Loading judgment…
Facts
The assessee, engaged in retail trade of gold bars and jewellery, filed its return for AY 2017-18 declaring income of Rs.1,78,860/-. The case was selected for scrutiny due to cash deposits during demonetization. The Assessing Officer (AO) added Rs.1,46,00,000/- as unexplained cash deposits u/s 69A of the Income Tax Act, and Rs.2,25,092/- as loss on sale of shares treated as capital loss.
Held
The Tribunal held that the AO and CIT(A) did not consider the correct facts regarding the derivative transactions and the cash sales. The cash sales for November were supported by invoices and VAT returns, and the CIT(A) overemphasized a typographical error. The matter of cash deposits and share loss was remanded for re-adjudication.
Key Issues
Whether cash deposits made during the demonetization period were unexplained income, and whether losses on commodity derivative transactions in bullion were business losses or capital losses.
Sections Cited
69A, 142(1), 270A, 156, 234A, 234B, 234C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice-Shri Manjunatha, G.
Per Vijay Pal Rao, Vice President
This appeal by the assessee is directed against the order dated, 29/02/2024 of the learned CIT (A)-NFAC Delhi, for the A.Y.2017-18.
The assessee has raised the following grounds:
Facts of the case, in brief, are that the assessee company is engaged in the business of retail trade in gold bars and jewellery items, filed its return of income for the year under consideration on 13/10/2017 declaring total income of Rs.1,78,860/-. The case was selected for scrutiny through CASS on the issue of deposit of cash during demonetization period, loans & advances and investment and computation of income. During the course of scrutiny assessment, the Assessing Officer
Page 2 of 10 noticed that the assessee has disclosed a Bank Account with the SBI in which cash deposited during the demonetization period, was shown at “Nil”. However, a deposit of Rs.1,44,00,000/- was made in another bank account with the SBI during the demonetization period which was not disclosed in the return of income. The Assessing Officer further found that the assessee company is having 5 bank accounts and deposited cash of Rs.1,46,00,000/- in 2 different bank accounts during the demonetization period. The Assessing Officer issued show cause notice u/s 142(1) and asked the assessee to furnish the details in support of the claim of cash sales being the source of cash deposits, including stock register, sale bills, details of investment made, loss on sales of shares claimed. In response, the assessee filed the reply and explained the monthly sales and claimed that the deposits was made out of the sales made in the month of November as well as in the earlier months. The assessee also claimed that the entire sales was in cash. The Assessing Officer did not accept the reply of the assessee and made an addition of Rs.1,46,00,000/- as unexplained cash deposits u/s 69A of the I.T. Act, 1961. The Assessing Officer has also made addition of Rs.2,25,092/- claimed as loss on sale of shares which was treated as capital loss.
The assessee challenged the action of the Assessing Officer before the learned CIT (A) but could not succeed.
Before us, the learned AR of the assessee has submitted that due to poor representation and misunderstanding
Page 3 of 10 of the representative of the assessee, the loss on derivative transactions in bullion at MCX was wrongly considered by the Assessing Officer as loss on shares and consequently, disallowed the same by treating the same as capital in nature. The learned AR has submitted that these derivative transactions were entered into in order to hedge the physical purchase of bullion by the assessee and therefore, the loss on these transactions is business loss and allowable against the business profit. He has further submitted that the Assessing Officer as well as the learned CIT (A) has not appreciated the fact that the assessee’s entire sale was in cash and even in the earlier years and the month-wise sales is supporting the sales for the year under consideration. The learned AR has submitted that the Assessing Officer as well as the learned CIT (A) doubted the cash sales in the month of November to the tune of Rs.1,32,69,717/- whereas in the preceding year, the assessee was having sales of Rs.4,56,53,782/- in the month of December, 2015. Thus, the learned AR has submitted that the sales shown in the month of November is not unusual and the sales of jewellery bullion depends upon the festive season and therefore, the sales in the month of November is highest for the year under consideration as it was highest in the month of December of the preceding year. He has also referred to the invoices placed in the paper book and submitted that all these cash sales are supported with the invoices and is also supported by the VAT returns filed by the assessee. He has also referred to the ledger account of the clients to show that the assessee received advances for sale of jewellery which was subsequently sold to the clients and the difference was also received at the time
Page 4 of 10 of sales. However, the learned CIT (A) has taken these advances as discrepancy in the details of sales and stock register. Therefore, without considering the correct facts by the learned CIT (A), the claim of the assessee was doubted and addition was confirmed. The ledger copies placed at Page Nos.95 to 98 of the paper book reflects the transaction of advances received from the clients against the subsequent sales. Thus, the learned AR has submitted that the Assessing Officer as well as the learned CIT (A) has misconceived the correct fact as reflected in the record as well as in the purchase account.
