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Facts
The assessee, a retail and wholesale stationery trader, filed an income of NIL for AY 2017-18. The AO added cash deposits of Rs. 62,89,450/- under Section 69A as unexplained income and imposed tax at 60% under Section 115BBE.
Held
The Tribunal held that the assessee had provided sufficient documentary evidence to explain the cash deposits as business receipts and that the AO had not produced any material to rebut this explanation. The addition and the higher tax rate were deemed not tenable.
Key Issues
Whether cash deposits in bank, explained by business receipts and supported by audited books, can be treated as unexplained income under Section 69A. Whether the higher tax rate under Section 115BBE is applicable to such deposits.
Sections Cited
69A, 115BBE, 144, 143(1), 143(2), 142(1), 250, 234B, 234C, 234D, 44AB, 145(3)
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Order PER KRINWANT SAHAY, A.M: This is an appeal filed by the Assessee against the order of the Ld. CIT / NFAC, Delhi dt. 13/08/2024 pertaining to Assessment Year 2017-18. 2. In the present appeal Assessee has raised the following grounds of appeal:
1. 1. That on the facts, circumstances and legal position of the case, the Worthy CIT(A), NFAC in Appeal No. CIT (A), Chandigarh-2/10815/2019-20 has erred in passing order dtd. 13.08.2024 in contravention of provisions of S. 250 of the Income Tax Act, 1961 (hereinafter referred to as "Act").
2. That on facts, circumstances and legal position of the case, Worthy CIT(A) has erred in confirming the addition made by the Ld. AO of Rs. 62,89,450/- u/s 69A by erroneously holding cash deposit in bank during the demonetisation period as unexplained and more- so when the Ld. AO had travelled beyond his powers in making this assessment and addition.
3. That on facts, circumstances and legal position of the case, Worthy CIT(A) has erred in confirming the action of Ld. AO in imposing tax rate of 60% u/s 115BBE plus surcharge thereon on above addition made u/s 69A in Ground No. 2, even when if the said addition is accepted academically, the same could only have been taxed at normal rates.
4. That on facts, circumstances and legal position of the case, Worthy CIT(A) has erred in passing the impugned appellate order by relying solely upon the remand report of Ld. AO when such report was never confronted to the appellant andmore-so when the Worthy
2 CIT(A) has totally ignored the objections of the appellant raised by him in his written submission. 5. That on facts, circumstances and legal position of the case, the order passed by Ld. AO and then by Worthy CIT(A) deserves to be quashed since the same has been passed without affording reasonable opportunity of being heard to the appellant. 6. That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same.
3. Briefly the facts of the case are that the assessee, Mr. Leela Dutt Sharma, filed his original return of income for Assessment Year 2017-18 on 01.11.2017 declaring a total income of Rs. NIL. This return was processed under section 143(1) of the Income Tax Act, 1961. Subsequently, the case was selected for Limited Scrutiny under CASS, specifically to examine the issue of significant cash deposits during the year. Various statutory notices under sections 143(2) and 142(1), accompanied by questionnaires, were issued by the Income Tax Department to the assessee on multiple occasions from August 2018 to December 2019, requesting the assessee to provide information regarding the source of cash deposits amounting to Rs. 62,89,450/- in her Canara Bank account in Chandigarh. Despite these repeated opportunities, the assessee failed to furnish any explanation or comply with the notices. The assessment was conducted under Section 144 of the Income Tax Act, 1961, due to the assessee’s non- compliance. The assessee had declared income under the heads "Income from House Property" and "Income from Other Sources" but provided no details regarding the cash deposits in question. 3.1 The Ld. AO decided that the cash deposits of Rs. 62,89,450/- in the assessee’s Canara Bank account were unexplained income 3 under Section 69A of the Income Tax Act. The AO confirmed that the money belonged to the assessee based on KYC details of bank account. Even after several notices, the assessee did not give any reason or proof of where the money came from. Since the deposits were not shown in any books of account and no clear explanation was given, the AO said the money met all the conditions to be treated as income under Section 69A. The AO also referred to the decision of Hon’ble Supreme Court in case of Chuharmal vs. CIT (1988) 172 ITR 250wherein it was held that “ the expression 'INCOME' as used in Section 69A of the Act, 1961 had a wide meaning which meant anything which came in or resulted in gain and on this basis, concluded that the assessee had income which he had invested in purchasing article and he could be held to be owner and the value could be deemed to be his income by virtue of Section 69A of the Act.' Based on this, the AO added the full amount of Rs. 62,89,450/- to the assessee’s income and assessed it under Section 144 at 60% as per Section 115BBE. The Ld. AO also started penalty actions for not explaining the income and for not responding to tax notices. Interest was charged under Sections 234B, 234C, and 234D, and a demand notice was sent to the assessee.
