MANGALVARAPETE RAMANNA GURUPRASAD,RAMNAGAR vs. INCOME TAX OFFICER, WARD-1, RAMNAGAR

In this appeal, the assessee has raised the following grounds: -

The solitary grievance of the assessee is against the addition made on account of difference in sales as declared in the profit and loss account and cash deposited in the bank account during the year under consideration.

We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that the assessee is an individual and is engaged in the business of retail trading in paints under the trade name “Shri Lakshmi Venkateshwara Traders”. For the year under consideration, the assessee filed its return of income on 26.10.2017, declaring a total income of Rs. 7,25,780/-. The return filed by the assessee was selected for limited scrutiny on the issue of cash deposited during the year under consideration. Accordingly, statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. In response, the assessee filed his financials for the financial years 2015-16, 2016-17 and 2017-18, VAT return copies for the financial year 2016-17, information on total cash deposited by him in his bank account and also his bank statements. From the details submitted by the assessee, it was observed that the assessee has deposited cash to the tune of Rs. 1,88,48,475/- in his bank accounts. From the perusal of the bank statement, it was further noticed that the cash deposits were made on a regular basis and most of such cash deposits were used towards making further payments to Asian Paints towards purchase of material. As per the assessee, cash deposits were made out of the cash sales, which were subsequently transferred through banking channels to Asian Paints for purchasing material. Since the total sales shown by the assessee in his profit and loss account and Income Tax return were Rs. 79,56,668/- and sales were shown in the VAT return of Rs. 71,85,717/- and the cash deposited in the bank was Rs. 1,88,48,475/-, the assessee was asked to explain the difference between the sales and cash deposited. In response, the assessee submitted that he has been dealing with Asian Paints for the last 4 years. It was further submitted that his previous auditor, who was looking after the VAT returns and Income Tax returns, made a mistake and only showed Rs. 79,56,668/- as sales instead of total sales of Rs. 1,95,61,772/-. The assessee submitted that the total purchase during the year under consideration was Rs. 1,88,09,397/- and on the said purchase, the assessee earned a margin of 4%, resulting in sales of Rs. 1,95,61,772/-. The assessee submitted that he has no other source of income and that the cash deposited in the bank account was from cash sales. In support of his contention, the assessee also submitted VAT 240, i.e. VAT Audit Copy. During the assessment proceedings, the assessee also submitted that after verifying the VAT returns and VAT Audit Report, he came to know that the total turnover is Rs. 1,95,61,772/- instead of Rs. 79,56,668/- as declared in the return of income. Accordingly, as per the assessee, he paid the balance taxes of Rs. 3,50,090/- on 18.07.2019. However, could not file the revised return as the time for filing the revised return under section 139(5) of the Act expired on 31.03.2018.

The Assessing Officer (“AO”), vide order dated 29.07.2019 passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that mere filing of VAT 240 Form does not prove that the assessee’s turnover was Rs. 1,95,61,772/-. The AO further held that the contention of the assessee cannot be accepted as the assessee has not placed on record a sales register or sale bills/bill books to prove that such sales have really happened. The AO further noted that the VAT 240 Form submitted by the assessee was revised only after the show cause notice during the assessment proceedings and thus the same cannot be relied upon. It was further held that the profit and loss account and balance sheet were duly signed by the assessee, and therefore, the assessee cannot now claim that he was not aware that the turnover of Rs. 79,56,668/- had been declared. Accordingly, the difference of Rs. 1,08,91,807/- between the total cash deposited of Rs. 1,88,48,475/- minus the sales recorded in the books of Rs. 79,56,668/-, was held to be unexplained cash credit and added to the total income of the assessee under section 69A of the Act.

The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the addition made by the AO under section 69A of the Act. Being aggrieved, the assessee is in appeal before us.

Having considered the submissions of both sides and perused the material available on record, we find that in the present case there is no dispute regarding the fact that the assessee was engaged in the business of retail trading in Asian Paints. No material has been placed on record to suggest that the assessee was involved in any other business. Since during the year under consideration the assessee in his profit and loss account declared sales of Rs. 79,56,668/-, while the cash deposited in the bank account maintained by the assessee in Vijaya Bank and ICICI Bank was to the tune of Rs. 1,88,48,475/-, the difference was considered as unexplained cash credit, rejecting the contention of the assessee that the cash deposited in the bank account was from the cash sales of paints. In the present case, it is pertinent to note that the assessee deposited cash to the tune of Rs. 1,88,48,475/- in his bank account and transferred an amount of Rs. 1,88,09,397/- to Asian Paints Ltd. via banking channel for purchase of paints/material. Thus, the sheer volume of purchases of paints/material by the assessee from Asian Paints Ltd. indicates the extent of retail trading transactions in paints by the assessee. Without having sale transactions which are proportionate to the purchase, no trader will buy the material to such a large extent. In order to substantiate that a total amount of Rs. 1,88,09,397/- was transferred to Asian Paints Ltd. during the year under consideration, the assessee has placed on record the statement of his accounts maintained with Vijaya Bank and ICICI Bank. In support of the purchase transactions, the assessee has also placed on record the statement of supply of goods for the relevant financial year issued by M/s. Asian Paints Ltd. Further, the Revenue Authorities have also not disputed the fact of purchase of Rs. 1,88,09,397/- by the assessee from Asian Paints Ltd. It is also undisputed that the assessee deposited the cash in his bank account from time to time and the entire cash of Rs. 1,88,48,475/- was not deposited in a short span of time. This fact is further evident from the cash inflow and outflow statement, placed in the paper book from Pages 32 – 67. In the present case, the Revenue Authorities, on the one hand, compared the turnover declared by the assessee in the VAT returns with the cash deposited in the bank account. However, on the other hand, they completely disregarded the revised VAT return filed by the assessee. From the perusal of the copy of the revised VAT return filed by the assessee for the year under consideration, which is placed in the paper book from Pages 68 – 72, we find that the assessee declared a total turnover of Rs. 1,70,84,517/- on which the assessee paid VAT of Rs. 24,77,255/- @ 14.50% from the business of trading in paints. In the present case, the consistent plea of the assessee is that all his sales are in cash and the said cash was deposited in the bank account. However, the Revenue only accepted the submission of the assessee in respect of sales of Rs. 79,56,668/- as declared in the profit and loss account, and the balance amount of Rs. 1,08,91,807/- was added to the total income of the assessee without bringing on record any material to dispute the contention of the assessee. Thus, we do not find any basis in partially accepting the assessee's contention regarding the sales recorded in the profit and loss account, despite the balance cash sales, which, as per the assessee, also arise from trading in paints. The fact that, out of the said cash sales of Rs. 1,88,48,475/-, the assessee purchased paints from Asian Paints Ltd., totalling Rs. 1,88,09,397/-, substantiates that the cash deposit is from the cash sales of paints made by the assessee. Therefore, from the careful perusal of the documents placed on record, we find merit in the submissions of the assessee that the cash of Rs. 1,88,48,475/- was generated from sale of paints. Accordingly, the impugned addition is deleted, and the grounds raised by the assessee are allowed. In the result, the appeal by the assessee is allowed. Order pronounced in the open court on 21-Oct-2026.