Loading judgment…
Facts
The Revenue appealed against the CIT(A)'s order deleting an addition of Rs. 16,64,18,000 made under Section 69A read with Section 115BBE of the Income Tax Act. The addition was based on cash deposits made during the demonetization period, which the Assessing Officer (AO) treated as unexplained income from fictitious cash sales.
Held
The Tribunal held that the CIT(A) was justified in deleting the addition. The assessee had provided sufficient documentation to prove the genuineness of the cash sales, and the AO failed to provide concrete evidence to disprove the source of the cash deposits.
Key Issues
Whether the cash deposits made by the assessee during the demonetization period, explained as sales proceeds, can be treated as unexplained income based on suspicion without concrete evidence. Whether the CIT(A) was correct in deleting the addition made by the AO.
Sections Cited
69A, 115BBE, 143(2), 142(1), 68, 44AB, 271AAC
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal by the revenue is filed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2017-18, dated 17.11.2022.
The revenue has raised the following grounds of appeal: 1. The order of Ld. CIT(A) is against the facts and circumstances of the case.
:-2-: ITA. No: 10/Chny/2023 2. The Ld. CIT(A) failed to appreciate the fact that the assessee company does not have a retail outlet and is only a manufacturer of jewellery that sells jewellery to retail jewelers and the fact that they have made unusually large numbers of sales on the period from 01.11.2016 to 08.11.2016 defies logic.
3. The Ld. CIT(A) failed to appreciate the fact that the claimed no. of cash sales transactions of the assessee on 06.11.2016 is 471. Even with the assumptions that no other transactions were performed on that day, and that the assessee company worked round the clock, it still boils down to around 20 transactions in cash sales per hour on that day which is impracticable.
4. The Ld. CIT(A) failed to appreciate the fact that the business of assessee is a going concern. In contrast to all precedents in its business, the assessee claims to have effected cash sales of Rs.16,77,06,483/- in the 8 days of November 2016 immediately preceding demonetization.
5. The Ld. CIT(A) failed to observe the fact that all of the claimed cash sales of jewellery had been made from 01.11.2016 to 08.11.2016. No cash sales were made prior to 01.11.2016 and a few cash sales were made during the demonetization period and none after that.
The Ld.CIT(A) failed to appreciate that every documents, relied on by the assessee to claim that the cash credited in books is out of sales, can be prepared as an afterthought to accommodate the cash deposits by modifying the books of accounts and making statutory filings.
The Ld. CIT(A) failed to appreciate the fact that all the cash sales made were recorded as transactions below Rs.2,00,000/- in order to bypass the provisions of Rule 114(E)(2) r.w. sl. No. 18 of Rule 114B of the Income Tax Rules, 1962. This relieved the assessee of the obligation of ensuring PAN of the purchaser while raising bills.
8. The Ld. CIT(A) failed to appreciate the fact that, by delaying filing of audit report and ROI, the assessee company bought itself sufficient time to tamper with its books of account to accommodate the cash sales.
The Ld. CIT(A) failed to appreciate the fact that all the details required to be filed u/s 142(1) were not filed by the :-3-: ITA. No: 10/Chny/2023 assessee within the time stipulated, thereby denying the AO the opportunity to make proper investigation.
The Ld. CIT(A) failed to appreciate the fact that the assessee failed to submit even basic evidence like name and address of parties to whom cash sales are claimed to be made and hence AO has rightly treated the cash credits in books of accounts as unexplained credits and added to income of assessee for the relevant assessment year.
For these and any other grounds that may be adduced at the time of hearing, the order of the CIT(A) may be quashed and that of the AO restored. In brief the sole ground before us raised by the revenue is the ld.CIT(A) has erred in deleting the addition of Rs.16,64,18,000/- u/s.69A r.w.s. 115BBE of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).