On the other hand, the learned DR has referred to paras 2.1 and 2.2 of the order of the Assessing Officer and submitted that the Assessing Officer has asked for specific details but the assessee failed to submit the same. He has then referred to the Para 2.4 and 2.5 of the order of the Assessing Officer and submitted that the assessee failed to submit the stock register, cash book to verify the correctness of the transaction and availability of cash as on 8/11/2016. Further, the sales recorded during the period 1/11/2016 to 8/11/20916 was noticed at Rs.1.34 crores which is approximately 40% of the annual sales of the assessee. No sales bills were furnished before the Assessing Officer in support of the sales to the extent of Rs.1.34 crores shown in the month of November, 2016. Further, there was discrepancy in the sales shown for the month of March, 2017 as Rs.79,25,439/- whereas in the comparative statement furnished by the assessee, the sales for the month of March is shown at Rs.91,20,435/-. Thus, the learned DR has submitted that when
Page 5 of 10 the assessee has failed to produce cash book, purchase and sales registers and copies of bills, the Assessing Officer is justified in making the addition. Hence, the learned DR relied upon the orders of the authorities below.
We have considered the rival submissions as well as perused the relevant material available on record. The Assessing Officer has made the addition of the entire deposits made by the assessee during the month of November and December, 2016 by treating the same as unexplained under the provisions of section 69A of the I.T. Act, 1961. It is pertinent to note that the learned CIT (A) has confirmed the additions made by the Assessing Officer after considering the cash book and details of month-wise sales produced by the assessee to show that the sales in the month of November, 2016 and overall annual sales of the assessee for the year under consideration is in line with the annual sales as well as monthly sales of the preceding year. The details of the monthly sales for the year under consideration and immediately preceding year are placed at Page No.28 of the Paper Book as under:
Page 6 of 10 7.1 Thus, it is manifest from the details of the sale of the November that it is the highest amount for any month of the financial year 2016-17. However, at the same time, the sale for the month of December, 2015 is even more than double of the sales of the November of this year. The assessee has also produced the monthly cash sales details at page No.29 as under:
Page 7 of 10 7.2. Therefore, instead of making the entire addition of the sales of November, the Assessing Officer ought to have allowed the average sales of every month and upto 8/11/2016. The assessee has produced the ledger and cash book reflecting the cash sales for the year under consideration and particularly the month of November, 2016. The assessee has also produced the bills & invoices for the sale in the month of November and particularly, upto 11/11/2016. Once the assessee has produced the bills &
Page 8 of 10 vouchers in support of the claim of the sales, the same ought to have been verified and examined before treating the sales as bogus. We further note that the learned CIT (A) has given much emphasis on typographical mistake in the statement of turnover for the month of November, 2016 where the assessee has claimed that the entire sale was cash sales, however, there was a typographical mistake in showing the cash sales of October, 2016 showing the same figure of cash sales of November, 2016 which is apparent from the details itself reproduced by the learned CIT (A) at page No.13 of the impugned order.
The 2nd addition was made by the Assessing Officer on account of loss on purchase and sale of shares. However, from the details of the transaction, it is evident that these are commodity derivative transaction carried out at MCX and particularly derivative transaction in bullion. The assessee claimed that these transactions are carried out to hedge the transaction of buying and selling the bullion in physical form. The learned CIT (A) has confirmed the additions made by the Assessing Officer without even looking at the nature of the transaction and treated the same as loss on capital field. Therefore, it is apparent from the order of the Assessing Officer as well as the learned CIT (A) that the relevant correct facts have not been considered by the authorities below while passing the impugned orders. Accordingly, in the facts and circumstances of the case and in the interest of justice, we set aside the impugned order of the learned CIT (A) and the matter is remanded to the record of the Assessing Officer for re- adjudication after considering the correct relevant facts and also Page 9 of 10 verifying and examining the correctness of the claim of sales and particularly, the bills & vouchers produced by the assessee in support of the claim of the sales. Needless to say, the assessee shall be given an appropriate opportunity of hearing before passing the fresh order.