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Facts
The assessee appealed against the CIT(A)'s order upholding additions made by the Assessing Officer. The additions pertained to cash deposits made during the demonetization period and excess purchases claimed. The assessee argued that cash deposits were from existing cash balance, and purchases were genuine.
Held
The Tribunal held that the cash deposits made during the demonetization period were explained by the assessee's cash balance and thus could not be treated as unexplained income. Regarding excess purchases, the Tribunal found merit in the assessee's submissions for two suppliers, deleting those additions, but sustained the addition for one supplier due to lack of explanation.
Key Issues
Whether cash deposits made during demonetization are from unexplained sources, and whether excess purchases claimed are genuine and supported by evidence.
Sections Cited
69A, 68, 143(3), 145(3), 271AAC(1), 270A
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Income Tax Appellate Tribunal, CHANDIGARH BENCHES, “SMC”
Before: SHRI. VIKRAM SINGH YADAV, AM
Order
PER VIKRAM SINGH YADAV, AM:
This is an appeal filed by the assessee against the order of the Ld. CIT(A)/ NFAC, Delhi dt. 03/10/2023 pertaining to Assessment Year 2017-18 wherein the assessee has taken the following grounds:
1. That in the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeal) is not justified in upholding the order of the Ld Assessing Officer whereby the cash deposited in the bank account of the assessee out of the available cash balance in the books of account of the assessee has been treated as income of the assessee under section 69A of the Income Tax Act, 1961. The same has resulted in an addition of Rs 10,20,000/- to the taxable income of the assessee.
2. That in the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeal) is not justified in confirming the addition made by the Ld. Assessing Officer on account of variation in purchases and not considering the submission of the assessee that the default in underreporting of figures of TCS was on the part of the suppliers.
2. Regarding Ground No. 1, the assessee has taken us through the findings of the AO which are contained at para 5.3 of the order passed under section 143 dt. 21/12/2019 and the contents thereof read as under: “5.3 Cash deposits in specified currency notes during the period of demonetization: Perusal of information received from SBI, The Mall, Shimla and SBI, Kalbogh shows the 2 following amount of cash deposit made by the assessee in his bank account in specified currency notes (of Rs. 1000/- & 500/-) and other bank notes on various dates:- Account No. Date of Deposit Amount Deposited Amount (SCN) Deposited(OBN) 65254284068, SBI, 10.11.2016 17,00,000/ Shimla 11.11.2016 3,27,500/- - 15.11.2016 4,13,000/- 5,87,000/- 16.11.2016 1,61,000/- - 17.11.2016 1,18,500/- 1,14,980/- 30446499791, SBI, 16.11.2016 2,49,000/- 4,000/- Kalbogh Bank account of the assessee further reveals that the assessee had been depositing cash into his bank account after interval of 3-4 days. It is seen that on 07.11.2016, the assessee has made cash deposit of Rs. 11,13,810/- in his bank account just before declaration of demonetization, reflecting that all the cash sales made upto 07.11.2016 was deposited in his bank account. Further, assessee has made cash deposits of Rs. 17,00,000/- on 10.11.2016 in all demonetized specified currency notes. The ledger account of sales shows cash sales of Rs. 6,50,200/- on 07.11.2016 and cash sales of Rs. 4,61,180/- on 08.11.2016 amounting to total sales for the two days at Rs. 11,11,380/-, possibly the cash received in specified currency notes by the assessee. Once the demonetization was declared on 08.11.2016, there is no point receiving cash in specified currency notes out of the sale proceeds during the subsequent dates i.e. from 09.11.2016. Since the assessee has deposited Rs. 17,00,000/- of specified currency notes on 10.11.2016, it is possible that the SCN in possession of assessee was out of the total sales made on 07.11.2016 & 08.11.2016 i.e. Rs. 11,11,380/-. It is also possible that the excess cash was lying with the assessee in specified currency notes for which he deposited Rs. 17,00,000/- on 10.11.2016 (including cash sales of Rs. 11,11,380/- as discussed above). Therefore, the cash deposited by the assessee on 10.11.2016 at Rs. 17,00,000/- (in SBI, The Mall, Shimla) and cash deposited by the assessee on 16.11.2016 at Rs. 2,49,000/- (In SBI, Kalbogh) is appears to be genuine and acceptable. However, since there was no possibility of cash sales in specified currency notes after 08.11.2016, the amount deposited by the assessee in cash into his bank account on 11.11.2016 (Rs. 3,27,500/-), on 15.11.2016 (Rs. 4,13,000/-), on 16.11.2016 (Rs. 1,61,000/-) & on 17.11.2016 (Rs. 1,18,500/-) aggregating Rs. 10,20,000/- is treated as cash credits into his books of account from unexplained and undisclosed sources an amount of Rs. 10,20,000/- is added to the income of the assessee u/s 68 of the Income Tax Act, 1961. Thus, being satisfied that the assessee has cash credits into his books of account from unexplained and undisclosed sources to the tune of Rs. 10,20,000/- therefore, penalty proceedings u/s 271AAC(1) of the Income Tax Act, are being Initiated separately.
