SONY SERPENT EGGS FACTORY,SIVAKASI vs. ITO, WARD-3, , VIRUDHUNAGAR

आयकर अपीलीय अिधकरण, ‘बी’ ᭠यायपीठ, चे᳖ई।
IN THE INCOME TAX APPELLATE TRIBUNAL
‘B’ BENCH: CHENNAI

ŵी एबी टी. वकŎ, Ɋाियक सद˟ एवं
ŵी अिमताभ शुƑा, लेखा सद˟ के समƗ

BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER

आयकर अपील सं./ITA No.2337/Chny/2024
िनधाᭅरण वषᭅ/Assessment Year: 2017-18

Sony Serpent Eggs Factory,
74, Velayutham Road,
Sivakasi-626 123. v.
The ITO,
Ward-3,
Virudhunagar.
[PAN: AAVFS 4641 Q]

(अपीलाथᱮ/Appellant)

(ᮧ᭜यथᱮ/Respondent)

अपीलाथᱮ कᳱ ओर से/ Appellant by :
Mr. V. Rajasekaran, FCA
ᮧ᭜यथᱮ कᳱ ओर से /Respondent by :
Ms. Sheila Parthasarthy,
Addl.CIT
सुनवाईकᳱतारीख/Date of Hearing
:
03.12.2024
घोषणाकᳱतारीख /Date of Pronouncement
:
15.01.2025

आदेश / O R D E R
PER ABY T. VARKEY, JM:

This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter in short ‘the Ld.CIT(A)’), Delhi, dated 29.07.2024 for the Assessment Year
(hereinafter in short ‘AY’) 2017-18. Sony Serpent Eggs Factory
:: 2 ::

the AO acknowledged that assessee had furnished the list of debtors from whom the collections were said to have been received, but found fault for non-filing of confirmation from the respective debtors/parties; and because, the assessee has deposited the SBN’s (barring few cases) in his bank account, instead by the debtors in assessee’s bank account. And considering the fact that the assessee firm having received banned SBNs and since it is not exempted from receiving the banned currency/SBN’s of Rs.43,65,097/-, he added it u/s.69A of the Act.
4. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who confirmed the action of the AO on the same reasoning as given by the AO as well as for non-filing of relevant documents.
5. Aggrieved, the assessee is in appeal before this Tribunal.
6. We have heard both the parties and perused the material available on record. We note that the assessee is engaged in the business of purchase and sale of fireworks; and had filed return of income offering
Rs.3,30,450/-; and the AO noted that the assessee has deposited SBNs to the tune of Rs.50,73,000/- during the demonetization period, and the AO accepted the closing cash-balance as on 08.11.2016 to the tune of Rs.7,07,903/-; and asked the assessee to prove the nature and source of balance sum of Rs.43,65,097/-. Pursuant to which, assessee filed its audited financials, P & L A/c, balance sheet of the relevant assessment
Sony Serpent Eggs Factory
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year, as well as that of earlier assessment years & subsequent assessment years, and explained to the AO that the SBNs were from sundry debtors, who purchased goods from assessee on credit viz., trade receipts/sale receipts of fireworks/crackers sold mainly during Diwali festival on 30.10.2016. It was brought to the notice of the AO with the aid of statistics that during Diwali Festival, assessee makes maximum sales and pointed out that in this relevant AY, Diwali Festival was celebrated eight (8) days before the demonetization; and that assessee booked sales during that week [Diwali] was 17% of its total sale i.e.
Rs.49.32 lakhs (excluding Sales Tax); and that assessee’s credit sales in September, 2016 was Rs.8.24 lakhs (11%) and that assessee’s credit sales April-August was Rs.28.32 lakhs which was 57%; and that assessee in the P & L A/c has shown Revenue from business to the tune of Rs.49,32,929/- and has shown profit before tax and has returned income to the tune of Rs.3,30,450/-. Further, it is noted that the AO has not rejected the purchases, sales or audited books of accounts of the assessee; and it is not the allegation of the AO that assessee didn’t had sufficient stock as on 31.10.2016 (Diwali day) for sale of firecrackers, whereas, we note that assessee had sufficient stock for making the sale in the last week of October, 2016; and it is not the case of the AO that assessee had any other source of income other than the business income from sale of firecrackers. Thus, it is noted that assessee’s total sale of Sony Serpent Eggs Factory
:: 5 ::

