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Facts
The assessee, engaged in trading computers and peripherals, filed its return for AY 2017-18. The Assessing Officer (AO) noticed a cash deposit of Rs. 2,25,99,000/- during the demonetization period. The AO rejected the assessee's explanation that the deposits were from cash sales and debtor realization due to incomplete details and lack of proper record-keeping, consequently adding the amount as unexplained cash credit.
Held
The Tribunal held that the AO accepted the assessee's turnover and profit, and therefore could not reject the cash component of sales without contrary evidence. The mere fact that deposits were made late in the demonetization period or that some buyer addresses were incomplete was not sufficient ground for addition under Section 68, especially when the assessee had substantial cash in hand and had provided supporting documents like VAT returns.
Key Issues
Whether the cash deposits made during the demonetization period can be treated as unexplained cash credit under section 68, and consequently, whether tax under section 115BBE is leviable.
Sections Cited
144, 145(3), 68, 115BBE
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Before: MS. SUCHITRA RAGHUNATH KAMBLE & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, 'the Act’) dated 29.09.2023 by the Commissioner of Income-tax (Appeals) [in short, “the CIT(A)”] for the assessment year (AY) 2017-18.
The grounds of appeal raised by the assessee are as under: “(1) The Ld. CIT(A) has erred in law and on facts in not adjudicating the ground of challenging the validity of the assessment order passed u/s.144 of the Act. (2) The Ld. CIT(A) has erred in law and on facts in not adjudicating the ground praying to quash the action of the Ld. AO of invoking provisions of section 145(3) of the Act.
2017-18 Innovative Telecom & Softwares Pvt. Ltd. (3) The Ld. CIT(A) has erred in law and on facts in not adjudicating the ground praying to quash the action of the Ld. AO of making addition on the basis of entries made in books of accounts which are rejected u/s.145(3) of the Act. (4) The Ld. CIT(A) has erred in law and on facts in confirming the addition of Rs.2,25,99,000/- on the ground of alleged unexplained cash credits u/s.68 of the Act. (5) The Ld. CIT(A) has erred in law and on facts in not adjudicating the ground challenging the levy of tax u/s.115BBE of the Act on the above addition of Rs.2,25,99,000/-. (6) Each ground of appeal is independent and without prejudice to the other ground/grounds of appeal. (7) The Appellant craves leave to add, amend, alter, modify, substitute, delete, change or vary as all or any of the ground or grounds of appeal.”
The additional grounds of appeal raised by the assessee are as follows: “(1) The Ld. AO has erred in law and on facts in passing the assessment order u/s.144 of the Act. (2) The Ld. AO has erred in law and on facts in invoking the provisions of section 145(3) of the Act. (3) The Ld. AO has erred in law and on facts in making addition on the basis of entries made in books of accounts which are rejected u/s.145(3) of the Act. (4) The Ld. AO has erred in law and on facts in charging tax u/s.115BBE of the Act on addition of Rs.2,25,99,000/-.”
4. At the outset, learned Authorized Representative (ld. AR) of the assessee informed the Bench that assessee does not wish to press ground Nos.1, 2 and 3. Therefore, ground Nos.1, 2 and 3 are dismissed as not pressed.
The facts of the case in brief are that the assessee company was engaged in the business of trading of computer, peripherals and its components, 2017-18 Innovative Telecom & Softwares Pvt. Ltd. networking, AMC, repair, etc. during the year under consideration. The assessee filed its return of income for the AY 2017-18 on 23.10.2017, declaring total income at Rs.2,31,19,840/-. The case of the assessee was selected for scrutiny through CASS and notices u/s.143(2) and u/s.142(1) of the Act were issued, calling for various details, documents and explanations relevant to the issue in the return of income. In compliance, assessee furnished the details and submissions from time to time. On perusal of the same and return of income, the AO noticed that the assessee company had deposited cash of Rs.2,25,99,000/- in its bank account maintained with the YES Bank during the demonetization period and there was also variation in cash sales and cash in hand; hence, a show cause notice was issued calling for the explanation and details in this regard. In compliance of the same, assessee furnished its reply and explanation, however, the same was not found acceptable by the AO. AO noticed that during demonetization period, i.e., from 08.11.2016 to 30.12.2016, the assessee had made all the aforesaid cash deposits of Rs.2,25,99,000/- at the fag-end of the demonetization period.
