TAPAN KANTI ROY,KOLKATA, WEST BENGAL vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 36, KOLKATA, WEST BENGAL

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 3 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/-. 3. 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. 6. For that the NFAC/CIT (A) should have appreciated that while entire cash deposit has been accounted as sale realization, the department cannot consider

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. 4. 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. 5. In the result, the appeal filed by the assessee is allowed for statistical purposes.

Tapan Kanti Roy 2. Assistant Commissioner of Income Tax, Circle-36, Kolkata 3. CIT(A)- 4. CIT-

CIT(DR)