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Income Tax Appellate Tribunal, “A” BENCH KOLKATA
Appearances by: Assessee represented by : Aloke Kumar Ghosh, Advocate Department represented by : B. Debbarma, JCIT, Sr. DR Date of concluding the hearing : 10.12.2024 Date of pronouncing the order : 15.01.2025 O R D E R
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “the Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2017-18, dated 27.07.2023.
1.1 In this case, the assessee filed return of income on 01.12.2017 declaring total income of Rs. 2,67,29,330/-. The case was selected for scrutiny and the Ld. AO passed an order u/s 144 of the Act considering that he had to reject the books of accounts on the basis of several alleged discrepancies noticed by him in the same. He proceeded to add Tapan Kanti Roy 1,44,27,000/- on account of cash sales, which were allegedly not verified from the books of account. Some relevant portions from the Ld. AO’s order deserve to be extracted for reference:
“The audit report as on 31.03.2017 relating to A.Y 2017-18 signed by the auditor on 30.09.2017 was submitted along with the return of income for A.Y. 2017-18. The case has been selected for scrutiny on CASS. Accordingly, notice u/s 143(2) has been issued to assessee. The assessee submitted documents in response to notice u/s 142(1) on 13.08.2019. After scrutiny the audit report, a lot of discrepancies have been detected in the audit report in respect to documents filed. Consequently, another notice u/s 142(1) has been issued identifying the discrepancies with request to explain the same as under:- Particulars As per auditor As per P/L Why the reports (Rs.) account (Rs.) difference would not be added to the total income (Rs.) VAT paid 13,56,304 1,59,42,376 1,45,86,072 80D 11,637 25,000 13,363 Rent 2,21,568 24,67,592 22,46,024 Commission paid 1,36,866 1,56,358 19,492 Contract payments 48,35,875 52,46,151 4,10,276 Interest paid 30,000 18,47,490 18,17,490 1,90,92,717 1.2 Aggrieved with this action of Ld. AO, the assessee approached the Ld. CIT(A), where he met with partial success to the extent that the Ld. CIT(A) held that the action of Ld. AO in rejecting the books of accounts was not founded on good principles, but he confirmed the addition of Rs. 1,44,27,000/- on account of cash sales allegedly not proved through presentation of books of accounts. The relevant portion from the Ld. CIT(A) order is extracted as under:
“6.3.2 In the present case, it is seen that no specific defects in the appellant's accounts have been identified by the A.O which render the books as unreliable or flawed. Firstly, the discrepancies found in the audit report cannot be sufficient ground for rejection of books as discrepancies ought to be brought out in the appellant's accounts and not merely in the audit report filed by the auditor. Further, the appellant had filed a revised audit report duly making the necessary corrections and the A.O had not pointed out any more discrepancies in the revised audit report. Secondly. whether interest expenses qualify as revenue or capital expenditure is a question of allowability of deduction of expenses from taxation point of view. It cannot be a defect found in the books from any stretch of imagination. Thirdly, the issue of increase in rent expenses as compared to earlier year is a matter of fact which should have been Tapan Kanti Roy verified by the A.O by calling for necessary evidences. It cannot be a justifiable ground for rejection of books. Fourthly, fall in GP or NP ratio as compared to earlier year cannot be sufficient ground for rejecting books, but it has to analysed in detail and linked with the manipulation in accounts. Fifthly, as separate addition to income of Rs 1,44,27,000/- on account of unexplained cash deposits in the bank account had been made in the assessment order, it cannot be a ground for rejection of books of accounts. Sixthly, there is no finding in the assessment order with respect to the appellant not regularly following the method of accounting provided in section 145(1) of the Act. Seventhly, there is no finding in the assessment order with respect to the appellant's income not being computed in accordance with the standards notified under section 145(2) of the Act. 6.4 In view of the above facts and discussion, it is held that the A.O has not provided any cogent reason for rejecting the books of accounts of the appellant. Therefore, estimation of the appellant's business income is not tenable. Thus, grounds of appeal No.1 to 5 are hereby allowed. 6.5 With regard to ground of appeal No. 6, it is the appellant's contention that the amount of Rs 1,44,27,000/- is the income from cash sales and that it was collected from identifiable persons and out of genuine sales. Since it is the appellant's plea that the cash deposits are generated from cash sales and that they are duly recorded in the books of accounts, the onus is on him to substantiate the same with necessary evidences. However, no supporting documents have been submitted by the appellant to prove the nature and source of such cash deposits, Therefore, the above addition made by the A.O as appellant's income from other sources is sustained and ground of appeal No.6 is hereby dismissed.” 1.3 Further, aggrieved with this action of Ld. CIT(A), the assessee is in appeal before the ITAT through the following grounds of appeal:
“1. For that under the facts and circumstances of the case the order of the National Faceless Appeal Centre / Commissioner of Income Tax (Appeals)/ CIT (A) is contrary to law, facts and circumstances of the instant case.
