OM VINYLS PRIVATE LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, MUMBAI

On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of assessing officer in making addition of Rs. 2,91,33,793/- by estimating net profit at the rate of 2% of the total turnover after rejection of books of accounts.

On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of assessing officer in making the addition of Rs. 54,00,000/- on account of unexplained credit u/s. 68 of the Act being cash deposited in bank account during demonetization period.

On the facts and circumstances of the case as well as law on the subject, the learned assessing officer has erred in invoking S. 115BBE on addition of Rs. 54,00,000/- instead of taxing the same as business income.

Even otherwise on the facts and circumstances of the case as well as law on the subject, the assessing officer has erred in taxing the income of Rs. 54,00,000/- u/s 115BBE @ 77.25 % in a retroactive manner by applying the duly substituted S.115BBE inserted retrospectively instead of taxing it at 35.54 % as per the old provisions of S.115BBE.

It is therefore prayed that the above addition made by the assessing officer and confirmed by Ld. CIT(A) may please be deleted.”

Facts of the matter are that assessee is engaged in the business of manufacturing vinyl leather. Return of income was filed on 17.10.2017 reporting total income at Rs.38,83,780/-. Assessee reported book profit of Rs.68,77,370/- u/s.115JB. During the course of assessment proceedings, ld Assessing Officer required the assessee to submit details of cash sales made during the year. Assessee duly submitted the cash sales bills containing the names. address and PAN of the parties to whom the sales were made. Also, complete sales & purchase registers, physical stock records, Central Excise Returns and records wherein such cash sales have been shown were also submitted. However, Id. Assessing Officer totally ignored these evidences while arriving at the conclusion that cash sales are bogus.

1. Ld. Assessing Officer alleged that assessee maintained two sets of sale bills, one set unsigned and the other set duly signed by the authorized person of the assessee. However, it is note-worthy to mention that both the sets of bills submitted to the Id. Assessing

2. Ld. Assessing Officer estimated the net profit assuming rate of 2% as industry norms for manufacturing similar products. However, nowhere in the assessment order it is mentioned as to how he has arrived at the net profit rate of 2% for the industry nor mentioned about company, manufacturing same products and operating under same conditions as the assessee. He has on one hand rejected the sale register being unreliable and on the other hand taken the sales recorded in the same sale register to calculate net profit @ 2% of sales.

3. On the other issue, ld. AO ignored the submission of assessee that cash deposits of Rs 54 lakhs made in the bank account during the demonetization period was totally out of the cash balance on hand consistently maintained by the assessee for the past three years. For the purpose of making addition of cash deposits of Rs.54 lakhs, ld Assessing Officer incorrectly assumed that it was made out of cash sales during the demonetization period. Opening cash in hand as on 01.04.2016 itself was Rs. 59,45,284/- and further accumulated with cash received from debtors and after meeting expenses, cash in hand available on the eve of demonetisation i.e. 08.11.2016 was Rs. 54,58,651/-. Details of monthly cash balance at the end of each month is tabulated below:

4. Below is tabulated ratio of cash sales to total sales which would help to appreciate the facts better on basis of papers filed at Pg No 524 to 526 of the Paper book. This shows that the cash sales is minimal compared to overall sales

778%

5. Assessee submitted all the supporting evidences for the cash deposits in the bank account as well as for the cash sales effected during the year which included:

6. It was submitted that since no defect was pointed by the ld. Assessing Officer in the cash book no addition ought to have been made on account of cash deposited during demonetisation period out of accounted cash which is treated as unexplained. In this regard, assessee placed reliance on the following judgements:

7. Ld. Assessing Officer completed the assessment, by making the following additions: (a) Contribution to Employee's Provident Fund of Rs. 45,408/- u/s. 36(1)(va) on the ground it was paid after the prescribed due date.

Aggrieved by the additions/disallowances, assessee is in appeal before the Tribunal, for issues at (b) and (c), since ld. CIT(A) confirmed the said additions.

