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Facts
The assessee, engaged in trading agricultural and submersible pumps, filed his return of income. His case was selected for scrutiny regarding cash deposits during demonetization. The AO made an addition of Rs. 97,97,340/- representing cash deposited during this period.
Held
The Tribunal held that the AO made the addition based on conjectures and surmises without rejecting the assessee's books of account, which were accepted by the VAT department. The AO failed to establish a link between the evidence and the addition. Therefore, the addition was deleted.
Key Issues
Whether the addition for cash deposits during demonetization is justified without rejecting the assessee's books of accounts and based on conjecture and surmises.
Sections Cited
69A, 115BBE, 69, 68, 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCH “B”, JAIPUR
Before: SHRI GAGAN GOYAL & SHRI NARINDER KUMAR
This appeal by the assessee is directed against the order of NFAC, Delhi dated 24.01.2025 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’).The assessee has raised the following grounds of appeal: -
1. The Ld. CIT(A), NFAC has erred on facts and in law in upholding the order of AO in making the addition for cash deposited during demonetization period out
of the cash sales recorded in the books of accounts as unexplained money u/s. 69A of the Act.
2. The Ld. CIT (A), NFAC has erred on facts and in law in not completely deleting the addition of cash deposit of Rs. 97, 97,340/- in the bank account during demonetization period out of the cash sales recorded in the books of accounts by directing the AO to allow deduction of average monthly sales from the cash deposited during demonetization period and the net profit declared by the assessee on such amount.
3. The Ld. CIT(A), NFAC has erred on facts and in law in taxing the alleged unexplained cash deposit in the bank account u/s. 115BBE @ 60% instead of taxing the same @ 30% by ignoring that section 115BBE substituted by Taxation Laws (Second Amendment Act), 2016 which received the assent of President on 15.12.2016 and made applicable from 01.04.2017 is applicable to any transaction from 01.04.2017 onwards and not to any transaction prior to 01.04.2017.
4. The assessee craves to amend, alter and modify any of the grounds of appeal.
2. The brief facts of the case are that the assessee filed his return of income on 01.11.20174 declaring total income at Rs. 6,48,470/-. The assessee is engaged in the business of trading of agricultural pipes and boring pipes for submersible pumps in the name of M/s. Shera Pipe Agencies. The case of the assessee was selected for complete scrutiny under the CASS on the issue of Cash deposits during the demonetization period. Throughout the assessment proceedings other than seeking adjournment once on 22.11.2019, the assessee never turned up for participation in the proceedings. Ultimately, the case of the assessee was assessed by making addition of Rs. 97,97,340/- being amount of cash deposited during the demonetization period. The assessee being aggrieved with the same preferred an appeal before the Ld. CIT (A), who in turn partly allowed the appeal, but the assessee is still not satisfied with the order of the Ld. CIT (A) and preferred the present appeal before us.
3. We have gone through the order of the AO, order of the Ld. CIT (A) and submission of the assessee alongwith the grounds taken before us. It is observed that the assessee individual running retail business of trading of agricultural pipes and boring pipes for submersibles to agriculturists and small shop keepers, who again sell to agriculturists of their areas. Sales mainly affected in cash and the same he used to deposit in his cash credit account in Punjab National Bank and the current account maintained in Bank of Baroda. The AO made addition of whole amount of cash deposited in the above named bank accounts. It is also observed that the contents of the trading account and books of the assessee was not at all disturbed by the AO, fully accepted and have not pointed out any defect into the same.
4. The AO made the addition of Rs. 97, 97,340/- being amount of cash deposited during the demonetization period u/s. 69 of the Act, which is a deeming provision. For ready reference we are reproducing herein below the relevant provisions of the sections 69, 69A and 69B of the Act as under:
Section - 69, Income-tax Act, 1961 - FA, 2024 Unexplained investments.
Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.
Our observations on the applicability of the section: Section 69 of the Act can be applied only in the case, where the assessee has made any investment and the same has not been recorded in the books of accounts maintained by him. In this matter there is no allegation of making any investment by the assessee and above that whatever may be the transaction is duly recorded in the regular books of accounts maintained by the assessee. Both the conditions have to be fulfilled simultaneously, in this case even single condition is not being fulfilled.
Section - 69A, Income-tax Act, 1961 - FA, 2024 Unexplained money, etc. 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. Our observations on the applicability of the section: Section 69A of the Act can be applied only in the case, where the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and the same has not been recorded in the books of accounts maintained by him. In this matter there is no allegation of possession of any money, bullion, jewellery or other valuable article and above that whatever may be the transaction is duly recorded in the regular books of accounts maintained by the assessee. Both the conditions have to be fulfilled simultaneously, in this case also even single condition is not being fulfilled.