firecrackers during the year under consideration is to the tune of Rs.49,32,929/- which included the cash deposited/sale of Rs.43,65,097/- and the assessee has paid taxes on the said income. And we note that assessee has been regularly filing GST/VAT returns and has filed the relevant details before the AO. [CST sales Rs.44,05,196/-, as per CST order Rs.1,06,015/-] [TNGST–TN Sales Rs.5,27,745/-, as per VAT returns
Rs.59,290/-]. In the light of the discussion (supra), it can be safely inferred that the profits embedded in Rs.49,32,929/- has been accepted by the AO. However, the AO has made separate addition of Rs.43,65,097/- which has already been considered for the purpose of Income Tax by adding the entire cash/SBNs which was sales of Rs.43,65,097/- u/s.69A of the Act by alleging it to be unexplained money of the assessee. In order to make addition u/s.69A of the Act, the AO has to first give a finding of fact that such money is not recorded in the books of accounts maintained by the assessee and the assessee couldn’t offer any explanation about the nature and source of the money or the explanation offered by him is not in the opinion of the AO satisfactory.
Then in such an event, the money may be deemed to be the income of the assessee for such financial year. In this case, assessee maintained audited books of accounts and the assessee has been regularly filing
GST/VAT returns and has shown Rs.43,65,097/- as business/trade receipts of fire crackers sold during Diwali festival on credit which has Sony Serpent Eggs Factory
:: 6 ::

been collected by the assessee during the second week of November onwards and deposited in the bank account. It is settled position of law that when the assessee has given an explanation regarding source of the credit/currency, which is plausible/probable from a prudent person’s point of view, then, it cannot be rejected by the AO without having any material to rebut the plausible explanation given by assessee. The Hon’ble
Supreme Court in the case of Sreelekha Banerjee & Ors. v. CIT reported in [1963] 49 ITR 112 (SC), observed that “the department could not act unreasonably and reject that explanation to hold that it was income. If, however, the evidence was unconvincing then such rejection could be made. The department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof”. In the present case, the assessee has not only explained the source of SBNs deposited in the bank to the tune of Rs.43,65,097/- as cash sales of fireworks on-credit along with the overwhelming relevant evidences viz., names of customers (who deposited cash in assessee’s account) along with the amount of money deposited/credited by them; PAN details except that of few persons, which we find from perusal of Page Nos.42 to 46 of the Paper Book. It is further noted that the assessee being trader of fireworks had dispatched the crackers/goods to various dealers throughout India and has given the dealers/distributors name, city, amount & PAN except few persons. Out of approximately 200 persons, once PAN of the trader/distributors have Sony Serpent Eggs Factory
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been given, it takes only a click of the mouse to find out the address as well as the return details filed by that person. Therefore, it is presumed that once assessee filed all these details before the AO and the AO have not found any adverse material against them, the action of the AO to have rejected the same/relevant- evidences can’t be countenanced. Thus, it is noted that assessee has placed before the AO the primary facts to prove the nature and source of SBNs, which has not been found by him to be incorrect or false. Therefore, the action of the AO to make addition u/s.69A of the Act, is not acceptable for the aforesaid reasons and stated
(infra).
7. And as noted, the AO has not found any infirmity in the details filed by assessee to prove the nature & source of SBN’s (supra) rather it is noted that the AO had acknowledged that assessee had filed the names of approximately 200 customers, but didn’t enquire the veracity of the assessee’s assertion that money/SBNs have been deposited by them in his bank account, instead he has only stated that mostly “assessee has deposited the SBNs and that assessee has not filed any confirmation from them (debtors)”. However, we don’t accept such contention of the AO for the simple reasons that the assessee has furnished the name of the persons/traders/distributors throughout India to whom the assessee had given crackers/fire goods on credit during the Diwali festival on 30.10.2016 and has given the name of all the distributors/dealers which Sony Serpent Eggs Factory
:: 8 ::