4. Against the order of the Ld. AO the assessee went in appeal before the Ld. CIT(A). The CIT(A) upheld the addition of Rs. 62,89,450 as unexplained money under section 69A, finding that the assessee failed to provide satisfactory explanations or documentary evidence to justify the source of cash deposits in her Canara Bank account during the assessment proceedings.
4 5. Against the order of the Ld. CIT(A) the assessee came in appeal before us.
During the course of hearing the Ld. AR submitted that the assessee is an individual and is engaged in the retail and wholesale trade of stationery good. He filed ITR for AY 2017-18 on 01.11.2017 declaring loss of Rs. 9,22,217/-. The case of the assessee was selected for limited scrutiny on the issue of Cash Deposit during the year.
6.1 It was further submitted that, in assessment framed u/s 144, Ld. AO made addition of Rs. 62,89,450/- u/s 69A by erroneously holding cash deposit in bank during the entire year as unexplained imposing tax rate of 60% u/s 115BBE plus surcharge thereon. It may be appreciated that this was the year of demonetization and during such period there was a very nominal cash deposit. It may also be appreciated that during the entire length of assessment, Ld. AO was enquiring about cash deposit during demonetisation which assessee justified with his explanations. But then at the fag end of assessment, the Ld. AO changed the track of enquiry and now asked about cash deposit during the entire year. This too was answered that it was primarily out of sales and collection from debtors and the deposit in proprietorship business' CC Limit bank account.
6.2 It was submitted that the Ld. CIT(A) confirmed the additions made by the ld. AO by totally ignoring the written submission and documentary evidences submitted before him and rather relying solely upon the remand report of Ld. AO where AO had harped
5 upon solely on his own assessment order. This was more-so when the remand report was never confronted to the appellant. Issue: Addition of Rs. 62,89,45/- held as unexplained money u/s 69A 6.3 Ld. AR submitted that the assessee is a retail & wholesale trader of stationery goods. He is proprietor of M/s Sharna Enterprises. The relevant cash deposit is in his proprietorship concern's CC Bank account. It is seen that cash deposit is approx Rs. 5 Lacs in every month and this became Rs. 62.89 Lacs during the entire year. Even the cash deposit of Rs. 5 Lacs every month is not on a single day but is throughout the month in small denominations. These deposits are out of sale proceeds in business, collection from debtors, sometimes withdrawals from bank, past savings etc. Hence, this was also one of the source. Despite this, the Ld. AO, without appreciating the facts, treated the entire cash deposit as unexplained and made an addition u/s 69A.
6.4 It was further submitted that the assessee is regularly maintaining books and they are audited every year also u/s 44AB. For the year also, the ITR was filed based on such audited financial statements and those audited financial statements were filed before Ld. AO also. He did not reject the books. The cash deposit in question was out of cash book of this business and primarily out of cash sales, collection from debtors and earlier withdrawals from same bank account and these transactions had been recorded in these very books.
6.5 It was also submitted that the assessee is a registered VAT dealer having registration no. 04300016895. He is regularly filing his VAT returns and paying Taxes on the sales carried out by him. Thereafter, when VAT regime was replaced by the GST regime, assessee also got himself registered under GST Act, 2017 having registration no. 04APAPS8338G1ZT.
