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Facts
The assessee's income tax return for AY 2017-18 was selected for scrutiny regarding significant cash deposits during the demonetization period. The Assessing Officer (AO) made additions under Section 69A for cash deposits and for sundry creditors related to JVL Group companies, along with a disallowance under Section 40(a)(ia). The Commissioner of Income Tax (Appeals) (CIT(A)) partly confirmed these additions, leading to the present appeal before the Tribunal.
Held
The Tribunal deleted the 50% addition of ₹17,13,500/- made for cash deposits during demonetization, noting that the assessee's book profit, cash book, and sales were accepted, and corroborative evidence for sales and deposits was furnished, finding no justification for the sustained addition. Regarding the addition of ₹10,94,345/- for sundry creditors related to JVL Group companies, the issue was remanded back to the AO for necessary verification with the liquidator, as the company was reportedly under liquidation. The disallowance under section 40(a)(ia) was dismissed as not pressed by the assessee.
Key Issues
The key legal issues were the validity of additions for unexplained cash deposits during the demonetization period, the treatment of sundry creditors related to JVL Group companies, and a disallowance under Section 40(a)(ia).
Sections Cited
Section 250, Section 143(3), Section 143(2), Section 142(1), Section 69A, Section 40(a)(ia)
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Page 2 I.T.A. No.: 223/PAT/2024
Assessment Year: 2017-18 Bir Babu Pandey.
The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. The order of AO is not based on facts and more based on surmises.
In the proceeding before CIT(A), a remand report was called for by the CIT(A) on the issues of cash deposit, Sundry Creditors considered for addition by AO. In the remand report, no evidence- based findings have been narrated by AO and only on surmises AO alleged that the source of cash deposit remains unexplained. The allegation of unverifiable sales and purchases were met before AO & CIT(A) by the producing independent evidence in the form of FORM RT-3 which is a VAT Annual Return under Bihar VAT Act, 2005. Therefore, partial disallowance of cash deposit during demonetization period is not legal and therefore fifty percent of quantification of disallowance Rs.17,13,500/- is arbitrary and is therefore requested to be deleted.
The addition difference of Sundry creditors of Rs. 10,94,345/- was done arbitrarily without examining books of accounts & evidences produced before AO during scrutiny, AO in remand report & CIT(A), therefore this addition of Rs. 10,94,345/- is requested to be deleted.”
Brief facts of the case are that the assessee had filed return of income showing total income of ₹7,91,470/- which was selected for scrutiny in order to examine the issue of cash deposit during the demonetization period. Subsequently, statutory notices u/s 143(2) and 142(1) of the Act were issued and the Assessing Officer (hereinafter referred to as Ld. 'AO') passed the assessment order determining the total income of the assessee at ₹55,09,850/-. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who has reproduced the finding of the Ld. AO, the submissions of the assessee, called for the remand report from the Ld. AO which has been reproduced from pages 5 to 8 of the appeal order and thereafter confirmed the addition of 50% of ₹34,27,000/- i.e. ₹17,13,500/- made u/s 69A of the Act, confirmed the addition of ₹10,94,345/- and also the addition of ₹1,97,037/- made u/s 40(a)(ia) of the Act which was not Page 3 I.T.A. No.: 223/PAT/2024
Assessment Year: 2017-18 Bir Babu Pandey. pressed by the assessee and partly allowed the appeal of the assessee. The finding of the Ld. CIT(A) is as under: “I have carefully gone through the findings of the AO in the assessment order as well as in the remand report. During the remand proceedings, the appellant has submitted the cash book for the period from 01.11.2016 to 31.12.2016 and the cash flow statement for the period from 01.04.2016 to 31.10.2016. The AO has analyzed the cash deposits in the bank account of the appellant. The AO has observed that the appellant had the average cash balance of Rs. 4 to 5 lakh in his bank account from the period from April to September. However, the total cash balance in the month of October was Rs. 21,49,961/-. The opening balance in the month of November was Rs. 21,49,961/- and the closing balance on 08.11.2016 was Rs. 42,95,408/- out of which the cash deposit of Rs. 14,20,000/- was made on 08.11.2016. Later on, the total cash of Rs. 34,27,000/- was deposited in the bank account of the appellant on 11.11.2016. Further, the cash deposit was once again decreased to the average cash of Rs. 4 to 5 lakh per month. Accordingly, the AO has given the findings that the cash book and the cash flow statement submitted by the appellant is an afterthought. Thus, the appellant has failed to explain the cash deposits even during the remand proceedings. The Ld. AR has objected the findings of the AO recorded in the remand report and submitted that the appellant was following the practice of depositing cash from the sale proceeds in the bank account for months and years. The audited books of the appellant we resubmitted before the AO during the remand proceedings