As regards the source of aforesaid cash deposits, the assessee stated that the source of cash deposits was from the cash sales as well as from the realization from debtors. However, the assessee could not file the relevant details to substantiate its claim and merely furnished a list of cash sales for AY 2017-18.
2017-18 Innovative Telecom & Softwares Pvt. Ltd. On perusal of the list, the AO noticed that at many places, the names of the debtors were incomplete and at other places, the addresses were incomplete. Therefore, it was not possible by the AO to make third party inquiry. The AO further noticed that the assessee did not maintain day to day stock details and it could only give the aggregate figures of opening stock as on 01.04.2016. No break up of this stock on day today basis was furnished. Apart from failing to furnish the PAN, full addresses and contact details of the customers, assessee also failed to furnish the cash invoices issued to the various customers. Besides, assessee failed to furnish a bifurcation of cash sales and debtor realization. In view of the same, the books of the assessee were rejected u/s.145(3) of the Act for non- maintenance of stock register and Rs.2,25,99,000/- was added u/s.68 of the Act to the total income of the assessee as unexplained cash credit. Assessment order u/s.144 r.w.s. 143(3) of the Act was passed on 27.12.2019, determining total income of the assessee at Rs.4,57,18,840/-.
Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The CIT(A) agreed with the findings of the AO that appellant could not prove the actual cash sales during the year and the availability of the stock for such sales. He also observed that the assessee could not effectively prove that the cash deposits were only out of cash sales during the period of demonetization. In view 2017-18 Innovative Telecom & Softwares Pvt. Ltd. of the same, the CIT(A) sustained the addition u/s 68 of the Act of Rs.2,25,99,000/- and dismissed the appeal of the assessee.
Aggrieved by the order of CIT(A), assessee filed present appeal before the Tribunal. The learned Authorized Representative (ld. AR) submitted that during the assessment proceedings, the assessee submitted the details of cash sales such as name and address of purchasers, date of sale, amount realized against sales, etc., out of which the cash deposits of Rs.2,25,99,000/- were made into the bank account. In addition to this, the assessee also submitted month-wise details of opening cash balance, cash sales, cash withdrawals, cash deposits in bank, cash payments and expenses and closing cash balance. The ld. AR further submitted that assessee also furnished before AO, the list of parties to whom cash sales had been made along with copies of invoices issued to them. The details of debtors from whom cash was received was also submitted before the AO, viz., name of the purchasing party, address of the purchasing party, amount received in cash against sale, date of sales, etc. Therefore, the AO grossly erred in passing the impugned assessment order u/s.144 of the Act. 8.1 The ld. AR further submitted that the gross profit in the case of assessee increased to 21.05% during the current year from 10.7% in the preceding year, which is double the GP ratio of preceding year. The net income of AY 2017-18 was Rs.2,31,19,842/- against Rs.57,33,072/- in the preceding year. Since the 2017-18 Innovative Telecom & Softwares Pvt. Ltd. assessee is trading in computers, peripherals, numerous computer components and parts, etc., the maintenance of quantity records of all such numerous items sold over the counter is not possible. The ld. AR further contended that non maintenance of daily stock record cannot be made ground for rejection of book results u/s.145(3) of the Act. 8.2 The ld. AR also submitted that Rule 114B of the Income-tax Rules, 1962 does not require the mentioning of the PAN of the customers for sales below Rs.2,00,000/- and therefore, it is not mandatory to maintain complete identification details in case of sales below Rs.2,00,000/-. Further, the ld. AR submitted that in the list furnished to AO, complete addresses of many customers were stated. Therefore, the conclusion of the AO that the addresses of such customers were incomplete and the customers cannot be located on this basis, is only an assumption of the AO. The Ld. AR contended that the AO had not been able to point out a single error or defect in the books of account maintained by the assessee. Hence, the AO was not right in invoking the provisions of section 145(3) of the Act. 8.3 Regarding the issue of addition of Rs.2,25,99,000/- made by the AO u/s.68 of the Act, the ld. AR stated that the fact of late deposit of cash in the bank account cannot be made the ground for concluding that the assessee did not have sufficient cash balance in hand on 08.11.2016. In order to prove that cash 2017-18 Innovative Telecom & Softwares Pvt. Ltd. sale was not an afterthought, the assessee had submitted copies of all the monthly VAT returns before the AO. The monthly VAT returns containing details of monthly sales amply prove that the assessee had not revised a single return in the pre or post demonetization period and hence, the sales shown were genuine and not inflated. As per the ld. AR, the assessee was having cash in hand of Rs.2,54,47,294/- as on 08.11.2016, out of which as sum of Rs.2,25,99,000/- was deposited into the bank account of the assessee. The ld. AR further submitted that on the one hand, the AO accepted the sales made by the assessee and levied tax on the income out of such sales while, on the other hand, the he rejected the claim that aforesaid cash was generated out of such sales, without any contrary evidence. The assessee has relied upon a number of decisions of the Hon’ble High Courts including jurisdictional High Court, wherein the Hon’ble Courts held that when sales are accepted by the AO, the AO cannot make separate addition of the related receipts in cash against sale u/s 68 of the Act. He relied upon the following decisions: (i) CIT vs. Vishal Exports Overseas Ltd. (Tax Appeal No. 2471 of 2009 dated 03.07.2012 (Guj. HC), (ii) Anantpur Kalpana Vs. ITO [2022] 138 taxmann.com 141 (Bangalore – Trib.), (iii) DCIT vs. Roop Fashion 145 taxmann.com 216 (Chandigarh – Trib) and (iv) M/s. Singhal Exim Pvt. Ltd. Vs. ITO [ITA No. 6520/Del/2018 (Delhi Trib)].
