DEPUTY COMMISSIONER OF INCOME TAX, MADURAI vs. M/S. STANDARD FIREWORKS PRIVATE LIMITED, SIVAKASI, TAMILNADU

5. Thereafter, the AO issued notice u/s.148 of the Act on 31.03.2021 informing the assessee, his intention to reopen both the assessment years [AY 2013-14 & AY 2014-15] on the basis of information received from insight portal that the assessee company had received an amount of ₹1,96,90,350/- during the AY 2013-14 as well as received an amount of ₹2,99,18,750/- for AY 2014-15 from M/s. Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd., (hereinafter referred to as ‘M/s.

Renuka Mata Credit Society‘) which receipt according to the AO was not prima facie reflected in the return filed by the assessee or considered while passing the assessment order u/s.153A of the Act on 31.12.2016 for both years by the AO. Pursuant to the notice issued u/s.148 of the Act, the assessee reiterated the income as shown in its original RoI for both the assessment years. Pursuant to the query raised by the AO about receiving money from M/s. Renuka Mata Credit Society, the assessee submitted that it had received Demand Drafts (DDs) from its various customers during the relevant assessment year issued by M/s. Renuka & 584/Chny/2025 CO Nos.30 & 31/Chny/2025 (AYs 2013-14 & 2014-15) M/s. Standard Fireworks Pvt. Ltd. :: 5 ::

Mata Credit Society and also asserted that it had duly disclosed all such receipts as sales in the relevant assessment years which was duly offered as income in its Income Tax Return (ITR) and tax paid on it. And explained that since DDs from M/s. Renuka Mata Credit Society was nothing but trade receipts shown as forming part of the turnover duly shown by the assessee in its P&L a/c, there is no escapement of assessment and therefore prayed for dropping of the re-assessment proceedings. And also furnished Ledger Folio (LF) of the customers who have availed for DDs from M/s. Renuka Mata Credit Society. However, the AO didn’t accept the explanation given by the assessee on the specious plea that assessee didn’t furnish any details relating to the genuineness of the transaction as well as the identity details of the customers/payer who all made the payment in the form of DD of M/s.

Renuka Mata Credit Society of ₹1,96,90,350/- & ₹2,99,18,750/- and made addition u/s.68 of the Act by passing the re-assessment order dated 31.03.2022 u/s.143(3)/147 of the Act for AY 2013-14 & AY 2014- 15 respectively.

6. Aggrieved by the aforesaid action of the AO, the assessee preferred an appeal before the Ld.CIT(A) who was pleased to allow the appeal of the assessee on merits and directed deletion of the addition made u/s.68 of the Act. The Ld.CIT(A) noted that the assessee company had & 584/Chny/2025 CO Nos.30 & 31/Chny/2025 (AYs 2013-14 & 2014-15) M/s. Standard Fireworks Pvt. Ltd. :: 6 ::