The brief facts are that the assessee M/s.RKR Gold pvt. ltd. is a company deriving income from business of manufacture and trading of Gold jewellery. The assessee filed its return of income for the assessment year 2017-18 on 31.01.2018, admitting an income of Rs.1,17,00,790/-. The case was selected for scrutiny under CASS. Accordingly, notices u/s.143(2) and 142(1) of the Act were issued to the assessee calling for details of cash deposits of Rs.16,64,18,000/- made during demonetization period into various bank accounts in the form of Specified Bank Notes. In response to notices, the assessee filed the replies / details through e-proceedings.
:-4-: ITA. No: 10/Chny/2023 During the assessment proceedings in support of the demonetization deposits the assessee submitted the sales ledger, cash book, stock and VAT returns along with detailed statement of month wise cash deposits made to the bank account and corresponding cash sales. However, the ld.AO was not satisfied with the explanation furnished by the assessee, since the assessee had not deposited entire amount of Rs.16.64 crores immediately on announcement of demonetisation instead the same had been deposited to bank from 09.12.2016 to 30.12.2016. Further, the AO stated that the assessee had not made any cash sales of jewellery prior to 01.11.2016 and the entire amount cash deposit of Rs.16.64 crores in SBNs made during demonetisation period was out of cash sales only from 01.11.2016 to 08.11.2016. The AO also stated that the assessee does not have retail outlet and is only manufacturer of jewellery to sell the same to retail jewellers and hence made an addition of total cash deposits of Rs.16,64,18,000/- to income as unexplained money u/s.69A r.w.s. 115BBE of the Act and completed the assessment u/s. 143(3) of the Act on 23.12.2019 by holding as under: “2.6 As laid down in CIT v Durga Prasad More [(1971)] 82 ITR 540], the apparent must be considered as real until it is shown that there are reasons to believe that the apparent is not the real and the tax authorities are entitled to look at the :-5-: ITA. No: 10/Chny/2023 surrounding circumstances to find out the realities and the matter has to be considered by applying the test of human probabilities. Considering all the facts detailed above, it is opined that the cash sales entered in the cash book was bogus. Cash was introduced into the books in the form of cash sales, supported by sales voucher and declared in the VAT return. The cash sales were created fictitiously by the assessee company, merely to build an explanation for the cash deposits in to the bank accounts. 2.7 Section 68 of the IT Act is for taxing the unexplained credits, where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers not explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year. Since the credits are bogus and fictitious, the money deposited is not brought to tax u/s 68 of the IT Act. 2.8 However, money was deposited into the bank account of the assessee company and therefore was the owner of the money. Under section 69A of the IT Act 1961, where in any financial year the assessee is found to be the owner of any money, bullion, jewelry or other valuable article and such money, bullion, jewelry or valuable article is not recorded in {the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewelery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewelry or other valuable article may be deemed to be the income of the assessee for such financial year. 2.9 It is also brought on record that the Department need not locate source of receipt Where the assessee has failed to prove satisfactorily the source and nature of a credit entry in his books, and it is held that the relevant amount is the income of the assessee, it is not necessary for the department to locate its exact source as held in CIT v. M.Ganapathi Mudaliar [1964] 53 ITR 623 (SC)/A Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC). 2.10. In the circumstances, the cash deposit of amounting to Rs. 16,64,18,000/- in SBN's explained from fictitious sales of Rs. 16,77,06,483/- is brought to tax as unexplained money u/s.69A and charged to tax u/s 115BBE of :-6-: ITA. No: 10/Chny/2023 the IT Act 1961. Penalty proceedings u/s 271AAC is initiated separately. 3.0 Since the cash sales amounting to Rs. 16,77,06,483/- is bogus and fictitious, the Gross Profit admitted in the return of income for the year towards these fictitious sale is reduced. The G.P % admitted during the year is Rs.5.47% and Gross Profit admitted on the fictitious sale is 91,73,544/-. 4.0 Total Assessed Income is computed as under: Particulars Amount in Rs. Returned Income 1,17,00,790 Less: GP Reduced on fictitious sales 91,73,544 as discussed in para 3.0 above 25,27,246 Add: Addition u/s. 69A as discussed 16,64,18,000 in Para 2 above 16,89,45,246 Assessed Income 16,89,45,250
Aggrieved by the assessment order of the AO, the assessee preferred an appeal before the ld.CIT(A).
