee company. The book results were accepted by the assessing officer and credit of opening cash in hand, as on 07.10.2016 was also allowed/accepted by the assessing officer. We Page 9 of 16 also find that audited books of accounts were not rejected by the assessing officer. The assessee submitted before the assessing officer, all the books of accounts, stock registers, VAT/CST/Entry, Income Tax Returns, Sales book, purchase book, cash book, bank statement, bills of cash sales, etc. Considering the above factual position, we find that no addition should be made in the hands of the assessee. We note that assessing officer simply rejected the contention of the assessee- company, on the basis of suspicion and surmises and conjectures. The Assessing Officer has accepted the books of accounts of the assessee-company, as well as cash sales, as disclosed in the audited accounts. The disputed cash sales had been offered for tax and the assessee paid the tax thereon. Thus, the addition made by the assessing officer, again in the hands of the assessee, is nothing but double taxation, on the same income (cash sales), which had been already suffered for taxation. 19. We note that assessing officer observed during the assessment proceedings that assessee- company has transferred Rs.11,50,000/- from its Raipur Branch to Indore Branch, and as per assessing officer, such amount should have been deposited in HDFC bank account, Raipur. In this regard, we note that assessee- company has several bank accounts/current accounts, therefore it is to be decided by the assessee- company, for the purpose of business that in which bank account, the particular cheque/cash received from the customers, are to be deposited. In these business activities, the assessing officer cannot interfere and work of the assessing officer is to find out whether cash sales of Rs.11,50,000/- is genuine or not. We note that assessing officer has not doubted the genuineness of cash sales of Rs.11,50,000/-, rather objection of the assessing officer was that such cash should have been deposited in the HDFC bank account, Raipur, instead of head office, Indore bank account. We note that the contention advanced by the Ld. Counsel for the assessee is substantially supported by well-settled judicial principles governing the limits of the Assessing Officer's jurisdiction in examining commercial decisions of an assessee. Unless the Assessing Officer demonstrates that the transaction is sham, fictitious, colourable, or contrary to any statutory provision, he cannot substitute his own wisdom for that of the businessman. In the present context, the objection of the Assessing Officer is not that the cash was unaccounted, nor that the source of cash was unexplained. The only objection is that the cash collected at Raipur Branch ought to have been deposited in the bank account maintained at Raipur instead of the Head Office account, at Indore. Such an objection enters into the realm of business management and commercial expediency, which is outside the jurisdiction of the Assessing Officer. When the company-company has several bank accounts and therefore, assessee- company, would decide as per the business need, that in which account, the cash sales amount should be deposited. The assessing officer cannot put itself in the armchair of the businessman and decide how much is reasonable having regard to the circumstances of the case. It is not for the Assessing Officer to decide what is prudent for the businessman. If a business decision is bona fide and not prohibited by law, the assessing officer cannot substitute his own judgment merely because another course could have been adopted. Therefore, based on these facts and circumstances, we find that assessing officer has made addition in the hands of the assessee based on assumptions and presumptions, which needs to be deleted.

We note that accounts of the company are audited and the company during the course of assessment proceedings have furnished complete details such as Cash book, Bank book, ledger, stock register with summary, purchase details, sale details, VAT returns, bank statements and explanations. We note that the Assessing Officer could not pointed out a single defect in the books and have accepted the same and also, the book results. It is well settled principle that once book results, such as stock, sales and purchases have been accepted it is not open for the Assessing Officer to make addition, particularly on account of cash sales, which has been included in the audited books of accounts and offered for taxation by the assessee. For that, reliance is placed on the decision of Hon'ble Chandigarh Bench of ITAT in the case of Arun Garg Vs DCIT, wherein, based on the identical facts, and relying on the decision of Kalaneedhi Jewellers 96 ITR Trib 66, observed as follows: We have also gone through the order of the Chandigarh Bench of the ITAT in the case of "KalaneedhiJewellers" reported in (2022) 96 ITR Trib. 66 (Chd.) wherein, by relying upon the judgment of the Hon'ble Delhi High Court in the case of Agson Global Ltd. and PCIT vs.Akshit Kumar, the co-ordinate Bench in the same combination has deleted the addition by observing as under: "10.11In the present case also the opening stock, purchases and sales and closing stock, declared by the assessee has not been doubted, the sales were made by the assessee out of the opening stock and purchases and the resultant closing stock has been accepted, the sales had not been disturbed either by the Assessing Officer or by the Sales Tax/VAT Department and even there was no difference in the quantum figures of the stock at the time of search on April 12, 2017, therefore, the sales made by the assessee out of the existing stock were sufficient to explain the deposit of cash (obtained realization of the sales) in the bank account and cannot be treated as undisclosed income of the assessee." "10.13 In the present case also the cash deposited post demonetization by the assessee was out of the cash sales which had been accepted by the Sales Tax / VAT Department and not doubted by the Assessing Officer, there was sufficient stock available with the assessee to make cash sales and there was festive season in the month of October 2016 prior to the making of the cash deposit in the bank account out of the sales. So, respectfully following the aforesaid referred to orders by the various Hon'ble High Courts and the co-ordinate Benches of the Income-tax Appellate Tribunal, we are of the view that the impugned addition made by the Assessing Officer and sustained by the learned Commissioner of Income-tax (Appeals) was not justified, accordingly the same is deleted."

