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Facts
The Revenue appealed against the deletion of an addition of Rs. 97,71,691 made by the Assessing Officer (AO) on account of alleged abnormal cash sales. The Assessee, engaged in retail marketing, had declared cash sales during a specific period which the AO found to be abnormally high compared to the previous year.
Held
The Tribunal held that the AO's basis for estimation of cash sales by adopting an average daily sale and considering it uniform throughout the year was flawed and not supported by law or accounting principles. The Assessee had provided all relevant records, and the cash sales were already disclosed in the return of income.
Key Issues
Whether the AO was justified in making an addition based on a flawed estimation of cash sales without rejecting the Assessee's books of account?
Sections Cited
143(3), 68, 145(3)
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Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI M. BALAGANESH
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in for AY 2017-18, arises out of the order of the ld National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 17.12.2024 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 13.11.2019 by the Assessing Officer, DCIT, Central Circle- 22(2), New Delhi (hereinafter referred to as ‘ld. AO’).
The only issue to be decided in this appeal of the revenue is as to whether the learned CIT(A) was justified in deleting the addition of Rs. 97,71,691 made under Section 68 of the Act in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the materials available on record. The Assessee Company is a public limited company incorporated in the state of Himachal Pradesh with the intention of establishing manufacturing units in the pharmacy and food industry. However, due to unfavorable feasibility reports, the Assessee abandoned this idea and transitioned its business model relocating its registered office from Himachal Pradesh to New Delhi. The Assessee company is engaged in retail marketing of FMCG products such as health products, fabrics, suit length, travel bags, DVD players, protein powders, books and watches through network of 34 branches all over India. The return of income for the assessment year 2017-18 was filed by the Assessee company on 28-10-2017 declaring total income of Rs. 2,25,21,780/-. During the course of scrutiny assessment proceedings, the Assessee furnished bank statements, cash books, purchase and sales ledgers, commission accounts, stock registers before the learned AO for verification. The learned AO examined all the relevant records together with the supporting documents and also made enquiries with the parties of purchases and sales together with the expenses claimed by the Assessee. The learned AO noted that Assessee had declared cash sales during the period 31-10-2016 to 8-11-2016 amounting to Rs. 97,71,691. This was considered to be very high and abnormal when compared to earlier year by the learned AO. Accordingly, the learned AO proceeded to disbelieve the cash sales of Rs. 97,71,691 and made an addition to that extent. The Assessee furnished the details of cash sales made from 1-4-2016 to 31-3-2017. The same is tabulated in pages 3 to 8 of the assessment order. From the said tabulation, the learned AO arrived at the average daily cash sale of Rs. 27,89,703.95. Considering this average sale 27,89,703.95 to be uniform throughout the year, the learned AO observed that the cash sale should have been only Rs. 2,51,07,327 for the whole year and since the Assessee has shown cash sales of Rs. 3,48,79,018, he proceeded to add the differential sum of Rs. 97,71,691 while completing the assessment.
At the outset, we find that the very basis of adoption of average daily cash sales of Rs. 27,89,703.95 and considering it to be uniform throughout the year and arriving at the cash sales figure of Rs. 2,51,07,327 and then comparing it with the actual cash sales of Rs. 3,48,79,018 reported by the Assessee itself, is without any support from the provisions of the Act and is absolutely against generally accepted accounting principles. There is no requirement for the learned AO to arrive at the estimation of cash sales based on the average daily cash sales. No business will generate exactly the same amount of cash sales every day. Hence, the very basis of arriving at the figure of cash sales by the learned AO is completely flawed and deserves to be rejected. In the instant case, the Assessee has produced all the relevant records with the supporting evidences before the learned AO. None of those records were found to be defective. The learned AO had not resorted to even reject the books of accounts and book results by applying the provisions of section 145(3) of the Act. Hence, there is no need for the revenue to even resort to the practice of estimation of cash sales by its own flawed basis and comparing it with the actual cash sales reported by the Assessee. Further, the cash sales has already been disclosed by the Assessee in the return of income. Making a separate addition of Rs 97,71,691 would only result in double addition by the learned AO. We find that the sales reported by the Assessee has been accepted by the revenue. These facts were duly appreciated by the learned CIT(A), on which we do not find any infirmity.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 11/03/2026.