THE ACIT, CIRCLE-1(1)(1), AHMEDABAD vs. DHANESHBHAI PARSHOTTAMDAS SONI, AHMEDABAD

Brief facts of the case is that the assessee is an individual engaged in the business of trading and manufacturing of Gold, Silver and Diamond Ornaments. For the Asst. Year 2017-18, assessee filed its Return of Income on 03-11-2017 declaring total income of Rs.3,23,96,233/-. The return was taken up for scrutiny assessment. The assessee made cash deposit during demonetization period of Rs.6,31,00,000/- with the Specified Bank Notes, thus rejected the books of accounts and made addition of Rs.7,76,10,000/- and also made addition on the unsecured loans availed from 22 parties of Rs.45,90,80,505/- as unexplained income u/s. 68 of the Act and also disallowed interest paid of Rs.1,44,19,775/- on the above unsecured loans. Further the A.O. also made difference in the GP of Rs.39,49,382/- and assessed the total income at Rs.58,74,55,892/- and demanded tax thereon.

Aggrieved against the same, assessee filed an appeal before Ld. CIT(A). During the appellate proceedings, the Ld. CIT(A) called for a Remand Report on 13-01-2023 and a reminder was issued on 13- 02-2023. However Remand Report was not received from the A.O. till passing of the appellate order on 24-02-2023. Thus the Ld. CIT(A) deleted the additions by observing as follows: ”5.7 In para 8 of the assessment order the assessing officer commented that on verification of return of income, audit report and profit and loss account, it was observed that assessee has claimed that source of cash deposits is from sales of goods and payment received from debtors only. In other words, source of cash deposits is duly recorded and reflected in their books of account and as per their claim it has been disclosed in its return In this circumstance it can be held that the addition u/s 68 was not based on any specific finding by the assessing officer The AO could not point out any document or entry in books to show that the cash deposits made by the appellant is from bogus transactions. The AO stated that cash A.Y. 2017-18 Page No 3 ACIT Vs. Dhaneshbhai Parshottamdas Soni sales may be inflated but as held by supreme court in the case of Laxmichand Baijnath v. CIT; 35 ITR 416, that amount credited in business books can normally be presumed as business receipts. So it is clear all source of cash deposits are recorded in the books of the appellant. Once the sources are reflected in the books there is no question of unexplained cash credit as envisaged in section 68 of the Act. The Rajasthan High Court which is the jurisdictional court of the appellant has held in the case of G.K. Contractor (2009) 19 DTR 305 (Raj.) that the AO having estimated the higher profit rate on total contract receipts after rejection of the books of account Invoking the provisions of s. 145(3), no separate additions can be made on account of unexplained cash credit under s. 68 of the Act of 1961. As per discussions above it is held that the Assessing Officer has erred in making the addition of Rs 7,76,10,000/-on account of unexplained cash credit under section 68 of the Act. Hence grounds 3, 4 and 5 are allowed. I have verified the submissions along with individual bank statements and ledger of all 22 lenders as above and found that entire loan has been received through account payee cheques and there is no evidence on record which can prove that such loan taken by appellant is bogus. Hence the addition under section 68 on account of unsecured loan received during year under consideration of the Act is factually wrong and the corresponding disallowance of interest Rs 1.44.19 775 is also unfounded. As a result grounds 6 and 7 are allowed.”