2.1 Further, our reference was drawn to the written submissions filed before the Ld. CIT(A) which are contained at page 5 to 7 of the impugned order and the contents thereof read as under: “1.1 In that regard, it is most respectfully submitted that the assessee in the assessment year under consideration was engaged in liquor trade, whereby he had been allotted various vends in the State of Himachal Pradesh. A return of income declaring a net taxable income of Rs. 19,65,830/- was filed for the assessment year under consideration. In doing so, income from liquor vends amounted to Rs.20,30,827-22 was declared against the recorded turnover of Rs. l1,76,20,283/- in the assessment year under consideration and perusal of the balance sheet of the assessee would go to reveal that the assessee had ample amount of cash in cash.
3 1.2. The demonetization was announced by the Hon'ble Prime Minister of India on 08.11.2016, whereby currency notes in the denomination of Rs.1000/- and Rs.500/- were demonetized and were held not to be legal tender. However, time had been given to the persons who had cash in their books of accounts to deposit the same in the books of accounts within the period from 09.11.2016 to 30.12.2016. 1.3. On the assurance of the Hon'ble Prime Minister of India, cash had been deposited by the assessee. The learned Assessing Officer accepted by the source of cash deposits of Rs. 17,00,000/- and rest of the following deposits were added back to the taxable income of the assessee under section 68 of the Income Tax Act, 1961. Date Amount 11.11.2016 Rs. 3,27,500/- 15.11.2016 Rs. 4,13,000/- 16.11.2016 Rs. 1,61,000/- 17.11.2016 Rs. 1,18,500/- 1.5. The entire cash deposits had been routed through the books of accounts. Perusal of the cash book for the assessment year under consideration would go to reveal that cash in hand as on the date of demonetization le. 08.11.2016 amounted to Rs.44,42,128.28. The entire cash had been deposited out of the cash balance available with the assessee as on the date of demonetization. Copy of the cash book for the entire year is being placed on record for your kind perusal and ready reference. 1.6. It is further submitted that books of accounts were subjected to scrutiny under section 143(3) of the Income Tax Act, 1961. The learned Assessing Officer during the course of assessment proceedings apart from filing of the reply, complete books of accounts alongwith supporting evidence was placed before the learned Assessing Officer. After perusing same, no discrepancy whatsoever in the books of accounts has been found by the learned Assessing Officer and the books of accounts have not been rejected as recourse to the provisions of Section 145(3) of the Income Tax Act, 1961 has not been taken by the learned Assessing Officer. 1.7 Once the books of accounts have been accepted and the cash balance as on the date of demonetization has been accepted, treating of part deposits as unexplained income is absolutely illegal, uncalled for and not sustainable in the eyes of law. It is, therefore, most respectfully prayed that the addition so made of Rs. 10,20,000/- may kindly be ordered to be deleted or any other relief be given which this Hon'ble Forum deems fit and proper in the facts and circumstances of the case.”
