DY. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1)(1), SURAT, SURAT vs. KISHAN BARANWAL, SURAT

Brief facts of the case are that during the year under consideration the assessee was engaged in the business of trading of bullion and silver in the name of S.V. Jewellers and had filed his return of income for AY 2017-18 on 30.10.2017, declaring total income at Rs.20,43,540/-. The assessee had made cash deposits of Rs.2.45 Cr. during demonetization period, i.e., 09.11.2016 to 31.12.2016. The case of the assessee was selected for scrutiny under CASS and accordingly notices 2 2017-18 Kishan Baranwal u/s.143(2) and u/s.142(1) of the Act were issued seeking details and supporting documents on relevant issues. Assessee was issued show cause notice requesting to explain the sources of cash deposits. In response, assessee had submitted sale bills, purchase bills, ledgers and stock statements.

The AO verified the sales bills randomly from invoice Nos.605 to 848 and observed that there were no signature of the receiver on them and the same were without PAN. Besides, the addresses of the purchasers were also not found correct. Therefore, AO gave further opportunity to the assessee to produce or identify at least 15 persons named in the bills serially for verification. In reply, it was stated by the assessee that the entire sales were made out of the available stock and were duly recorded in the books of account. The stock register (daily wise) was also produced before the AO. The detail of purchase along with copies of bills were produced. The copy of cash books was also submitted during assessment proceedings. The assessee stated that PAN/Form No. 60 was required only when sale amount exceeded Rs.2,00,000/- and for cash sale less than Rs.2,00,000/-, customers could not be insisted to submit detailed information. The assessee insisted that his books of account were audited hence, the genuineness of the sales cannot be doubted merely on assumption.

Assessee further stated that during the year under consideration, especially in the month of November, 2016, he had made cash deposits of Rs.7.08 Cr. and out of which SBN notes were of Rs.2.45 Cr. only. In the immediately preceding 3 2017-18 Kishan Baranwal year, i.e., November, 2015, the assessee made cash deposits to the tune of Rs.8.40 Cr. It was also stated that the cash balance of Rs.2.50 Cr.s increased due to Diwali festival and due to demonetization, he had deposited the same in this bank account.

The contentions of the assessee were not accepted by the AO. According to the AO, if the assessee had maintained his accounts properly, the bills would have been verifiable. Besides, the assessee also failed to verify even 15 bills out of 244 bills submitted by him. It was further noted by the AO that the address given in every bill was not true and same was manipulated and fictitious without genuine purchasers. This proves inadequacy, incompleteness and fictitious nature of the books of the assessee. Considering all these facts, books of account of the assessee were rejected u/s 145(3) of the Act. The AO observed that the assessee had deposited Rs.2.45 Cr. during the demonetization period and assessee failed to furnish cogent documentary evidence to explain the nature and source of the same. The AO also observed that the opening cash balance of the assessee for October, 2016 was at Rs.27,86,085/- and after giving credit of the same, the remaining amount of Rs.2,17,13,915/- (i.e., 2,45,00,000 – 27,86,085) was added as unexplained money u/s 69A r.w.s. 115BBE of the Act. The total income was accordingly determined at Rs.2,37,57,455/-.

Aggrieved by the aforesaid assessment order dated 29.12.2019, assessee preferred appeal before CIT(A). During appellate proceedings, CIT(A) observed that 4 2017-18 Kishan Baranwal the assessee had filed purchase book and sales book along with bills, stock register, cash book and bank statements. Assessee had mentioned the sales, purchases and stock in the return of income and tax audit report and the AO had never doubted the purchases made by the assessee nor could he find any mistake in stock register or in the cash book. The CIT(A) observed that when the books of account are audited and stock register is also maintained by the assessee, they cannot be rejected merely on the basis of wrong address on some bills. The CIT(A) further observed that the AO had accepted the returned income of the assessee from the profit and loss account submitted and computed the assessed income by rejecting the books of account. According to the CIT(A), if books results were rejected, the AO should have recalculated the profit on the entire turnover of the assessee. Merely adding the cash deposits of a certain period is not acceptable.

