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M/S. MOTOR FAB SALES PVT. LTD.,,LUCKNOW vs THE DCIT/ACIT-4, LUCKNOW | BharatTax

M/S. MOTOR FAB SALES PVT. LTD.,,LUCKNOW vs. THE DCIT/ACIT-4, LUCKNOW

ITA 351/LKW/2020Status: DisposedITAT Lucknow30 June 2025AY 2017-18Bench: SHRI. SUDHANSHU SRIVASTAVA (Judicial Member), SHRI NIKHIL CHOUDHARY (Accountant Member)1 pages

AI SummaryAllowed

Facts

The assessee company, engaged in Automobiles and Jewellery, reported Nil income. During scrutiny, the Assessing Officer (AO) noticed a substantial increase in cash sales during the demonetization period (October-November 2016). The AO treated a significant portion of these cash sales as unexplained cash deposits out of bogus receipts and made an addition under Section 68 of the Income Tax Act, 1961.

Held

The Tribunal held that the addition made by the AO was based on assumption and presumption rather than cogent evidence. The CIT(A) had rightly deleted the addition made under Section 68. The Tribunal also found that the CIT(A)'s direction to add 20% premium on certain sales was also not substantiated by facts and was an assumption.

Key Issues

Whether the addition made by the AO on account of alleged bogus cash sales during the demonetization period is sustainable, and whether the CIT(A)'s subsequent direction to add a premium on sales is justified.

Sections Cited

143(3), 68, 115BBE, 271AAC

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, LUCKNOW BENCH “B”, LUCKNOW

Before: SHRI. SUDHANSHU SRIVASTAVA & SHRI NIKHIL CHOUDHARY

For Appellant: Shri Rakesh Garg, Advocate

These are cross-appeals by the assessee as well as the Revenue against the order dated 15.09.2020, passed by the ld. Commissioner of Income Tax (Appeal)-2, Lucknow (ld. CIT(A)) for Assessment Year 2017-18.

2.

The brief facts of the case are that the assessee- company is engaged in the business of Automobiles and Jewellery. The assessee e-filed its return of income for the year under consideration on 31.10.2017, declaring total income at Nil. The case of the assessee was selected for scrutiny under CASS. During the assessment proceedings, the AO noticed that during the year under consideration, the assessee had shown total sales of Rs.3,29,07,38,340/- against which net profit had been shown at Rs.2,79,82,015/- and also that there was a substantial increase in cash sales during the period October & November, 2016. The AO further noticed that out of the total cash sales of Rs.39,63,18,783/- for the entire year of 2016-17, the assessee had shown cash sale of Rs.23,36,82,272/- only for the period from October, 2016 till 8th November, 2016, i.e., the assessee had shown cash sales of Rs.23,36,82,272/- in 38 days. After considering the submissions made on behalf of the assessee and the materials placed on record, he treated Rs.17,50,26,651/- as being unexplained cash deposit out of bogus cash receipts in the following manner:

S.No. Particulars Amount (Rs.) A Average per day sale from April 1,83,461.00 to September B Accounting for percentage 3,66,922.00 increase of around 100% on account of festivals, per day sale for festival month C Average sale for 39 days on the 1,43,09,958.00 basis of above per day sale (C*39) D Total cash sale shown from 21,18,46,609.00 01.10.2016 to 08.11.2016 E Excess cash sale treated as 19,75,36,651.00 bogus receipts (D minus C) F Less: PMGKY declaration 2,25,10,000.00 G Unexplained cash deposit out of 17,50,26,651.00 bogus cash receipts 2.1 The AO, accordingly, completed the assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter called “the Act’) by making addition of Rs.17,50,26,650/- under section 68 of the Act .

4.0 In response, the Ld. A.R. submitted that the assessee was in the business of Jewellery, Automotive and Ancillary products during the year under consideration and had deposited an amount of Rs.19,03,98,000/- during the demonetization period. It was submitted that the cash deposited during the course of demonetization period comprised of opening cash balance as well as turnover of the assessee. It was submitted that the assessee had duly submitted a comparative chart of month-wise sales and purchases during the year as well as that of the previous year along with the details of cash deposited, before the AO. It was further submitted that the books of account of the assessee were duly audited and no discrepancy either in the books of account or in the stock was pointed out by the AO either during the course of assessment proceedings or in the assessment order. The Ld. A.R. further submitted that the books of account were also not rejected by the AO, which would imply that the sales and purchases made by the assessee were not in doubt. It was further submitted that the assessee had duly filed VAT Returns in time and even the VAT Department had not pointed out any discrepancy in the VAT Returns. Our attention was drawn to the copy of monthly VAT Return for October, 2016 and it was pointed out that this Return had been filed on 21.11.2016, i.e., on the due date of filing of the Return, which would demonstrate that the bona fide of the assessee was not in doubt. Our attention was also drawn to the assessment order passed by the VAT Department in respect of assessment year 2016-17 and it was submitted that the VAT Assessing Officer also had accepted the sales and purchases as disclosed in the VAT Returns for assessment year 2016-17. The Ld. A.R. also invited our attention to the Charts appearing at pages 5, 6 and 7 of the assessment order and pointed out that the opening cash in hand as on 01.04.2016 was Rs.1,10,74,812/- and as on 01.10.2016, it stood at Rs.9,62,84,327/-. It was submitted that the assessee had duly submitted cash-in-hand position during the year under consideration as well as during the previous year, which have been reproduced by the AO in his order and a perusal of the same would show that it is not the case of the Department that the assessee did not use to have substantial cash-in-hand in his books of account. It was further submitted that even the stock details were duly submitted before the AO and are appearing at pages 618 to 776 of the paper book and these were also produced before the AO and no discrepancy has been pointed out by the AO in this regard. It was submitted that in view of this, it can be safely concluded that the assessee had sufficient stock to make the impugned sales during the period of demonetization and, therefore, the allegation of inflated sales for the purpose of depositing cash was ill-founded.