2. For that the NFAC/CIT(A) erred in law and on facts in confirming the arbitrary addition as made by the Assessing Authority u/s 68 r.w.s 115BBE of the Income Tax Act 1961, for an amount of Rs. 1,44,27,000/-.
For that the NFAC/CIT (A) erred in ignoring the business model of the Appellant as well as explanation offered by the Appellant regarding cash deposits and erred in treating the income under the head of "income from other sources". 4 For that the NFAC/CIT (A) ought to have appreciated that the Appellant is engaged in the business of selling Tea in which it is a normal trade where some of the clients used to pay for the purchases by cash and entire of such cash deposits arose out of business of the appellant.
5. For that the NFAC/CIT (A) ought to have appreciated that which the Appellant had deposited the sale consideration realized in cash with the bank account of the business and hence no part of the same can be considered as unexplained income.
For that the NFAC/CIT (A) should have appreciated that while entire cash deposit has been accounted as sale realization, the department cannot consider Tapan Kanti Roy part of the said deposit as unaccounted income merely because the sale consideration was realized by cash.
The NFAC erred in not granting an opportunity for personal hearing even though the same was requested. Therefore, the order is against all cannons of natural justice and requires to be set aside with direction to avail a proper opportunity of personal hearing.
Fort that the NFAC/CIT (A) while quashing the order of the Assessing Authority on rejection of books of accounts u/s 145(3) of the Act, but at the same time has confirmed the addition on account of sales realization by cash for which the books has also been rejected by the Assessing Authority.
Without prejudice to the above, if any part of the sale consideration is treated as unexplained income, correspondingly the income offered for tax in the return of income should be reduced by that extent.
For that your petitioner craves leave to add, alter, modify, or delete any of the grounds at the time of hearing of the appeal or before.”
Before us, the Ld. AR averred that the assessee is a dealer in Tea and has a number of customers paying in cash. The cash sales, along with other sales, are duly recorded in the books of accounts. The Ld. AR averred that when the Ld. AO pointed out several mistakes in the audited accounts, they were prompt enough in rectifying the same and filing the corrected audit account before the Ld. AO. The Ld. AR assailed the action of Ld. AO in taking an adverse view of the matter in spite of this prompt rectification. The Ld. AR relied on the finding of Ld. CIT(A) in as much as the rejection of books of accounts was decided in favour of the assessee, but he also stated that all vouchers and books of account were actually produced before the Ld. AO even though it is recorded by the Ld. AO that the books were not produced. The Ld. AR again assailed the action of Ld. CIT(A) in holding that in the absence of books of account being produced before the Ld. AO, the addition on account of cash sales was appropriately made. In conclusion of arguments, the Ld. AR pointed out that as per the Ground No. 7 of their grounds (supra), it has been pleaded that sufficient opportunity was not given to the assessee when the authorities below were not satisfied with the quality of documentation that had been produced before them. He strongly argued for denial of opportunity.
Tapan Kanti Roy 3.1 The Ld. DR relied on the orders of authorities below and pointed out that while the Ld. AR is making a strong case that the assessee had produced the books of account, it is evident from the orders of authorities below that there is some doubt in this regard, considering the clear finding that the books of accounts were not produced. The Ld. DR also assailed the action of Ld. CIT(A) in the context of his disapproval of the ground as on which the book results were rejected.
We have carefully considered the documents before us, the orders of authorities below and the arguments of Ld. AR/DR. It is seen that in this case the discrepancy pointed out by Ld. AO as per the extracts from his order (supra) is fairly relevant and points towards a degree of oversight in terms of preparing the audit report. At this stage, it is not clear as to when and how the books of accounts were presented for examination and whether at all the Ld. AO had any opportunity of going through the same and comparing the cash sales with relevant entries in the cash book/ledger account. It is seen that the Ld. AR has filed complete sets of cash deposit statements running into 359 pages in support of his claim that the cash sales are duly reflected in the books. However, it is felt that the exercise of accurately matching the sales and their consequential entries in the books of accounts can be best done at the level of Ld. AO. Considering the totality of facts and circumstances of the case, we deem it fit to remand the matter back to the file of Ld. AO for re-examination of the accounts contained in the books maintained by the assessee and satisfying himself as to whether the cash sales are duly reflected therein or not. Needless to say, it is expected that the Ld. AO would give adequate opportunity to the assessee and the assessee would avail of such opportunities to prove his bonafides.
In the result, the appeal filed by the assessee is allowed for statistical purposes.