Loading judgment…
Facts
The assessee, Tirupati Balaji Exim Pvt. Ltd., engaged in manufacturing and trading wool products, deposited cash of Rs. 5,97,64,000/- during the demonetization period in Assessment Year 2017-18. The Assessing Officer added Rs. 5,07,54,538/- as unexplained cash credit under Section 68, alleging that cash sales were bogus due to the introduction of a new bill series not reported in VAT returns. The assessee explained that cash sales were genuine, spurred by high demand for wool products due to the Kashmir crisis, and the cash was also used for salary payments. The CIT(A) deleted this addition, as well as a protective addition of Rs. 1,01,11,672/- related to sales made to M/s Swadeshi Woollen Spinning Mills Ltd., where a substantive addition had already been made.
Held
The Tribunal affirmed the CIT(A)'s deletion of the Rs. 5,07,54,538/- addition, finding no infirmity in the assessee's explanation of genuine cash sales and proper maintenance of books. However, for the protective addition of Rs. 1,01,11,672/-, the Tribunal set aside the CIT(A)'s order and remanded the issue back to the CIT(A) to be heard along with the appeal of M/s Swadeshi Woollen Spinning & Mills Ltd., where the substantive addition was made.
Key Issues
1. Whether cash deposits during demonetization, arising from alleged cash sales made through a new bill series and not reported in VAT returns, constituted unexplained cash credit under Section 68. 2. Whether a protective addition was justified when a substantive addition for the same amount was made in another entity's hands and was under appeal.
Sections Cited
143(3), 68, 115BBE, 271AAC
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, CHANDIGARH BENCH: ‘B’: CHANDIGARH
Before: SHRI MAHAVIR SINGH & SHRI KRINWANT SAHAY
BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI KRINWANT SAHAY, ACCOUNTANT MEMBER ITA No:- 618/CHANDI/2023 (Assessment Year- 2017-18) Deputy Commissioner of M/s Tirupati Balaji Exim Income Tax, Vs. Pvt. Ltd., Circle-1, 389, Industrial Area-A, Ludhiana. Ludhiana. PAN No: AACCT7355G APPELLANT RESPONDENT Revenue by : Smt. Kusum Bansal, CIT(DR) Assessee by : Sh. Sudhir Sehgal, Adv. Date of Hearing : 02.01.2025 Date of Pronouncement : 17.01.2025 ORDER PER MAHAVIR SINGH, VP:
This appeal by Revenue is arising out of the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi i.e. NFAC, Delhi, in appeal no. CIT(A), Ludhiana- 3/10550/2019-20, order dated 17.08.2023. The assessment was framed by ACIT, Circle-7, Ludhiana, for the relevant Assessment
ITA No.-618/CHANDI/2023 Tirupati Balaji Exim Pvt. Ltd. Year (AY) 2017-18, U/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 30.12.2019.
The first issue in this appeal of Revenue is as regards to the order of CIT(A), NFAC, in deleting the addition of Rs. 5,07,54,538/- made by the AO in respect of cash deposit during the demonetization period as unexplained credit U/s 68 of the Act and thereby taxing the same U/s 115BBE of the Act. For this, the Revenue has raised the following grounds nos. 1 and 3, which read as under:
“1. That the Ld. CIT(A), NFAC erred in law, in deleting addition of Rs. 5,07,54,538/- made by the Assessing Officer in respect of cash deposit as the assessee made cash sale through bill book of a new series which started in month of August, 2016 and ended in November, 2016 that have not been reported in the VAT return for the quarter ending September, 2016.
3. That the Ld. CIT(A), NFAC failed to appreciate the findings of the assessing officer w.r.t no reasoning provided by the assessee w.r.t introduction of a new bill series in the middle of the year and then abrupt stopping of issuing bill from the new series. The assessee also failed to substantiate name and address of the customers to whom such a huge cash sale was made from August, 2016 to November, 2016.”