undergone search on 16.10.2014 (AY 2015-16) and pursuant to it, the Investigation Team had gathered audited financials as well as electronic evidences stored in the computer of the assessee, and thereafter, the assessee had undergone detailed scrutiny assessment u/s.153A/143(3) of the Act wherein the AO had made various additions finding (i) difference in the closing stock value etc., as shown in the Stock Register and actual stock and (ii) difference between the Stock Register and RoI, (iii) on account of assessee’s practice of collecting “Mahamai” i.e. collection at a fixed percentage on goods value normally @ 1.5% of the cost of the products from the consumers which was not forming part of the turnover and purportedly allocated to charities through their Section 12A registered organization which was also added by the AO. The Ld.CIT(A) noted that all the records including the audited financials and data from the computerized register maintained in its Oracle software were retrieved by the Investigation Team and was before the AO while he was scrutinizing the assessment which resulted in additions made on 31.12.2016 of ₹2,09,44,030/- for AY 2013-14 and addition of more than ₹53 Crs. for AY 2014-15. The Ld.CIT(A) also noted that pursuant to the notice issued by the Ld.AR during the re-opening of assessment dated 11.01.2022 & 11.03.2022, the assessee had replied by letters dated 25.01.2022 & 22.03.2022 wherein, it was made clear to the AO that it had no business relationship with M/s. Renuka Mata Credit Society and didn’t made any & 584/Chny/2025 CO Nos.30 & 31/Chny/2025 (AYs 2013-14 & 2014-15) M/s. Standard Fireworks Pvt. Ltd. transaction/direct sale of any goods with them. About receiving DD’s from M/s. Renuka Mata Credit Society for both years, it was explained that some customers who had purchased goods from assessee had given the payment of goods in the form of DD’s of the said Credit Society which was nothing but trade receipts which formed part of the turnover of the assessee and Income Tax has been duly paid on it. Thus, the assessee explained that the DDs in question from M/s. Renuka Mata Credit Society was trade receipt which have been duly recorded in its books of accounts, which payments were subjected to Sales Tax/VAT and duly recorded in return of Sales Tax/VAT return. Further, the Ld.CIT(A) found that the assessee had filed details of the customers who gave DDs in question to the AO. Despite furnishing the details of customers, the Ld.CIT(A) noted that the AO called for further details of these customers without spelling out as to what further details he wanted of these customers and which he expected the assessee to give within a short notice of nine (9) days; And the Ld.CIT(A) after examining the very same material which was filed by the assessee before the AO [refer Page Nos.85 to 103 of the Paper Book] and the reply of the assessee [refer Page Nos.78, 81-84 of the Paper Book] for AY 2013-14 and details of customers at Page Nos.218-245 of Paper Book for AY 2014-15 as well as the audited financials and Ledger Folios/Invoices of the customers [which facts brought to the notice of the AO during the course of assessment proceedings], has found that the DDs & 584/Chny/2025 CO Nos.30 & 31/Chny/2025 (AYs 2013-14 & 2014-15) M/s. Standard Fireworks Pvt. Ltd. given by the customers to the tune of ₹1.96 Crs. for AY 2013-14 and ₹2.99 Crs. for AY 2014-15 was nothing but trade consideration given in the form of DDs which has been duly recorded as sales in its books of accounts which has suffered Sales Tax/VAT. Thus, the Ld.CIT(A) after examining thoroughly the Ledger Folios of the six (6) customers, copies of invoices raised, bank statements, Sales Tax/VAT return found that those customers had made the payment for purchase of goods from assessee which were recorded as sales in assessee’s books and which transaction has suffered indirect taxation at the hands of Sales Tax/VAT and that assessee has offered Income Tax on it. Thus, the Ld.CIT(A) held that the impugned addition can’t be made u/s.68 of the Act because assessee was able to prove the nature and source of the sum found credited in its books of accounts. In this regard, we note that assessee company is engaged in the business of manufacturing and selling of fire crackers all around India and is noted to have undergone scrutiny assessment, pursuant to search conducted on its premises, which led the AO to has passed order dated 31.12.2016 u/s.143(3)/153A of the Act for both assessment years. And the AO has reopened the said assessment and has made addition u/s.68 of the Act on the allegation that despite assessee receiving DD’s worth ₹1.96 ₹ & ₹2.99 Cr. from M/s. Renuka Mata Credit Society [for AY 2013- 14 & AY 2014-15 respectively], assessee failed to discharge the burden of proving the nature & source of these amounts. In this regard, we note & 584/Chny/2025 CO Nos.30 & 31/Chny/2025 (AYs 2013-14 & 2014-15) M/s. Standard Fireworks Pvt. Ltd. from perusal of the details filed by the assessee before the AO/Ld.CIT(A) that the following six (6) parties had given DDs in question amounting total amount of ₹1,96,90,350/- (refer Page Nos.80-320 of Paper Book-I).

