M P SWARNAMAHAL ,BANGALORE vs. ACIT, CIRCLE-7(2)(1), BANGALORE

Thereafter, a show cause notice was issued to the assessee on 20.12.2019. In the show cause notice, it was stated that from the verification of the bills, it was noticed that bills were deficient. They did not have any counter party signature. They do not carry identification of the counter party except a name and in some case mobile number. The mobile numbers, where provided was tried in several cases Either the number was wrong or person was not reachable etc. Eg. Bill No. PSR 16 on 3/11/2016 named "Rohit Kumar" - the number is not valid. In such a situation, the counterparty genuineness and creditworthiness is unverifiable. Also, by the very nature of cash transaction - the genuineness of transaction is under doubt. Therefore, the conditions laid down in Sec 68 of identity, creditworthiness, genuineness is not fulfilled. Thus, it is proposed to treat the cash sales made in the month of November 2016 totaling to Rs. 5,06,18,058 was unexplained cash credits and it was also noted that all the bills generated in the month of November 2016 was below Rs.2 lakhs. In response assessee filed reply on 23.12.2019 Page 8 of 15 and 27.12.2019 stating that bills provided earlier was from computer based data and not the original ones served on customers. Assessee has amended his submissions and brought a new set of bills which are duly singed by counterparties and assessee has paid VAT on all the sales made. Abnormal spike in sales is due_ to Diwali and Dussehra coinciding in the month of October 2016 and due to shift of Akshaya Trithiya sales from May to Oct due to astrological reasons as all the bills generated were below the limit of Rs.2 lakhs. Therefore assessee was not under legal compulsion to collect PAN. In Oct-Nov 2015, the assessee had sold 12936 gms of gold while in Oct-Nov 2016, he sold 18795 gms, which does not constitute an abnormal increase. Also, the price of gold during Oct-Nov 2015 averaged around Rs. 3000/gm whereas the same during Oct-Nov 2016 averaged around Rs. 3500/gms i.e., an inflation of nearly 16%. Further there was competitive sales in the month of November which is as under:

The AO noted that from the previous sales trend of both the branches for the period from 1st November to 8th November how the assessee was able to generate such huge cash. The AO noted that it is evident from the sales booking pattern of the assessee that the assessee has booked enormous cash sales from 1 Nov to 8th Nov in Richmond Branch, and from 6th November to 8th November in the Jayanagar Branch. Nothing special happened during Page 9 of 15 those days except the event of Demonetisation on the 8th nov. mid night. Accordingly, difference of Rs.4,33,22,683/- was treated as income under section 68 of the Act and applied section 115BBE of the Act.

Aggrieved from the above Order, assessee filed appeal before the learned CIT(A). The learned CIT(A) confirmed the Order of AO.

Aggrieved from the Order of learned CIT(A), assessee is in appeal before the Tribunal.

The learned Counsel reiterated the submissions made before the lower authorities and strongly contested that addition made by the AO under section 68 of the Act is not sustainable because assessee had recorded the entire sales in its books of account. The books of accounts (cash books, sales register, ledge, copy of sales bills) were produced before the AO and he has not rejected the books of accounts and financial statements prepared by the assessee. The return of income has also been accepted during the course of hearing. Therefore the entire assessment passed by the AO is not valid. During the course of assessment proceedings sales were proved through sales invoice issued to the buyers of the gold / ornaments and there is no defect pointed out in the books of accounts. The KVAT was filed. It is also pertinent to note that the deeming fiction under section 68 does not have any overriding effect. The provisions of section 68 do not contain any non-obstinate clause or any other overriding provision to even remotely suggest that the provisions of sec 68 would have to be applied over the normal provisions of the income tax act. Therefore, where income from sale of goods is already offered to tax under the head income from business, the provisions of section 68 without any overriding effect would not have any application. Assuming, without admitting, that to proceeds from sale of goods both – charging provisions of Page 10 of 15 sections 28 and deeming provisions of section 68 would apply – in the absence of any overriding provision in section 68, the specific provisions of section 28 which seek to tax business income would have to be applied over the general provisions of section 68. Therefore the entire additions made by the AO is wrong. In support of her arguments, she relied on the following judgments:

On the other hand, the learned DR relied on the Order of the lower authorities and submitted that the objections raised by the AO regarding back dated bills were issued to justify the turnover of the assessee has not been proved by the assessee and there is enormous sales during demonetization announced by the Government of India which also creates doubt that the assessee has issued back dated bills and on comparision of the cash sales in the same period, sales is very high for 2 to 3 days and there was no special occasion. He further submitted that the selection was made for scrutiny under CASS (computer aided scrutiny selection).

In the rejoinder, the learned Counsel submitted that the entire sales bills were produced and mobile number was given by the buyers so the assessee is not liable for obtaining correct mobile numbers and complete address whatever the mobile number given by the buyers are mentioned in the sales bills. She further submitted that at one side the purchases, opening and closing stocks were accepted by the AO, however, he has not accepted sales. But he has accepted that there is flow of money from the buyers. Therefore the Page 13 of 15 addition under section 68 of the Act cannot be made. If the goods purchased are accepted, no addition can be made under section 68 of the Act. There was no mistakes were found in the stoack position of the assessee. The VAT returns were also filed by the assessee which is placed at Paper Book Page Nos.146 to 149.

Considering the rival submissions and perusing the entire material available on record and Orders of authorities below, we noted that here the dispute is only on 2 issues viz, (i) notice issued under section 143(2) of the Act by the jurisdictional AO under CASS and (ii) cash deposited during demonetization period of Rs.4,33,22,683/-. We noted that during the scrutiny proceedings, assessee filed copy of VAT return, cash book, sales register, stock positions and copy of sales bills and the financial audited statements. The financial statements have not been rejected by the AO. The closing stocks of purchased goods have been accepted and there is no defect point out in the books of accounts produced by the assessee. AO has treated the entire cash receipts under section 68 of the Act. Even the closing stock shown by the assessee is accepted. Once the out flow of stocks maintained by the assessee are accepted the sales receipt against the out flow of stock should not be treated as income under section 68 of the Act. Assessee has relied on various judgments which supports the case of the assessee.

During the course of assessment proceedings as well appeal proceedings, assessee Counsel furnished copy of cash book for specified period as well as sales register and bills but there is no defect noted in the cash book. Only allegation made by the AO is extra cash sales with back dated bills and bogus cash sales but the stock out has not been doubted VAT return was also filed. The demonetization happened on 08.11.2016 midnight and effective from 09.11.2016. The sales shown in its books of accounts are prior Page 14 of 15 to the demonetization period. We also examined the cash book journal and sales register but we did not note any back dated sales entry in the books of accounts. The learned Counsel relied on number of case laws cited supra which supports the case of the assessee. The AO has accepted the sales shown in the profit and loss account and no adjustments were made in the trading account. Assessee had produced detailed documentary evidences and explanation including copy of sales invoices, audit reports under KVAT and IT laws, inventory records, purchase register etc which have not been faulted with. The figures of sales, purchases and stocks have not at all been disturbed in the assessment order. The learned Assessing officer having accepted in the assessment of appellant's income, the sales as reported by the appellant without any variations, the addition of the same sales consideration as income results in double taxation of the same income which is not permitted in the Income Tax Act. Considering the totality of facts and circumstances of the case and case laws relied on by the learned Counsel, we delete the addition as raised by the assessee in its grounds of appeal.

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