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Facts
The assessee, a gold jewellery trader, deposited Rs. 2.09 crores cash during the demonetization period. A survey operation u/s 133A revealed discrepancies in the books of accounts, leading the AO to reject the books, treat the cash deposit as unexplained money u/s 69A, and estimate profits. The Ld CIT(A) confirmed these additions.
Held
The Tribunal found that the assessee had furnished all requested details and rectified discrepancies post-survey, noting that cash deposits were from cash sales recorded in updated, audited books, and sales were accepted by VAT authorities. The AO failed to conduct proper investigation and was not justified in rejecting books or making additions. The Tribunal directed the AO to delete the additions and accept the income declared by the assessee.
Key Issues
Whether the AO was justified in rejecting the books of accounts, treating cash deposits as unexplained money, and estimating profits, based on discrepancies noted during a survey, given the assessee's subsequent explanations and updated records.
Sections Cited
133A, 69A
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Income Tax Appellate Tribunal, MUMBAI “B” BENCH : MUMBAI
Before: SHRI B.R. BASKARAN & SHRI RAJ KUMAR CHAUHAN
The assessee has filed this appeal challenging the order dated 06-11-2023 passed by the Ld CIT(A), Pune-11 and it relates to the Assessment Year (AY.) 2017-18. The assessee is aggrieved by the decision of the Ld CIT(A) in dismissing the appeal of the assessee by confirming the addition relating to unexplained money and the addition relating to estimation of profits.
2. The assessee is an individual and is engaged in the business of trading in gold jewellery under the trade name M/s Sonam Jewellers. It was noticed by the revenue that the assessee has deposited cash of Rs.2.09 crores in his bank accounts during demonetization period. Hence a survey operation u/s 133A of the Act was conducted in the hands of the assessee on 18-01-2017 by the investigation wing. Before the survey officials, the assessee stated that he had deposited cash into his bank accounts out of cash sales made by him during that period. Subsequently, the assessee filed his return of income declaring a total income of Rs.14,72,970/-. In view of the survey operations conducted in the hands of the assessee, the said return of income was taken up for scrutiny.
The AO noticed that the survey officials have found out many deficiencies in the books of accounts of the assessee. Some of which are that (a) the sales made in October, 2016 and November, 2016 are very much higher than the sales recorded during the corresponding period in earlier years. (b) Cash in hand shown as on 31.10.2016 is unreasonably high as compared to other months. Further, the assessee has deposited cash after announcement of demonetization only and not prior to that. At the time of survey operation, physical cash of Rs.12,28,920/- was found as against the book cash of Rs.35,630/-. The assessee explained that the books are required to be updated, but no explanation was filed thereafter.
(c) The sales bill produced during the survey did not contain the name, address or contact number of customers. Some of the bills were missing or torn in many books. (d) Only part of purchase of gold was supported by bills. No documentary evidence was produced for the quantity of 1300 gms of gold. There was difference in physical inventory of gold and stock record to the extent of 1691.805 grams. (e) The details of gold received/issued to karigars contained over writings. Based on the short comings noticed by the Survey officials, the AO asked the assessee to furnish various details. According to the AO, the assessee did not furnish those details. Accordingly, by placing reliance on the report given by the survey officials, the AO rejected the book results. Accordingly, he assessed the cash deposit of Rs.2,09,22,000/- as unexplained money u/s 69A of the Act. Further, the AO noticed that the assessee has declared total turnover of Rs.3,90,71,272/- in the profit and loss account. The AO reduced the above said cash deposit of Rs.2,09,22,000/- and arrived at the balance sales figure of Rs.1,81,49,272/-, on which he estimated profit @ 7%, which worked out to Rs.12,70,449/-. The AO adopted the same as business income of the assessee as against the income declared by the assessee.
The Ld CIT(A) confirmed both the additions and hence the assessee has filed this appeal.
The Ld A.R submitted that the assessing officer was wrong in observing that the assessee did not furnish the details that were called for by him during the course of assessment proceedings. He submitted that AO during the course of assessment proceedings. In this regard, the Ld A.R invited our attention to the pages 197 to 198 and 203 to 205 of the paper book. He submitted that the following details were uploaded to the AO:- (a) Copy of ITR Acknowledgement (b) Copy of financial statements (c) Statement showing details of Bank accounts maintained (d) Copy of bank statements (e) Details of month-wise sales (cash and credit) for the year under consideration. (f) Comparison of month-wise sales (cash and credit) for different years including the year under consideration. (g) Details of cash deposit (old currency) made during demonetization period. (h) Comparison of cash deposit made for different years including the year under consideration. (i) Details of nature of business activity. (j) Sales invoices were already in the custody of AO, as they were impounded by the survey officials. (k) Original purchase invoices were also in the custody of AO.
5.1. The Ld A.R submitted that the assessee is not required to maintain the details of customers, if the sales value was less than Rs.2.00 lakhs. Hence the assessee cannot be found fault, since most of the sales made by the assessee were for less than Rs.2.00 lakhs. With regard to the difference in the quantity of gold received in the month of October, 2016, the Ld A.R submitted that the silver items purchased from M/s Narrondass Manordass through two bills weighing 1300 grams was wrongly included in the gold inventory and hence there was difference in the quantity of gold. With regard to the difference between the physical gold and book stock, the Ld A.R submitted that some of the bills were omitted to be recorded in the books and hence there was difference. He submitted that the survey officials themselves have recorded that books of accounts have not been updated at the time of survey operations. He submitted that due to change in the accountant, the books and other records remained updated. He submitted that the assessee has duly updated all the records after completion of survey operations and the return of income was filed on the basis of updated accounts and records. He submitted that the sales reported by the assessee have been accepted by VAT department. Further, the AO has also computed total income on the basis of sale reported by the assessee. Further, the short comings noticed by the survey officials at the time of survey have since been rectified by the assessee at the time of filing return of income. Accordingly, he submitted that there was no reason to reject the updated books of accounts. Further, the assessee has made the cash deposits from the cash available in the books, which have been generated out of cash sales. Accordingly, the sources of cash deposits stand explained. Accordingly, the Ld A.R contended that the Ld CIT(A) was not justified in sustaining both the additions.