1. RAMCHANDRA TOTARAM MULTANI, MANIK CHOWK, MALIWADA, AHMEDNAGAR - 414001

2. S.N.BORHADE, 466, NASIK VESS, KATWAL LANE, SINNAR -422103

3. DIGAMBAR BARANGE, NASIK ROAD, SINNAR-422103

4. FALLARY TRADING, NEAR UCO BANK, MADGAON-403601

5. ANJALI FATAKA MART, ARANGAON, AHMEDNAGAR - 414001

2. S.N.BORHADE, 466, NASIK VESS, KATWAL LANE, SINNAR -422103

3. DIGAMBAR BARANGE, NASIK ROAD, SINNAR - 422103

4. ANJALI FATAKA MART, ARANGAON, AHMEDNAGAR -414001

5. MAHALAXMI FATAKA STALL, MAINROAD, AHEMDNAGAR-414001

6. VAMIKA TRADING COMPANY, NEAR UCO BANK, MADGAON-403601

7. VEENA TRADING COMPANY, NEAR UCO BANK, MADGAON-403601

9. S.G. AGARWAL, BEHIND AGARWAL JEWELLERS, SUBJI MARKET, FARSHI, KHAMGAON- 444303.

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7. The assessee is noted to have filed all the ledger folio(s), copies of invoices raised, bank statements, Sales Tax/VAT returns wherein the monthly turnover of the assessee was clearly shown, which relevant material goes on to support the assessee’s case that these [DD’s of M/s.

Renuka Mata Credit Society] were legitimate business proceeds. The invoices as well as bank statements/transactions are found placed in the Paper Book from Page Nos.81-320 of the Paper Book for AY 2014-15.

Further, it is noted from the consolidated P&L a/c of AY 2013-14 of the assessee that assessee had shown sale of fireworks for AY 2013-14 to the tune of ₹214.53 Crs. [refer Page No.321 of the Paper Book (Volume-I) and gross profit of ₹93.86 Crs. whereas assessee’s P&L a/c for AY 2014- 15 found placed at Page No.468 (Volume-I) shows gross profit from the sale of fireworks was to the tune of ₹234.41 Crs. and assessee made gross profit of ₹115.12 Crs. Having gone through the voluminous relevant documents filed before us (supra), the assessee is able to discharged the burden to show that the DD’s in question to the tune of ₹1.96 Cr. for AY 2013-14 & ₹2.99 Crs. was part of the turnover shown in P&L a/c as discussed. Thus, we concur with the finding rendered by the Ld.CIT(A) that DD’s issued by M/s. Renuka Mata Credit Society of ₹1.96 Crs. and ₹2.99 Crs. was part of the turnover shown by the assessee which sale proceeds has suffered Sales Tax/VAT/Income Tax on it. Therefore, the nature & source of the same having been established as trade receipt, & 584/Chny/2025 CO Nos.30 & 31/Chny/2025 (AYs 2013-14 & 2014-15) M/s. Standard Fireworks Pvt. Ltd. there is no question of making any addition u/s.68 of the Act, and hence, we concur with the Ld.CIT(A)’s finding of fact reproduced as under:

6.4 Ground Nos. 7 to 11 (AY(s) 2013-14 & 2014-15)

6.4.1 In these grounds the appellant company has agitated upon the core issue of addition of Rs. 1,96,90,350/- & Rs.2,99,18,750/- made u/s 68 of the Act for the AY (s) 2013-14 & 2014-15. Before going to adjudicate the various grounds raised it is essential to bring on record the circumstances that necessitated the AO to contemplate addition / disallowance in the case of the appellant. The appellant is a Company engaged in the business of manufacturing and selling crackers. In the case of the appellant company a search u/s 132 of the Act was carried out and assessment u/s 143(3) r.w.s 153A of the Act was completed by determining an income of Rs.34,76,06,040/- for the AY 2013-14 & Rs. 138,04,13,670/- for the AY 2014-

15. Subsequently, an information regarding the receipt of Rs. 1,96,90,350/- and Rs. 2,99,18,750/- during the FY (s) 2012-13 and 2013-14 from M/s. Renuka Mata Multi State Urban Co-operative Credit Society Ltd was received by the AO. The AO on verification of records observed that these amounts are neither reflecting in the return(s) of income e-filed by the assessee nor in the assessment order(s) passed by the AO for the AY(s) 2013-14 & 2014-15.

