RAJENDRA KUMAR SHET ,RAICHUR vs. INCOME TAX OFFICER, WARD-1 , RAICHUR

The assessee was asked to explain the cash deposits and credit made in the bank account during the financial year 2016 – 17. The ld. AO noted

The assessee submitted that cash deposit of Rs.1,52,35,800 made during demonetisation period in the above bank accounts are from the sale receipts of gold and jewellery. It was further stated that assessee has an opening balance of ₹ 7,623,893 on 8 November 2016, sales receipts of ₹ 6,835,122 during demonetisation period and a sum of ₹ 1,202,550 was received from sundry debtors.

The ld. AO issued a notice u/s. 133 (6) to the various banks and asked for the bank account. On the basis of the bank account received and details furnished by the assessee, he found that part of the information submitted by the assessee is correct. However he took the view that taking into account the cash balance as on 8 November 2016 of ₹ 7,623,893 and giving some credit of the availability of legal tender currency deposited in the bank account, the unexplained specified banknotes deposited in the bank account during the demonetisation period works out to Rs.1,44,09,000. The ld. AO further noted that assessee has deposited in the beginning of demonetisation period of ₹ 1,410,000 out of the opening balance of ₹ 7,623,893 and the balance of specified notes of Rs.1,29,99,000 was deposited in the bank account on various dates till 20 December 2016. In absence of explanation, the deposit of specified banking note to the extent of Rs.1,44,09,000 during the demonetization period for which the assessee has failed to explain the source and treated as income under section 69A of the Act.

The second issue involved was that assessee was to explain the discrepancy in sales for the month of September 2016 as per the sale analysis vis-à-vis sales declared in VAT returns for the impugned month. The ld. AO noted that sales declared in VAT return is of ₹ 905,617 which was stated to be a clerical error by the accountant of the assessee by oversight and assessee stated that a turnover of ₹ 3,170,641 was recorded in the books of accounts which is true and correct. However the assessee has not produced any documentary evidence of the sales bill to prove the genuineness of the above sales declared in the month of September 2016 therefore the AO made an addition of ₹ 2,265,024/– as a difference in income of the assessee.

The third issue was with respect to the addition of Rs.1,32,38,548 made by the ld. AO. The reason for the same is that assessee was asked to furnish the details to substantiate the abnormal increase in cash sales in the month of November 2016 to the extent of ₹ 9,748,556/– corresponding to the case sales of ₹ 855,650 in the month of November 2015 in the previous year. The assessee submitted that the turnover has increased not only for the period of demonetisation but from the month of September 2016 itself because of the marriage and other festival seasons. However the sales declared for the month of September 2016

The fourth issue involved in this appeal is computation of the agricultural income of ₹ 1,491,503/– disclosed by the assessee in return of income. The assessee failed to substantiate the same income with the proper evidence like sales expenditure bills, crop grown certificates etc. and therefore the above income was considered as unexplained money u/s. 69A of the Act.

Accordingly the assessment order was passed under section 143 (3) of the Act on 30.12.2019 computing the total income of the assessee at Rs.2,99,94,070/–.

Aggrieved the assessee preferred an appeal before the ld. CIT–A. The ld. CIT–A after considering the explanation of the assessee confirmed

Now the assessee is aggrieved before us with respect to the [1] confirmation of the addition of ₹ 2,265,024 and [2] Rs.1,32,38,548 with respect to the book results of the assessee. Thus the ld. AR referred to his written submission placed before the learned CIT – A at page No. 1 – 24 of the paper book and further stated that that the addition of ₹ 2,265,024/– confirmed by the learned CIT – A was for the reason that there was an arithmetical error by the accountant who uploaded the VAT return. He submitted that reply was submitted before the AO submitting the VT annual returns wherein the correct turnover is taken. He further referred to form No. VAT 240, along with the return of income annually filed. He further submitted that all the sales are recorded in the books of accounts for which the assessee submitted the details of the bank account and also submitted that the same is recorded in the books of accounts. He submitted that the return of VAT has disclosed the lower turnover but in the books of accounts the assessee has disclosed higher turnover, therefore there could not have been a separate addition as unexplained receipt on that account.

