Loading judgment…
Facts
The Revenue appealed against the deletion of two additions by the Ld.CIT(A): one regarding unexplained money (cash deposits during demonetization) and the other concerning disallowance of reimbursement expenses. The assessee, a logistics and customs clearing company, explained cash deposits as withdrawals from its bank accounts prior to demonetization, and reimbursement expenses as operational costs for clients and employee travel. The AO found the explanation for cash deposits far-fetched and disallowed the reimbursement expenses.
Held
The Tribunal held that the assessee had discharged its burden by providing sufficient evidence for the cash deposits, explaining that withdrawals from multiple bank accounts were used to cover the deposits during the busy demonetization period. The Tribunal also held that the Ld.CIT(A) correctly allowed the reimbursement expenses after noting that the assessee had provided ledger extracts and other documentation, which the AO failed to disprove with any infirmity.
Key Issues
Whether the addition made by the AO for unexplained money (cash deposits during demonetization) was justified, and whether reimbursement expenses claimed by the assessee were allowable.
Sections Cited
69A, 115JB, 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R
PER ABY T. VARKEY, JM:
1. This is an appeal preferred by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as “the Ld.CIT(A)”), Delhi, dated 28.11.2023 for the Assessment Year (hereinafter referred to as "AY”) 2017-18.
The Revenue has challenged the action of the Ld.CIT(A) deleting two additions (i) made by the AO u/s.69A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) as unexplained money during demonetization period of Rs.61,17,000/- and (ii) disallowance of reimbursement expenditure of Rs.1,07,24,039/-.
The brief facts are that the assessee company filed its return of income (RoI) for AY 2017-18 on 17.10.2017 disclosing an income of Rs.51,25,840/- and book profit of Rs.30,36,820/- u/s.115JB of the Act.
Subsequently, the return was selected for scrutiny and the AO noted that assessee had deposited cash to the tune of Rs.61,17,000/- in Specified Bank Notes (SBNs) during demonetization period between 09.11.2016 and 30.12.2016. When asked by the AO to explain the nature and source of cash deposits (SBNs), the assessee submitted that it has withdrawn cash from its five different bank accounts from 01.04.2016 to 07.11.2016 to the tune of Rs.98,82,599/- and the said cash withdrawn over a period of ‘220’ days was used as source for cash deposit (SBNs) during the demonetization period. The AO disbelieved the explanation of the assessee by observing it as far-fetched; and wondered ‘as to how’ a person can keep almost 2/3rd of the cash withdrawn in its possession and later on, deposited it on different occasions/different dates during demonetization period. And according to AO, if any prudent businessman had such amount in his possession, then he would have deposited the entire cash at ‘one go’ and treated the SBNs deposit as unexplained and made an addition of Rs.61,17,000/- u/s.69A of the Act.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who was pleased to delete the same.
Aggrieved, the Revenue is in appeal before this Tribunal.
We have heard both the parties and perused the material available on record. We note that the assessee company is mainly a logistic company; and it also render its services as a Customs Clearing Agent (CCA). The nature of the business requires regular expenses to be incurred for loading & unloading, and such expenses are disbursed by paying it in cash; and being a Customs Clearing Agent, it also had to reimburse the expenses of its employees who will be incurring expenses on behalf of its clients, which assessee reimburses to them. In order to meet these expenses, the assessee therefore had to withdraw regularly cash and brought to our notice that the operational expenses of the assessee in the earlier year i.e. AY 2016-17 was to the tune of Rs.12,86,13,236/- when the Revenue from operation was Rs.19,01,61,675/- and Gross Profit (GP) was Rs.6,15,48,431/- i.e. GP was 32.37% and Net Profit (NP) was Rs.2,97,68,217/- viz. 5.14% and in the earlier year to it i.e. AY 2015-16 operational expenses was more than Rs.24 Crs. and Net Profit was 2.64%; and in the year under consideration, it was only Rs.4.56 Crs. where assessee had shown GP of 49.65% & NP of 3.35%. Therefore, the assessee taking note of the operational expenses incurred in the earlier years had withdrawn excess cash in this year to the tune of Rs.98,82,599/- [from its five bank accounts for the period from 01.04.2016 to 07.11.2016 which details are noted from Page Nos.2 to 4 of the assessment order]. The AO is noted to have captured the details of cash drawn from bank in a chart-format and expenses incurred, which shows that assessee had withdrawn cash for payment of salary and other office expenses and had cash in hand at the end of the day which corroborates the assessee’s submission that it had sufficient cash to cover up the cash deposit to the tune of Rs.61,17,000/-.