2.2 It was submitted that the ld CIT(A) has failed to appreciate the factual position that cash so deposited is out of cash in hand as on the date of demonetization and the books of accounts stand accepted and in such circumstances, source of cash so deposited stand duly explained and it was submitted that the addition so made and sustained by the ld CIT(A) may be directed to be deleted.
Regarding Ground No. 2, our reference was drawn to the findings of the AO which are contained at para 5.2 of the assessment order contents thereof read as under: “5.2 Difference of purchases claimed in trading account and in form 26AS: The assessee in his trading and P&L account for the F.Y. 2016-17 has shown purchases at Rs. 5,51,44,842/-. Perusal of revised Form 26AS for the period 01.04.2016 to 31.03.2017 supplied 4 by the assessee alongwith his response dated 05.12.2019 reflects the following amount of purchase from various parties and TCS collected thereon:- S.No. Party Name Section under Total amount Total TCS which TCS is paid/ credited (in collected collected Rs.) 1 SBACCHUS 206CA 1,34,647.27 1346.47 Distillery (P). Ltd. 2 Chander Mohan 206CA 60,18,161 60,182/- Sharma 3 HP Beverages Ltd. 206CA 4,19,67,717.06 4,20,128 4 K.M. Distillery (P) 206CA 13,04,460/- 13,047/- Ltd. 5 Kuldip Kaur 206CA 24,77,807/- 24,776/- 6 Swastik Enterprises 206CA 15,07,586/- 15,078/- Total for TCS u/s 206CA 5,34,10,378.33 5,34,557.47 7. JP Singla Engineers 206CL 15,36,473/- 15,365/- & Contractors Perusal of information tabulated above (as extracted from Form 26AS) reveals that the assessee has made purchases at Rs. 5,34,10,378.33/- on which TCS u/s 206CA of the Act had been collected during F.Y. 2016-17, as against purchases claimed by the assessee in his trading and P&L account at Rs. 5,51,44,842/-. Accordingly, the assessee was issued a Show Cause Notice dated 12.12.2019 requiring him to furnish complete address and other details of the parties from whom he has made purchases along with purchase bills and ledger accounts of the purchases. In response, the assessee submitted party-wise purchase details, which is reproduced hereunder:- Sr. Name of the Party Purchase as per Purchase as per Excess No. Form 26AS Books of the purchase assessee shown / Difference 1. Himachal Pradesh Beverages 4,19,67,717.06 4,21,44,945 1,77,228 Ltd. 2. K.M. Distillery (P) Ltd. 13,04,460 13,05,003 543 3. Royal Wines (Kuldip Kaur) 24,77,807 36,33,964 156,157 4. Tiloksons Brewery & Distillery No record in Form 570642 570,642 26AS 5. HPGICS Country Liquor No record in Form 985311 985,311 Bottling Plants 26AS As no record of purchase in respect of two suppliers le. Triloksons Brewery & Distillery and HPGICS Country Liquor Bottling plants was found in form 26AS, in order to verify the genuineness of the purchase shown by the assessee, notice u/s 133(6) of the Income Tax Act, 1961 were issued to both the abovementioned parties requesting them to furnish copy of Ledger Account of the assessee as maintained in their books of account. M/s. HPGICS Country Liquor Bottling Plant has furnished copy of Ledger A/c. as requested, in response to this office notice u/s 133(6). The copy of Ledger reflects the total purchases of Rs. 9,54,104/- against the purchases of Rs. 9,85,311, shown by the assessee in his books. Thus, the assessee has shown an excess purchase of Rs. 31,204/- in his books of account which needs to be brought to tax. However, no reply was received in response to notice u/s 133(6) from another party i.e. M/s. Triloksons Brewery & Distillery. However, during the course of assessment, the assessee was able to submit the copy of purchase bills of the purchases made from M/s. Triloksons Brewery & Distillery which accounted for total 5 purchase of Rs. 5,81,910/-. Therefore, it is established that the assessee has shown excess purchase of Rs. 3,65,132/- from the following parties:- Sr.No. Name of the Party Purchase as per Purchase as per Excess purchase Form 26AS(Rs.) Books of the shown / assessee (Rs.) Difference (Rs.) 1. Himachal Pradesh 4,19,67,717.06 4,21,44,945 1,77,228 Beverages Ltd.
