ACIT CIRCLE-1(1), RAJKOT, RAJKOT vs. GRENIC TILES PVT LTD, MORBI

Without prejudice, the assessee submits that since the sustained addition itself is bad in law and on facts, consequential levy of interest and initiation of penalty proceedings are also unwarranted and deserve to be quashed.

Without prejudice to the above your assessee craves leave to add, amend, alter, vary or withdraw all or any grounds of appeal on or before the hearing of appeal.”

In response to the show-cause notice (SCN) so issued, the assessee has e-filed its reply to the SCN along with other remaining details which were asked vide notice u/s 142(1) of the Act. The assessee has furnished the copy of cash book for the period from 01.04.2016 to 31.03.2017, along with copy of bank account statements. However, no other detail to explain the source of such alleged cash deposit was furnished by the assessee.The assessing officer noticed that there was closing balance of Rs. 75,17,280/-, as on 31.03.2016, as per the audited account and ITR for FY 2015-16. The same has been carried forward as opening cash balance of current year. The said cash balance was available with the company as per cash book and utilized for deposit in bank due to demonization of currency, audited report and income tax return (ITR) for Financial Year (FY) 2015-16, and already filed with IT office, cash book for the current year is submitted along with other details. Further from 01.04.15 to 08.11.2016, assessee had received cash, from debtors aggregating to Rs. 61,45,755/-. Statement of debtors form whom the assessee has received cash along with name, address of debtors were submitted by the assessee, before the assessing officer. The assessee has made cash sales of Rs.30,34,780/-, during the period. Details of cash sales is also submitted by the assessee. The assessee submitted that their & 682/RJT/2025 Grenic Tiles Pvt. Ltd. V. ACIT cash sales for the financial year (FY) 2015-16 was 2,23,76,666. Month- wise cash sales for assessment year (AY) 2015-16, were also submitted before the assessing officer. Various expenses incurred in cash up to 08.11.2016 aggregates to Rs.46,49,944/-. The net cash on hand available as on 08.11.2016, was Rs.1,20,67,848/- as per cash book. Out of said cash on hand available with assessee, the assessee has deposited Rs.1,13,50000/- in the bank account. A statement showing month -wise cash balance, cash sales, cash receipt from debtors cash withdrawn and cash deposited with bank and cash expenses for the period 01.04.2016 to 08.11.2016, as well as for assessment year (AY) 2015-16 was submitted, before the assessing officer.

However, the assessing officer rejected the above contention of the assessee and observed that assessee has deposited cash in its UBI Bank Current Account number 422305010037111 amounting to Rs. Rs.1,11,45,163/-, during demonetization period, and the assessee has not been able to discharge its primary onus under Section 68 of the Act, the cash to the tune of Rs.1,11,45,163/- deposited during demonetization period in various bank accounts of the assessee was therefore treated by the assessing officer, as unexplained cash credits within the meaning of section 68 of the Act.

The Ld. Counsel also submitted that in corresponding year of the demonetarization period, and subsequent assessment year, the assessee has deposited the cash in the bank account, therefore it is regular feature of the assessee’s business that he deposited the cash receipt from trading activities, in the bank account. Apart from this, the assessee has opening cash balance, and that balance was considered as a true and correct by the assessing officer as well as Ld.CIT(A), therefore, it cannot be said that the assessee books of account are not correct. Besides, the assessee’s books of accounts were not rejected by the assessing officer and despite of this the & 682/RJT/2025 Grenic Tiles Pvt. Ltd. V. ACIT Ld.CIT(A) has considered 2/3 debtors of the assesse as correct and 1/3 debtors of the assessee as not correct. Therefore, out of total debtors 1/3 debtors have not been considered by the Ld.CIT(A), as correct whereas the 2/3 debtors have been considered as genuine. Therefore, the Ld.Counsel submitted that the estimated addition sustained by the Ld.CIT(A) should also be deleted as the assessee filed cross appeal against the addition sustained by the Ld.CIT(A), therefore, part addition sustained by the Ld.CIT(A) to the tune of Rs.13,30792/- may be deleted.

On the other hand, the ld. Senior DR for the revenue submitted that the assessing officer has passed reasoned and speaking order, therefore, the finding of the assessing officer may be upheld.

We have heard both the parties and perused the materials available on record. We note that assessee had deposited Rs. 1,13,50,000/- during the demonetization period. The said deposit was made from the cash on hand as per the cash book as on 09.11.2016. Abstract of cash book for the period 01.04.2016 to 08.11.2016 is as follows:

Month- wise cash book abstract for the year under appeal and for Financial Year (FY) 2014-15 was submitted which is reproduced below:

To give a comparative view, month wise cash book for Financial Year (FY) 2014-15, was furnished before the assessing officer, which is reproduced below:

We note that during the year under appeal, assessee had made cash sales of Rs. 30,34,780/- as per Annexure F, submitted before the assessing officer. The cash sales are supported by invoice, showing full particulars of item sold, quantity, rate, total value vide Annexures F1,F2, and F3.The assessee is liable to pay excise and VAT on their sales and the incidence of excise and VAT is duly shown in the sale invoice. The assessee had filed VAT and Central Excise returns wherein the cash sale invoice were duly reported. Invoice number is reported in Annexure to Excise returns Form ER 1. The copy of excise returns highlighting cash sale invoices were submitted by the assessee, by way of Annexure D. In case of VAT returns, the details of sales made to buyers of Gujarat State who have VAT Registration numbers were furnished in VAT Return Form 201-A and & 682/RJT/2025 Grenic Tiles Pvt. Ltd. V. ACIT details of out of Gujarat State buyers having CST number were furnished in Annexure to CST Return Form 3B, before the assessing officer. The copy of VAT Return and CST Return were furnished by the assessee, by way of Annexure -E. The Central Excise Department and VAT Department have not disputed the said cash sales invoices and have accepted assessee’s tax returns.

We find that assessee is maintaining regular books of accounts, which are audited under Companies Act and Income Tax Act. The cash sales are duly recorded in assessee’s sales register and included in the total sales reported in audit report. The Sales Register was furnished by the assessee by way of Annexure G, before the assessing officer. The assessing officer has not disputed total sales made by assessee. The assessing officer has accepted cash sales made by assessee as part of total sales. The assessee is maintaining full quantitative details of raw material, production, and sales. The quantity of tiles produced and sold in cash are duly reported in the quantitative account. The assessing officer has not disputed the quantitative details/ accounts. The Audit Report wherein quantitative details were furnished is submitted by the assessee, before the assessing officer, by way of Annexure H.

We note that cash sales during the demonetization period is Rs. 30,34,780/-, (the cash sales for the period 01.04.2016 to 08.11.2016), as against the cash sales for the relevant period of Financial Year (F.Y.) 2014- 15 is at Rs. 1,51,33,943/-. This shows that there is no abnormal jump in cash sales during the year under appeal as compared to earlier year, in fact, cash sales have declined in demonetization period, as comparison to earlier period, hence, such genuine cash sales, should not be doubted.We note that Section 44AA refers to Maintenance of Accounts. Section 44AA(3) refers to the Boards power to prescribe by Rules, the books and other documents & 682/RJT/2025 Grenic Tiles Pvt. Ltd. V. ACIT to be maintained. The Books of Accounts and other documents to be kept and maintained under Section 44AA(3) are prescribed under Rule 6F of the Income Tax Rules. Section 44AA r.w.r 6F prescribes the books of accounts and other documents to be maintained. Rule 6F(2)(iv) prescribes that copy of serially numbered invoices is required to be maintained. The assessee is liable to Excise and VAT and has duly maintained copy of invoices, serially numbered.

The ld.Counsel for the assessee submitted before us that there is no requirement of mentioning address in case of cash sale invoice. In view of the facts of the case explained, as above, it was submitted that the sales made by cash invoice cannot be considered as unexplained cash credit. The sales invoices are maintained in the manner prescribed under the Act, showing full particulars of goods sold, quantity, rate etc. The sales made through cash invoice are liable to Excise and VAT and the assessee has reported the cash sales invoice in its excise and VAT return and the same is not disputed by the Excise and VAT Department. Full day to day quantitative details of goods produced and goods sold including cash invoice sales is maintained by the assessee. The assessing officer has not disputed quantitative record. The cash sale invoices are recorded in sales register and cash books and it is considered as Sales in audited books of accounts. The assessing officer has not disputed sales. There is a history of sales being made against cash payment. Sales through Cash sale invoice is quite comparable with past year. In these facts of the case, the cash received on cash sale invoice cannot be considered as unexplained cash credit.The Hon'ble Supreme Court in the case of CIT vs. Devi Prasad Vishwnath Prasad (1969) 72 ITR194 (SC) held that "It is for the assessee to prove that even if the cash credit represents income, it is income from a source, which has already been taxed".The assessee has already offered the sales for taxation hence the onus has been discharged by it and the same income & 682/RJT/2025 Grenic Tiles Pvt. Ltd. V. ACIT cannot be taxed again. Reliance is further placed on the decision of Hon 'ble Rajasthan High Court in the case of Smt. Harshila Chordia vs ITO (2008) 298 ITR 349 in which it was held that "Addition u/s 68 could not be made in respect of the amount which was found to be cash receipts from the customers against which delivery of goods was made to them". Decision of Hon'ble ITAT, Nagpur Bench in the case of M/s Heera Steel Limited vs ITO (2005) 4 IT J 437 in which it was held that "Both the lower authorities failed to appreciate the case of the assessee that these were the trade advances and not cash credits and against such advance, the assessee has supplied the material in due time as per details available on record. In view of the above, there is no justification for the revenue authorities to treat these cash advances as unexplained cash credit u/s 68". Again, the reliance is placed on the decision of Hon'ble M.P. High Court in the case of Addl. CIT vs. Ghai Lime Stone Co. (1983) 144 ITR 140(MP), wherein it was held that trade advances or cash received against which goods is supplied subsequently is not a cash credit as contemplated by section 68 of the Act. Reliance is further placed on the decision of the ITAT, Mumbai Bench in the case of ITO vs. Surana Traders, (2005)93 TTJ 875: (2005)92 ITD 212, the relevant observation of the Mumbai Bench are as under:

In the result the appeal is allowed". 21.Considering the above facts, we find that assessee has placed on record the details of cash sales made, and it contains the details namely the date of sale, the voucher number, the name of the party, the amount of sales. It is also an undisputed fact that on the aforesaid sales, VAT as per the applicable rates has been paid by the assessee and the payment of VAT is also reflected in the VAT returns filed by the assessee. The Revenue has not placed any material on record to demonstrate that the details of cash sales filed by the assessee are fictitious or bogus. Further, the Revenue has also not placed any material on record to demonstrate that the VAT return filed by the assessee before the Appropriate Authorities have been rejected by the Authorities. It is also a fact that the assessee is having only one source of income which is also not in dispute. Further the purchase of goods from which the alleged sales have been made by the assessee has also not been rejected by the Revenue. When the sales have been accepted as revenue receipt, the same could not have been again added as income. In such circumstances and in absence of any contrary material brought on record by the Department, we are of the view that in the present case no addition is called for.

So far sash received from Debtors is concerned we note that assessee had received cash from various debtors during 01.04.2016 to 08.11.2016 aggregating to Rs 61,45,735/-. The statement of debtors from whom cash was received was furnished to assessing officer. The cash was received from 23 debtors against the sales made to the in Financial Year (FY) 2015- 16. The sales made to the said parties was duly recorded in books in FY 2015-16 and the amount receivable from the said debtors was duly reflected in audited Financial Accounts of AY 2015-16. Copy of audit report for FY & 682/RJT/2025 Grenic Tiles Pvt. Ltd. V. ACIT 2015-16 was submitted by the assessee, by way of Annexure -I. During the year under appeal, assessee received cash from the said parties against the dues in respect of sales made to them in FY 2015- 16. The ledger accounts of the said parties for AY 2016-17 being the year in which sales is made and AY 2017-18, being the year in which parties have paid their dues was submitted by the assessee, before the assessing officer, by way of Annexure J. The sales register for FY 2015-16 being the year in which sales were made is submitted at Annexure K. The Copy of relevant sales invoice of F.Y. 2015-16, in respect of which cash is received during the year under appeal is submitted at Annexure L1, L2 & M. The Assessee has filed VAT and Central Excise returns where in the sale invoice are duly reported. Invoice No. is reported in Annexure to Excise returns Form ER 1. Copy of Excise Returns highlighting cash sale invoices is submitted at Annexure N1, N2,N3. In case of VAT returns, the details of sales made to buyers of Gujarat State who have VAT Registration No is furnished in VAT Return Form 201 -A and details of out of Gujarat State buyers having CST No. is furnished in Annexure to CST Return Form 3B. Copy of VAT Return and CST Return is furnished at Annexure O. Central Excise Department and VAT Department have not disputed the said sales invoices and have accepted assessee’s tax returns. In these circumstances, amount received from debtors, should not be treated bogus.

We note that Ahmedabad Bench of the Tribunal in the case of Shree Sanand Textile Industries Ltd. vs. DCIT while deleting the addition made by the A.O. under section 68 of the Act, on account of cash deposit has observed as under:

Considering the above facts and circumstances, we dismiss the appeal of the revenue.

Coming to the assessee’s appeal in as we have noted earlier that the main contention of the assessee, is that ld.CIT(A) treated 33% debtors, as non- genuine, whereas 67% debtors were considered by the learned CIT(A) as genuine. Such a treatment adopted by the Ld. CIT(A) is not correct, as per learned Counsel for the assessee, either entire debtors should be treated as genuine or the entire debtors should be disallowed as non-genuine, therefore, part debtors cannot be considered as non-genuine, hence, addition sustained by the learned CIT(A) to the tune of Rs.13,30,729/-, should be deleted, as it is business receipt.

We have heard both the parties and noted that the statement made by the assessee’s counsel is not entirely correct in law under the Income-tax Act, 1961. The contention that either all debtors must be treated as genuine or all must be treated as non-genuine is not a legally binding principle. Tax authorities are permitted to examine each item of evidence separately and make partial acceptance or partial rejection. The ld. CIT(A)) is empowered & 682/RJT/2025 Grenic Tiles Pvt. Ltd. V. ACIT to examine each debtor independently, and accept those supported by proper evidence and reject those where the assessee fails to discharge the burden of proof. Therefore, partial disallowance or partial acceptance is legally permissible. If the assessee claims that debtors are genuine, the assessee must generally establish: (i)Identity of the debtor, (ii)Genuineness of the transaction. If evidence is available only for 67% debtors, the CIT(A) can legitimately treat those as genuine and disallow the remaining 33%.