Before the ld.CIT(A), the assessee reiterated that it was carrying on the business of manufacturing and trading in Gold jewellery and assessed to TNVAT Act. The assessee maintained regular books of accounts along with stock inventory. The assessee stated that they had furnished the cash book for the entire year, month wise purchases and sales for the entire year, sales register for the entire year, inventory register for the entire year, monthly VAT returns filed with TNVAT Department and demonstrated that the cash was deposited in SBN was out :-7-: ITA. No: 10/Chny/2023 of sales proceeds of stock on hand. However, the AO completely ignored the submissions. The assessee submitted that the AO had commenced the assessment with preconceived notion without considering the reply/submissions filed and straightaway relying on the Hon’ble Supreme Court in the case of Durga Prasad More, which deals with the theory of human probabilities particularly when self-serving statements in a document are relied upon. Since the case law is not applicable to the present case as the AO has not found any discrepancy in any of the documents available before him. The AO has not discharged his primary responsibility of dis-proving the documents submitted and therefore the addition made is preposterously liable to be set aside. In support of the claim, the assessee relied on the following judgments: - Smt. Charu Aggarwal Vs.DCIT (2022) 140 taxmann.com 588 (Chandigarh Trib) - CIT Vs.Smt. P K Noorjhan 103 Taxmann 382 (SC) (1999) 237 ITR 570 (SC) - ACIT Vs. Hirapanna Jewellers - ITAT Vishakapatnam – 189 ITD 608 (2021) - B.Krishan Kumar Vs.ITO [2019] 107 taxmann.com 464 (SC) and pleaded to delete the addition made by the AO.
:-8-: ITA. No: 10/Chny/2023 5.1 The ld.CIT(A), after considering the submissions made and case laws relied upon by the assessee, held that the assessee’s submissions with regard to cash deposits during demonetization period is supported with documents and evidence and the case laws relied upon by the assessee are applicable to the facts of the present case. Accordingly, the ld.CIT(A) deleted the additions made by the ld.AO u/s.69A r.w.s. 115BBE of the Act by holding as under: In the present case, the appellant has produced all relevant documents which could not be controverted by the AO. The documents included purchase details sales ledger cash book etc. These are sufficient to prove the genuineness of the purchases and also the cash sales which the AO has refused to accept. As per the above case law, to make additions/disallowances even of figures apparent during the demonetization period the Revenue needs to bring cogent evidences. 5.9.1. The above extensive discussion made in earlier paragraphs has perused each and every aspect of the allegations made by the AO in his assessment order dated 23.12.2019. The undersigned has also minutely studied the explanation given by the appellant. Both these sides were tested on the mantel of the provisions of the Income Tax Act 1961 as well as the various case laws judgments delivered by the Honourable Supreme Court some of them emanating from the Madras High Court. In the totality of the case and after perusal of allegations and counter explanation the undersigned has come to the conclusion that the additions made u/s 69A of the I T Act at Rs.16,64,18,000/- is unsustainable under the Income Tax Act 1961. Hence the appeal raised by the appellant is allowed.
Aggrieved by the impugned order of the ld.CIT(A), the Revenue preferred an appeal before us.
:-9-: ITA. No: 10/Chny/2023
6. The Ld.DR, assailed that the ld.CIT(A) has erred in deleting the addition made u/s.69A r.w.s. 115BBE of the Act, even though the assessee has failed to substantiate the sales made from 01.11.2016 to 08.11.2016 without having proper infrastructure to make a retail sales. Further, the ld.DR challenged the factual finding of the ld.CIT(A) that AO has noticed only the suspicious features of the transactions.
6.1 Further, the ld.DR argued that the ld.CIT(A) has erred by ignoring the availability of infrastructure and practicality of as to how the assessee company has suddenly carried out retail sales; how in no time customers rush to his showroom without even ready with adequate chairs and tables to handle retail customers. The ld.DR also raised a point that the ld.CIT(A) to appreciate that recording of transactions below Rs.2.00 Lakhs in order to by pass the provisions of Rule 114C(2) r.w. Sl.No.18 of Rule 114B of the Income Tax Rules, 1962. From the table 1 & 2 in page No.5 of the Assessment order, it is found that the assessee company never had any cash sales from April 2015 to March 2017, only the sale of jewellery to the public except for 8 days in the month of November 2016. During these 8 days, the :-10-: ITA. No: 10/Chny/2023 assessee company has reported cash sales of around 16.77 crores which is very unusual and abnormal.