6.6 It was submitted that the business involves daily cash receipts, which are deposited into the bank and subsequently utilized for payments to creditors. This can be clearly seen from the relevant Bank statements. A comparative analysis of turnover, debtors, creditors and stock over the preceding 3 FYs establishes that there is no abnormal variation in cash is reproduced as under:
S.No. A.Y. Turnover Debtors Creditors Stock 1. 2017-18 1,36,49,082 19,87,543 42,78,521 70,71,461. 2. 2016-17 1,36,64,252 18,36,307 22,39,776 55,07,686 3 2015-16 62,26,425 27,13,342 37,66,944 30,53,652 4. 2014-15 64,70,125 35,23,861 33,28,245 13,33,075 6.7 Ld. AR submitted that Assessee also furnished month wise cash deposit made in the CCC account during FY 2015-16 (last Year) and FY 2016-17 (current year).A tabular presentation of the same is reproduced below : 4. Month Cash deposit in bank in Cash deposit in bank FY2016-17 in FY 2015-16 April 5,35,550 6,71,000 May- 4,28,740 2,45,500 June 2,02,700 1,84,000 July 3,37,500 3,74,700 August 4,24,500 3,70,400 September 8,89,500 3,80,810 October 6,65,500 6,95,700 November 3,79,500 3,62,200 December 3,48,000 5,49,700 January 2,82,400 2,59,000 February 3,18,000 4,54,950
7 March 11,99,000 9,94,721 Total 60,10,890 55,42,681 It is clearly evident from the above that there has been consistent monthly cash deposit in range of approximately Rs. 4-6 lakhs in the bank accounts during the year and most importantly in the immediately preceding financial year also is the same trend. Copy of bank statements of both the years were placed on record. The assessee has duly explained the source of cash deposit on which no adverse comments were mentioned by either the Id. AO or the Worthy CIT(A). When the assessee explains the source of cash deposit in bank to have come from cash sales or collections from debtors whose sales have been credited to P&L A/c or from earlier cash withdrawals or savings and the Ld. AO did not find anything adverse to reject this explanation, no addition can be made and the onus to prove otherwise falls on the Revenue as per the following judicial precedents: A. Shiv Charan Dass vs CIT126 ITR 263, P&H HC B. CIT vs Kulwant Rai, 291 ITR 36, Delhi HC C. Shri Rajiv Gupta vs ITO, 123/Chd/2020, Chandigarh ITAT D. ITO vs Deepali Sehgal, 5660/Del/2012, Delhi ITAT E. Pr. CIT vs M/s Agson Global Pvt. Ltd, ITA 69/2021 & CM No. 9322/2021,Delhi HC F. ACIT vs. M/s. Stationery Point India ltd., 1162/MUM/2010, Mumbai ITAT 6.8 Ld AR submitted that the Assessee deposited cash received for retail sale proceeds and collection from debtors in Cash Credit bank account of the proprietary concern and the said deposits were utilized for making onwards payments to the creditors from whom purchases were made. 6.9 It was submitted that the assessee also furnished a comparative analysis of current year turnover (Rs. 1,36,49,082/-)
8 and monthly cash deposit (Rs. 55,42,681/-) with the turnover (Rs. 1,36,49,082/-) and cash deposit (Rs. 60,10,890/-) of last year, which clearly depicts that there is no major variation in the amount of cash deposit made during the year from the previous financial year. 6.10 Furthermore, it a settled position of law that no addition can be made u/s 68/69A, if the proceeds collected from sales of business stands credited to P&L A/c and that cash is deposited in the bank account, also when books are not rejected. For the said proposition, the AR relied on the ratio of following decisions : A. Mehta Parikh and Company vs. CIT (30 ITR 181) (SC) (1956) b. CIT v Bhaichand H. Gandhi (141 ITR 67) (Bom. HC) (1983) c. Shri Harish Sharma vs ITO (ITA No. 327/Chd/2020) dtd. 11.05.2021 d. Singhal Exim Pvt. Ltd. Vs ITO (55 CCH 0544) (Del. ITAT) dtd. 12.04.2019 6.11 It was submitted that the cash deposit in bank in question is sourced from sale proceeds of business and collection from debtors. The cash deposit in bank is evident to have subsequently been used for making onwards payment to business creditors. Moreover, the sale carried out by the appellant was already offered for taxation as it has been already added to the turnover of the assessee and therefore, addition of the same cannot be done as it would amount to double taxation as held in following decisions : i. Anantpur Kalpana vs. ITO [ITA No. 541 /Bang/2021] (Bang Trib) ii. Kishore Jeram Bhai Kanhaiya vs ITO [ITA No. 1220/Del/2011] (Del. ITAT)
Issue: charging tax rate o f 60% u/s 115BBE on additions made u/s 69A in respect o f cash deposit in bank
9 6.12 The Id. AO imposed tax rate of 60% u/s 115BBE on the additions made u/s 69A of Rs. 62,89,450/- without appreciating the fact that as per the settled law, the amendment enhancing tax rate u/s 115BBE applies prospectively from 01.04.2017 and cannot be applied retrospectively to transactions before that date. For prior transactions, the revenue is empowered to impose only 30% rate of tax. For this proposition, the AR relied on the ratio of following decisions : A. S.M.I.L.E Microfinance Limited vs. ACIT, W.P.(MD)No. 2078 of 2020, Madras HC B. B D R Sewing Notions Pvt. Ltd. vs. ITO, Delhi ITAT C. Devender Kumar Garg vs ACIT, Delhi ITAT D. Nirvana Technobuilds Pvt. Ltd. vs. ITO, ITA No. 1530/Del/2024, Del ITAT
Ld. AR made a prayer that the addition of Rs. 62,89,450/- made and confirmed u/s 69A may kindly be deleted, as the cash deposits are duly explained as business receipts and already part of books. Further, higher tax rate of 60% u/s 115BBE may be set aside as being inapplicable to transactions undertaken prior to 01.04.2017.
