BANARSI DAS GUPTA HUF,NEW DELHI vs. INCOME TAX OFFICER WARD 43(6), DELHI, NEW DELHI

The Assessee submitted that the cash deposits were sourced out of cash sales made which has been included as part of the total turnover reported in the return. The Learned AO, however, did not heed to the contentions of the Assessee and proceeded to treat the cash deposits made during the demonetization period as unexplained money in the sum of Rs. 46,80,000/- comprising of deposits made in serial numbers 1 to 6 hereinabove. The reasoning for the addition made by the Learned AO are as under:-

a) The Assessee had no cash sales for at least 18 months prior to 25-10-2016 and again no cash sales after 1-11-2016 till year end. b) The entire cash sales which were made were made only for a narrow 8-day window period during 25-10-2016 to 1-11-2016, which is immediately preceding the demonetization. c) The handwritten cash invoices uniformly recorded the buyer's name as cash. d) The Assessee produced no admissible documentary evidences. e) Only 27 invoices with each invoice ranging between Rs. 1,55,000 to Rs. 1,75,000 suggesting an artificial and uniform pattern were produced. f) All alleged buyers were unidentified despite the high value of each transaction where buyer details would ordinarily be maintained for sales returns or quality issues. g) The cash sales reported for these 8 days totalling to Rs 46,69,084/- were also almost equivalent to the cash deposited during the demonetization period.

The Assessee preferred an appeal against this original assessment order before the Learned CIT(A). Meanwhile, this assessment was sought to be revised by the Learned PCIT by invoking his revision jurisdiction under section 263 of the Act stating that the Learned AO should have added the remaining cash deposit figure of Rs 5,00,000/- also which made his order erroneous and prejudicial to the interest of the revenue. Consequently, the Learned PCIT set aside the entire assessment order framed under section 143(3) of the Act dated 10-12-2019 with directions to frame the denovo assessment after carrying out appropriate inquiries and granting the Assessee a reasonable opportunity of being heard. The Learned AO passed the second assessment order on 21-3-2023 under section 143(3) read with section 263 of the Act literally reiterating the findings made in the original assessment order by making an addition of Rs 46,80,000/- on account of cash deposits made during the demonetization period.

The Learned CIT(A) treated the appeal of the Assessee which was filed against the original assessment order as infructuous on the ground that the original assessment order had become infructuous and a fresh assessment had been completed by the Learned AO on 21-3-2023.

The Assessee preferred an appeal before the Learned CIT(A) against the giving effect order to section 263 of the Act passed by the Learned AO on 21- 3-2023 i.e. appeal against order passed under section 143(3) r.w.s. 263 dated 21-3-2023. The Learned CIT(A) vide his order dated 14-6-2024 dismissed the contentions of the Assessee and upheld the action of the Learned AO. Hence the present appeal before us.

The short point that arises for our consideration is as to whether the Assessee could be treated as having satisfactorily explained the sources for cash deposits made in the sum of Rs 46,80,000/- in the facts and circumstances of the instant case. In this regard, we find that the Assessee had furnished the following documents and explanations before the Learned AO:- a) Audited financial statements for 31-03-2017 b) Tax audit report c) List of books maintained by the Assessee i.e. cash book, bank book, sales register, purchase register, stock register as per clause 11b and 11c of tax audit report were also produced before the Learned AO d) Quantitative details of principal items of goods traded as per clause 35a of tax audit report were also produced before the Learned AO e)Copy of quantity wise stock ledger from 1-4-2016 to 31-03-2017 stating that the sale of steel in which the Assessee deals was made out of the stocks available with the Assessee at the time of sale and purchased from time to time during the year from the registered suppliers f) Total sale of Rs. 4,71,97,483/- during the year which included cash sales of Rs. 46,69,084 g) Copy of ledger account of cash sales from 1-4-2016 to 31-03-2017 h) Copy of cash sales invoices i) Copy of VAT returns for all the quarters of assessment year 2017-18. It was submitted that the VAT department being the state government had accepted and considered the sales made by the Assessee to be genuine which includes the cash sales j) Cash available in the cash book from time to time stating that the cash deposits were made out of available cash balance as per the cash book k) Bank statements of the Assessee l) Copy of details of cash deposits m) Details of opening cash in hand, cash sales, cash deposited, cash withdrawals and closing cash in hand for financial years 2015-16 and 2016-17 in a tabular form. n) Copy of purchase register from 1-4-2016 to 31-03-2017 o)Copy of party-wise details of purchases p) Copy of confirmation of accounts from suppliers from whom purchases have been made q) Copy of profit and loss account and audited balance sheet for assessment years 2016-17 and 2015-16 r) The Assessee explained the reason for making cash sales by stating that he had not made any cash sale in the preceding year as there was no practice in that year. In earlier year, the Assessee was into wholesale business and not into the retail business. The Assessee had started the retail sales only during the year under consideration and cash sales in the year under consideration had given a positive effect on sales which increased to Rs 4,71,97,483/- from the total sale of Rs 3,17,18,755/- showing an increase of more than 45%.

We find that the books of accounts containing cash book, purchase register, sales register, stock register etc were not found defective by the Learned AO and were not rejected. The purchase made by the Assessee has not been doubted by the revenue. The total sales made by the Assessee (both cash as well as credit sales) has not been doubted by the revenue. The Assessee had sufficient stocks to effect the said cash sales and generate cash as an independent source to prove the cash deposits. To the extent of sales made by the Assessee, corresponding reduction in stock had been duly made. Sales made by the Assessee, both cash as well as credit had been duly subjected to VAT and the VAT authorities had accepted the turnover declared by the Assessee. There is no negative cash balance in the cash book on any day that has been alleged by the Learned AO.

Further, we find that the Learned AO had accepted the return of income by the Assessee, which included this cash sales also. Hence, separately, making an addition on account of cash deposits in the sum of ₹46,80,000/- would only result in double addition. Hence, the addition made on account of cash deposits deserves to be deleted on that count itself. Further, we hold that the Assessee had indeed proved the source of cash deposits by clearly establishing that the source emanated from the books of account and the cashbook regularly maintained. None of the books of account have been rejected by the Learned AO. In these facts and circumstances, there is no case made out by the revenue for making an addition on account of cash deposit separately. Accordingly, the addition made is hereby directed to be deleted. Further, we also find that Hon’ble Madras High Court in the case of of SMILE Microfinance Limited vs ACIT in WP (MD) No. 2078 of 2020 and WMP (MD) No. 1742 of 2020 dated 19-11-2024 had held that the provisions of section 115BBE of the Act which enhanced the rate of tax could be made applicable only from 01.04.2017, relevant to assessment year 2018-19 onwards and not earlier. Accordingly grounds raised by the Assessee are allowed.

In the result, the appeal of the Assessee is allowed.