K.M. Distillery (P) Ltd. 1304460 1305003 543 3. Royal Wines (Kuldip 2477807 3633964 156157 Kaur) 4. HPGICS Country No record in 985311 31,204 Liquor Bottling Plants Form 26AS (As per Ledger Rs. 954,104) 3,65,132 In view of the above discussion, the amount of Rs. 3,65,132/- claimed by the assessee as expenses on account of excess purchase, is disallowed and added back to income of the assessee. Penalty proceedings u/s 270A of the Income Tax Act 1961 for under reporting of income is initiated separately. 3.1 Further, our reference was drawn to the submission made before the Ld. CIT(A) which are contained at Page 7 to 8 of the impugned order and the contents thereof read as under: “Vide para 5.2 of the assessment order, the learned Assessing Officer has made an addition of Rs.3,65,132/- to the taxable income of the assessee. Reason for the same is that purchases as per Form 26AS were lower than the purchases made as per the books of accounts of the assessee to that extent. Without even bothering to asking the assessee to give explanation in respect of the same, the same has been added back as inflated purchases and as such an addition of Rs.3,65,132/- has been made to the taxable income of the assessee. In that regard, it is most respectfully submitted that after passing of the assessment order, the assessee has procured ledger in respect of the parties from whom purchases have been made. Perusal of the ledger account of the assessee in the books of accounts of its suppliers would go to reveal that following amount of sales have been shown to have been made to the assessee by various concerns, which is more than which has been reported by them in Form NO.26AS. Details of the same are being given infra:- Name of the parties Sales as per books of Sales as per Form No. 26AS accounts Himachal Beverages Ltd. Rs. 4,24,43,198/- Rs. 4,19,67,717- Royal Wines Rs. 26,17,480/- Rs. 24,77,807/- As the difference is on account of underreporting of figure of TCS by the suppliers of the liquor to the assessee, the same does not lead to the inference that the purchases have been inflated by the assessee. To buttress the said argument, it is most respectfully submitted that no discrepancy whatsoever in the books of accounts has been found by the learned Assessing Officer. Be that as it may be the addition so made is absolutely illegal and not sustainable in the eyes of law and as such, it is prayed that the appeal may kindly be allowed or any other relief be given which this Hon'ble Forum deems fit and proper in the facts and circumstances of the case." 3.2 It was submitted that the ld CIT(A) has failed to appreciate the factual position that where the actual sale as per books of accounts of the suppliers and actual 6 purchases from these suppliers in the books of accounts of the assessee is compared, no excess purchases have been accounted and claimed by the assessee and has sustained the addition so made which may be directed to be deleted.
Per contra, the Ld. DR has relied on the findings of the Ld. CIT(A) which are contained at para 5.1 of the impugned order: “5.1 Now before me in the appellate proceedings, written submission has been filed. I have gone through the grounds of appeal
and statement of facts, and written submission filed by the appellant. No effort has been made to explain the various additions made by the Assessing Officer. Source of cash deposit has not been explained. It has not been explained how SCN notes were lying at the premises of the appellant after the launch of demonetization scheme. Books of accounts, vouchers and other evidences of the deposits of SCN notes during that period have not been filed before me. So far as the issue of purchase is concerned, the Assessing Officer has made out the case that the appellant has booked expenses on account of excess purchase and has identified names of four parties. The contention of the Assessing Officer has not been satisfactorily challenged by the appellant in the written submission, Hence, the addition of the Assessing Officer is confirmed and appeal of the appellant is dismissed on the ground of cash deposits worth Rs. 10,20,000/- and Rs. 3,65,132/- as expenses on excess purchase.”