6.4.2 The AO on the basis of the above, formed reasons to believe that income chargeable to tax has escaped assessment and initiated assessment proceeding u/s 147 of the Act by issuing notice u/s 148 of the Act dated 31.03.2021 for the AY(s) 2013-14 & 2014-15. The appellant company, in response to the notice(s) issued u/s 148 of the Act filed return(s) of income by admitting a total income of Rs.32,66,62,010/- & Rs. 85,96,22,000/- on 30.04.2021 for the AY(s) 2013-14 & 2014-15. Notice(s) u/s 143(2) of the Act was issued on 11.01.2022. the AO called for details by issuing notice u/s 142(1) of the Act for each assessment year.

6.4.3 In response to the notice u/s 142(1) of the Act, the assessee company responded vide submission dated 16.03.2022 by asserting that the assessee company has received Demand Draft(s) from its customers during the relevant assessment year(s) issued by M/s. Renuka Mata Multi State Urban Co- operative Credit Society Ltd and that the assessee company has promptly disclosed all such receipts as sales in the relevant assessment year(s) and offered income in the return(s) of income and therefore treating those receipts as income in the hands of the assessee is duplication of taxing and unjust.

6.4.4 During the course of assessment proceedings, the assessee company furnished copy of the Ledger Folio of few customers in its books. The AO after considering the above submission of the assessee company observed that the assessee company has not furnished any details relating to the genuineness of the alleged transaction and the identity details of the customer / payer and rejected the submissions and proceeded to treat the receipts of Rs. 1,96,90,350/- & Rs.2,99,18,750/- as cash credits u/s 68 of the Act and added the same to the returned income. The AO completed the assessment proceedings by passing order u/s 143(3) r.w.s 147 of the Act on 31.03.2022for the AY(s) 2013-14 & 2014-15.In this back ground the various grounds raised are adjudicated.

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6.4.5 The undersigned has carefully examined the issue under consideration. As evident in the assessment order, it can be seen that the AO has primarily relied upon the information disseminated through the insight portal of the department about the receipt of Rs. 1,96,90,350/- & Rs.2,99,18,750/- during the FY(s) 2012-13 & 2013-14 from M/s. Renuka Mata Multi State Urban Co- operative Credit Society Limited (hereinafter referred to as “Society”) and considered that these receipt(s) were not considered by the appellant in their books of accounts and therefore added both the amounts as un explained cash credits u/s 68 of the act in the hands of the appellant company.

6.4.6 During the course of appellate proceedings, the AR of the appellant provided a detailed explanation to substantiate their contention regarding the receipts through Demand Drafts (DDs). The AR submitted that the customers, to whom the goods were supplied by the appellant, had arranged the payment through Demand Drafts issued in favour of the appellant. These Demand Drafts were drawn by the customers from "society" to facilitate the payment for the goods received by the customers. The AR further emphasized that this "society," which facilitated the issuance of the Demand Drafts, had no direct transactional relationship with the appellant. In other words, the "society" was neither a customer of the appellant nor engaged in any business dealings with the appellant. Its role was limited to acting as an intermediary in facilitating the payments made by the customers to the appellant being a bank.

6.4.7 The AR reiterated that the payments received via Demand Drafts were a bona fide business transaction(s) routed through proper banking channels and duly accounted for in the appellant's books of account(s). In this regard, the appellant made available before the undersigned all the Ledger Folio(s), copies of invoices raised, bank statements, Sales tax/ VAT Returns wherein the monthly turnover of the appellant was demonstrated, which was inclusive of the said receipts from the encashed Demand draft issued by the “society”.

6.4.8 The above clarification was again provided to demonstrate that the receipts were legitimate business proceeds. The undersigned on examination of the detailed submission made is of the view that these details furnished during the course of appellate proceedings were not in the nature of new evidences, it is nothing but the evidences to support the return(s) of income filed in response to the notice(s) u/s 148 of the Act that was already made available before the AO during the course of assessment proceedings.