The CIT(A) further observed that the assessee had sold bullion and silver in cash on daily basis and the sale receipts were regularly deposited in his bank account. It was also observed that the assessee’s cash sale was comparatively much lesser than earlier years. The CIT(A) relied upon the decision of the Hon’ble Supreme Court in the case of Laxmichand Baijnath vs. CIT, 35 ITR 416 (SC), wherein Hon’ble Supreme Court held that the amount credited in business books can normally be presumed as related to business. The CIT(A) further observed that the payment received from various customers cannot be doubted until contrary material is brought on record that assessee received cash from other sources. To 5 2017-18 Kishan Baranwal treat a receipt as unexplained income, the AO needs to be in possession of some material indicating that the assessee has received certain amounts which have not been reflected in the books of account. The CIT(A) also observed that there is no doubt that cash was generated from business and recorded in the cash book. All the cash receipts and expenses incurred by the assessee have been duly incorporated in the cash book. Since the cash book is a summary of the transactions, which were carried out in cash demonstrating the source of receipt of cash and payment of cash, thus, it cannot be said that cash deposits were made by the assessee from outside the books of account. Hence, the addition made u/s 69A of the Act is not justified, particularly when assessee declared cash sales as income and the same is duly entered in the regular books of account. He, therefore, allowed the appeal of the appellant.

Aggrieved by the order of CIT(A), revenue filed present appeal before the Tribunal. The learned Senior Departmental Representative (ld. Sr. DR) for the revenue submitted that the decision of the CIT(A) is not acceptable. He submitted that one shall not lose sight of the fact that the assessee failed to prove genuineness of even 15 sales bills submitted by him during assessment proceedings out of copy of hundreds of sales bills submitted in order to prove the sources of the cash deposited. He also submitted that the assessee neither submitted any confirmation, name and address of the persons nor their PANs to discharge the onus lying upon him as per the provision of section 69A of the Act. 6 2017-18 Kishan Baranwal He further contended that during the course of entire assessment proceedings, the assessee failed to prove that the impugned cash recorded in the books of assessee had been deposited out of explained sources and therefore, he requested that the addition made by the AO u/s 69A of the Act may be upheld.

On the other hand, learned Authorized Representative (ld. AR) supported the order of CIT(A). He submitted a paper book containing written submission before CIT(A), copy of replies filed before AO, details of month-wise cash deposit for AYs 2017-18, 2016-17, 2015-16 and period-wise cash deposit of last three AYs 2017-18, 2016-17 and 2015-16 and comparative cash sales details of AYs 2017-18, 2016-17 and 2015-16. The ld. AR submitted that the sales made by the assessee were genuine and supported by bills. The said sales were made out of stock duly recorded in the books of account. The said stock details were also reflecting in the return of income and in the tax audit report filed with Income-tax department. He also submitted that the purchases of the assessee were also genuine and the same was also not doubted by the AO. The ld. AR submitted that the AO, without considering the submission of the assessee in proper perspective and by wrongly applying Bedford Law analysis, which in any case, has no relevance in assessee’s case, rejected the books of account of assessee and made addition of Rs.2,17,13,915/- as unexplained money u/s 69A of the Act, on mere surmises and presumptions. The ld. AR, therefore, requested to uphold the order passed by the CIT(A). 7 2017-18 Kishan Baranwal 11. We have heard both the parties and perused the material available on record. We have also deliberated on the case laws relied upon by the parties. The assessee is engaged in the business of trading in bullion and silver under the proprietorship concern S.V. Jewellers. The assessee maintained books of account, which are duly audited under section 44AB of the Act. The assessee deposited the daily business receipts in his bank account and such practice continued in earlier years as well. The assessee explained that the cash deposits of Rs.2.45 Cr. during the demonetization period was out of the cash sales from the available stock recorded in the books of account. 11.1 On careful perusal of the assessment order, it is seen that the AO had raised specific doubts on the genuineness of certain sales bills. It was noted that many bills lacked proper address, PAN and signature of purchasers. The assessee also failed to produce or identify 15 purchasers out of the total 244 bills, despite being specifically required to do so. While it is true that in a retail bullion trade, it may not be possible to identify all cash customers, particularly where the individual sale value does not exceed Rs.2,00,000/-, the fact remains that the evidence produced by the assessee to substantiate the genuineness of the sales was not fully verifiable. Thus, while the AO’s rejection of the books of account u/s 145(3) of the Act solely based on such deficiencies appears excessive, the possibility of non- genuine entries in cash sales cannot be entirely ruled out.