2017-18 Innovative Telecom & Softwares Pvt. Ltd. 8.4 The ld. AR also submitted that enhanced rate u/s 115BBE of the Act is not applicable for AY 2017-18. For this view, he relied upon various decisions including the decisions of ITAT, Surat.
On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) for the revenue relied upon the order of the lower authorities and requested to uphold the order of CIT(A).
We have heard both the sides and perused the materials placed on record. We have also deliberated on the decision relied upon by the ld. AR. The appellant has not pressed grounds on validity of order u/s 144 of the Act, rejection of books of account u/s 145(3) of the Act. Hence, the only issues for adjudication are addition of Rs.2,25,50,000/- u/s 68 and levy of tax at the enhanced rate of 60% u/s 115BBE of the Act.
The first issue is whether cash deposits made during the demonetization period could be treated as unexplained cash credit u/s 68 of the Act. There is no dispute that the assessee had deposited cash of Rs.2,25,99,000/- during the demonetisation period. The ld. AR contended that the said cash deposit was out of opening cash balance, cash sales, realization of debtors and cash withdrawals prior to demonetization period. The AO did not accept the explanation of the assessee by observing that appellant has deposited the cash at the fag-end of the demonetization period and it failed to give bifurcation of cash deposit by way of 2017-18 Innovative Telecom & Softwares Pvt. Ltd. cash sales and realization from debtors. The addresses and other details of the buyers were not complete. The assessee also did not maintain stock register and only the figure of opening stock was given without any break up. The CIT(A) observed that the appellant has completely relied on the details and documents submitted before the AO. He agreed with the findings of AO. He has also relied on the decision of ITAT, Hyderabad in case of Vaishnavi Bullion Pvt. Ltd. vs. ACIT, & 561/Hyd/2020, dated 28.11.2022, wherein addition u/s 68 of the Act was upheld in the hands of the assessee. Since the appellant had not submitted complete details of the debtors from whom cash was received, the genuineness of the cash receipt could not be verified. He held that appellant could not prove that cash deposit was out of cash sales during the period of demonetization. 11.1 We find that the AO has accepted the turnover declared by the assessee and the profit generated therefrom. However, he did not accept the contention of the assessee that cash deposits were out of cash sales and debtors realization, by observing that the assessee was not able to identify the customers who purchased various items in cash from the assessee. He, accordingly, added the entire cash deposit made during the demonetization period. Having accepted the sales shown in the P&L account, the AO cannot reject the cash component of those very sales without bringing any contrary evidence on record. The Hon’ble 2017-18 Innovative Telecom & Softwares Pvt. Ltd. Gujarat High Court in the case of Vishal Exports Overseas Ltd. (supra) held that when sales are accepted, receipts cannot be treated as unexplained cash credits for addition u/s 68 of the Act. Once the assessee sold the goods, the buyer of the goods becomes the debtor of the assessee and any receipt of money from the debtors is the realization of such debt. Therefore, provisions of section 68 cannot be applied in respect of realization of such sales from the debtors. Reliance in this regard is placed on the decisions in cases of Anantpur Kalpana (supra), Roop Fashion (supra) and M/s. Singhal Exim Pvt. Ltd. (supra). 