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Facts
The Revenue appealed against the CIT(A)'s order deleting an addition made on account of unexplained cash credits of Rs. 3,09,91,233. The assessee, a jeweller, received advances under various schemes, including an Advance Jewellery Purchase Scheme and a Made to Order Scheme, during the demonetisation period. The Assessing Officer treated these advances as unexplained cash credits as the assessee allegedly failed to explain their identity, genuineness, and creditworthiness.
Held
The Tribunal held that the CIT(A) was justified in admitting additional evidence and that the assessee had substantiated the genuineness of the advances. The Tribunal noted that these advances were part of the assessee's regular business, were subsequently converted into sales, and the sales were offered to tax. Therefore, making an addition for these advances would lead to double taxation.
Key Issues
Whether advances received from customers, which are subsequently converted into sales and offered to tax, can be treated as unexplained cash credits leading to addition.
Sections Cited
143(3), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the Revenue is against the order of Ld. CIT(A)- 50, Mumbai, vide order no. ITBA/APL/S/250/2024- 25/1067360267(1), dated 06.08.2024 passed against the assessment order by Assistant Commissioner of Income Tax, Central Circle 8(3), Mumbai u/s. 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 30.12.2019 for Assessment Year 2017-18.
2. Grounds taken by the Revenue are reproduced as under:
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in accepting the additional evidences filed by assessee during the course of the appellate proceedings without appreciating the facts brought out by the Assessing Officer in the Remand Report as submitted by this office vide letter dt. 03.07.20247 2 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made on account of unexplained cash credits u/s 68 of the Act amounting to Rs.3,09,91,233/- without appreciating the facts brought out by the Assessing Officer that the assessee failed to explain the identity, genuineness and creditworthiness of the customers/depositors? 3. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored.
Brief facts of the case are that assessee is engaged in the business of retailer of jewellery through chain of stores/retail outlets with over 33 locations all over India. Assessee has several marketing schemes, out of these, two scheme are popular and in place for past several years:
i. Advance Jewellery Purchase Scheme (10+1) - Under this scheme, the customer pays 10 monthly instalments and the 11th instalment is borne by assessee at the time of redemption towards purchase of jewellery where the customer would be entitled to redeem his right after the 10th month (Sample Scheme Passbooks at Page 126-153 of the Paper book). ii. Made to Order Scheme where customer makes booking for purchase of jewellery which are made to order based on design selected by the customer 2.1. Assessee filed its return of income on 01.11.2017, reporting total income at Rs. Nil after claiming setoff of brought forward losses and depreciations aggregating to Rs. 1,76,33,263/-. From perusal of the submissions made by the assessee, ld. Assessing Officer noted that assessee has deposited cash during the demonetisation period, out of which Rs.3,09,91,233/- were shown as advance received from customers in cash. To clarify this, assessee furnished the information relating to the following: i. Business operations ii. Location of 33 stores iii. Method of cash receipt, reconciliation and deposit including store-wise details of cash deposit iv. Year-wise comparative details of cash deposit and sales v. Comparative statistics of cash sales, closing stock of cash in hand vi. Promotional schemes and advertisements vii. Details of cash sales during the period of October and November 2016, store-wise monthly stock records and movement of inventory 2.2. In this respect, assessee further submitted that it received advances from customers aggregating to Rs, 3,09,91,233/- during the period from 25.10.2016 to 08.11.2016 under the above stated schemes: i. Advance of Rs. 1,01,60,550/-received from 1,262 customers towards purchase of jewellery under "Advance Jewellery Purchase Scheme (10+1)". Under this scheme, customer pays 10 monthly instalments, and the 11th instalment is borne by the assessee at the time of redemption towards purchase of jewellery; ii. Advance of Rs. 2,08,30,684 received from 409 customers towards booking amount for purchase of jewellery which are made to order based on design selected by the customer 2.2. Details of Advance received under the above-mentioned schemes is placed at Page 188-189 of the Paper book and is extracted below:
According to the assessee, ld. Assessing Officer for the first time called for details of advances vide notice dated 28.12.1019 and granted one-day time to comply with the same by furnishing the details called for, i.e., by 29.12.2019 which fell on Sunday. Assessee filed the details called for on 31.12.2019. Owing to technical glitches on the website on 30.12.2019. However, the impugned assessment order was passed by the ld. Assessing Officer on 30.12.2019 itself without considering the details so furnished by the assessee. Since, ld. Assessing Officer did not consider the submissions made by the assessee filed on 31.12.2019, it requested at the first appellate stage for admission of additional evidence u/r. 46A of the Income-tax Rules, 1962 (hereinafter referred to as the Rules).
