INCOME TAX OFFICER - 10(1)(1), MUMBAI, MUMBAI vs. K M TEXTILES EXPORTS PVT. LTD., MUMBAI

Simultaneously, the Assessing Officer examined the transactions of the assessee with M/s. Sanya Enterprise Ltd., Hong Kong, and noted that remittances aggregating to ₹91,33,681/- had been made, out of which ₹67,92,482/- pertained to the year under consideration and ₹23,41,199/- related to earlier years. Despite the fact that purchases actually accounted for during the year stood at ₹42,80,530/- and the balance amount was reflected as advances recoverable in the K.M. Textile Export Pvt. Ltd., books of account, the Assessing Officer treated the entire remittance as unexplained expenditure and made additions in a cumulative and overlapping manner. Particulars Amount Debited to Additions purchases made Advance paid 23,41,199 during the year Advance paid 67,92,482 68,04,059 during the year Total payments 91,33,681 91,33,681 made (totaling error of Rs.11577/- made by AO) Purchases 42,80,530 42,80,530 accounted for Advances 48,53,151 shown as recoverable 42,80,530 1,59,37,740

Before the Assessing Officer as well as before the learned Commissioner (Appeals), the assessee explained that it had maintained regular books of account, including a day-to-day cash book, bank books and ledgers, all of which were duly audited and produced for verification. It was demonstrated that the cash deposits represented proceeds of sales duly recorded in the books, largely received from unorganised sector customers and MSMEs, where cash dealings are prevalent in the line of business in which the assessee operates. Detailed month-wise and day-wise cash flow statements, bank statements, party-wise sales details and reconciliations were placed on record. In so far as purchases from the Hong Kong entity were concerned, K.M. Textile Export Pvt. Ltd., invoices, shipping bills, bills of lading, freight receipts, customs documents, bank remittance proofs and party ledgers along with consignment-wise details were furnished. 1, Copy of trial balance for F.Y.2016-17 was not furnished.

The learned Commissioner (Appeals), after examining the material on record, recorded a finding that the Assessing Officer had neither rejected the books of account nor disputed the manufacturing activity or the sales declared by the assessee. It was further observed that the cash deposits during demonetization amounted only to ₹16.69 lakhs and that the addition of ₹4.60 crores represented a sweeping addition of the entire year’s cash deposits without identifying any specific unexplained transaction. It was also held that once sales are accepted and corresponding income is taxed, a further addition of cash deposits arising from such sales would result in double taxation. Accordingly, the addition on account of cash deposits was deleted, and partial relief was granted in respect of the alleged bogus purchases.

We have carefully considered the rival submissions, perused the material placed on record, and examined the findings recorded by the learned Commissioner (Appeals) in the light of the factual matrix emerging from the assessment record. At the outset, it is an undisputed position that the assessee is engaged in the business of manufacturing and trading of textiles and allied products, catering substantially to unorganised traders and small business entities. It is equally undisputed that the assessee has maintained regular books of account, including a day-to-day cash book, bank books and ledgers, all of which were produced before the Assessing Officer and were neither rejected nor found to suffer from any defect.

In so far as the addition on account of cash deposits aggregating to ₹4.60 crores is concerned, the record clearly demonstrates that the Assessing Officer initially commenced his enquiry with reference to cash deposits made during the demonetisation period, which admittedly amounted only to ₹16.69 lakhs. However, despite the assessee furnishing detailed month-wise and day-wise cash flow statements, cash books, bank statements of all operative accounts, and complete reconciliations explaining the source of each cash deposit, the Assessing Officer did not point out a single instance where the cash deposit was not traceable to recorded sales. The assessee had also furnished party-wise details showing cash received directly from customers as well as cash deposited by debtors into

The cash flow chart and the cash book produced before the Assessing Officer further demonstrated that the opening cash balance, daily cash receipts from sales, and corresponding cash deposits were fully reconciled, with no unexplained surplus or deficit at any point of time. The Assessing Officer neither disputed the correctness of these records nor carried out any independent verification to controvert them. At the same time, the turnover declared by the assessee was accepted and the business income was computed on the basis of the audited profit and loss account. Once the sales have been accepted and the resultant income has been brought to tax, the cash receipts forming part of such sales cannot again be subjected to tax under section 68 merely because the mode of receipt was cash. Such an approach would result in taxing the same income twice, which is impermissible in law. The learned Commissioner (Appeals) has therefore rightly deleted the addition of ₹4.60 crores.

In relation to the alleged bogus purchases from M/s. Sanya Enterprise Ltd., Hong Kong, the assessment order reveals a fundamental misconception of facts. The Assessing Officer has conflated advances paid in earlier years, advances paid during

As regards the balance addition of ₹67,92,482/- sustained by the learned Commissioner (Appeals), the record shows that purchases debited to the profit and loss account during the year amounted to ₹42,80,530/-, while the remaining amount stood reflected as advances recoverable in the balance sheet. In support of these transactions, the assessee had furnished commercial invoices, shipping bills, bills of lading, freight receipts, customs clearance documents, bank remittance proofs and party ledger accounts, along with consignment-wise details. All remittances were made through proper banking channels. These evidences were neither rebutted nor dislodged by the Assessing Officer by bringing any adverse material on record.

Once the fact that a portion of the remittance has been accepted as genuine purchases is not in dispute and the balance amount stands reflected as recoverable advances, such advances cannot be treated as unexplained expenditure under section 69C. Advances do not partake the character of expenditure unless it is established that they have been irretrievably lost or represent sham outgoings. No such finding has been recorded in the assessment order.

Viewed in totality, we find that the reassessment has resulted in additions either founded on an incorrect appreciation of facts or leading to impermissible double taxation. The learned Commissioner (Appeals) was justified in deleting the addition on account of cash deposits, and the remaining addition sustained on account of alleged bogus purchases also deserves to be deleted.

Accordingly, the appeal filed by the assessee is allowed, and the appeal filed by the Revenue stands dismissed. All additions made in the reassessment order which have not been sustained herein shall stand deleted.

In the result, appeal of the assessee is allowed and appeal filed by the Revenue is dismissed.