11.2 In the present case, the assessee has produced month-wise cash flow statement, list of cash customers, invoices issued, VAT returns containing sales figures, reconciliation of cash in hand and deposits. The relevant details of the opening balance, cash sale receipts, cash withdrawals, cash payments and expenses, cash deposit in the bank and closing cash balance was submitted before the AO and CIT(A), which is reproduced below for ready reference: (Amt. in Rs.) Month Opening Cash sales / Cash Cash Cash Closing balance receipts withdrawal deposit payment Balance & expense Apr, 45,92,539/- 32,19,330/- 3,00,000/- 3,20,000/- 4,07,360/- 73,84,509/- 2016 May, 73,84,509/- 42,60,376/- 3,00,000/- 1,50,000/- 4,59,817/- 1,13,35,068/- 2016 June, 1,13,35,068/- 37,21,373/- 3,00,000/- - 6,31,626/- 1,47,24,815/- 2016 July, 1,47,24,815/- 37,40,909/- 3,00,000/- - 4,20,128/- 1,83,45,596/- 2016 Aug, 1,83,45,596/- 35,52,520/- 3,00,000/- - 4,12,407/- 2,17,85,709/- 2016 2017-18 Innovative Telecom & Softwares Pvt. Ltd. Sept, 2,17,85,709/- 3,23,93,999/- 3,00,000/- 18,99,500/- 7,26,374/- 2,26,99,234/- 2016 Oct, 2,26,99,234/- 34,37,455/- 6,00,000/- 10,02,000/- 5,21,950/- 2,52,12,739/- 2016 Upto 2,52,12,939/- 2,98,500/- - - 63,945/- 2,54,47,294/- 08.11.2016 11.3 It is clear from the above table that the assessee had cash balance of Rs.2,54,47,294/- as on 08.11.2016 out of which it has deposited cash of Rs.2,25,99,000/- during demonetization period. The details given in the table has not been controverted by the AO. The AO’s objection that some addresses of cash customers were incomplete cannot be a basis to treat trading receipts as unexplained, particularly where sales have been recorded contemporaneously, VAT returns were filed without revision, turnover has been accepted and no defect in books has been established. The AO has not shown that these cash sales were fictitious, inflated or sham or were from sources not recorded in the regular books of account. No inquiry was made from VAT authority nor any credible material has been brought on record to controvert the assertion of the assessee.
The mere fact that deposits were made at the fag-end of the demonetization period cannot be the ground to make the addition u/s 68 of the Act. As stated earlier, the assessee had declared cash in hand of Rs.2,54,47,294/- as on 08.11.2016. After depositing cash of Rs.2,25,99,000/-, there was still cash balance of Rs.28,48,294/-. Therefore, the addition u/s 68 of the Act is based purely on suspicion and assumptions rather than on any evidence.
2017-18 Innovative Telecom & Softwares Pvt. Ltd.
Another issue emphasized by the AO is non maintenance of the details regarding the PAN and address of the buyers. The Hon’ble Gujarat High Court in the case of ITO vs. Prestige Marketing Pvt. Ltd., Tax Appeal No. 479 of 2008 dated 08.-09.2008 held that the appellant is under no legal obligation to keep record of name and address of persons to whom sales have been made below Rs.2,00,000/-. Once the sales account was credited, the same could not be treated as cash credit u/s 68 of the Act. The facts of the present appeal are covered by the above decision.
The CIT(A) has also relied on the decision of the ITAT, Hyderabad in case of Vaishnavi Bullion Pvt. Ltd. (supra). The decision is not applicable because the facts in the case relied upon are different from the facts of the present case. In the said case, no sale of gold was made prior to 08.11.2016 and the SBNs were received by the said assessee by way of advance against sale of gold vide receipts dated 08.11.2016 and 09.11.2016. Hence, there was no cash on hand before the date of demonetization in case of Vaishnavi Bullion Pvt. Ltd. (supra). However, in the instant case the appellant has proved with evidence availability of cash of Rs.2,54,47,294/- as on 08.11.2016. Therefore, reliance on the decision in case of Vaishnavi Bullions Pvt. Ltd. (supra) would not further the cause of the revenue.
In view of the above facts and decisions cited supra, we are not incline to agree with the findings of the lower authorities and accordingly set aside the