The assessee has produced the P&L A/c, balance sheet, ledger accounts and income computation statement, copy of bank accounts, copy of details of cash deposits, etc., and also filed the cash book for the year and the AO has not disputed the availability of sufficient cash on hand in the cash book to cover Rs.61,17,000/- [i.e. the SBNs deposited during demonetization period]. However, despite the availability of cash on hand in the cash book of the assessee on or before the date of its deposits in its bank account, the AO has brushed aside this relevant fact merely because the assessee had deposited the SBNs on different dates/occasions, which action can’t be countenanced. Merely because, the assessee deposited the SBNs on different dates, the AO can’t draw adverse inference against the assessee because, at that time (demonetization period) there was huge rush to the bank and depositing small amount can’t be faulted with, when assessee had shown to have the cash in hand which was withdrawn by the assessee from its own bank account. Moreover, we don’t countenance the AO’s action of cherry picking few cash withdrawals and suspecting them for not spending the same, can’t be reasonable ground on which the AO could draw adverse inference against the assessee. We note that the AO accepted the assessee’s assertion that it has withdrawn an amount of Rs.98,82,599/- during the year before the demonetization was declared and assessee had sufficient cash balance to cover the SBNs deposited during demonetization period. In such a scenario, without the AO able to disprove the explanation of the assessee or contradict the assessee’s claim by adducing any evidence, we are of the view that assessee has discharged its burden by providing relevant evidences to prove the nature and source of SBNs. Therefore, the Ld.CIT(A) has rightly deleted the addition made by the AO u/s.68 of the Act, we don’t find any infirmity and therefore upheld
Next ground is against the action of the Ld.CIT(A) deleting the expenses disallowed to the tune of Rs.1,07,24,039/-. The AO noted that the assessee has claimed expenses in respect of reimbursement expenses (total) to the tune of Rs.1,07,24,039/- [out of which Rs.74,08,064/- was claimed as reimbursement follow-up expenses and Rs.33,15,975/- as travel reimbursement expenses]. According to the AO, apart from these expenses, the assessee has claimed transport charges, lorry charges and loading & unloading charges which expenses according to him was Revenue in nature and is allowable. However, according to him, the assessee couldn’t explain the nature of expenses claimed as reimbursement expenses, and therefore, the AO disallowed it and added Rs.1,07,24,039/-.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who deleted the same by taking note of the fact that the assessee in support of the said expenses had filed ledger extract explaining that expenses to the tune of Rs.74,08,064/- was incurred as “reimbursement follow up expenses”; and Rs.33,15,975/- was on account of “travel expenses reimbursement”. In this regard, the Ld.CIT(A) appreciated that other than logistic services, the assessee being a Customs House Agent (CMA) [license holder to clear cargo all over the country] had to incur expenses for clearing activities as well as for travel & food expenses, etc., for the employees. And the Ld.CIT(A) took note of the fact that one of the employees of the assessee had to travel to Indonesia to meet the clients and therefore, the assessee had to reimburse the travel & other expenses incurred by such employee and filed details of such expenses reimbursed to the tune of Rs.33,15,975/- as well as the expenses incurred by the employees for clearance of cargo, etc., being a Customs House Agent to the tune of Rs.74,08,064/-. The Ld.CIT(A) after taking note of the relevant materials/ledger extracts furnished by the assessee noted that the AO couldn’t disprove the entries in the ledger extracts by pointing out any infirmity in the same. And that the AO erred in disallowing the expenses without rejecting the audited books of accounts maintained by the assessee; and therefore, according to the Ld.CIT(A), the AO erred in disallowing the entire expenses claimed on this count and deleted the addition made to the tune of Rs.1,07,24,039/-.
Aggrieved, the Revenue is in appeal before us.
We have heard both the parties and perused the records. We find that the assessee company is a Customs House Agent [CHA] and in the business of logistic services and it has valid license to clear the cargo all over the country being a CHA. In its line of business, it is noted that assessee had to incur expenditure on account of transportation viz lorry hire charges, loading & unloading, etc., which expenses has been accepted by the AO, but disallowed the expenses reimbursed by the assessee to its employees on account of it being spend on behalf of their clients to the tune of Rs. Rs.74,08,064/- as well as expenses reimbursed to the employees for travel expenses, etc., to the tune of Rs.33,15,975/- [totaling Rs. Rs.1,07,24,039/-] merely on suspicion, conjectures and surmises which action of the AO can’t be accepted, in the light of the fact that the assessee has filed relevant material, ledger extracts to prove the ibid expenses which relevant evidences have been brushed aside by the AO without pointing out any infirmity in the entries made in the ledger extracts. It is further noted that the assessee’s accounts are audited and the assessee has produced all the books before the AO which has not been rejected. The Ld.AR invited our attention to a chart which shows that the assessee in the year under consideration has shown GP of 49.65% and if the disallowance of Rs.1,07,24,039/- is made, then GP would shoot up to 61%; and in this regard, it is noted that in earlier years assessee‘s GP was 32.37% & 19.42% and in the subsequent years 47.36%. Hence, considering the overall facts and circumstance of the issue, we find no infirmity in the action of the Ld.CIT(A) allowing the expenses claimed to the tune of Rs.1,07,24,039/- which action doesn’t require any interference, so we dismiss this ground of Revenue.
In the result, appeal filed by the Revenue is dismissed.
Order pronounced on the 05th day of March, 2025, in Chennai.