ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE1-(1), HYDERABAD vs. GOKUL KRISHI UDYOG PRIVATE LIMITED, HYDERABAD

The facts of the case, in brief, are that the assessee is a company engaged in the business of dealer in pulses, food grains and manufacturer of besan. It filed its Return of Income on 2.11.2017 declaring total income of Rs.17,09,470/-. The case was selected for scrutiny under CASS and statutory notices were issued u/s. 143(2) and 142(1) of the Income Tax Act, 1961 (in short ‘the Act’) to the assessee to furnish certain information.

During the course of assessment proceedings, the Assessing Officer observed from the Bank account of the assessee maintained with the ICICI Bank that the assessee has made cash deposits of Rs.2,10,80,000 during the demonetization period. He, therefore, asked the assessee to explain the source for the cash deposits. It was explained that the source of the same are cash sales made during the regular course of its business. The assessee furnished books of accounts, vouchers, month-wise cash sales made during the F.Y. 2015-16 and F.Y. 2016-17. From the details furnished by the assessee, the Assessing Officer noted that there was substantial increase of sales in F.Y. 2016-17 as compared to the preceding year i.e. F.Y. 2015-16. He therefore asked the assessee to explain the reasons for such substantial increase in cash sales along with necessary evidences.

In response to the same assessee vide its reply dt.11.11.2019 submitted that the sales are increasing sometimes and decreasing sometimes depending on monsoon, market and other factors. The cash sales in F.Y. 2014-15 are more compared to F.Y. 2015-16. Same way, if the sales are compared with subsequent years i.e. F.Y. 2017-18, the sale for the F.Y. 2016-17 is less than the sales in F.Y. 2017-18. Hence, it is clear that the sales cannot be stagnant and same in all years and is increasing or decreasing depending on various factors.

In appeal, the learned CIT (Appeals) deleted the addition made by the Assessing Officer by observing as under :

Aggrieved with such order of CIT (Appeals), the Revenue is in appeal before the Tribunal by raising the following grounds :

The learned Departmental Representative strongly challenged the order of the learned CIT (Appeals) in deleting the addition made by the Assessing Officer. Referring to the assessment order, he drew the attention of the Bench to the observations of the Assessing Officer while making the addition of Rs.1,77,92,718. Referring to the order of the learned CIT (Appeals), he submitted that the CIT (Appeals) has deleted the addition based on the submissions made by the assessee which are general in nature. He submitted that in the instant case the assessee has not discharged the primary onus cast on it by providing the name, PAN and address of the persons to whom cash sales are made. Referring to the bank pay in slips, copies of which are placed at pages 3 to 7 of the Paper Book, he submitted that when large number of Rs.2000 notes were deposited during the demonetization period, which were not easily available in the country, at that particular time, it was incumbent upon the CIT (Appeals) to obtain from assessee, the names of the so called purchasers who had withdrawn such amounts from the bank in new currency notes and purchased the goods from the assessee by paying such cash. Since there is substantial increase in the turnover during the demonetization period as compared to the cash sales in the corresponding period of preceding year, therefore, the learned CIT (Appeals) without appreciating the facts properly could not have deleted the addition. Referring to the decision of the Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT reported in 214 ITR 801 (SC) and CIT Vs. Durga Prasad More reported in 82 ITR 801 (SC), he submitted that the learned CIT (Appeals) in the instant case is not justified in deleting the addition. He accordingly submitted that the order of the learned CIT (Appeals) be reversed and that of the Assessing Officer be restored.

The learned counsel for the assessee, on the other hand, submitted that the cash deposited during the demonetization period in specified notes is only Rs.17 lakhs out of the total deposit of Rs.2,10,80,000. The amount of Rs.17 lakhs is again within the cash balance available on the demonetization date. The learned counsel for the assessee submitted that the assessee was regularly filing VAT returns and there is no defect in the details of purchases and sales bills. Further there is no provision in the Act to obtain identity of a person such as name, address, PAN number, etc for cash sales. Since the assessee has not violated the law by making cash sales and turnover of assessee is regularly growing from year to year, therefore, merely on the basis of increase in turnover on year to year basis, no addition can be made especially when the purchases and stock are not in dispute. The learned counsel for the assessee relying on a number of decisions submitted that the order of the learned CIT (Appeals) being in consonance with law should be upheld and the grounds raised by the Revenue be dismissed.

We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and learned CIT (Appeals) and the Paper Book filed on behalf of the assessee. We have also considered various decisions cited before us. We find the Assessing Officer in the instant case made addition of Rs.1,77,92,718 being the difference in sales between periods from July – December 2016 and July – December 2015 on the ground that such cash sales are made to unidentifiable persons and the assessee failed to prove the genuineness of the sales and has made substantial cash deposit during demonetization period between 9.11.2016 to 30.12.2016 and the assessee failed to substantiate the source of the cash deposit. We find the learned CIT (Appeals) deleted the addition made by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the ld. DR that when large number of Rs.2000 notes were deposited in the bank account during the demonetization period, the assessee was duty bound to give the names of persons to whom he has sold such goods

We find the order of the learned CIT (Appeals), in the instant case, is not on sound reasoning and without appreciation of the facts properly. It is the submission of the assessee before the CIT (Appeals) that out of total deposit of Rs.2,10,80,000 deposited during the Rs.17 lakhs as per the certificate obtained from ICICI Bank, copy of which is placed at page 8 of the Paper Book. However, a perusal of the pay in slips of the Bank filed by the assessee at pages 3 to 7 of the Paper Book shows that the assessee has deposited large number of Rs.2000 notes totalling to Rs.1,62,30,000/- during the demonetization period which was not easily available in the market at the relevant time. Therefore, merely filing the details such as cash book, ledger, purchase details, VAT returns, etc are not sufficient especially when the assessee had made huge cash sales during the demonetization period as compared to the earlier year during the same period. In our opinion, the matter has not been properly adjudicated in the way the same should have been adjudicated. It is settled proposition of law that the powers of CIT (Appeals) are co-terminus with that of the powers of Assessing Officer. In the instant case, although the Assessing Officer has categorically asked the assessee to substantiate the huge cash deposits during the demonetization period by giving PAN numbers of so called

In the result, the appeal of the Revenue is allowed for statistical purposes.