Brief facts are that the assessee is engaged in the business of manufacturing and trading of wool top, woollen fabric etc. The Page 2 of 15
ITA No.-618/CHANDI/2023 Tirupati Balaji Exim Pvt. Ltd. assessee filed its return of income on 26.10.2017 for the Assessment Year 2017-18. The assessee’s case was selected for complete scrutiny under CASS. The assessee was required to produce cash book, sale/purchase account, VAT returns, copies of purchase and sale bills and copies of accounts of parties to whom cash sale have been made by the assessee during the period 01.04.2016 to 31.03.2017. The AO on perusal of the account of the assessee noticed that the assessee has deposited cash of Rs. 5,97,64,000/- in the SBI bank account bearing number 65048993034 during the demonetization period. The assessee explained that the entire cash deposit is out of verifiable cash in hands in the books of accounts. Accordingly, the AO, on perusal of the reply of the assessee company found that assessee has generated cash in last three months i.e. from 01.08.2016 to 08.11.2016 amounting to Rs. 5 crores +. According to AO, this was abnormal increase, and he further noted from the retails bills produce by assessee for the quarter no. 2 and 3 and perusal of the sale ledger and sales bills, that the assessee has introduced new retail bills series in the month of August to November other than the pre-existing retails bill series, in which sale of tax-free items Page 3 of 15
ITA No.-618/CHANDI/2023 Tirupati Balaji Exim Pvt. Ltd. have been made on regular basis in cash. The AO verified the bills as under:
Sr. No. Items Retail bill No. (Invoice no.) for A.Y. 2017-18 1. Retails bills R-00127 to R-00131 & R-00133 to R- 00472 2. Retails bills R-10001 to R-10375 The assessee replied that during FY 2016-17 there was a huge demand for the woolen woven cloth and raw wool in the cash market because of the Kashmir crisis and curfews imposed in the valley. Due to this the local small dealers from the unorganized sector of Kashmir valley got panicked as they were not getting an adequate supply of woolen materials. This forced them to come straight to the markets of Ludhiana which is the Hosiery and woolen Hub of north India and the bulk of the woolen material supplied to the valley and other hilly areas of India is supplied from Ludhiana. These local dealers of the valley had come” straight to assessee’s office located in 389, Industrial Area-A, Ludhiana for delivery of the goods. So implied the final sale counter was our office located in Industrial Area-A. Ludhiana. It should be noted
ITA No.-618/CHANDI/2023 Tirupati Balaji Exim Pvt. Ltd. that both woven cloth and Raw wool are of the nature that does not require and display counter and its main criteria are the micron quality of the wool that is used in the manufacturing of the product. So the order booking sample showing and final delivery was done from the sales office only. The office is handled mainly by officials under the supervision of management along with other small workers whose main functions are of packing and weight checking and the management itself is heavily involved in the final sales activity. It was contended that when the demonetization took place the whole country got panicked and there were long queues outside the bank branches. The management felt that the environment is not conducive to deposit the cash in one go and its prudent to be on safe side and deposit the same in instalments so that avert thing can be done in a smooth manner after taking into account the safety of the cash and of the officials that had gone to deposit the same. Before demonetization bulk of our wages and salaries were paid in cash. It was contended that the assessee was running two industrial units where a significant number of employees are marginalized workers and labourers whose take-home pay is around Rs.10 to 20 thousand per month. These workers do not Page 5 of 15
ITA No.-618/CHANDI/2023 Tirupati Balaji Exim Pvt. Ltd. accept big notes and always take a salary in the denomination of Rs. 100, 50, 20 and 10 Rupees. During the month of October 2016, the company had no lower denomination notes due to this and had to withdraw cash from the Bank. Further, the cash had been withdrawn on 07.10.2016, 10.10.2016 and 26102016 it should be noted that from 7th to 10th, they have salary pay days and from 25th to 27th to pay some advance to labour and employees. It's because of the paucity of the lower denomination notes had to withdraw cash from the bank. During the FY 2016-17, the company had started for the first time sale directly to customers in retail on a cash basis. It's because of this that the company started another billing series with name retail sale T & F, the same was started in the month of august to dispose of fabric and raw wool lying in godown and as and when the goods were finished the billing under this series was discontinued.
But the AO was not convinced from the above reply and he verified the retail bills, which are noted in assessment order from pages 6 to 27. He rejected the entire contention of the assessee and treated the sale disclosed by the assessee as bogus, and the cash
ITA No.-618/CHANDI/2023 Tirupati Balaji Exim Pvt. Ltd. deposited in the bank account during demonetization period as unexplained and added U/s 68 of the Act, by observing as under:
“1. Thus as per the discussions made above and going through the facts as per the show cause notice, reply filed by the assessee in his response and rebuttal to the response by the undersigned, it can be very well concluded that the assessee company, in this case, tried to introduce its own undisclosed cash amounting to Scrore+ after demonetization was announced by taking the route of increasing cash sale receipt and paying tax on its Gross Profit. The backdating of sale bills by introducing a new retail series was done to swell its cash book with lots of money and then depositing it in a bank so that it can be colored as a genuine sale in the garb of backdated sale bill retail series at the time of demonetization was announced. And finally, try to evade tax and penalty provisions of the nation.