3.1. Ld. CIT(A) called for remand report from the ld. Assessing Officer, which was furnished vide report dated 03.06.2024. Rejoinder was called from the assessee. Both the remand report and rejoinder were considered after which ld. CIT(A) held that it is a bonafide case to admit additional evidence u/r 46A. He also noted that it was on account of technical glitch on the portal that assessee could not furnish its response on 30.12.2019, being the next working day after Sunday, 29.12.2019, which was physically filed on 31.12.2019 and not considered by ld. Assessing Officer. In the remand proceedings as well as before the ld. CIT(A), assessee made extensive submissions explaining the modus operandi of its business and practices followed in respect of the scheme for jewellery undertaken by it.
3.2. In respect of Advance Jewellery Purchase Scheme (10+1), assessee furnished that as a regular practice, daily cash received is accounted for in the books of account and after reconciliation, it is deposited into bank accounts. For the year under consideration, festival period of Diwali was between 28.10.2016 to 01.11.2016, which is a peak season for purchase of jewellery. Owing to bank holidays and sales being done at 33 different stores spread all over the country, advances received in cash could not be deposited in the bank account, and was thus carried as cash in hand in the books of accounts. Immediately after the Diwali period, demonetisation was announced on 08.11.2016. Assessee had accounted for the cash received in its books of accounts prior to demonetisation and was deposited subsequently during the period of demonetisation i.e., between 08.11.2016 to 30.12.2016.
3.3. Assessee has strongly contented that advances received from customers are ultimately liquidated against sale of jewellery which forms part of the sales turnover, duly accounted and reported in the profit and loss account. The sales so made are offered and assessed to tax in the year of sales, after liquidation of the advances received from the customer. In this respect, assessee furnished a summary of advance which got converted into sales in the year under conisation as well as in the subsequent years, which is tabulated as below:
Nature of Advance Advance Converted to Sales in Advance received during AY 2017-18 AY 2018-19 Subsequent 25.10.2016 to years 08.11.2016 Advance 2,08,30,684 1,99,50,368 6,86,030 1,94,286 Jewellery Purchase Scheme Booking 1,01,60,550 32,45,853 63,10,297 6,04,400 amount for 'made to order' jewellery
Total 3,09,91,234 2,31,96,221 69,96,327 7,98,686 3.4. From the aforesaid table, it was pointed out that out of the total advances of Rs.3,09,91,234/-, substantial amount has been reflected as sales during the year itself, i.e., 2,31,96,221/-. Balance amount has been reflected in sales in the subsequent years. In this respect, assessee also furnished invoices and details of stock to corroborate the same.
It was also contended that the addition made by ld. Assessing Officer is solely on the ground that details of advances received from customers was not furnished. All the required details along with explanations corroborated with documentary evidences were furnished at the first appellate stage as additional evidences which has been duly admitted after calling for remand report and rejoinder to the same. All these form part of the paper book placed before us. Ld. CIT(A) has objectively considered all the submissions and analysed the details to arrive at fact based finding. Ld. CIT(A) has taken note of the modus operandi of the business undertaken by the assessee including various schemes and multiple retail stores located all over the country. He also observed about accounting of cash advances received by the assessee from the customers under the Advance Jewellery Purchase Scheme which are subsequently converted into sales for which complete details were submitted.
4.1. Ld. CIT(A) also took note of details of PAN for all the customers in respect of whom advances were above Rs.2 lakhs and in respect of which no negative inference was drawn. Most importantly, ld. CIT(A) noted that subsequent sales arising from the advances from customers which are subject matter of present appeal are recorded in the books of accounts duly offered to tax. He notes that it is a settled principle that addition which results in double taxation of income is not permissible. The fact of conversion of advances so received into sales during the year as well as in subsequent years, is uncontroverted, since nothing cogent has been brought on record by the Department. He thus, arrived at a conclusion that addition of advances received to total income cannot be made when the sales in respect of such advances has already been offered to tax in the return of income. On comparison of sales for the period under consideration, no discrepancies were found which has been elaborately analysed in para 7.3 of his order. Based on the analysis, it is observed by ld., CIT(A) that advances from customers are part of routine business operations which are subsequently converted into sales, either in the year under consideration or in subsequent years. Furthermore, ld. Assessing Officer has made the addition in respect of advances during the demonetisation period and not otherwise which is received by the assessee through out the year. Thus, ld. CIT(A) having satisfied with the genuineness of the transaction, deleted the addition so made.
We have heard both the parties and perused the material placed on record and have given thoughtful consideration to the observations made by ld. CIT(A), while granting relief to the assessee. On the issues raised by the Revenue in its appeal, we find that ld. CIT(A) has adequately dealt with them by taking into account the factual matrix corroborated by documentary evidences which we have also captured in the above paragraphs. The observations and findings arrived at by ld. CIT(A) in para – 7.2 and 7.3 are extracted below for ready reference:-
“7.2 The details of advances were filed before the AO on 31st December 2019 1.e. after the assessment order was passed. A request for admission of additional evidence under Rule 46A of the Income-tax Rules, 1962 was made. The additional evidence were forwarded to the Assessing Officer for his comments. The AO has provided his comments in the Remand Report dated 3rd June 2024 and rejoinder was filed by the Appellant on 21st June 2024. The same have been perused and taken on record. Based on the facts available on record, AO, during assessment proceedings for the first time vide notice dated 28th December 2019, sought customer-wise details of advances received from the customers. The due date for compliance is fixed on 29th December 2019 which was a Sunday. Due to technical glitches on the portal, the Appellant was unable to furnish response on 30th December 2019. These details were physically filed on 31st December 2019, by which time the assessment order was passed This is a bona fide case to admit additional evidence under Rule 46A.AO was given opportunity to verify these details. The remand report received from AO is duly considered.