6. The Ld D.R, on the contrary, submitted that the sales disclosed by the assessee in October and November, 2016 was abnormal and very much higher than the sales disclosed in the corresponding period in earlier years. Further, it is noticed by the AO that the books of accounts have been fabricated and hence the same has been rejected by him.
In the rejoinder, the Ld A.R submitted that the AO has proceeded to disbelieve the books on the basis of mere presumptions and surmises. He submitted that the sales were higher in the months of October and November, 2016 in view of the festival seasons like, Dusserah, Danderas and Diwali festivals. Usually, the revenue finds suppression of sales, which is not the case here, i.e., higher sales reported by the assessee is being doubted with. However, the AO is placing reliance on the very same sales turnover reported by the assessee to determine the total income of the assessee. Further, it is not the case of the AO that the assessee did not possess sufficient stock to carry out the sales.
We heard rival contentions and perused the record. We notice from the assessment order that the AO has mentioned that the assessee has not furnished any details. However, a perusal of the pages 197 & 198 and also pages 203 to 205 of the paper book would show that the assessee has uploaded various details that were called for by the AO. Hence, the foundation of the AO that the assessee did not furnish details called for by him is proved to be incorrect. We noticed that the survey operations in the hands of the assessee have taken place in the middle of the year, i.e., on 18-01-2017. It is a fact that the books of accounts and other records were not found updated at that point of time. In view of the same, there bound to be many discrepancies in the incomplete records, which were also found by survey officials. The assessee has explained that due to change in the accountant, the books and other records remained to be updated. We notice that the survey officials and AO did not accept the above said practical difficulties faced by the assessee. We notice that the books of accounts of the assessee have been audited and tax audit report was also uploaded to the AO. With regard to the discrepancies noticed in the purchases of gold made in the month of October, 2016, we notice that the assessee has duly explained the discrepancy due to wrong accounting of silver purchase in the gold purchase book. With regard to higher physical stock of gold vis-à-vis, book stock, the assessee has explained that the certain purchase bills remained unaccounted. In both the above said cases, the assessee has furnished the details of relevant bills also. Hence, the AO was not justified in rejecting the book results on the basis of discrepancies found at the time of survey operations, since those discrepancies were since rectified at the time of filing return of income.
We notice that the assessee has furnished month wise quantity details of gold, but the same has been rejected by Ld CIT(A) on the reasoning that it was only summary of all months. There should not be any dispute that monthly summary could be prepared on the basis of daily summary only and it is not the case of the Ld CIT(A), that there were deficiencies in the daily summary also. Hence we are unable to accept the view expressed by the Ld CIT(A). We also notice that the assessee was having sufficient stock of gold, from which he had made cash sales. As submitted by Ld A.R, the Income tax Act requires collection of details of customers only if the sales value exceeded Rs.2.00 lakhs. Accordingly, we are of the view that the assessee cannot be found fault with for non- collection of details of customers for the sale bills having value of less than Rs.2.00 lakhs. As submitted by the Ld A.R, all the invoices relating to sales and purchases were impounded by survey officials and they were available AO. Hence, the assessee cannot be found fault with for non- production of those documents.
We notice that the assessee has maintained proper books of accounts and the impugned cash deposits have been made out of cash available in the books, which were in turn, generated out of cash sales. The books have been audited and the assessee has also filed tax audit report. The assessee has also filed VAT returns with the Sales tax authorities and the sales reported by the assessee have been accepted. Hence the sales disclosed by the assessee cannot be doubted with. In fact, as submitted by the Ld A.R, the AO has also computed total income on the basis of very same sales turnover only. In our view, the higher sales and cash balance reported in the current year, when compared with those of earlier years, cannot be a ground to disbelieve the sales and cash balance reported by the assessee. It may give rise to a ground for the AO to probe the matter further. However, the AO did not carry out any investigation to ascertain the genuineness of sales. Accordingly, we are of the view that the AO could not have disbelieved the sales, without bringing any adverse materials on record. Further, the AO was not right in rejecting the book results on the basis of deficiencies noticed by the survey officials on the incomplete set of books and records. What was available with the AO were the financial statements, tax audit report etc of the completed books of accounts. We notice that the AO did not find fault nor find any deficiency in the details furnished by the assessee before him.
In view of the foregoing discussions, we are of the view that the AO was not correct in law in rejecting the book results and estimating the profit. Further, we notice that the cash deposits have been made out of the cash balance available in the books and hence they cannot be doubted with. Accordingly, we are of the view that both the additions made by the AO were not justified in law. Accordingly, we set aside the order passed by the Ld CIT(A) and direct the AO to delete both the additions related to estimation of profit on sales and also the cash deposits. Accordingly, we direct the AO to accept the income declared by the assessee.
In the result, the appeal filed by the assessee is allowed.