is found from Page Nos.42 to 46 of the Paper Book and the total comes to Rs.52,69,779/- out of which, the AO has accepted Rs.18,49,901/-, and didn’t accept Rs.43,65,097/-, without conducting any enquiry to ascertain the veracity of the nature and source of cash deposit furnished by the assessee i.e.
names
&
amount deposited by more than 200
customers/dealers.
8. Thus, it is noted that the assessee has discharged his burden to prove the nature and source of the cash deposits during the demonetization period which was nothing but receipt from trade sale of firecrackers, which cannot be brushed aside by the AO on conjectures, surmises and assumptions. We note that the addition made by the AO to the tune of Rs.43,65,097/- u/s.69A of the Act cannot be legally sustained, because, the same has already been accounted as sales in the books of accounts of the assessee, and tantamount to double taxation of the same income which is against the basic fundamental principles of taxation.
9. Moreover, the assessee has filed the comparative details of the sales carried out in AY 2015-16 to AY 2017-18 & AY 2018-19. (i.e. earlier two assessment years and subsequent assessment year). From a perusal of the same, we find that in AY 2015-16, assessee’s total turnover
(excluding sales tax) was Rs.53.34 lakhs; in AY 2016-17, total turnover was Rs.48.72 lakhs and in AY 2018-19, assessee’s total turnover was Sony Serpent Eggs Factory
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Rs.36.87 lakhs. Thus, we note that there is no abnormal deviation from its normal course of its business. We note from the modus operandi of the business of the assessee (sale of firecrackers) which are normally in cash; and that the assessee manufactures the firecrackers gives it mainly on credits to sub-dealers allover Tamil Nadu and other States, by taking advance from them, and the sub-dealers would later sell it and either handover or deposit themselves the sale-amount in the assessee’s bank account. The details of cash deposits into bank in earlier and subsequent
Financial Years reveals that there is no much deviation of cash sales and cash deposits when compared to earlier
Financial
Year and demonetization period. It is also not in dispute that in this line of business, the majority of the sales is in cash during festivals, marriages, etc., and therefore, from the business model of the assessee and the trade practice, there is no doubt whatsoever with regard to the explanation offered by the assessee that it has collected cash from debtors towards sales made in cash before demonetization period.
Further, it is noted that the assessee has also regularly filing GST/VAT returns and there is also being no change or deviation in the VAT returns filed for the period i.e. before the announcement of demonetization. And note that the assessee also declared sales made in cash in their books of accounts and filed necessary return of income and paid tax of the said income. Moreover, we note that the assessee has also made cash
Sony Serpent Eggs Factory
:: 10 ::