5. Have heard the rival contentions and purused the material available on record. The issue under consideration relates to source of cash deposited during the period of demonetization and second issue relates to excess purchases recorded by the assessee. Regarding the first issue, as per the AO, since there was no possibility of cash sales in specified currency notes after 08.11.2016, the amount deposited by the assessee in cash into his bank account on 11.11.2016 (Rs. 3,27,500/-), on 15.11.2016 (Rs. 4,13,000/-), on 16.11.2016 (Rs. 1,61,000/-) & on 17.11.2016 (Rs.1,18,500/-) aggregating Rs. 10,20,000/- was treated as cash credits into his books of account from unexplained and undisclosed sources and an amount of Rs. 10,20,000/- was brought to tax u/s 68 of the Act. During the appellate proceedings, the assessee has submitted that cash so deposited was out of cash in hand as on the date of demonetization and not out of any sales made during the demonetization period and in support, copy of cash book was submitted wherein cash in hand as on the date of demonetization was Rs. 44,42,128/- and it was explained that the entire cash had been deposited out of the cash balance available with the assessee as on the date of demonetization and it was submitted that once the books of accounts have been accepted and the cash balance as on the date of demonetization has been accepted, treating of part deposits as unexplained income is uncalled for. I find merit in the submissions so made on behalf of the assessee and find that the ld CIT(A) has failed to appreciate the same. I find that the AO has made the addition solely basis certain assumption that cash so 7 deposited in SBN notes during the demonetization period is out of sales effected during the demonetization period and there is nothing on record to support such a position and stand so taken by the AO. As against that, the assessee has demonstrated through the cash book placed on record that he has sufficient cash balance as on the date of demonetization which has thereafter been deposited over the next few days. The factum of cash sales in the assessee’s line of business is well known and in any case, not disputed by the AO and the individual sale entries in the cash book has not been disputed. Therefore, in such a situation, where the sales are duly reflected in the books of accounts and reported to tax and the books of accounts stand accepted, the cash realization from such sales even though in SBN notes as on the date of demonetization stand explained and cannot be held as unexplained and the addition of Rs 10,20,000/- so made is hereby directed to be deleted.
Regarding the excess purchases, the AO basis reporting in Form 26AS has held that the assessee has booked excess purchases as against the figures reported in Form 26AS by four suppliers. During the appellate proceedings, the assessee has submitted its ledger account in the books of two suppliers namely, Himachal Beverages Ltd. and Royal Wines and submitted that as against the actual sale by these suppliers to the assessee as so reflected in their respective books of accounts, while reporting the transactions as part of TCS compliance, they have reported a lower figure and where the actual sale as per books of accounts of the suppliers and actual purchases from these suppliers in the books of accounts of the assessee is compared, no excess purchases have been accounted and claimed by the assessee. I find merit in the submissions so made on behalf of the assessee and find that the ld CIT(A) has failed to appreciate the same. The addition cannot be sustained solely basis reporting in Form 26AS where the assessee has duly demonstrated that actual purchases as per books of accounts of the supplier is higher than what has been reported in Form 26AS which shall therefore take precedence in support of actual transactions and therefore, the addition so made and sustained by the ld CIT(A) in respect of these two suppliers is hereby deleted. In respect of HPGICS Country Liquor Bottling Plants, there is clearly excess figure of purchases as so accounted for in its books of account as compared as sales as accounted for in books of the supplier and addition deserve to be sustained. In respect of fourth supplier, in absence of necessary explanation and corroboration to 8 reconcile the differences, the addition so made is hereby sustained. In the result, out of addition of Rs 365,132/-, addition of Rs 3,33,385/- is deleted and the remaining addition of Rs 31,747/- is sustained and the ground of appeal is thus partly allowed.