Section - 69B, Income-tax Act, 1961 - FA, 2024 Amount of investments, etc., not fully disclosed in books of account. 69B. Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year. Our observations on the applicability of the section: Section 69B of the Act can be applied only in the case, where the assessee has made investment or is found to be the owner of any bullion, jewellery or other valuable article and the same has not been fully recorded in the books of accounts maintained by him, i.e. the actual value exceeds the amount recorded in the books of accounts. In this matter there is no allegation of possession of any bullion, jewellery or other valuable articles which are under recorded and above that whatever may be the transaction is duly recorded in the regular books of accounts maintained by the assessee. Both the conditions have to be fulfilled simultaneously, in this case also even single condition is not being fulfilled.
The assessee produced sales register on 23.12.2019 with all necessary documents including monthly cash sales and cash deposit for the period 01.04.2016 to 31.03.2017 and ledger of monthly sales and purchases during the year under consideration alongwith the certificate of bank for deposit of cash in Punjab National Bank. It is also pertinent to mention that Rule 114B of the Rules is applicable only in case of cash sales exceeding Rs. 2 Lacs to a single person, i.e. if the amount of sales to a single buyer is less than Rs. 2 Lacs there is no requirement of maintaining complete details of the buyer. For ready reference Rule 114B of the Rules is reproduced herein below as under:
Rule - 114B, Income-tax Rules, 1962 Transactions in relation to which permanent account number is to be quoted in all documents for the purpose of clause (c) of sub-section (5) of section 139A. 114B. Every person shall quote his permanent account number in all documents pertaining to the transactions specified in the Table below, namely: — Sl. No. Nature of transaction Value of transaction (1) (2) (3)
Sale or purchase of a motor vehicle or All such transactions. vehicle, as defined in clause (28) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988) which requires registration by a registering authority under Chapter IV of that Act, other than two wheeled vehicles.
Opening an account [other than a time- All such transactions. deposit referred to at Sl. No. 12 and a Basic Savings Bank Deposit Account] with a banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act).
Making an application to any banking All such transactions. company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act) or to any other company or institution, for issue of a credit or debit card.
Opening of a demat account with a All such transactions. depository, participant, custodian of securities or any other person registered
under sub-section (1A) of section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992).
5. Payment to a hotel or restaurant against a Payment in cash of an amount exceeding fifty thousand rupees. bill or bills at any one time.
Payment in connection with travel to any Payment in cash of an amount exceeding fifty thousand rupees. foreign country or payment for purchase of any foreign currency at any one time.
7. Payment to a Mutual Fund for purchase of Amount exceeding fifty thousand rupees. its units.
8. Payment to a company or an institution Amount exceeding fifty thousand rupees. for acquiring debentures or bonds issued by it.
9. Payment to the Reserve Bank of India, Amount exceeding fifty thousand rupees. constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934) for acquiring bonds issued by it.
Deposit with, — Cash deposits, —
(i) a banking company or a co- (i) exceeding fifty thousand rupees during any one day; or operative bank to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act);
(ii) Post Office. (ii) aggregating to more than two lakh fifty thousand rup 9th November, 2016 to 30th December, 2016.]
Purchase of bank drafts or pay orders or Payment in cash for an amount exceeding fifty thousand rupees d banker's cheques from a banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act).
12. A time deposit with, — Amount exceeding fifty thousand rupees or aggregating to more during a financial year. (i) a banking company or a co- operative bank to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act); (ii) a Post Office; (iii) a Nidhi referred to in section 406 of the Companies Act, 2013 (18 of 2013); or (iv) a non-banking financial company which holds a certificate of registration under section 45-IA of the Reserve Bank of India Act, 1934 (2 of 1934), to hold or accept deposit from public.
Payment for one or more pre-paid Payment in cash or by way of a bank draft or pay order or b payment instruments, as defined in the amount aggregating to more than fifty thousand rupees in a fina policy guidelines for issuance and operation of pre-paid payment instruments issued by Reserve Bank of India under section 18 of the Payment and Settlement Systems Act, 2007 (51 of 2007), to a banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act) or to any other company or institution.
Payment as life insurance premium to an Amount aggregating to more than fifty thousand rupees in a fina insurer as defined in clause (9) of section 2 of the Insurance Act, 1938 (4 of 1938).
A contract for sale or purchase of Amount exceeding one lakh rupees per transaction. securities (other than shares) as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).
Sale or purchase, by any person, of shares Amount exceeding one lakh rupees per transaction. of a company not listed in a recognised stock exchange.
Sale or purchase of any immovable Amount exceeding ten lakh rupees or valued by stamp valuation property. in section 50C of the Act at an amount exceeding ten lakh rupees
Sale or purchase, by any person, of goods Amount exceeding two lakh rupees per transaction: or services of any nature other than those specified at Sl. Nos. 1 to 17 of this Table, if any.