7.3 The Appellant is a retail jeweller having 33 retail stores located all over the country. In a competitive market to promote sales, it has several marking schemes such as Advance Jewellery Purchase Scheme, Diwali Sales Scheme, Dhanteras Special Scheme, Diamond Jewellery Offers, waiver of making charges, exchange of jewellery, discounts on gold purchases, etc. These schemes are in place for past several years. These schemes are regularly advertised through various newspapers, periodicals and other publications. Photocopies of such advertisements are on record. One particular scheme which is very popular amongst customers is 'Advance Jewellery Purchase Scheme' under which, on selection of jewellery, a customer pays 10 monthly installments and the 11th installment is borne by the Company On completion of monthly instalments, the jewellery is then sold to the customers. A passbook is issued to the customers. All terms and conditions are annexed to such passbook. The monthly instalments paid by customers, mostly in cash which is duly recorded in passbook. The instalments normally ranges from Rs. 500/- onwards. Sample copy of the passbooks are on record.
Advances are also received from customers when an order is booked confirming the gold prices prevailing on the day.
This is a regular phenomena accepted by the Department in earlier as well as subsequent years. The sale of jewellery is invariably in cash. Details of advances received are duly recorded in the books of account.
Subsequently, advances were converted into sales resulting into reduction in stock, complete details of which were submitted during remand proceedings. Receiving advance from customers is a regular phenomena accepted in scrutiny assessments by the Department in earlier and subsequent years.
PAN of all customers in respect of advances above Rs. 2 Lakhs are on record. There is no negative inference from these details.
Subsequent sales arising from these advances has been recorded in the books of account and duly offered to tax. It is a settled principle that addition that results in double taxation of income is not permissible. In the present case, the Appellant has substantiated its contention that the advances received were subsequently converted to sales during the year under consideration as well as in subsequent years. Thus, the addition of advances received to total income cannot be made when the sales in respect of such advances have been offered to tax in the return of income.
The comparison of sales for the period under consideration (October to December 2016) with corresponding period in F.Y. 2015-16 confirms that the volume of sales were similar. The inventory details reflect the Appellant having significant inventories of finished goods at stores during Diwali approx. 46,968 pcs of aggregate value Rs. 182.75 Crore. This stock came down to 35,447 pcs of aggregate value of Rs. 131.43 Crore after 8th November 2016 confirming that significant sales were made during Diwali period. Details of day wise movement of goods during 25th October 2016 to 8th November 2016 were filed before the AO. No discrepancies were found
Analysis of the details reflect that Advances received in cash during the period under dispute i.e. 25th October 2016 to 8th November 2016 was 48.81% which is in line with than the proportion of advance received in Cash during 1st April 2016 to 24th October 2016 (50.14%). These facts support the contention of the Appellant that the advance received which has been deposited during the demonetization period is part of the regular business of the Appellant. The Appellant has furnished movement of Advances during the year under consideration at Page 64 of the Paperbook. During AY 2017-18, the Appellant has received advances of Rs. 120.05 Cr of which Rs. 80.21 Cr has been converted into sales during the year. Advances have been received in cash as well as through cheque. From the details of Advances placed on record, it is evident that advance as on 1st April 2016 was Rs. 28.26 Cr which has increased to Rs. 39.83 Cr as on 31st March 2017 and subsequently reduced to Rs 36.92 Cr as on 31st March 2018. This clearly indicates that advances from customers are part of the routine business operations. Appellant has substantiated its contention that the advances received were subsequently converted to sales during the year under consideration as well as in subsequent years. Thus, addition of advances received to total income cannot be made when the sales in respect of such advances have been offered to tax in the return of income.
AO has also not doubted other advances received from customers except for those advances received in cash which were deposited into the Appellant's bank account during the demonetization period. AO has failed to consider the fact that these advances were duly converted into sales with corresponding reduction in stocks.
I have gone through the material on record and find that the Appellant has been able to substantiate the genuineness of the transaction and accordingly, the addition made by the AO of Rs. 3,09,91,233/- is hereby deleted.”
In the given set of facts and circumstances corroborated by detailed explanations and documentary evidences as well as fact based objective findings of ld. CIT(A), we do not find any reasons to interfere with the findings arrived at by ld. CIT(A). Thus, grounds raised by the Revenue are dismissed.
In the result, appeal by the Revenue is dismissed.