It is a sheer case of backdating of newly introduced series of bills starting from 1st Aug 2016 and then finally stopping on 21st Nov 2016. The whole money earned from this series in cash ice around 5 crores plus was deposited in banks of the assessee company as sale receipt at the cash counter. Post demonetization announcement the series was introduced and made to be appeared a genuine one by filing the Q3 VAT return with full cash in hand amount of 5 cr+. As the Q2 return was filed before the demonetization announcement so the assessee company was unable to change the data filed earlier and introduce the data of the backdated newly introduced series in the Q2 return. 1. The facts of the case have been analysed and keeping in view of above observation, source of cash deposited as explained by the assessee from cash sales cannot be accepted in this case. In the light of the above view, it is gathered that assessee made cash sale of Rs. 5,42,54,538/- through a new series bill which started in the month of August 2016. The New series bill introduced by backdating of bills that have not been reported in the VAT return for the quarter ending Sep. 2016. Hence assessee company cash sale of Rs. 5,42,54,538/- is found ingenuine and needs to be taxed as income U/s 68 of the income tax Act. The assessee submitted that assessee already declared an amount of Rs. 35,00,000/- under PMGKY, 2016. Hence, addition of Rs. 5,07,54,538/- is made u/s 68 and taxed as per section 115 BBE and penalty u/s 271AAC of the Income Tax Act, 1961 initiated. (Addition of Rs. 5,07,54,538/-)”
ITA No.-618/CHANDI/2023 Tirupati Balaji Exim Pvt. Ltd. Aggrieved, the Assessee preferred an appeal before the CIT(A).
The CIT(A) after considering the submissions of the assessee and noting the comparative details of the yield arising from the manufacturing process of the assessee company for the year under consideration as well as the preceding year, as derived from the details maintained by the assessee in its regular course of business activities/ manufacturing process, noted as under:
Particulars 2015-16 2016-17 OPENING BALANCE 6,12,715.60 3,08,255,70 GREASY WOOL STOCK INWARD DURING THE YR 23,94,176.85 32,60,576.19 GREAST RAW WOOL SOLD 25,237.94 CLOSING BALANCE 3,08,255.700 6,71,518.600 GREASY SENT FOR PROCESSING FOR FURTHER 24,76,228.00 34,60,171.16 PROCESSING(A) SCOURED WOOL MANUFACTURED & SOLD 9,71,782.50 10,31,621.99 SCOURED WOOL ISSUED TO NEXT PROCESS(D) 7,29,781.65 13,07,194.24 TOTAL SCOURED WOOL 17,01,564.15 23,38,816.23 LESS: SCOURED WOOL PURCHASED 34,485.00 29,025.00 TOTAL SCOURED WOOL MFG (B) 16,67,079.15 23,09,791.23 YIELD % (B/A*100) 67.3 66.7 WOOL TOP MANUFACTURED FROM BALANCE 5,55,953.70 9,56,016.00 SCOURED WOOL(C) YIELD %(C/D*100) 76.18 73.13 WOOL TOP MFGD 5,55,953.70 9,56,016.00 WOOL TOP PURCHASED 1,48,147.63 1,09,901.00 OPENING STOCK 1,16,558.91 1,12,126.00 WOOL TOP SOLD 5,61,171.25 6,66,491.00 WOOL TOP ISSUED FOR YARN(F) 1,47,363 3,71,272.00
ITA No.-618/CHANDI/2023 Tirupati Balaji Exim Pvt. Ltd. CLOSING WOOL TOP STOCK 1,12,126.00 1,32,310.00 YARN MFD-E 1,26,835.81 3,38,765.69 YIELD%(E/F*100) 86.07 91.25 YARN ISSUED FOR WOOLEN/KNITTED CLOT MFGD 82,630.48 78,983.59 (G) WOOLEN WOVEN/KNITTED CLOTH MFGD (H) 80,486.64 77,846.50 YIELF % (H/G*100) 97.41 98.56
The CIT(A), after going through the entire process, noted that the AO has not rejected the books of accounts, and even the sales and purchases made by the assessee were not rejected, and hence, he deleted the addition of Rs. 5, 07, 54,538/- . Aggrieved, the Revenue came in appeal before Tribunal.
We have heard the rival contention and gone through the facts and circumstances of the case. We noted that the assessee is engaged in the business of manufacturing and trading of wool top, woollen fabric etc. from last so many years. The assessee purchases greasy wool from the market and after undergoing certain process, it is converted into scoured raw wool, which is again processed into wool top which is partly sold in the open market and partly, along with wool top purchased from the market, which is again used for further processing i.e. spinning out of yarn
ITA No.-618/CHANDI/2023 Tirupati Balaji Exim Pvt. Ltd. is manufactured. The assessee sales this yarn partly in the open market and other part of the said yarn is further processed into woollen woven fabric, which is the final output sold in the open market. The Assessing Officer has no doubt the purchases made by the assessee, manufacturing done by assessee and not rejected the books of account. We noted that the assessee has made sales both cash and through banking channels of wool and woollen woven fabric to the customers/buyers which is a general practice of the business of the assessee. The assessee during the year under consideration has made total sales of Rs. 176,92,56,036/- out of which cash sales is of the magnitude of Rs. 5,42,54,538/- i.e. constitutes 3.06% of the total sales. The sales made by the assessee have been duly recorded in the books of account and the complete cash book was produced before the AO. The AO could not point out any defect in the assessee’s records and accordingly entire cash deposit is properly explained by the assessee. We also further noted that even the yield pointed out by assessee i.e. final output generated during the year under consideration is commensurate with the final output generated in the immediate preceding year and the same is tabulated as under: Page 10 of 15
ITA No.-618/CHANDI/2023 Tirupati Balaji Exim Pvt. Ltd.