6.2 The ld.DR also relied on the decision of CIT Vs.Durga Prasad More – [1971] 82 ITR 540(SC) and Calcutta Discount Co.Ltd Vs. ITO (1961) – 41 ITR 191 (SC) in support of human probability and cash sales made by the assessee and prayed for dismissing order of the Ld.CIT(A).
7. Per contra, the ld.AR for the assessee supported the action of the ld.CIT(A) and stated that the ld.CIT(A) is justified in deleting the addition made by the AO, since the assessee has maintained proper books of accounts like Cash book, bank book, sales register, purchase register, stock registers, monthly VAT returns, Audit report in Form 3CA and 3CD, Audited financials have been furnished during the assessment as well as appellate proceedings. The Assessee also furnished the month wise cash sales and cash deposit for the impugned year (A.Y. 2017-18) along with the prior assessment year 2016-17 (with a break up from 01.11.2016 to 08.11.2016 and 9.11.2016 to 30.11.2016), entire cash sales details from 01.11.2016 to 08.11.2016 apart from day wise summary for the same period.
:-11-: ITA. No: 10/Chny/2023 The AO has also observed that the each sales invoices are for value less than Rs.2.00 Lakhs per person and which is in accordance with the Rule 114C(2) read with sl. No.18 of Rule 114B of the IT rules 1962. The assessment was concluded by the Assessing Officer without finding any defect in the books of accounts furnished and also the same has been accepted.
7.1 The ld.AR also stated that the following documents were produced before the AO and that of ld.CIT(A) in support of the genuineness of the transactions carried out during the A.Y. 2017-18 including the demonetisation period in paper book Volume -I consisting of 1 to 67 pages:
S. Date Particulars Page No No. 1 27.08.2018 Notice issued u/s 143(2) of the Act 01 2 19.08.2019 Notice issued u/s 142(1) of the Act 05 3 19.10.2019 Screenshots of replies filed by the 07 respondent in response to notice issued u/s 142(1) of the Act 4 29.10.2019 Notice issued u/s 142(1) of the Act 08 5 07.12.2019 Screenshots of replies filed by the 17 respondent in response to notice issued u/s 142(1) of the Act 6 11.11.2019 Letter issued by the Assessing officer 19 9 14.11.2019 Screenshots of replies filed by the 20 respondent 10 15.11.2019 Notice issued u/s 142(1) of the Act 22 11 20.11.2019 Screenshots of replies filed by the 24 respondent 12 12.12.2019 Notice issued u/s 142(1) of the Act 26 13 17.12.2019 Screenshots of replies filed by the 28 respondent 14 16.12.2019 Showcause notice issued to the respondent 33 15 18.12.2019 Response to Show cause notice submitted 35 by the Respondent 16 24.02.2021 Hearing notice u/s 250 of the Act issued to 38 :-12-: ITA. No: 10/Chny/2023 the Respondent 17 11.03.2021 Written submission filed by the Respondent 42 18 11.03.2021 Screenshot of response filed by the 47 Respondent 19 08.06.2022 Hearing notice u/s 250 of the Act issued to 48 the Respondent 20 17.06.2022 Screenshot of response filed by the 52 Respondent 21 24.08.2022 Hearing notice u/s 250 of the Act issued to 54 the Respondent 22 20.10.2022 Hearing notice u/s 250 of the Act issued to 58 the Respondent 23 26.10.2022 Screenshot of response filed by the 62 30.10.2022 Respondent 04.11.2022 16.11.2022 7.2 In this paper book the ld.AR drew our attention to particularly the documents submitted before the AO as well as the ld.CIT(A), the assessee’s bank accounts and the statement/ledgers thereon along with the Cash book, sales ledger, VAT returns, Purchase ledger, Stock registers, Purchase returns, Annual audit report under TNVAT Act, Sales Invoices for the A.Y. 2017-18. The AO has verified all the documents and has not rejected the books of accounts filed along with tax audit report of the assessee and not doubted the stock and purchases but with the assumption of impracticability of sales made on a particular days i.e. 01.11.2016 to 08.11.2016 as unexplained and brought to tax, which is against provisions of the Act.
