PARSHOTTAMBHAI SHAMJIBHAI GAJJAR,AHMEDABAD vs. THE ITO, WARD-4(2)(4), AHMEDABAD

That the Ld. A.O. has erred in law and on facts while issue of notice u/s 143(2) of the Act, 1961 and as assessment proceedings itself is bad in law and required to be quashed.

That the appellant is a milk vendor and filed his return regularly, he is used to deposit cash regularly, however without considering the facts of the case addition made u/s 69A for Rs.13,69,080/- is require to be deleted.

That the appellant has neither given incorrect information nor given inaccurate particulars of Income and therefore penalty proceedings initiated u/s 271AAC and u/s 272(1) of the I.T. Act, 1961 requires to be dropped.

The learned Authorised Representative (AR), appearing on behalf of the assessee, contended that the assessee is a small-time milk vendor, engaged in retail sale of milk and milk products of the Amul brand, purchased from Krishna Enterprise, Ahmedabad. The assessee earns nominal commission on the resale of such products, and in the normal course of his business deposits the daily sale proceeds in his bank account maintained with Citizens Co-operative Bank Ltd. (A/c No. 471102001000970). These deposits, the AR pointed out, were immediately utilised to make payments to Krishna Enterprise towards supply of fresh stock, which was necessary for business continuity. In support of this contention, the AR placed on record a copy of the bank passbook evidencing the pattern of regular cash deposits and subsequent debit transactions to Krishna Enterprise. In addition, sample sale statements issued by Krishna Enterprise to multiple dealers, including the assessee, were filed to establish that such transactions were part of a regular supply- 5 distribution chain. It was emphasized that Krishna Enterprise is a known wholesale distributor of milk products in Ahmedabad, and the assessee has been operating under the same business model over several years.

On the other hand, the learned Departmental Representative (DR) supported the orders of the lower authorities and submitted that there is no infirmity in the action of the Assessing Officer in making the addition under section 69A of the Act. It was contended that during the course of assessment and appellate proceedings the assessee failed to furnish any explanation or documentary evidence in support of the substantial cash deposits made in his bank account during the demonetization period. The assessment was, therefore, rightly completed under section 144 of the Act based on material available on record.

We have carefully considered the rival submissions, perused the orders of the lower authorities, and examined the material placed on record. The core issue in the present appeal pertains to the addition of Rs.13,69,080/- made by the Assessing Officer under section 69A of the Act on account of cash deposits made in the assessee’s bank account during the demonetization period, which was upheld by the learned CIT(A) in ex parte appellate proceedings.

At the outset, we note that the assessee is a small-time milk vendor engaged in retail sale and distribution of milk and milk products, particularly those of the Amul brand, sourced from Krishna Enterprise, Ahmedabad. This fact stands corroborated by the assessment order for the immediately preceding assessment year i.e., A.Y. 2016–17, wherein the Assessing Officer had accepted the returned income under section 143(3) without making any addition, despite the business being conducted under similar facts and circumstances. The pattern of cash deposits in the very same bank account and the nature of business activity has not undergone any material change in the year under appeal.

During the course of hearing before us, the learned Authorised Representative placed on record copies of sale records issued by Krishna Enterprise, which pertain to the subsequent year but clearly evidence the assessee’s role as a dealer in the supply and distribution chain of milk products. These records indicate that Krishna Enterprise was dispatching goods to various small dealers, including the assessee, for onward sale to retail consumers. Though the documents relate to a later year, they serve as corroborative evidence supporting the assessee’s business model and the explanation furnished for the source of cash deposits.

We also find merit in the submission that the bank passbook, now placed on record, contains a regular pattern of cash deposits followed by near-immediate outward remittance to Krishna Enterprise. This establishes a clear link between the receipt of cash from daily retail sales and the utilisation of such funds for stock replenishment. In our view, this commercial cycle reasonably and satisfactorily explains the source of cash deposited in the bank, and therefore, the provisions of section 69A are not attracted.

We further take cognisance of the discrepancy pointed out by the CIT(A) in his order regarding the total cash deposits. The Assessing Officer noted a deposit of Rs.3,45,000/- on 09.12.2016 in the table reproduced in the assessment order. However, as per the bank passbook placed before us, the actual cash deposit on that date was only Rs.34,500/-. This clearly suggests either a typographical or interpretational error on part of the lower authorities, and it also justifies the shortfall observed by the CIT(A) in the AO’s quantification. Thus, the so-called inconsistency relied upon to confirm the addition

It is also pertinent to note that the explanation and supporting documents now placed before us were not available before the Assessing Officer or the CIT(A) at the relevant time, and the assessee had also sought adjournment before the CIT(A) to collect and furnish these records. In the totality of circumstances, where the assessee is a person of modest means, engaged in small-scale trading activity, and lacking professional assistance during the assessment and appellate stage, the failure to furnish explanation at the initial stage appears to be procedural in nature and not indicative of absence of substance.

It is well settled that section 69A applies only where the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and offers no explanation about the nature and source thereof, or the explanation offered is not satisfactory in the opinion of the Assessing Officer. In the present case, the assessee has, during the course of appellate proceedings before us, explained the nature and source of the cash deposits as arising from day-to-day business receipts in the course of retail distribution of milk products. This explanation is supported by material evidence such as the bank passbook showing inflow and outflow in favour of Krishna Enterprise, and sample dispatch records of Krishna Enterprise evidencing the assessee’s role as a dealer. Merely because this evidence was not furnished at the stage of assessment or before the CIT(A), it does not disentitle the assessee from producing the same during the course of appellate proceedings before us, especially when no contrary material has been brought on record by the Revenue to rebut such explanation.

In light of the above discussion, we are of the considered view that the cash deposits in the assessee’s bank account are satisfactorily explained as arising from daily sales proceeds in the course of business and are supported by a reasonable commercial trail. The conditions required for invoking section 69A are therefore not met. Accordingly, the impugned addition of Rs.13,69,080/- made under section 69A of the Act and confirmed by the CIT(A) is not sustainable in law or on facts and deserves to be deleted.

In the result, the appeal filed by the assessee is allowed.