ITO-28(1)(1), MUMBAI, JAO vs. FOURSTAR INTERNATIONAL, CBD BELAPUR, NAVI MUMBAI

The assessee is a partnership firm engaged in the business of clearing and forwarding agent. The assessee filed the return of income for AY 2017-18 on 20.12.2017 declaring total income of Rs.1,88,360/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The assessing officer (AO) completed the assessment under section 143(3) of the income tax Act 1961 (the Act) wherein he made an addition of Rs.1,35,31,500/- under section 69A towards cash deposited during demonetisation period. The AO further made additions towards difference in the turnover reflected in the profit and loss account and form 26AS. The AO also disallowed 10% of the expenses under section 69C. On further appeal CIT(A) deleted the additions made towards cash deposit and difference in turnover. The CIT(A) with regard to disallowance of expenses restricted the disallowance to 2%. The revenue is in appeal against the order of the CIT(A) only with regard to the deletion made towards cash deposits.

The AO during the course of assessment proceeding called on the assessee to furnish details pertaining to the cash deposits during the demonetisation period. The AO also issued notice under section 133(6) to assessee's bank. The assessee in response filed the bank statement, cash book, financial statements etc. With regard to cash directly deposited by M/s. Eshakrupa Shipping and Logistics (I) Pvt Ltd., the assessee submitted the confirmation from the party before the AO. The AO held that the assessee has not substantiated the details of cash deposit and that the 3 ITA No.2237/Mum/2024- Fourstar International assessee failed to furnish the details of sales, purchase stock register etc. Accordingly the AO made an addition of Rs. 1,35,31,500 under section 69A of the Act.

Aggrieved, the assessee preferred further appeal before the CIT(A) who deleted the addition by holding that –

The ld DR submitted that cash deposit into the bank account is not commensurate with the revenue shown in the financial statements and therefore the claim that revenue is the source for the cash deposited cannot be accepted. The ld DR also argued that the assessee failed to submit the relevant documents in support of the cash deposit and therefore the AO has rightly made the addition. The ld DR also submitted that the CIT(A) has simply accepted the submissions of the assessee without examining the details which is evidenced by the brief findings of the CIT(A).

The ld AR on the other hand submitted that the assessee has furnished all the details such as the ITRs, statement of accounts, Bank book, cash book, confirmation from parties etc.,(page 55 to 214 of PB) and the AO did not consider any of these submissions. The ld AR further submitted that the assessee is a clearing and forwarding agent and accounts for only the agency fees / commissions

We heard the parties and perused the material on record. The AO has made the addition towards cash deposited during demonetisation period for the reason that the details submitted by the assessee are inadequate. The CIT(A) held that the AO has sought details such as sales, purchase stock register etc., without understanding the business of the assessee and accordingly deleted the addition made by the AO. From the perusal of the details submitted before the lower authorities, we notice that the assessee has submitted all the details to substantiate source of the cash deposited into the bank such as ITR 5, cash book, bank statements, invoices of the customer, confirmation from the M/s.Eshakrupa Shipping and Logistics (I) Pvt Ltd., etc. We further notice that in ITR 5 the assessee has given the details of cash deposited during the demonetisation period. The AO's reason for making the addition is that the details such as sales, purchase stock register are not furnished and that the assessee's claim that the source for 5 ITA No.2237/Mum/2024- Fourstar International cash deposit is the business receipt does not match with the profit and loss account. From the said observations we see merit in the findings of the CIT(A) that the AO has not properly understood the business of the assessee. The income of the assessee being a clearing and forwarding agents is only the agency fees / commission and accordingly the assessee has not routed the entire receipts from customers through the profit and loss account. This fact is substantiated by the service tax return where the assessee has declared the entire receipt and income separately for service tax purposes. Considering the facts and circumstances of the case, and after perusing the details we are of the view that there is no infirmity in the decision of CIT(A) in deleting the addition made by the AO. Ground raised by the revenue is dismissed.

In result the appeal of the revenue is dismissed.