“However the fact remains that the books of the accounts of the appellant are audited and manipulations if any, can be made in the books of the period under consideration but not in the case of any previous years. The opening stock for the current year is carried from the closing value of the previous year. The Value as disclosed by the appellant in the previous year, is tallied. It would be a farfetched idea to conclude that the appellant started to manipulate his books from previous years in anticipation of demonetization and subsequent introduction of cash through bogus sales. The appellant had opening stock of more than Rs.23.40 crores. The AO has not made any worthwhile enquiries in this regards, The enquiries made by the AO, if any, in this regard have not resulted in any discrepancy or variation that could have been reported in the assessment order. Once, the purchases are not doubted nor there is any doubt on the stock register of the appellant addition made only on the basis of comparison of sales, that too of totally unrelated period of business, is unsustainable. The AO has not made any enquiries with regards to the sale bills raised by the appellant and recorded in the books of account. She has simply brushed aside them as bogus and deliberately made below Rs.2,00,000/-, just to escape the TCS provisions. It is pertinent to note here that there is no provision in any law which could have forced the appellant to maintain the ID records of such sales, had it been the case that advances were taken by the appellant for future sales then it was duty bound to substantiate the same. The AO has failed to distinguish the difference between the cash sales and credit sale. There are no such provisions in other business in this regards either. the sales are properly vouched and reflected in the books of accounts of the appellant. The appellant has submitted that he maintains a cash balance of around Rs. five crore a cash balance of Rs 49521133/- was available on 31/03/2016 is verifiable from audited balance sheet filed. The A.O. has not considered the aforesaid facts and instead compared the sales from 01/04/2016 to 30/09/2016 i.e sale of 183 days with sales of 39 days ie from 01/10/2016 to 08/11/2016.The assessment order does not mention reason for the same. The appellant has submitted that there is always a sharp rise in sales during the months of October and November as these are the months of festive season and marriage. It is pertinent to note here that no two years are identical or same due to a variety of reasons, which are beyond the control of any businessman. The AO has not compared the sale of same period last year. The A.O failed to justify incremental upward revision of100%. The AO has not considered the rise in price of gold and silver, which is a major component of the appellant's turnover. The average price of gold increased from Rs.25,000/10 gms.- in October 2015 to Rs.30,000/-in October 2016. Thus, 20% increase was recorded in the average sale price of gold alone, same was the case of silver too. The AO has not considered the same and has not bifurcated the sale made in these categories. Furthermore, the very basis allowing the mark-up of 100%, precisely, has not been discussed in the assessment order. It is not known as to what prompted the AO to allow the mark-up at 100% only. it goes to show that the AO has only made estimates to arrive at a figure of sales. This is incorrect approach, particularly when the books of accounts are audited and the disclosed results pertaining to purchases and stock have been accepted.

AO made the above addition on the assumption that the appellant made abnormal sales disclosed in the books in the months of October and November, 2016. Again the AO has not brought anything on record except for the comparison made on the monthly sales figure, to substantiate her assumption. The AO has not doubted the books of account of the appellant and has accepted the same as such. The addition is not backed by evidence or enquiry. It is pertinent to note here that the amount of sales disclosed by the appellant have been accepted by the VAT Department also which is a separate quasi-judicial authority. The contention of the appellant that the cash sale of Rs.211846609/- is a part of the total turnover declared in the books of account and making addition on the same amount tantamount to double taxation is also correct. it was incumbent upon the AO to reduce such sales from the gross sales before making addition on this account. This has resulted in double taxation of the same amount of sales, the addition is required to be reduced from gross sales being incorrect. The AO has made the addition on bogus receipts u/s 68 r.w.s. 115BBE of the Act. The Income Tax Act was amended in the year 2017 in this regard. Section 115BBE is reproduced below:- 115BBE. (1) Where the total income of an assessee, - (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or (b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of- (i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).] (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance [or set off of any loss] shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) and clause (b) of sub-section (1). Section 68 of the Act provides inter alia that if where any sum is found credited in the books of an assessee maintained for any previous year, and the assesse offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of Assessing Officer, then such sum can be taxed as his income for such financial year. Under such circumstances, it is clear that the Assessing Officer may now apply the provisions of Section 115BBE of the Act read with relevant sections of the Act. This means that such income, though already offered to tax by the taxpayer, would be taxable at flat rate of 60 per cent on gross basis (i.e., without any deduction / allowance).

