SATISH KUMAR JAIN,AMBALA vs. INCOME TAX OFFICER WARD -4 AMBALA, AMBALA

O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. In these captioned appeals for Assessment Year (AY) 2017-18, the assessee is aggrieved by confirmation of quantum addition as well as levy of penalty u/s 271AAC for Rs.2,77,868/-. First, we take up quantum appeal which arises out of an order of Learned Commissioner of Income Tax (Appeals), NFAC [CIT(A)] dated 12-11-2024 in the matter of an assessment framed by Ld. Assessing Officer [AO] 143(3) of the Act on 27-12-2019 making twin addition aggregating to Rs.22 Lacs. The Ld. CIT(A) made enhancement against which the assessee is in further appeal before us. The Ld. AR advanced arguments and filed written submissions. Reference has been made to various case laws. The Ld. Sr. DR also advanced arguments supporting the impugned order. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. Assessment Proceedings 2. The assessee is stated to be engaged in trading of gold and silver jewellery under his proprietorship concern namely M/s Jain Abhushan Bhandar. To verify the source of cash deposit of Rs.55.97 Lacs in two bank accounts during demonetization period, the assessee’s case was scrutinized. The details of deposits have been tabulated by Ld. AO at para-2 of the order. These deposits were made during the period from 18-11-2016 to 03-12-2016. The assessee stated that cash was deposited out of sale proceeds and out of available cash balance. However, Ld. AO noted that deposit in this year increased substantially in comparison to deposit made by the assessee in FY 2015-16 and therefore, the assessee’s submissions were rejected. A comparison of month-wise cash sales was tabulated by Ld. AO for FY 2015-16 as well as for this year at para-5 of the order. It was noted that out of cash sales for Rs.53.25 Lacs during this year, sales during October, 2016 and November, 2016 was Rs.35.77 Lacs. Further, in November, 2016, cash sales was only for 8 days i.e., before demonetization. The assessee stated that increase in sales was due to festival season. Finally, Ld. AO partially accepted explanation to the extent of Rs.35.97 Lacs and confirmed the addition of Rs.20 Lacs as income from unexplained sources. The Ld. AO also made adhoc addition of Rs.2 Lacs for fall in Gross Profit & Net Profit during this year. Appellate Proceedings 3.1 During appellate proceedings, the assessee assailed the findings of Ld. AO and tabulated that the sales in this year was at much higher levels of Rs.656.23 Lacs as against sales of Rs.286.55 Lacs in the immediately preceding AY 2016-17. There was substantial increase in sales. The cash sales for this year constitute approx. 8% of total sales whereas in AY 2016-17, it was approx. 13%. Thus, cash sales component as a percentage of total sales, in fact, has reduced during this year. The assessee maintained complete quantitative details and regular books of accounts. The assessee had sufficient cash balance in the books to make the impugned deposits. The assessee duly furnished sales and purchase ledger, cash book and bank book, summary of monthly purchase, monthly cash sales and cash deposit. The copies of sales invoices for the period October, 2016 to December, 2016 as well as party-wise ledger account for purchases was also furnished. The assessee paid job work charges to Shri Ashok Kumar after deduction of tax at source. The copy of Form 16A as issued to Shri Ashok Kumar along with stock register with day-to- day details of opening stock, purchase, sales and closing stock of gold jewellery, gold bullion and silver ornaments was also furnished. 3.2 Upon perusal of stock register, Ld. CIT(A) noted that the assessee brought stock of gold ornaments on 29-10-2016, 30-11- 2016 and 31-12-2016 for 807.530 grams, 4200.060 grams and 1521.830 grams respectively. These quantities aggregated to 6529.420 grams. The same represent receipt of gold ornaments from Shri Ashok Kumar (goldsmith) which was manufactured out of gold bullion given to him. Upon perusal of ledger of Shri Ashok Kumar, it was noted that the assessee made payment of Rs.2 Lacs on 23-06- 2016 and no other payment was paid to him subsequently. The Ld. AO was directed to conduct enquiry at the premises of Shri Ashok Kumar. His statement was recorded on oath. The copy of his reply has been extracted in the impugned order. He confirmed manufacturing of gold ornaments for the assessee and also explained the process of manufacturing. The bullion received by him and jewellery delivered by him during these three days was also confirmed by him. The remand report was confronted to the assessee. The assessee objected to the same. 3.3 In the background of above facts, Ld. CIT(A) issued enhancement notice to the assessee doubting the receipt of gold ornaments of 6529.393 grams in these three days and show-caused the assessee. Though the assessee filed a detailed reply, the same was not accepted by Ld. CIT(A). It was doubted that Shri Ashok Kumar could not have manufactured that much of ornaments on the same day of receipt of gold bullion. He did not have sufficient labor and machinery to manufacture such high quantity of gold ornaments. The Ld. CIT(A) also questioned the huge purchases and cash sales made by the assessee. Finally, Ld. CIT(A) held that all the cash sales could not be considered to be genuine. The assessee manipulated purchases and sales and increased the stock of gold ornaments. By inflating the stock, the assessee booked cash sales by computer- generated self-serving sales invoices which were not having the full details of customers. The purchases invoices were also held to be deficient. Therefore, the books of accounts were rejected and the deposit of Rs.55.97 Lacs was directed to be added u/s 68 of the Act. The estimated profit addition of Rs.2 Lacs was also confirmed. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. From the fact, it emerges that the assessee is engaged in jewellery business since past many years. The assessee has reflected sales of Rs.656.23 Lacs in this year which is much higher than the sales of Rs.286.55 Lacs in the immediately preceding AY 2016-17. There is substantial increase in sales. The cash sales for this year constitute approx. 8% of total sales whereas in AY 2016-17, it was approx. 13%. Thus, cash sales component, in fact, has reduced during this year. The assessee duly furnished VAT assessment order wherein sales and purchases have been accepted by the VAT department. The VAT returns for the relevant period has not been revised by the assessee. The assessee has duly maintained regular books of accounts which are subjected to Tax Audit. The assessee has also maintained quantitative details of the stock. No deficiency has been pointed out by Tax Auditor in the quantitative details of trading items. In fact, the sales turnover, in the final analysis, has not been disputed. The assessee has deposited cash of Rs.55.97 Lacs during demonetization period which is stated to be sourced out of cash balance as available with the assessee in the cash book. The same has been accumulated out of cash sales, receipt from debtors etc. The same has not been accepted by Ld. CIT(A) on the allegation that the assessee manipulated books by inflating purchases and booking sales without details of buyers. However, the assessee has duly maintained day-wise manual stock register which was also furnished before lower authorities. A mere doubt has been raised on purchases without any enquiries from the suppliers. It is trite law that no addition could be made merely on the basis of suspicion, conjectures or surmises.