6.4.9 The appellant pleaded that the amounts of Rs. 1,96,90,350/- (AY 2013-14) and Rs. 2,99,18,750/- (AY 2014-15) represent legitimate sales receipts were duly recorded in its books of account and offered to tax in the respective assessment years(s). These receipts were received through demand drafts issued by customers, routed through banking channels. To substantiate this claim, the appellant has provided copies of customer-ledger accounts, showing the receipts as part of its declared sales turnover.

6.4.10 The AO, however, rejected this explanation on the grounds of insufficient corroborative evidence, without providing any specific findings or conducting any verification to substantiate the claim that these transactions are unexplained. It is important to note the significance of the mode of payment in this case. The amounts were received by the appellant through demand drafts, which are instruments issued by banks only after the payer deposits equivalent funds with the bank. A demand draft is a secure payment mode and leaves an indisputable audit trail, as it ensures that the transaction is backed by genuine funds deposited in the banking system. Given the nature of demand drafts:

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• Demand drafts are issued only when sufficient funds are available in the issuer’s bank account, which ensures that the transaction is genuine and backed by real funds. • Every demand draft can be traced back to the bank and account from which it was issued, leaving no scope for fabrication or misrepresentation. • Since the bank acts as an intermediary, it is practically impossible for the appellant to generate “bogus” demand drafts. The appellant’s role is merely to receive these payments and record them in its books of account, which it has done.

6.4.11 The AO has failed to take into consideration this inherent reliability of demand draft(s) as a payment mode. A transaction routed through a bank cannot be summarily dismissed as bogus or unexplained unless the AO demonstrates specific irregularities or discrepancies. In the absence of such findings, the mere rejection of the appellant’s explanation is not sustainable. Additionally, under the provisions of Section 68 of the Act, for any credit in the books to be treated as unexplained, the AO must establish:

• Identity of the creditor, • Genuineness of the transaction, and • Creditworthiness of the creditor.

6.4.12 In this case, all three conditions have been satisfied. The amounts were received through bank-issued demand drafts, ensuring both the identity of the payer and the genuineness of the transactions. Further, since the funds originate from verified banking channels, the question of creditworthiness does not arise. The appellant has also provided evidence to demonstrate that these receipts have been duly recorded as sales in its books of account through its Sales tax / VAT returns . The AO has not undertaken any meaningful verification to disprove the appellant’s claim or bring on record any corroborative evidence to the contrary. The failure to conduct proper inquiry and rebut the appellant’s submissions renders the addition u/s 68 of the Act unsustainable in the eyes of law.

6.4.13 Moreover, taxing these amounts u/s 68 of the Act would result in double taxation, as the receipts are already part of the declared sales turnover and have been subjected to tax under the head "Business Income." Double taxation, unless explicitly authorized by law, goes against the principles of equity and fairness in taxation. It is a settled legal principle that the AO must ensure that the same income is not taxed twice. Given the secure and traceable nature of payments through demand drafts, the absence of any contrary evidence from the AO, and the fact that these amounts have already been disclosed as sales, the addition u/s 68 of the Act is devoid of merits. Accordingly, all the grounds raised by the appellant upon the addition made u/s 68 of the Act is treated as allowed and the AO is directed to delete the addition(s) of Rs. 1,96,90,350/- and Rs. 2,99,18,750/- for the AY 2013-14 and AY 2014-15.

8. In the light of the discussions given supra, we uphold the action of the Ld.CIT(A) deleting the addition made by the AO u/s.68 of the Act.