However, the AO is not vested with unfettered powers to reject any explanation, being not to his satisfaction. The Assessing Officer is bound under law to act reasonable and just while framing any satisfactory opinion surrounding the explanation offered by the taxpayer. The taxpayer is nevertheless saddled with the primary obligation to demonstrate the nature and source of any sum credited in books. In this case the appellant has submitted that the receipts were part of his disclosed turnover and the AO has disbelieved it only on presumptions. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx While doing business if an opportunity of sales arises appellant cannot decline the same for the reason that the similar amount of sales has not taken place in previous years. Finally, the provisions of section 68 of the Act cannot be applied in respect of cash deposits which have been duly recorded in the books of account and have already been considered as income in the return of income filed by the assessee. There cannot be double addition of the same amount. AO has not brought on record any evidence to prove these cash sales being fictitious sales before arriving at a conclusion in this regard. The AO has analysed the approach of the appellant on the basis of circumstantial evidences and preponderance of probabilities as emphasized for the purpose of Income Tax Act, 1961. The AO relied upon various case law in this regard. However, the judgment in these cases were made in different circumstances and it is not the case of any extra ordinary human behavior but the same relates to an audited books of account and analysis of the result declared there into. In view of the above I find that the addition made by the AO is not based on any cogent reason but the same is based on assumption only. As discussed above, it is also a case of double addition. It has been held through a number of judgments that the addition to the income shall be made only on cogent evidences and proper reasoning. Additions made on assumption and presumptions are not sustainable in the eyes of law.” 7.4 Thus, a perusal of the order of the ld. CIT(A) would show that the ld. CIT(A) has rubbished the theory of the AO on the following counts:

7.6 The Vishakhapatnam Bench of the ITAT in the case of ACIT vs. Hirapanna Jewellers in vide order dated 12.05.2021 was dealing with identical issue, i.e., deposit of cash during the course of demonetization by the assessee, who was in jewellery business and the AO had made addition under section 68 of the Act. While holding that the addition under section 68 of the Act was not in order, the ITAT Vishakhapatnam Bench went on to observe that in terms of section 68 of the Act, wherein the sum found credited in the books of account, for which the assessee offers no explanation, such sum is to be deemed to be the income of the assessee whereas in the appeal before the Vishakhapatnam Bench, the assessee had explained the source as sales, produced the sale bills and admitted the same as revenue receipt. The assessee was engaged in jewellery business and was maintaining regular Stock Registers and no difference was found in the Stock Register or the stocks of the assessee. The Purchases, sales and the stocks are interlinked and inseparable and, therefore, to disbelieve the sales, either the assessee should not have sufficient stocks or there must be defects in the Stock Register. Once there is no defect in the purchases and sales, there is no reason to disbelieve the sales. The Vishakhapatnam Bench further noted that the Departmental authorities did not find any defect in the books of account and trading account, profit and loss account and the financial statements and failed to disprove the contention of the assessee and further observed that suspicion howsoever strong, it should not be decided against the assessee without disproving the sales with tangible evidence. The Vishakhapatnam Bench further observed that once the AO accepts the books of account and the entries in the books of account are matched, there is no case for making addition as unexplained. In this regard, the Vishakhapatnam Bench placed reliance on the judgement of the Hon'ble Patna High Court in the case of Lakshmi Rice Mills vs. CCIT [1974] 97 ITR 258 (Patna) and another judgement of the Hon'ble Delhi High Court in the case of PCIT vs. Akshit Kumar [2021] 124 taxmann.com 123 (Delhi). It was also observed by the ITAT, Vishakhapatnam Bench that the sales could not be suspected merely because of some routine observation of suspicious nature such as making sales through 270 bills in the span of four hours, non-availability of KYC documents for sales, non-writing of tag of the jewellery on the sale bills, non-availability of CCTV footage to establish rush of public, etc. The ITAT, Vishakhapatnam Bench also did not accept the reliance placed by the Department in the case of Sumati Dayal vs. CIT, 1995 AIR 2105 (SC) and CIT vs. Durga Prasad More, 82 ITR 540 (SC) by observing that these two cases were related to circumstantial evidences in the absence of direct evidence, whereas, in the instance case, the facts clearly supported that the assessee had made sales and there were sufficient stocks to make the sales.