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Facts
The assessee, dealing in imitation jewellery, entered into a merchant agreement with NOSPL for online sales. The Assessing Officer doubted the commission paid and rejected the books of account, estimating net profit at 8% of total turnover. The assessee contested the addition of cash deposited during demonetization, claiming it was from cash sales.
Held
The Tribunal found that the addition on account of commission was not justified as the Ld. CIT(A) had already deleted it. Regarding the cash deposit during demonetization, the Tribunal held that while the explanation for accumulation was not plausible, the deposit was out of business transactions, and therefore, profit element was to be taxed at 8%.
Key Issues
Whether the addition of Rs.2,03,00,000/- as unexplained money for cash deposits during demonetization is justified, and whether the estimation of profit by the AO on sales commission is sustainable.
Sections Cited
69A, 143(3)
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Income Tax Appellate Tribunal, “C” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
and 4648/MUM/2024 Parshwanath Jewellers Pvt. Ltd., AY 2017-18 These two cross appeals filed by the assessee and Revenue are against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), vide order no. ITBA/NFAC/S/250/2024-25/1066728650(1), dated 15.07.2024 passed against the assessment order by Assessing Officer, Circle – 4(3)(1), 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.
Grounds taken by the assessee are reproduced as under:
Addition of Rs.2,03,00,000/- made under section 69A of the Act is unjustified 1. The National Faceless Appeal Centre, New Delhi [hereinafter referred to as "NFAC"] erred in confirming the action of the Assessing Officer in making addition of Rs.2,03,00,000/- by treating the cash deposited into bank as unexplained money without appreciating that the Appellant has duly explained the nature and source of the said cash deposits. Thus, the provisions of section 69A of the Act cannot be attracted and the addition of Rs.2,03,00,000/- may be deleted.
2. The NFAC failed to appreciate that a sum of Rs.2,03,00,000/- has been deposited into a bank account out of the cash sales Rs.2,93,12,972/- made during the year under consideration and the cash in hand of Rs.1,27,75,194/- available with the Appellant. The said cash sales as well as the cash in hand are duly recorded in the books of accounts of the Appellant. Hence, the addition of Rs.2,03,00,000/- made under section 69A of the Act is unjustified and the same may be deleted.
2.1 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) was justified in the deleting the addition on account of estimation of profit of 8% of total revenue even though the assesse had not produced the enough evidence to establish the reasonability of commission paid and ignoring the fact that the commission paid by the assessee was 99% of the sales amount in respect of Naaptol Online Shopping Pvt. Ltd.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in in the deleting the addition on account of estimation of profit of 8% of total turnover even though the assesse could not prove the actual sales and actual purchases and expenses paid.”
Brief facts of the case are that assessee deals in imitation jewellery since year 2004. While explaining the modus operandi of its and 4648/MUM/2024 Parshwanath Jewellers Pvt. Ltd., AY 2017-18 business, assessee submitted that it purchases jewellery locally in the wholesale market and sells the same across the country. Assessee to promote its products in the competitive market, entered into a Merchant Agreement on 18.04.2015 with NOSPL Online Shopping Pvt. Ltd. (hereinafter referred to as NOSPL). NOSPL is an established Company which provides shopping platform to people on internet, print and other alternate channels. It was an understanding between the assessee and NOSPL that NOSPL, would promote assessee's products on e-commerce to increase its sales.
3.1. Apart from sales through NOSPL, assessee also made sales to other parties directly. It is pertinent to mentioned that, out of total sales, major sales are executed through NOSPL. This fact is established from the details of year wise sales tabulated as under: F.Y. Credit Sales Cash Salles Total (Rs.) (Rs.) (Rs.) 2004-05 25,000 5,45,465 5,70,465 2005-06 27,23,177.50 7,49,469.50 34,72,647 2006-07 53,77,303 19,35,378 73,12,681 2007-08 54,59,520 20,37,269 74,96,789 2008-09 64,69,536.50 11,38,542.50 76,08,079 2009-10 74,93,179 9,26,979 84,20,158 2010-11 85,69,572 6,73,480 92,43,052 2011-12 1,42,15,548 5,99,229 1,48,14,777 2012-13 2,68,26,401 -- 2,68,26,401 2013-14 2,64,05,627 -- 2.64,05,627 2014-15 3,38,47,000 -- 3,38,47,000 2015-16 17,45,08,421 -- 17,45,08,421 2016-17 28,37,73,940 2,93,12,972 31,30,86,912 2017-18 26,27,16008 2,93,37,956 29,20,53,964 3.2. From the above table, it is apparent that assessee's turnover increased/boosted from financial year 2015-16 after seeking business support service from NOSPL. Assessee filed its return of income on 30.10.2017, reporting total income at Rs.49,02,150/- 3.3. In the assessment order, ld. Assessing Officer doubted the genuineness of commission of Rs.11,46,78,696/- paid, as well as purchases and sales made by the assessee and rejected the books of account and estimated the net profit at 8% of total turnover. Consequently, ld. Assessing Officer determined total income at Rs.2,50,46,9521- (8% of Rs.31,30,86,912/-). Assessee strongly objected the observations made by ld. Assessing Officer and mentioned that this is merely on the basis of conjecture and surmises without appreciating the facts and circumstances of the case. As per assessee, during the year under consideration, purchases made are of Rs.21,29,58,169/- which is duly reflected in the books of accounts. Assessee submitted that its total sales turnover during the year under consideration is of Rs.31,30,86,912/- which consists of Rs.28,37,73,940/- as credit sales and of Rs.2,93,12,972/-as cash sales. Also, that out of total sales, sales of Rs.25,39,78,529/-were executed through NOSPL and the remaining Rs.5,91,08,383/- were affected through other parties. Assessee, also stated that it has paid commission to NOSPL as well as the other parties to promote its products and sell the same in market.