The ld. AR With respect to the addition of Rs.1,32,38,548, he submitted that the addition is made merely on the basis of conjectures and surmises, the addition has been made as the turnover of the assessee has increased during the year. He submits that the turnover increase is shown by the ld. AO as well as the ld. CIT–A which is recorded in the books of accounts. The assessee has offered the gross profit incurred by the assessee thereon and therefore the receipts are already accounted for in the books of accounts and the learned lower authorities have disregarded the same. He further stated that the month- wise sales, cash receipts, cash deposits into bank account from 1 April 2016 till the demonetisation period. The details of the purchase of the gold, details of the sale of the gold, Ledger account of purchase of silver and Ledger account of purchase of sale of silver was already disclosed before the ld. AO. It was therefore submitted that when the assessee has submitted the cash balance month -wise, breakup of sales month -wise, breakup of purchases month-wise, cashbook for the entire year, summary of cash deposits, along with the details of the sales invoices for sales made during the demonetisation period which have not been found fault with, the turnover of the assessee which is already

The ld. AR in support of his contention he further relied upon the decision of the coordinate benches in case of Mahesh Kumar Gupta v. ACIT (2023) 151 taxmann.com 339 wherein it is stated that where assessee jeweller claimed that substantial amount of cash deposited in bank account was with respect to the cash sales made during the demonetisation period, since sales made by the assessee was supported by invoices reported in VAT return and accepted by VAT authority, the addition could not have been made under section 68 or under section 69 of the Act. He further referred to the decision of the coordinate bench in ITO v. Rajeshkumar Rameshchandra Shah (2025) 178 taxmann.com 171 wherein it is held that assessing officer treating the demonetisation cash deposit as unexplained under section 68 citing an abnormal cash sales but assessee proved sales with VAT returns, stock records, suppliers confirmation and since the cash was received from recorded sales and no discrepancies were found, the addition was not justified. He further referred to the decision of the coordinate bench in 178 taxmann.com 768 with respect to cash in the case of Kashi Nath Seth Sarraf [P] Ltd. wherein the addition made u/s. 68 was held to be not justified wherein the assessee had provided material to show that it had sufficient stocks, sufficient details etc. which is also supported by VAT return accepted by VAT authority is not justified.

The learned DR vehemently supported the orders of the learned lower authorities. He specifically referred to paragraph No. 8 of the AO with respect to the addition of Rs.1,32,38,548 , he submitted that increase in turnover is justified and therefore the dl AO has correctly estimated the turnover at lower side and then computed this as unexplained income of the assessee.

In support of addition of Rs 22,65,024/- he further referred paragraph No. 7 with respect to the addition of ₹ 2,265,024. The submission of the ld. DR was also that that there is an abnormal increase in the sales of the assessee which has not been explained by the assessee. He referred to paragraph No. 6.3 of the ld. CIT–A to support his case. He submits that increase in sales is not supported by proper bill as the ld. CIT (A) has noted that all sales bills are cash sales without any reference. So, this addition is correctly made, and the reason for error is not supported as the sales increase in that period is not at all supported by proper bills. Regarding the various decisions relied up on by the ld. AR he submits that there is no quantity details mentioned in the report by the assessee, so all these decisions are distinguished.

We have carefully considered the rival contention and perused the orders of the learned lower authorities.

The first addition is with respect to ₹ 22,65,024 being the difference in turnover for September 2016 recorded in VAT returns and the revised turnover in books of accounts. The facts relating to that is stated by the ld. AO in paragraph No. 7 of his order. According to that when the assessee was asked to explain the discrepancy in sales in the month of September 2016 as per the sales analysis statement submitted by the assessee in sales declared in VAT returns for the month of September 2016. The sales declared in the VAT return is ₹ 905,670. The assessee stated that the turnover recorded in the books of accounts is ₹ 3,170,641. The difference is ₹ 2,265,024. The reason being that that the turnover declared in VAT return is less than the turnover declared in the books of accounts. Therefore it is apparent that the sales declared in the books of account is higher by Rs. 22,65,024/–, the ld. AO treated the same as income under section 68 of Act. The difference in the VAT return and the difference in the turnover recorded in the books of account, the assessee explained that there was an error in recording the turnover in the VAT return which was rectified while filing the annual return. The ld. AO did not consider the same but made the addition. We find that when the turnover in the books of accounts is recorded more than the turnover in the VAT return, such increase in turnover was also supported by the subsequent rectification of VAT return by the assessee, therefore no addition could have been made in the hands of the assessee, provided the increase in sales shown by the assessee is genuine and is supported by the proper bills. With respect to the difference of ₹ 2,265,024/– the assessee has submitted that it is supported by the sales invoices which are prepared in accordance with the VAT law, we find that assessee has already offered the gross profit to the extent of the turnover of ₹ 4,170,641/– in its books of accounts,