We have heard both the parties and perused the material on record. We have also gone through the paper book and synopsis furnished before us. On the first issue relating to rejection of books of account by the ld. Assessing Officer, we note that the only reason cited by ld. Assessing Officer is that assessee furnished computerised copies of cash sales invoices from tally software vide submission letter dated 15.12.2019. This submission was uploaded by the assessee on the ITBA portal which has a limitation on the size of the file which can be uploaded. This submission made by assessee was followed by another

1. Contrary to this submission by the assessee, ld. Assessing Officer observed that assessee has not maintained hard copy of invoices as it is wastage of paper. He asserted that assessee is required to maintain sales invoices and other documents in proper format which should be produced to authorised legal bodies as and when requested. In the present day of working in digital era, the view adopted by ld. Assessing Officer cannot be accepted, since assessee has placed on record both the digital format of the sales invoices as well as scanned copies of the same documents alongwith explanation

2. Assessee has also brought on record an important fact on maintaining books of accounts by submitting that books of accounts regularly maintained by it has been accepted by the Department in the past, where those years were subjected to scrutiny assessment including Assessment Year 2012-13, 2013-14 and 2014-15. Assessee placed assessment orders for these years in the paper book. Basis applied by ld. Assessing Officer for rejecting the books of accounts in the given set of documentary evidences placed on record and explanation furnished by the assessee as discussed above does not justify the action of rejection of books of accounts, which is not in consonance with provisions contained in section 145 of the Act.

3. Furthermore, we note that ld. Assessing Officer has not brought on record any comparable case to adopt net profit rate of 2% except for making a general statement that net profit rate of 2% is estimated which is as per the industry norms of manufacturing business similar to manufacturing business of assessee. Adopting rate of 2% for calculating net profit does not reflect the source from where it is taken and what industry standard has been applied to make the said addition. Accordingly, ground no.1 and 2 raised by the assessee are allowed, resulting in accepting the book results of the assessee as furnished in its return of income.

In respect of ground no.3 relating to addition made towards deposit of cash during demonetisation period amounting to Rs.54 lakhs, assessee has evidently demonstrated that it has never submitted the source of cash deposit to be out of cash sales during the demonetisation period. Assessee, across all the proceedings before the 9 Om Vinyls Private Ltd., AY 2017-18

1. From the perusal of observations made by ld. Assessing Officer in this respect, we note that they are all surmises and conjectures without any corroborative documentary evidences brought on record. To reflect this, we take note of few such observations whereby at one place it is stated that “Usually, these sales are artificially created by assessee’s out of the book by taking advances in cash at the time of demonetisation in SBN notes and deposited.” Another observation is “Further, a prudent man would deposit all demonetised cash in one go. Whereas, assessee has deposited cash in multiple transactions. This also further strengthen the case that cash deposited by the assessee is an accommodative entry.”

2. Facts as evident from the documentary evidences on record including the cash book in which no specific defect has been pointed out by the ld. Assessing Officer, there is no occasion to make an addition on account of deposit of cash during demonetisation period. Assessee evidently demonstrated availability of cash in hand on the eve of demonetisation, i.e., 08.11.2016 with cash in hand of Rs.54,58,651/-. Assessee has a turn-over of Rs.239.16 Crores during the period in the year upto 07.11.2016 and cash sales is a very small, insignificant part of this total sales which is Rs.1.86 Crores, i.e. 0.778%. Assessee has furnished all the details in respect of parties to whom sales were made including the cash sales which is duly supported by excise records and stock records.

3. Accordingly, considering the overall factual matrix corroborated by documentary evidences wherein no specific defects have been pointed out, we find that assessee had cash in hand available with it, out of which deposit is made in its bank account. We thus, delete the addition so made in this respect. Ground no.3 taken by the assessee is allowed.

In the result, appeal of the assessee is allowed.