deposits regularly before and during demonetization period and therefore, it is not a case of amount deposited in SBNs as come out of undisclosed source or under any circumstances only to change colour of the money.
From the details filed by the assessee, it is evident that during the month of Diwali festival, assessee used to have the maximum sale made (on credit). From the analysis of earlier or subsequent years reveal that there is no significant change in the pattern of cash sales/cash collection and cash deposit during demonetization period. The AO is not disputing the claim of the assessee that the nature and source of the deposits were from sale of firecrackers to about 200 customers whose details were furnished by the assessee. From the impugned action of the Ld.CIT(A) and the AO, it can be safely presumed that both authorities have taken adverse view because cash deposits were in SBNs after demonetization period and that assessee was ineligible to transact or receive SBNs after demonetization as per the notification dated 08.11.2016 by Government of India and concluded that since assessee has accepted the demonetized currency in violation of the said order, therefore, source explained by the assessee cannot be accepted. In other words, the AO never disputed the fact that the assessee has made sales in cash before the demonetization period and also realized amounts from debtors against cash sales made before the demonetization period.
Sony Serpent Eggs Factory
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violation of circulation/notification issued by Government of India and RBI, the source explained for cash deposits cannot be countenanced.
11. We also note from the financials filed by the assessee that assessee had enough stock of the fireworks to sale same to the customers on credit during the Diwali Festival i.e. 30.10.2016. Thus, we find that the assessee had sufficient stock as on 30.10.2016 (Diwali period) and for sale of the goods on credits which generated amount of Rs.52,69,779/-
(out of which, the AO accepted Rs.7,07,903/-) to be deposited during the demonetization period and there are no defects in the stock registers.
Every purchase and sale match with inflow and outflow of the stock and as assessee has placed on record that the purchased goods have already inflicted with VAT/Sales Tax and the AO has not found any infirmity in the books of accounts of the assessee. Therefore, on the basis of facts discussed supra, we set aside the impugned order of the Ld.CIT(A) and direct the deletion of addition of Rs.43,65,097/-.
12. The second issue is against the action of the Ld.CIT(A) confirming the addition of Rs.11,44,155/- being
8%
on bank credits of Rs.1,43,01,937/-. Brief facts regarding the issue are that the AO after perusal of the bank account statement filed by the assessee noted that a sum of [Rs.2,35,99,962/-[Axis
Bank--Rs.52,28,722/-
&
SBI
--
Rs.1,83,71,240/-] were credited in the bank account maintained by the Sony Serpent Eggs Factory
:: 13 ::

assessee firm during the relevant assessment year. According to the AO, he has verified from the RoI filed by the assessee with its total sales admitted was to the tune of Rs.49,32,928/-. Thus, according to the AO, there was a difference of Rs.1,86,67,033/- between the credits in the bank accounts and the sales turnover admitted by the assessee.
Therefore, he asked the assessee to explain the difference of Rs.1,86,67,033/- between the credits in the bank accounts and the sales turnover admitted by the assessee, but according to the AO, the assessee could neither furnish any explanation nor produce any details before him which omission on the part of the assessee persuaded him to determine the profit @8% from the difference in credits found in the bank account.
Consequently, after deducting the addition made of Rs.43,65,097/- added u/s.69A of the Act i.e. Rs.1,86,67,033/- minus Rs.43,65,097/- =
Rs.1,43,01,936/-, the AO treated the same as unexplained business turnover and on which he determined the profit which was estimated
@8% i.e. Rs.11,44,155/- (8% of Rs.1,43,01,936/-).
13. Aggrieved, the assessee preferred an appeal before the CIT(A), who confirmed the action of the AO.
14. Aggrieved, the assessee is in appeal before us.
15. We have heard both the parties and perused the records. The Ld.AR of the assessee submitted that the AO on the basis of assumption
Sony Serpent Eggs Factory
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that the credit entries found made in the bank account of the assessee was the turnover of the assessee has erroneously estimated the income
@8% of Rs.1,43,01,936/- whereas it was brought to our notice that the assessee was having running account with that of its sister concerns which would account for the amount of Rs.78,98,000/-. In order to corroborate such a contention, the assessee drew our attention to the ledger copies found placed from Page Nos.47 to 82 of the Paper Book. A perusal of the same would reveal that the assessee was having a running account with its sister concern M/s.Vinayaka Fire Works & Others in Sivakasi; and following transactions are evident from perusal of the ledger copies from Page Nos.49-82 of the Paper Book which are noted as under in chart format:
Sl.No.
Name of the Company
Amount
1
Vinayaga Fireworks Industries
338000.00
2
Vinayaga Fireworks
128000.00
3
Sonny Fireworks Private Limited
391000.00
4
Amar Sparklers Factory
51000.00
5
Micky Paper Caps Works
50000.00
6
Sony Pyro International
150000.00
7
Sony Ring Caps
121000.00
8
Sqny Fireworks Industries
25000.00
9
Micky Fireworks Industries
835000.00
10
Sqny Fireworks
290000.00
11
Sony Trading Corporation
163000.00
12
Sqny Granites
3165000.00
13
Sqny Stones P Ltd
50000.00
14
Amar Trading Corporation
22000.00
15
Abi Fireworks Agencies
1750000.00
16
Panjurajan Amaravathy Trust
216000.00
17
K.Grahalakshmi
10000.00
18
P.K.G.Appearls P Ltd
143000.00