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Before parting, we would like to observe that impugned action of the Ld.CIT(A) doesn’t offend Rule 46A of the of the Income Tax Rules, 1962, (hereinafter referred to as ‘the Rules‘) since we note that the entire records including the audited financials were gathered and collected by the search team, when they had searched the premise of the assessee on 16.10.2014 and the assessee had undergone thorough scrutiny assessment u/s.153A/143(3) of the Act and the DDs in question received in both relevant years had been duly disclosed by the assessee as part of its sales turnover recorded in the books of assessee and the details of the customers from whom the DD’s in question were duly disclosed by the assessee as noted at Page No.79 of Paper Book-I for AY 2013-14 & Page No.79 of Paper Book-I of AY 2014-15 as discussed and the sale have suffered Sales Tax/VAT which return were also filed by the assessee (supra) which is supported by Invoices/Ledger Folios, bank statements, therefore, the assessee is noted to have discharged the burden to prove the nature and source of the DDs of ₹1.96 Crs. and ₹2.99 Crs. for both years. Thus, the AO erred in ignoring the relevant evidence placed on record by the assessee to prove the nature & source of DD’s in question and the Ld.CIT(A) rightly has appreciated that the same was nothing but trade receipts, which couldn’t have been brought to tax u/s.68 of the Act and rightly deleted by the Ld.CIT(A), which we uphold. For such a proposition, we rely on the decision of the Hon’ble Madras High Court in & 584/Chny/2025 CO Nos.30 & 31/Chny/2025 (AYs 2013-14 & 2014-15) M/s. Standard Fireworks Pvt. Ltd. the case of CIT v. Standard Press (India) (P) Ltd., reported in [2023] 151 taxmann.com 94 (Madras) wherein similar grounds raised by the Revenue which was repelled by the Hon’ble Madras High Court by observing as under:

4. In this regard, it is apt to refer to relevant portion of the order of the first appellate authority, which reads as under:

"5.2 In the P&L A/c for YE 31-3-2013 Net Profit before tax and after tax of Head office Sivakasi is shown at Rs. 6,83,00,406 which is the figure as per impounded P&L A/c. In the consolidated P&L A/c., Loss of Mumbai Branch (started on 23-10-2012) is admitted at Rs. 6,06,85,739. Consolidating both, NP shown in the consolidated P&L A/c. is Rs. 76,14,663/-, which is the figure admitted in the ROI vide extract above, filed before Survey. There are separate P&L A/c for Bombay branch (loss at Rs. 6,08,85,738), Head Office Sivakasi (profit at Rs. 6,83,00,406) and consolidated P&L of both (NP at Rs. 76,14,663) copies of which have all been filed both before A/O and at appellate stage. Thus, the NP as per impounded P&L A/c fully tallies with the NP shown against Sivakasi HO.

5.3 The mistake lies in not considering the Bombay branch loss and not fully perusing the consolidated P&L A/c. Therefore, there is no omission of any net profit as assumed by the learned A/O, who has considered the P&L A/c of Head Office only and the Bombay branch P&L A/c was omitted to be considered."

Assessing Officer and that there was no new material. The relevant portion in the order of the Tribunal is relevant and it is extracted below:

"9. After hearing rival contentions and going through the above facts narrated, we find that the assessee has filed complete consolidation of both Profit & Loss account i.e., for head office as well as Mumbai Branch. It is clear that there is a loss on Mumbai branch of Rs. 6,08,85,738/- and profit of Rs. 6,83,00,406/- on head office at Sivakasi. The consolidated figure comes to net profit of Rs. 76,14,663/-, which is declared by the assessee. We noted that since the above details were incorporated in the relevant schedules in the audited accounts and return of income is filed much before the survey conducted by the Department u/s.133A of the Act, we find no reason to refer the matter back to the file of the AO particularly, when all the information were filed by the assessee before him. Hence, we find no infirmity in the order of CIT (A) deleting the addition. We confirm the order of CIT (A) and dismiss this appeal of Revenue."

6. Revenue is in appeal before this Court against the order of the learned Tribunal on the premise that the appellate authorities have erred in permitting the raising of additional evidence without affording an opportunity to the Assessing Officer and in violation of Rule 46A of the Income-tax Rules.

In the circumstance, we find no reason to interfere with the order impugned herein, for no question of law arises for consideration. Accordingly, this Tax Case Appeal is dismissed. No costs.