7.3 Further, the assessee also filed a paper book volume III consisting of the return of income (Page Nos.1 to 2), Audit :-13-: ITA. No: 10/Chny/2023 report in Form 3CA & 3CD (Page Nos.3 to 16) and Form 29B (Page Nos.17 to 21) and Annual report for the F.Y. 2016-17 (Page Nos.22 to 56) having details sales made of products and services, opening & closing stock of raw materials. In light of the above documents and submissions, the action of the ld.CIT(A) cannot be interfered and prayed for dismissing the appeal of the revenue.
7.4 Further, the ld.AR also brought to our attention to ‘The specified Bank Notes (Cessation of Liabilities) Act, 2017,’ wherein the ‘Appointed day’ means 31st Day of December, 2016 for cessation of the SBNs. The Ld.AR took us through following judicial decisions relied in support of the ld.CIT(A) order, (paper book volume II - page nos.01 to 182) and prayed for considering the same and dismiss the appeal of the revenue. (i) ITO, Coimbatore vs Sahana Jewellery Exports Pvt Ltd. Chennai ITAT – (ii) DCIT vs M/s.DAR Paradise Pvt. Ltd. Chennai ITAT – (iii) JCIT Vs. Tara Jewellery - Chennai ITAT – ITA No.276/2023 (iv) ITO vs Surabi Gold – Chennai ITAT – ITA No.372/2023 (vi) DCIT vs D Gem Mount – Chennai ITAT – ITA No.782/2023 (vii) DCIT vs ANS Jewellery – Chennai ITAT – ITA No.1151/2023 :-14-: ITA. No: 10/Chny/2023 (viii) Sonny Fireworks Pvt ltd vs DCIT – Chennai ITAT – ITA No.1081/2024
We have heard both the parties, perused materials available on record, all the paper books and gone through orders of the authorities below. The fact with regard to the impugned dispute are that the assessee has deposited a sum in specified bank notes during demonetization period to the bank account. It is admitted from the records that the assessee is engaged in manufacturing and trading business of gold jewellery. The case was selected for scrutiny to verify the source for cash deposited and called for certain details. The assessee deposited cash of Rs.16,64,18,000/-, after announcement of demonetization by Government of India on 08.11.2016. The assessee deposited cash out of sale proceeds of gold and diamond jewellery collected from its customers which was less than Rs.2.00 lakhs per person and there was no requirement on the part of the assessee to obtain details like name, address and PAN of the buyers. In response to notice u/s.142(1) of the Act, the assessee had furnished cash book, sales register, purchase register, bank statements along with stock registers for the relevant period. The stock moved out of the books on account of sales made by the assessee has :-15-: ITA. No: 10/Chny/2023 established from stock registers. The VAT returns and annual audit report under TNVAT Act for the relevant period reflected such sales which have been accepted by the VAT authorities. The assessee has maintained proper books of accounts which are subjected to tax audit u/s. 44AB of the Act. The assessee also submitted the month wise abstract of purchases, sales, invoice wise details from 01.11.2016 to 08.11.2016, cash deposited in the impugned year along with prior F.Y. 2015-16, the details of cash deposited from 01.11.2016 to 08.11.2016 and from 09.11.2016 to 30.11.2016. These books of accounts, statements and other documents furnished by the assessee before the lower authorities, which have not been disputed nor rejected. The books of accounts of the assessee have been accepted by the lower authorities while framing the assessment and not rejected by pointing out any defects.