but he did not bring the same on record and arbitrarily made it the ground for rejection. Further, the book profit has been duly accepted by the AO and the sales and purchases of the appellant have not been disputed. Therefore, the addition of the same would result in double taxation of income. The Ld. AR has also submitted the copy of VAT return for the period from 01.04.2016 to 31.03.2017, cash books from 01.11.2016 to 31.12.2016 and extracts of cash flow statement from 01.04.2016 to 31.10.2016. On perusal of the GST returns submitted by the appellant, I find that the appellant has shown the turnover of Rs. 13,75,08,826/- during the FY 2016-17. Further, there is no dispute that the appellant was in regular practice for making cash sales and depositing the same in his bank account. The AO has accepted the book profit of the appellant which also consists of the transactions recorded in the cash book. Further, no evidence of excess stock or any other unexplained investment was found during the survey. The sales were duly reflected in the GST return filed by the appellant. It can also not be denied that the appellant has been able to fully justify the amount of cash deposited during demonetization by furnishing independent corroborative evidence, Непсе, considering all the facts and circumstances of the case, it would be most Page 4 I.T.A. No.: 223/PAT/2024
Assessment Year: 2017-18 Bir Babu Pandey. judicious and fair to restrict the addition to 50%. Accordingly, the AO is directed to restrict the addition to Rs. 17,13,500/- being 50% of Rs. The ledger accounts produced at Ann-L matches with S.No. 01, Ann-N matches with S.No. 02 and Ann-K&M match with S.No. 03, which consists of Sundry Debtors having a debit entry of Rs. 34,98,793.33 in the name of the debtor M/s. Adarsh General Store and a credit entry of Rs. 18,89,343.33 in the name of JVL Rice, a JVL Group of Co. The net debit balance of Rs. 16,09,400/- was accordingly, shown as sundry debtors in the Audited Accounts (Not acknowledged by the AO and straightaway treated as difference). Now, if, we compare the supplier companies' account confirmation with that of audited books of accounts, the resultant figures are as below:- Comparison as on 01.04.2016 S. No. Title of Entry Amount as per Audited Books Of Accounts Amount as per Supplier's Confirmation Difference
JVL Group of Companies 5,60,924.38
JVL Rice 18,89,393.33 24,50,370.71 23,85,527.38 64,790.33
JVL Group of 13,25,625.00 13,25,625.00 NIL Companies (M) Comparison as on 31.03.2017 S. No. Title of Entry Amount as per Audited Books Of Accounts Amount as per Supplier's Confirmation Difference
JVL Group of (-)2,34,124.27 Companies
JVL Rice 18,89,393.33 16,55,269.06 16,55,269.06 NIL
JVL Group of 1,950.10 1,950.10 NIL Companies (M) Therefore, there is an apparent difference of Rs.64,790.33 only, which should be made. The subject matter of addition instead of Rs. 10,94,345/- as done in assessment order OR Rs. 18,89,393.33 as done in remand report. Appellate findings: Page 5 I.T.A. No.: 223/PAT/2024
Assessment Year: 2017-18 Bir Babu Pandey.
Aggrieved with the order of the Ld. CIT(A), the assessee has filed
the appeal before this Tribunal.
Rival contentions were heard and the submissions made and the paper book filed have been examined. The assessee has furnished the written submission as under: “The above appeal has been filed against the order of A.O. passed u/s 143(3) on 24.12.2019 by I.T.O. Siwan which was subsequently appealed before the CIT-A(III) Patna on 08.01.2020 and the learned CIT- A-III passed order in this appeal on 28.11.2023 confirming the following additions made by the A.O.
ADDITION OF RS.34,27,000/- ON ACCOUNT OF CASH DEPOSITS DURING THE DEMONETIZATION PERIOD. In the appeal filed before CIT-A, the submission of the assessee was remanded back to the A.O. u/s 250(4) on this issue. On examining the facts & details submitted and lying on the record the only basis of supporting this additions by A.O. narrated at page no. 18 of paper book as below:- “On perusal of the cash book from 01.11.2016 to 31.12.2016 it is seen that after depositing the cash into bank a/c on 11.11.16 the day wise cash sales as well as day wise cash balance drastically decreased on an average 4 to 5 lakhs. As discussed above it is clear that the assessee cleverly tried to enhance his cash sale for explaining the source of cash deposited during demonetization period. Hence source of cash deposit remains unexplained in the hands of the assessee.” Subsequently at the CIT-A stage all the above details were examined by the learned CIT-A and CIT-A gave his finding at page 12 of the paper book. The CIT-Appeal has found as below:- “The A.O. has accepted the book profit of the appellant which also consist of transaction recorded in cash book. Further, no evidence of excess stock or any other unexplained investment was found during the survey. The sales were duly reflected in the GST return filed by the appellant. It can also not be denied that the appellant has been able to fully justify the amount of cash deposited during demonetization by furnishing independent corroborative evidence. Hence considering all the above facts & circumstances of the case it would be most judicious & fair to restrict the addition to 50%. Accordingly, the A.O. is directed to restrict the addition to Rs.17,13,500/- being 50% of the Rs.34,27,000/-