ASHOK AMRITLAL NAYAK,MUMBAI vs. ITO 17(1)(2), MUMBAI

Since the authorized representative was not well, the assessee himself appeared in person.

The facts relating to the case are stated in brief. The assessee is a proprietor of M/s. Poonam enterprises, which is engaged in the business and distribution of cosmetic products/consumer goods. The assessee filed his return of income for the year under consideration declaring total income of Rs. 41,84,810/-. The AO took up the same for scrutiny, mainly for the reason that the assessee has deposited into his bank account during the demonetization period. During the course of assessment proceedings, it was noticed that the assessee has deposited cashof Rs. 68,50,000/- in his bank account after the announcement of demonetization. The assessee claimed that the cash was deposited out of the cash available in his business books, which, in turn, was generated through the cash sales made by him the period from 1st November to 8th November, 2016, i.e., till the date of announcement of demonetization. From the Books of Account, the AO noticed that the cash sales of Rs. 70.63 lakhs were madein three dates i.e., 06-11-2019 to 08-11-2019. The AO noticed that the cash sales made during the corresponding period of the preceding year was only Rs. 31,109/-. The AO also noticed that the cash sales made by the assessee from 1st April, 2016 to October, 2016 was only Rs. 3,64,722/-. Accordingly, the AO took the view that it is highly improbable that the assessee had made cash sales of such a magnitude in just three days before the declaration of demonetization by the Government. Accordingly, the AO took the view that the cash depositsof Rs. 68.50 lakhs made by the assessee represents un-explained cash credit and assessed the same u/s. 68 of the Act. The Ld.CIT(A) also confirmed the addition, holding that the cash sales shown by the assessee is not at all acceptable as genuine.

We heard the parties and perused the record. First of all, we notice that the AO has not rejected the Books of Account. There is no dispute with regard to the fact that all the cash sales shown by the assessee prior to demonetization period has been duly accounted for in the books of accounts. We notice that the Ld CIT(A) has extracted the cash sales ledger account in his order. The assessee has stated that all the sales made by him have been duly reported under „Maharashtra VAT Act‟. The assessee further submitted that he had collected the VAT on the cash sales so affected and it has also been duly paid to Maharashtra Government. He also submitted that the return of sales filed before the MVAT Act has also been accepted by the concerned authorities. Under these set of facts, we are of the view that there is no reason to suspect the cash sales recorded by the assessee.

Further, a perusal of the Profit & Loss Account would show that the assessee was having opening stock of Rs. 1.33 crores; made purchases of Rs. 28.35 crores during the year under consideration and after making sales of Rs. 28.26 crores, the assessee was holding closing stock of Rs. 2.19 crores as on 31-03-2017. The assessee submitted that he was holding sufficient stock during the relevant period and hence he could make cash sales to the tune of around Rs.70 lakhs. Even after making these cash sales, still he was having stock. We notice thatthe AO has not doubted the opening stock available with the assessee and purchases made during the year, meaning thereby the availability of stock with the assessee as on 31-10-2016 could not have been doubted with.

We noticed earlier that the cash sales made by the assessee in the first week of November, 2016 cannot be doubted with. We noticed that the tax authorities have doubted the cash sales, only for the reason that the cash sales of the corresponding period of the preceding year and also the cash sales affected during the first seven months of the financial year were very less. In our view, the tax authorities could not have disbelieved the cash sales on suspicion alone. In our view, the above said pattern noticed by the AO should trigger him to probe the matter further. In that case, it is the duty of the AO to examine the correctness or otherwise of the purchases and sales affected by the assessee by making due enquiries with suppliers and customers.

Accordingly, we set aside the order passed by the Ld.CIT(A) on this issue and direct the AO to delete the addition of Rs. 68.50 lakhs made by him as un-explained cash deposits u/s. 68 of the Act.

In the result, the appeal filed by the assessee is allowed.