In view of the above facts we verified the bills which are placed before us, we find that in those sales bill neither there is any mention of the name of the buyer, address of the buyer or any other details of identification of buyer is available. No doubt it describes the nature of goods and weight. such as quantity. Only description of buyer is “ cash”. Even in respective Vat act also the assessee is duty bound to mention the names and address of the buyers. Therefore it is not known that who are the buyers, but quantity is shown. The ld. AO nor LD CIT (A) asked this information or investigated these facts. Before us the quantity details are also not shown that how the goods sold are available as stock of the assessee. Therefore we restore this issue back to the file of the ld. AO with a direction to the assessee to identify and show the buyers of the goods along with the availability of quantity of goods sold. The LD AO is directed to verify the nature and sources of such sales which is credited in the books of accounts of the assessee. If, he finds it to be proper, the addition deserves to be deleted. The ld. AO is also directed to consider the fact of gross profit already offered by the assessee on the above sales in books of accounts.

In view of the same we direct the ld. AO to reexamine addition and ground No. 2 of the appeal of the assessee is decided accordingly.

Now we come to the addition of Rs.1,32,38,548 recorded by the assessee in the books of account as sales turnover, but treated by the ld. AO and the ld. CIT–A as alleged excess turnover of the appellant for the period from October 2016 to December 2016 based on the average

The assessee before the ld. CIT–A gave the details of monthly sales, monthly purchases, the details of the opening stock and closing stock. The explanation was considered by the ld. CIT–A. He further noted that the gross profit rate and net profit rate for the year has been reduced from 15.59% to 12.38% and further the net profit has reduced from 5.22% to 2.57% respectively in comparison with the preceding financial year, he further noted that assessee has failed to provide party wise details of purchases made from unregistered dealers during the year and has instead submitted a consolidated Ledger account of unregistered purchases. He further noted that assessee was asked to furnish the copies of the sales invoices to substantiate sales made during demonetisation period. The appellant on 31 December 2024 furnished computer-generated tax invoices from 7 September 2016 to 31 December 2016. These were unsigned and all invoices had buyer name containing ‘cash’. The assessee has stated that there is no bar of accepting the cash from the buyer. The ld. CIT–A in view of the above facts concurred with the view adopted by the AO and upheld the addition of Rs.1,32,38,548/–.

It is undisputed fact that the above sale has been credited in the books of accounts, the assessee has offered the gross profit at the rate of 12.38% on the above sale and also net profit at the rate of 2.57% for the impugned assessment year. Undoubtedly, the assessee has furnished the computer-generated tax invoice listing for the verification whether the amount was received in cash. This is not denied by the assessee. But the fact remains that the assessee has sold goods to the various

It is also the fact that ld. AO and ld. CIT (A)_ has not looked in to the quantity details furnished by the assessee as well as the gros profit already disclosed by the assessee. Thus, as directed by us in Ground no 2 of the appeal we also restore this ground of appeal back to the ld. AO with same direction to the assessee as well as the ld. AO, then decide the issue in accordance with law on merits. The ld. AO is also directed to consider the fact of gross profit already offered by the assessee on the above sales in books of accounts. Accordingly Ground no 3 of the appeal of the assessee is allowed with above directions.

All the Decisions cited before us are considered but those are distinguishable in the facts of the present case as there is absence of “name and address’ of the buyer and quantity details produced before any of the authorities.

Ground other than above two additions are merely consequential and general, hence dismissed.

Thus, Appeal of the assessee is partly allowed for statistical purposes.