8.1 On perusal of the records and facts and circumstances of the case, we are of the considered opinion that when the sale has been reflected in the books of accounts and offered to tax, adding the same again would amount to double taxation, which is impermissible in law. The cash sales made by the assessee have been credited in the books of accounts and the :-16-: ITA. No: 10/Chny/2023 same form part of the assessee’s cash book. On these facts, it could be very well said that the assessee’s claim was backed up by relevant evidences. Thus, the assessee has discharged the burden of proving the source of the cash/SBN deposited in the bank and the Assessing Officer failed to rebut the same. The allegations/statistics of entire sales made from 01.11.2016 to 08.11.2016 by accepting the SBNs to the tune of Rs.16,64,18,000/-, relied upon by the Assessing Officer to take an adverse view is not backed up by relevant evidence/material and therefore the action of AO, which has been rightly set aside by the ld.CIT(A) and hence cannot be interfered. The finding of the AO that such abnormal sales could not be achieved before the announcement of demonetization by the Government, is bereft of any concrete evidence to prove otherwise on record. Further, the reliance on the decision of the Hon’ble supreme court in the case of Durga Prasad More, is not applicable to the present facts of the case, as the assessee has furnished the documents and records which are submitted to the statutory authority like TNVAT department and discharged the taxes on monthly basis, apart from the books of accounts audited by a Chartered accountant. It is trite law that no addition could be made merely on the :-17-: ITA. No: 10/Chny/2023 basis of suspicion, conjectures and surmises. Moreover, since cash generated out of sales has been credited in the books of accounts, the provisions of section 69A could not be invoked in the present case. The assessee’s reliance on the coordinate bench decision in the following cases which are identical to the present facts are taken into consideration: (i) ITO, Coimbatore vs Sahana Jewellery Exports Pvt Ltd. Chennai ITAT – (ii) DCIT vs M/s.DAR Paradise Pvt. Ltd. Chennai ITAT – (iii) JCIT Vs. Tara Jewellery - Chennai ITAT – ITA No.276/2023 (iv) ITO vs Surabi Gold – Chennai ITAT – ITA No.372/2023 (vi) DCIT vs D Gem Mount – Chennai ITAT – ITA No.782/2023 (vii) DCIT vs ANS Jewellery – Chennai ITAT – ITA No.1151/2023 (viii) Sonny Fireworks Pvt ltd vs DCIT – Chennai ITAT – ITA No.1081/2024 8.2 Further, the coordinate bench decision in the case of Smt. Durga Devi Mundhra vs. ITO in ITA No.1228/Chny/2023, dated 25.04.2024 is applicable to the present case on hand, wherein the Tribunal held as under: “6. We are of the considered opinion that when the sale has been reflected in the books of accounts and offered to tax, adding the same again would amount to double taxation which is impermissible in law. The cash sales proceeds have been credited in the books of accounts and the same form part of assessee's cash book. On these facts, it could very well be said that the assessee's claim was backed up by sufficient documentary evidences. The allegation of Ld. AO is that such abnormal sales could not be achieved by the assessee :-18-: ITA. No: 10/Chny/2023 immediately upon announcement of demonetization by the Government. However, such allegations are bereft of any concrete evidence on record. It is trite law that no addition could be made merely on the basis of suspicion, conjectures and surmises. In the present case, the assessee has duly discharged the burden of establishing the source of cash deposit and the onus was on Ld. AO to disprove the same. However, except for mere allegation and few statistics, there is nothing on record to support the conclusions drawn by Ld. AO that the cash deposited by the assessee was her unaccounted money. There is no finding by Ld. AO that any particular sales affected by the assessee exceeded threshold limit which cast an additional obligation on the assessee to obtain requisite particulars from the customers. Since cash generated out of sales has been credited in the books of accounts, the provisions of Sec.69A could not be invoked in the present case. Therefore, on the given facts, the impugned additions are not sustainable. By deleting the same, we allow corresponding grounds raised by the assessee.”
9. Therefore, on the given facts and circumstances, the impugned additions are not sustainable in the eyes of law and hence, we are of the considered view that the action of the ld.CIT(A) in deleting the addition need not be interfered and hence we dismiss the grounds raised by the Revenue.