DCIT, CC-1, KANPUR vs. SHRI ABHISHEK SARAF, GORAKHPUR

(A) This appeal has been filed by Revenue for assessment year 2017-18 against impugned appellate order dated 04/08/2021 passed by learned C.O.No.12/Lkw/2021 2 Commissioner of Income Tax (Appeals) [“CIT(A)” for short]. In this appeal Revenue has raised the following grounds:

“1. On facts and circumstances of the case and in law, the learned CIT(A) erred in ignoring the fact that during the demonetization period assessee has shown unprecedented cash sale without any rational and failed to prove the reasons thereof.

2. On facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition which was determined after considering the peak sale of assessee itself during last three years where business activities were remained unchanged.”

(A.1) The assessee has filed Cross Objection raising the following grounds:

1. BECAUSE the Hon'ble CIT(A) had recorded a categorical finding, to the effect that source of cash deposits in regular bank account of the assessee stood fully explained and, in view of such findings of fact", the revenue was not justified to file the above mentioned appeal.

2. BECAUSE the assessee (the appellant before First Appellate Authority) had filed detailed written submission/pleadings so as to dispute the addition in question, and the appeal filed by the 'revenue' on the grounds mentioned below:

"1. On facts and circumstances of the case and in law, the Id. CIT(A) erred in ignoring the fact that during the demonetization period assessee has shown unprecedented cash sale without any rational and failed to prove the reasons thereof.

I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 3

3. BECAUSE otherwise also, the addition in question had been based purely on suspicion, surmises and conjectures and the Hon'ble CIT(A), had rightly deleted the addition in question, by holding that same was not maintainable, either on facts or in law.

4. BECAUSE the addition in question had been made in violation of rule of natural justice and "reasonableness" and the same was not at all sustainable.”

(B) In this case assessment order dated 27/12/2019 was passed u/s 143(3) of the Income Tax Act, 1961 (“the Act” for short) wherein the assessee’s total income was determined at Rs.1,82,96,219/- as against returned income of Rs.68,58,570/-. In the aforesaid assessment order, an addition of Rs.1,14,57,649/- was made u/s 69A of the Act. The assessee had deposited cash in bank account during demonetization period. Out of the total cash amounting to Rs.3,39,40,600/- deposited by the assessee in bank, the aforesaid amount of Rs.1,14,57,649/- was treated as unexplained money u/s 69A of the Act and was added to the assessee’s income. Relevant portion of the assessment order is reproduced below:

“……….From the perusal of same, it was observed that he had made cash deposits amounting to Rs.3,39,40,600/- during the demonetisation period. Vide questionnaire dated 02.09.2019 assessee was required to explain the source of such cash deposits. In response to same, it was stated that source of cash deposited during the demonetisation period was cash in hand as on 08.11.2016 which represented cash sales made by assessee during the month of C.O.No.12/Lkw/2021 4 October and November. Further vide questionnaire dated 25.10.2019 the assessee was required to furnish details of total sales, cash sale and cash deposit made by him during A.Y. 2015-16,2016-17 and 2017-18. In response to same, assessee submitted his reply on 17.12.2019. From the details furnished by assessee, it is observed that assessee was having Rs.2,37,88,488/- as opening balance of cash in hand on 01.04.2016 and thereafter cash sales amounting to Rs.2,92,84,728/- during the month of April, 2016 were made. By this way, total cash of Rs.5,30,73,216/- was generated in the month of April, out of which, he deposited cash amount of Rs.5,05,00,000/- and leaving Rs.25,73,216/- as opening cash in hand with assessee as on 01.05.2016. From the month May, 2016 to September,2016 ,he further made cash sales amounting to Rs.87,34,338/- but deposited only Rs.25,000/- in cash, consequently he accumulated cash amount of only Rs.1,12,82,554/- by 30.09.2016.