Therefore, we note that the Assessing Officer did not rejected the books of accounts and has not brought anything contrary on record to show that cash sales are not the source of cash deposited during demonetisation. Since, the books of accounts have been accepted and thus, such addition is wrong. The book of accounts of the assessee is subject to audit on year to year basis and is maintaining proper quantitative records. Also, quantity records maintained by the assessee, have been found to be in order and no deficiency therein has been noticed in the course of assessment proceedings. The assessee- company has also submitted the details in clause 35(a) of form 3CD.We note that during the assessment proceedings, the assessee was also asked to submit the month- wise total sales and purchases made in every month for the year under consideration, which has been duly submitted by the assessee. The total sales and purchases as shown in VAT returns for the financial year 2016-17 is as below:

We also note that assessing officer has neither found any back dating of the entries, evidence of bogus sales, evidence of bogus purchases, and non- existing cash in the books of accounts therefore the assessing officer was not justified in denying the existence of sales. The assessee also filed its VAT returns, which are not found to be in variance with the accounting and tax records. Therefore, it cannot be said that the assessee has backdated the transactions of the sale. We note that in the assessee’s case goods were sold and properly recorded and made out of purchases and stock available prior to sales and the concerned VAT authority have accepted the same, the case of assessee finds complete support from the aforesaid facts and observations.

Despite of the above, merits in the case of the assessee, we find that some of the documents and evidences submitted by the assessee before the lower authorities are self -servicing documents and evidences such as name of the customers were not mentioned in some cash sales bills etc. Therefore, we are of the view that full relief should not be given to the assessee. Besides, learned DR for the Revenue as well as learned Counsel for the assessee, both have agreed that in order to, protect the interest of the revenue, an estimated disallowance may be made, in the hands of the assessee. We also find that it is settled law that the entire amount of cash sale of Diya does not represent income of the assessee but only an appropriate percentage (%) be applied on such Receipts as income. For that we rely on the various judicial pronouncements, i.e. CIT Vs. President Industries (2002) 258 ITR 654 (Guj HC), CIT Vs. Gurubachhan Singh J. Juneja 215 CTR 0509 (Gujarat HC), CIT Vs. Saint Synthetics Mill (2010) 326 ITR 410 (Guj HC) etc. wherein the Hon'ble High Court of Gujarat has held that addition was to be made not in respect of cash sale consideration but only in respect of the profit element. Taxing the receipts only has never been the motto of the Income-tax Act. In this regard, the observation of the Supreme Court in CIT v. Williamson Financial Services [2007] 165 Taxman 638 (SC) is reproduced below: "It is important to bear in mind that u/s 4, the levy is on total income of the assessee computed in accordance with and subject to the provisions of the Income Tax Act. What is chargeable to tax under the Income Tax Act is not the gross receipt but the income under the Income Tax Act. The tax is on income but not on gross receipts." Therefore, considering the above facts and circumstances, we find that some of the documents and evidences are self-servicing, documents and evidences on which reliance cannot be placed, therefore, to protect the interest of the revenue, and considering the smallness of the amount an ad hoc, estimated addition should be made in the hands of the assessee. Therefore, we find some merit in the contention of the ld. Counsel for the assessee and learned DR for the revenue. Hence, we find that while the case of the assessee merits some relief, at the same time entire relief cannot be permitted to the assessee. In our view the ends of justice would be met, if a net profit rate of @ 10% of Rs. 43,84,170/- which comes to Rs. 4,38,417/-, is adopted, since the same would take care of the inconsistencies, in the various documents and evidences submitted by the assessee, before the lower authorities. Therefore, in order to plug the leakage of revenue, we direct the assessing officer to make addition of Rs. 4,38,417/-, by applying the normal rate of income tax ( not under section 115BBE of the Act).