Per contra, the Ld. DR supported the assessment made by the AO for the year 2017-18, saying that Leela Dutt Sharma could not explain where the cash deposits of Rs. 62,89,450/- in her Canara Bank account came from. Even though he was given several chances, he didn’t provide any proof during the assessment, so the money was treated as unexplained under section 69A. Ld. DR said the deposits were taxable since he owned the money, it wasn’t recorded in his books, and he didn’t explain the source. The remand report also revealed that he failed 10 to submit key business records such as cash books, invoices, and stock details, thereby weakening his claim that the cash deposits were generated from his stationery business. He concluded that the AO followed the law properly and the appeal should be rejected.
We have heard the rival contention and perused the material available on the record. It is not in dispute and is also clear from records before us that the assessee is a retail & wholesale trader of stationery goods. He is proprietor of M/s Sharma Enterprises. The business of the assessee involves daily cash receipts, which are deposited into the bank and subsequently utilized for payments to creditors. The assessee has furnished the following documentary evidence to substantiate the source and genuineness of its cash deposits:
1. 1. Cash book in the books of the assessee, which include daily cash sales, collection from sundry debtors, and redeposits of earlier bank withdrawals. Notably, no adverse finding was recorded by the AO or CIT(A) against the completeness of the books. Also, the books of account were not rejected under section 145(3).
2. The cash book and bank statements reflect earlier cash withdrawals from the same CC account, some of which were later redeposited. The assessee is carrying on business in his proprietorship firm’s name and the deposit in question is in his CC Limit bank account.
3. Return of income and computation of total income filed on 01.11.2017 were supported by audited financial statements 11 reflecting gross turnover of Rs.1,36,49,082/-, which matches the sales disclosed in the VAT/GST returns and forms the primary source of cash inflows.
Comparative data for four financial years (FY 2014-15 to 2017-18) demonstrate consistent business operations. The monthly trend of cash deposits (Rs.4–6 lakhs per month), turnover, debtors, creditors, and closing stock levels in these years show no abnormality which could raise suspicion.
Copies of VAT returns were filed demonstrating sales made and taxes paid, aligning with the cash deposits reported in the bank account. 9.1 In view of the above facts and evidences placed before us, we find that the assessee has satisfactorily discharged the onus of explaining the source of cash deposits in the Bank accounts and most of which are in his CC Limit bank account, by filing comprehensive documentary evidences. The Revenue, on the other hand, has not brought on record any material or cogent basis to disbelieve or rebut the explanation offered by the assessee. No inquiry has been conducted to disprove the genuineness of the transactions reflected in the books, and the AO has merely presumed that all cash deposits are unexplained in nature without appreciating the business context. 9.2 We find that the CIT(A) merely endorsed the findings of the Assessing Officer without properly appreciating the evidentiary value of the entry or the denial of the assessee. 9.3 The sales, which have been explained to be the source of cash deposit, carried out by the assessee was already offered for 12 taxation as it has been already added to the turnover and credited to P&L A/c and therefore, addition of the same cannot be done as it would amount to double taxation as held in Anantpur Kalpana vs. ITO (supra) and Kishore Jeram Bhai Kanhaiya vs ITO (supra).
9.4 In view of the above facts and judicial precedents, we are of the considered opinion that the addition made by the Assessing Officer and sustained by the CIT(A) under section 69A is not tenable in the eyes of law. The explanation of the assessee remains explained by credible and corroborative evidence which was not doubted by any of the lower authorities.
9.5 We find no justification in sustaining the addition made under section 69A or applying higher tax under section 115BBE. The same is therefore, hereby, ordered to be deleted.
In the result, appeal of the Assessee is allowed.