3.4. Assessee furnished the Merchant Agreement dated 18.04.2015 with NOSPL to corroborate commission payout. Out of total commission of Rs. 11,46,78,696/-, assessee paid a commission of Rs.11.36,52,633/- to NOSPL and also did TDS of Rs.1,13,657/- based and 4648/MUM/2024 Parshwanath Jewellers Pvt. Ltd., AY 2017-18 on certificate issued by the Department dated 29.04.2016 to the assessee, authorizing it to deduct TDS @ 0.1% on the commission payable to NOSPL for the year under consideration. Assessee stated that these documents were produced before ld. Assessing Officer during the course of assessment.
3.5. Addition made by the ld. Assessing Officer was contested before the ld. CIT(A) who after careful consideration of the facts and documentary evidences placed on record, observed that assessment order does not point out any flaw in the books of accounts, except for doubting the margins at which sales were made to NOSPL and working of commission paid to NOSPL. He noted that significant portion of sales were executed through NOSPL, i.e., Rs.25,39,78,529/- out of total sales of Rs.31,30,86,912/-. All these sales were through electronic media, for which trail is readily traceable. Further, he observed that purchases of Rs.21,29,58,169/- were through account payee cheques and details of commission paid to NOSPL were placed on record. He thus, considering all the facts and records, deleted the addition made on account of estimation of profit by applying 8% of Rss.31,30,86,912/- to arrive at an addition of Rs.2,50,46,952/-.
Before us, facts as stated above were reiterated, by making reference to corroborative material placed on record, in the paper book containing 92 pages. We have perused the records in this respect. Admittedly, it is a fact on record that there is significant increase in the turnover of the assessee from Assessment Year 2016-17 onwards, i.e., after entering into merchant agreement with NOSPL, as depicted in the details tabulated above. We have gone through the observations of ld. CIT(A) corroborated by documentary evidences and do not find
Assessee, in its appeal has contested on the addition of Rs.2,03,00,000/- towards deposit of cash in its bank account with ICICI Bank during demonetisation period. In this respect, assessee explained that during the year under consideration, total sales turnover amounting to Rs.31.30,86,912/- consisted of Rs.28,37,73,940/- as credit sales and a sum of Rs.2,93,12,972/- as cash sales which are duly recorded in its books of accounts. Ld. Assessing Officer made the addition of this deposit of cash in bank account by applying provisions of section 69A, treating it as unexplained money. In this respect, it is noted that out of total cash of Rs.2,93,12,972/- during the whole year, cash of Rs.2,03,00,000/- has been deposited during the demonetisation period, i.e., from 09.11.2016 to 30.12.2016. Assessee submitted that it had accumulated cash from the month of April 2016 onwards and thereafter made the deposit in the bank account which does not appear to be a plausible submission. Moreover, it is noted that there are no cash sales in the prior years from Assessment Year 2013-14 to Assessment Year 2016-17 as tabulated above.
5.1. Considering the overall factual matrix by keeping into context the merchant agreement entered by assessee with NOSPL whereby significant transactions are made on the shopping platform on internet and other channels whereby transactions are entered through banking channels, we ascribe to the view taken by ld. CIT(A) that accumulation of cash from April 2016 onwards does not appear to be plausible. However, we are of considered view that the deposit of cash is out of the business transactions undertaken by the assessee though and 4648/MUM/2024 Parshwanath Jewellers Pvt. Ltd., AY 2017-18 not justifiably explained by it and therefore what can be added is the profit element embedded therein. To meet the ends of justice, we find it appropriate to estimate profit by applying a rate of 8% on the deposit of cash of Rs.2,03,00,000/- for the purpose of sustaining the addition. Accordingly, addition of Rs.16,24,000/- is sustained and balance of Rs.1,86,76,000/- is deleted on this account. Thus, grounds raised by the assessee are partly allowed.
In the result, appeal of the assessee is partly allowed and appeal of Revenue is dismissed.
Order is pronounced in the open court on 24 February, 2025