But opposite to this, he further deposited cash of Rs.4,60,00,000/- and Rs.3,37,50,000/- in the month of October,2016 and November,2016 respectively and source of these cash deposits were stated to be sales realized in cash amounting to Rs.6,70,15,388/- and Rs.90,89,862/- in the respective months. However from the perusal of details of month wise sale for A.Y. 2015- 16, 2016-17 and 2017-18, it was seen that unprecedented cash sales in the month of October 2016 which amounted to 80% of total sale was shown by the assessee. In comparison to this, peak percentage of cash sale to total sale in remaining periods of the year was only 34%. Accordingly assessee was required to justify reasons of such higher percentage of cash sale in the month of October 2016. In addition to this, another important fact in this case is that assessee had shown sale of only Rs.90,89,862/- in the month of November,2016 but total cash deposit in this month was Rs.3,37,50,000/-, which appears quite abnormal and irrational while considering the sale pattern of assessee and preponderance of human behaviour.

Vide reply uploaded on ITBA portal on 19.12.2019 the assessee replied that "figure of cash sale shown by him are genuine and that he has produced his books of accounts, cash book . It was further stated that since purchases have been subjected to third party verification by department, no adverse view should be taken. It was C.O.No.12/Lkw/2021 5 also stated that mathematical calculation does not hold good in assessment and there was no restriction cash sale."

Reply furnished by assessee has been considered. It is a fact that businesses do not strictly run on mathematical calculations but the experience tell that every business has its own model and definitely has some trend. Even in the case of assessee himself pattern of sale shows that maximum sale is made during the festive season of Deepawali which holds good for all the three years which have been compared. Further, ratio of cash sale to total sale in three years have varied but variations are not as high as in the month of October 2016. It is also a fact theft assessee's purchases were subjected to third party verification but only that cannot be a parameter to decide genuineness of claim of cash sale of assessee. In fact before arriving at conclusion one has to see surrounding circumstances and preponderance of probabilities of human behaviour. Reliance is placed on decision of Hon'ble ITAT Delhi in the case of Pooja Ajmani v. Income-tax Officer, Ward 20(4), New Delhi [2019] 106 taxmann.com 65 (Delhi - Trib.)/[2019] 177 ITD 127 (Delhi - Trib.). where it was held that "Every person is entitled to so arrange his affairs as to avoid taxation but the arrangement- must be real and genuine and not a sham or make believe... Keeping in view of the aforesaid discussions, it is opined that documents submitted as evidences to prove the genuineness of transaction are themselves found to serve as smokescreen to cover up the true nature of the transactions".

As discussed above, peak season of sale in jewellery sector is October, November and December. Therefore comparison is made between total sales for each of the month of third quarter of F.Y. 2016-17 and F.Y.2015-16. From such comparison it is evident that whereas percentage of peak sale in third quarter A.Y. 2016-17 was 27.40% it is 80.02% for A.Y. 2017-18 year.

On the basis of above statistics, it is evident that to cover the cash deposits in bank account during the demonization period, assessee has crafted and shown the unreliable figures of cash sales. As VAT return for quarter ending in September was already filed, only adjustment which was possible was backdating the sales to the month of October. By doing so, the assessee credited his unaccounted cash into bank account during demonetization period by way of showing C.O.No.12/Lkw/2021 6 non-genuine cash sale in the month of October,2016. Considering the peak percentage of 27.40 associated with cash sale in October to December last year, the peak percentage of cash sale to the total sale for the year under consideration is being progressively estimated/taken as 29.40 (27.40%+2%) in place of 80.02 as shown by assessee. Accordingly, cash sale in the third quarter @ 29.40% of total sales of Rs.25,36,78,870/- comes to Rs.7,45,81,587/- in place of Rs.8,60,39,236/- as shown by assessee. Therefore, short fall in cash sales comes to Rs. 1,14,57,649/-( Rs.8,60,39,236 - Rs. 7,45,81,587) as compared to total cash deposited during the months of October, November and December. Accordingly the cash deposits amounting to Rs1,14,57,649/- is being treated as unexplained money under section 69A of the Act and added to the total income of assessee for A.Y. 2017-18. As the addition is made under section 69A of the Act, provisions of section 115BBE shall apply. Penalty proceedings under section 271AAC are being initiated separately.”