Provided that where a person, entering into any transaction referred to in this rule, is a minor and who does not have any income chargeable to income-tax, he shall quote the permanent account number of his father or mother or guardian, as the case may be, in the document pertaining to the said transaction: Provided further that any person, not being a company or a firm,]who does not have a permanent account number and who enters into any transaction specified in this rule, he shall make a declaration in Form No. 60 giving therein the particulars of such transaction either in paper form or electronically under the electronic verification code in accordance with the procedures, data structures, and standards specified by the Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems): 6. In view of the above, there is no stipulation on the assessee to maintain the details of the buyer if not falling in the clause 18 above. As the assessee has already produced all the relevant details pertaining to sales (cash, cheque and credit), the AO/ Ld. CIT (A) is duty bound to point out the defect or violation if any, of Rule 114B of the Rules. The assessee had also filed necessary books of account, including cash book, sales register, and sales bills, purchase details along with bills and stock details to prove that there is no discrepancy in books of account and also the assessee has reported sales made before the date of demonetization to GST authorities. The AO never disputed sales declared by the assessee nor pointed out any discrepancy in purchase or stock in trade held in the business of the assessee before the date of demonetization. In fact, a sale declared by the assessee is backed by corresponding purchases, and is supported by necessary purchase bills. The AO could not point out any discrepancy in stock register maintained by the assessee nor made out a case that the assessee has declared sales without there being any stock in hand.
In the instant case the assessee had explained the source as sales, produced the sale bills and admitted the same as revenue receipt. The assessee is maintaining the regular stock registers. On every occasion of cash deposit, there was intimation to the department and to verify the facts of sales, purchase and stock, the revenue was very well empowered and informed and could have done spot survey to verify the facts relating to stock, sales and cash deposit etc. The Specified Bank Notes (Cessation of Liabilities) Act, 2017, clearly state that from appointed date 31.12.2016, no person can receive/transact or deal with SBNs. In other words, there is no bar under law for accepting demonetized currency up to 31.12.2016. In view of this, if assessee wants then it may have spread the sales between the periods 08.11.2016 to 31.12.2016. There was no bar in the Income Tax Act, the only action could have been if any, from the Reserve Bank of India.
The A.O has blown hot and cold by partly rejecting the books of accounts and partly accepted the books of accounts, which is bad-in-law. Then he can't rely on the books of accounts like opening stock, closing stock, purchases, sundry debtors, sundry creditors, GP Ratio and expenses etc., which are based on books of accounts only, have been accepted. In the present case, the revenue has not rejected the books of account of the assessee accepted in VAT. The regular books of account were maintained in the normal course of business in which no flaw, fallacy or deficiency was pointed out by the Assessing Officer. It is well settled law that once the Assessing Officer accepts the books of account and the entries in the books of account are matched, there is no case for making the addition as unexplained.
The lower authorities cannot place reliance on the circumstantial evidence which is only conjectures and surmises and the said approach of the AO is devoid of merit it deserves to be rejected. Further, the income of the assessee has to be computed by the Assessing Officer on the basis of available material on record and it is very important to have direct evidence to make an addition rather than circumstantial evidence. When the assessee gives any reply or submission or any documents to the Assessing Officer, it is duty of the Assessing Officer to examine the same in the light of the available evidence. In the instant case the Assessing Officer has concluded the findings on the basis of conjectures and surmises. The Assessing Officer has to establish the link between the evidence collected by him and the addition to be made. The entire case has to be dependent on the rule of evidence, the assessee in this case explained the source of bank deposits are from cash sales. The Assessing Officer proceeded to disbelieve the explanation of the assessee on the presumption basis without bringing the corroborative material on record. The Assessing Officer is required to act fairly as reasonable person and not arbitrarily capriciously. The assessment should have been made based on the adequate material and it should stand on its own leg. The Assessing Officer without examining any parties to whom the goods are sold by the assessee, came to conclusion that the sales are not genuine, without even rejecting the books of account which is in our opinion is erroneous.
11. Moreover, a sale is a subject matter of VAT Department. The Income Tax Department is empowered to verify the transaction from income point of view. Another department of the Govt., i.e. VAT department had already accepted the position of sales and purchases declared by the assessee, hence simply on circumstantial evidence will be taken as conjectures and surmises only. Once the assessee declared the sum of cash received as sales, the revenue department has two options either to verify the same by conducting spot survey to establish its concerns or to reject the books of accounts and apply G.P. Rate on the transactions. Here in this case neither survey proceedings were carried out nor the books of accounts were rejected, in that case the action of the AO will be taken as based on conjectures and surmises.Based on the above, we observed that the assessee produced all the relevant material before the AO at the time of assessment proceedings and the AO was duty bound and empowered too for verification through spot survey or by assigning reasons to reject the books of accounts to strengthen his stand for applying either section 68 of the Act or estimating the profit u/s. 145(3) of the Act. But he failed to do so; in that case we do not see any strength in the orders of the AO and the Ld. CIT(A), hence the same areset-aside and pertinent grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed and addition is directed to be deleted.
The Order is pronounced in the open court on the 8th day of May2025.