Total
7898000.00
Sony Serpent Eggs Factory
:: 15 ::

acknowledgment No.916789311240724 [refer Page Nos.47-48]. In this regard, we note that the amount transferred from Axis Bank OD account to SBI account of the assessee was as under:
Sl.No.
Date
Amount
1
05/04/2016
150000.00
2
15/06/2016
50000.00
3
04/11/2016
300000.00
4
07/11/2016
50000.00
5
12/11/2016
500000.00
6
14/11/2016
975000.00
7
15/11/2016
390000.00
8
16/11/2016
300000.00
9
19/11/2016
700000.00
10
19/11/2016
450000.00
11
23/11/2016
60000.00
12
25/11/2016
330000.00
13
01/12/2016
155000.00

Total
4410000.00
18. And the assessee has placed bank statements evidencing such OD transfer, hence, we are of the considered opinion that the AO/Ld.CIT(A) erred in treating the same to be turnover of the assessee and therefore, the said amount Rs.44,10,000/- can’t be treated as part of the turnover of the assessee. Thus, from the aforesaid discussion itself the amount of Rs.78,94,000/- + Rs.44,10,000/- = Rs.1,23,04,000/- can’t be considered as turnover of the assessee.
19. Further, the Ld.AR submitted that the sales tax on sale of Rs.1,76,084/- also can’t form part of the turnover and drew our attention to the sales tax papers placed before us which also treated as part of the turnover. In the light of the aforesaid discussion, amount of Rs.78,94,000/- [transfer between the sister concerns] as well as the Sony Serpent Eggs Factory
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transfer from the Axis Bank account to SBI account of the assessee of Rs.44,10,000/- and the sales tax on sales of Rs.1,76,084/- can’t be considered as income/turnover of the assessee
[i.e, total
Rs.1,24,80,084/] and we find that both the AO as well as the Ld.CIT(A) erred in treating the same as income/turnover of the assessee. Since an amount of Rs.1,24,80,084/- out of the total difference in the credits of Rs.1,43,01,936/- added by the AO has been explained, Rs.1,24,80,084/- can’t be treated as business/turnover of the assessee. Hence, balance amount which the assessee couldn’t explain only deserves to be considered for estimation of income i.e, Rs.18,21,853/-. Therefore, we restrict the estimation @8% on Rs.18,21,853/- i.e. Rs.1,45,748/- is confirmed. Thus, the assessee gets relief of Rs.9,98,407/- [i.e.
Rs.11,44,155/- minus Rs.1,45,748/-]. Thus, we confirm Rs.1,45,748/- and direct deletion of Rs.9,98,407/-.
20. In the result, appeal filed by the assessee is partly allowed.

Order pronounced on the 15th day of January, 2025, in Chennai. (अिमताभ शुƑा)
(AMITABH SHUKLA)
लेखा सद᭭य/ACCOUNTANT MEMBER (एबी टी. वकŎ)
(ABY T. VARKEY)
᭠याियक सद᭭य/JUDICIAL MEMBER
चे᳖ई/Chennai,
ᳰदनांक/Dated: 15th January, 2025. TLN, Sr.PS
Sony Serpent Eggs Factory
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