The aforesaid addition of Rs.1,14,57,649/- was deleted by the learned CIT(A) vide impugned appellate order dated 04/08/2021. The relevant portion of the order of learned CIT(A) is reproduced below:

I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 7 C.O.No.12/Lkw/2021 8 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 9 C.O.No.12/Lkw/2021 10 C.O.No.12/Lkw/2021 11 C.O.No.12/Lkw/2021 12 C.O.No.12/Lkw/2021 13 C.O.No.12/Lkw/2021 14 C.O.No.12/Lkw/2021 15 C.O.No.12/Lkw/2021 16 C.O.No.12/Lkw/2021 17 C.O.No.12/Lkw/2021 18 C.O.No.12/Lkw/2021 19 C.O.No.12/Lkw/2021 20 C.O.No.12/Lkw/2021 21 C.O.No.12/Lkw/2021 22 C.O.No.12/Lkw/2021 23 C.O.No.12/Lkw/2021 24 The present appeal has been filed by Revenue against the aforesaid impugned appellate order dated 04/08/2021 of learned CIT(A). The C.O.No.12/Lkw/2021 25 assessee filed Cross Objection supporting the aforesaid impugned appellate order dated 04/08/2021 of learned CIT(A). In the course of appellate proceedings before the Income Tax Appellate Tribunal, the following materials were filed from the assessee’s side:

S.No. Particulars 1. Copy of independent auditor’s report, balance sheet and profit & loss account with all their schedule (relevant schedule being Schedule No. 10 of ‘Stock of Goods Traded’) 2. Copy of notice issued under section 143(2) 3. Copy acknowledgement of return and computation of income 4. Copy of notice issued under section 142(1), dated 02/09/2019 5. Copy of submission made, on the notice issued under section 142(1) dated 02/09/2019 6. Copy of VAT returns (4 quarters) relevant to financial year 2016- 17 7. Annexure-V of the submission made against notice under section 142(1) dated 02/09/2019, with respect to details of: (i)Stock summary (including opening stocik, purchases and sales) of each month from April, 2016 to 31/03/2017 (i.e. 12 months) (ii)Summary of purchases made, during the year (iii)Purchase register (iv)Summary of sales made during the year (v) Tax invoice register (vi)Central Invoice register (vii)Excise invoice register (viii)Retail sales register Annexire-VI of the submission made against notice u/s 142(1), dated 02/09/2019, with respect to details of: Consolidated stock summary for the financial year 2016-17 (which included-opening balance, purchases, sales and closing balance) “Quantity & Value Wise”.

C.O.No.12/Lkw/2021 29 C.O.No.12/Lkw/2021 30 C.O.No.12/Lkw/2021 31 (B.1.2) When the appeal was finally heard on 14th May 2025, the learned A.R. for the assessee regretted the mistakes in the aforesaid statutory audit report filed by the assessee in Form 3CD. The learned Sr. D.R. for Revenue submitted that the aforesaid affidavit dated 05/05/2025 of Chartered Accountant should be examined by the Assessing Officer and further submitted that for due verification of the affidavit, the issues in dispute din the present appeal regarding aforesaid addition should be restored back to C.O.No.12/Lkw/2021 32 the file of the Assessing Officer with the direction to pass de novo assessment order in accordance with law. The learned A.R. for the assessee expressed no objection to this. In view of the foregoing, the impugned appellate order of learned CIT(A) is set aside and the issues in dispute regarding the aforesaid addition are restored back to the file of the Assessing Officer with the direction to pass de novo assessment order in accordance with law after providing reasonable to the assessee.

(C) In view of our aforesaid directions, the Cross Objection, which was filed in support of the impugned appellate order dated04/08/2021 of the learned CIT(A), has become infructuous. Therefore, the Cross Objection is dismissed being infructuous.

(D) In the result, the appeal of Revenue is partly allowed and Cross Objection of assessee is dismissed.

(Order pronounced in the open court on 22/05/2025)