Items FY 2015-16 FY 2016-17 Scoured Wool 67.3% 66.7% Manufactured Wool Top 76.18% 73.13% Manufactured Yarn Manufactured 86.07% 91.25% Woolen Woven 97.41% 98.56% Cloth Manufactured
The assessee has filed complete details, including details of cash purchases, purchase bills, cash sales as well as vouchers copies of ledger account of purchases, copies of ledger account of sales made, copies of ledger accounts of charts, from whom purchase and sales have been made and confirmed copy of ledger account of certain parties. The assessee has also filed complete detail of debtors and creditors list. We find no infirmity into the finding of the CIT(A), as the AO could not point any mistake in the cash sales made and even these parties were never examined by AO to rebut the claim of assessee. Hence, the source of cash deposits made by assessee during demonetization period of Rs. 5,07,54,538/-, out of cash sales of Rs. 5,42,54,578/-, stands explained and, hence, we affirm the order of CIT(A). Hence, this issue of Revenue’s appeal is dismissed.
ITA No.-618/CHANDI/2023 Tirupati Balaji Exim Pvt. Ltd. 7. The next issue in this appeal of assessee is as regards to the order of CIT(A) in deleting the protective addition of Rs. 1,01,11,672/-. For this, Revenue has raised the following ground no. 2:
“That the Ld. CIT(A), NFAC erred on facts and law, in deleting protective addition of Rs. 1,01,11,672/- as the assessce company made sale through these newly introduced bill series amounting to Rs. 1,01,11,672/- to M/s Swadeshi Woolen Spinning Mills.”
We have heard the rival contention and gone through the facts and circumstances of the case. We noted that the AO has made addition of sales made to M/s Swadesh Woolen Spinning Mills and M/s Ambika Overseas, amounting to Rs. 1,01,11,672/- and Rs. 11,11,454/- respectively. The AO noted that there in genuine sales made to M/s Swadeshi Woollen Spinning & Mills for an amount of Rs. 1,01,11,672/- and the amount that was returned back into the account of M/s Tirupati Balaji Exim Pvt. Ltd. just after demonetization period after declaring it as cash sale and deposited in the bank account by M/s Swadeshi Woollen Spinning & Mills Ltd., and made this as protective addition. The CIT(A) deleted the addition by stating that this protective addition has already been Page 12 of 15
ITA No.-618/CHANDI/2023 Tirupati Balaji Exim Pvt. Ltd. added in the hands of Swadeshi Woollen Spinning & Mills Ltd. The CIT(A) deleted the addition by observing as under:
“Ground No. 6 This ground relates to protective addition of Rs. 1,01,11,672/-. Before me the submission of assessee were similar to the submission made with respect to ground no. 2 and 4. The assessee further submitted that this amount has already been added in the hands of Swadeshi Woolen and Spinning mills and the addition in the hands of assessee would lead to double addition. I have gone through the assessee's submission and AO's findings in my opinion no addition can be made when the book results were accepted and sales were also accepted. As this amount is part of the sales the same cannot be added in the hands of assessee. The AO is therefore directed to delete protective addition of Rs. 1,01,11,672.” We noted from the argument of Ld. Counsel for the assessee that this substantive addition made in the hands of Swadeshi Woolen and Spinning mills Ltd. is pending under challenge before CIT(A), and, hence, this protective addition deleted in the hands of the assessee has to be examined along with the appeal of M/s Swadeshi Woollen Spinning & Mills ltd. Accordingly, this order of CIT(A) on this issue is set aside, and matter remanded back to the file of the CIT(A) with the direction that this issue, in the case of assessee on protective addition should be heard along the appeal of Page 13 of 15
ITA No.-618/CHANDI/2023 Tirupati Balaji Exim Pvt. Ltd. Swadeshi Woolen and Spinning mills i.e. where substantive addition was made.
In terms of the above, this issue is restored to the file of the CIT(A) .
Appeal of Revenue is partly allowed for statistical purposes as indicated above.
Order pronounced in the Open Court on 17.01.2025