VIJEYRANGA TEXTILES PRIVATE LIMITED,COIMBATORE vs. THE ASSISTANT COMMISIONER OF INCOME TAX CORP CIRCLE 1, CBE, COIMBATORE

It is true that u/s.68 of the Act, when the AO find any sum credited in the books of the assessee and no explanation was given by assessee about the nature and source thereof, or the explanation offered by the assessee is not in the opinion of the AO satisfactory, then the sums credited may be charged to Income Tax as the income of the assessee. In this case, we find that the source of deposit of SBNs has been explained by the assessee as trade receipts, credited out of ordinary business sale which in-turn has been credited into its bank account and the profit from the transaction has been duly included in the return of income filed in the relevant assessment year. Therefore, no addition u/s.68 of the Act is plausible since it would tantamount to double taxation of the same income as held by the Hon’ble Gujarat High Court in the case of CIT v. Vishal Exports Overseas Ltd., (Tax Appeal No.2471 of 2009) [Gujarat High Court] and also the decision of the Hon’ble Delhi High Court in the case of CIT v. Kailash Jewellry House [Appeal No.613/2010] (Delhi High Court) (refer decision of ITAT Indore Bench in the case of DEWAS SOYA LTD, UJJAIN in ITA No 336/Jnd/2012).

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The only reason given by the AO to make addition u/s.68 of the Act was that assessee could not have transacted/received SBNs during demonetization period and relies on the notification issued by the Government of India (supra). No doubt Specified Bank Notes of Rs.500/- & Rs.1,000/- has been withdrawn from circulation from 09th November, 2016 onwards. The Government of India and RBI has issued various notifications and SOP to deal with specified bank notes. Further, the RBI allowed certain category of persons to accept and to deal with specified bank notes up to 31st December, 2016. Further, the specified bank notes (cessation of liability) Act, 2017, also stated that from the appointed date no person can receive or accept and transact specified bank notes, and appointed date has been stated as 31st December, 2016. Therefore, there is no clarity on how to deal with demonetized currency from the date of demonetization to 31st December, 2016. Therefore, under those circumstances, some persons continued to accept and transact the specified banknotes and deposited into bank accounts. Therefore, merely for the reason that there is a violation of certain notifications/GO issued by the Government in transacting with specified bank notes, the genuine explanation offered by the assessee towards source for cash deposit cannot be rejected, unless the Assessing Officer makes out a case that the assessee has deposited unaccounted cash into bank account in specified bank notes.

We further, notes that the Central Board of Direct Taxes had issued a circular for the guidance of the Assessing Officer to verify cash deposits during demonetization period in various categories of explanation offered by the assessee and as per the circular of the CBDT, examination of business cases, very important points needs to be considered is analysis of bank accounts, analysis of cash receipts and analysis of stock registers. From the circular issued by the CBDT, it is very clear that, in a case where cash deposit found in business cases, the Assessing Officer needs to verify the explanation offered by the assessee with regard to realization of debtors where said debtors were outstanding in the previous year or credited during the year etc. Therefore, from the circular issued by the CBDT, it is very clear that, while making additions towards cash deposits in demonetized currency, the Assessing Officer needs to analyze the business model of the assessee, its books of account and analysis of sales etc. In this case, we have gone through the analysis furnished by the assessee in respect of total sales, cash sales realization from debtors and cash deposits during financial year 2015-16 & 2016-17, there is no significant change in cash deposits during demonetization period. Therefore, we are of the considered view that when there is no significant change in cash deposits during demonetization period, then merely for the reason that the assessee has accepted specified bank notes in violation of circulation/notification issued by Government of India and RBI, the source explained for cash deposits cannot be countenanced.

It is noted that the assessee has given all the financials for the earlier years and subsequent years and the chart supra shows that deposits of SBNs cannot be said to be comparatively suspicious. We also note from the financials filed by the assessee that assessee had enough stock of the fireworks to sale same to the customers on credit during the Diwali Festival i.e. 30.10.2016. Thus, we find that the assessee had sufficient stock as on 30.10.2016 (Diwali period) for sale of the goods which generated amount of Rs. Rs.3,09,37,567/- to be deposited during the demonetization period and there are no defects in the stock registers. Every purchase and sale matches with inflow and outflow of the stock and as assessee has placed on record that the purchased goods have already inflicted with VAT/Sales Tax and the AO has not found any infirmity in the books of accounts of the assessee. Therefore, on the basis of facts discussed supra, we set aside the impugned order of the Ld.CIT(A) and direct the deletion of addition of Rs.3,09,37,567/-.