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Facts
Premier Restaurants Private Ltd. (assessee), operating 'Chilis' and 'Cinnabon' restaurants, had an addition of Rs. 38,23,657/- made under Section 68 of the Income Tax Act, 1961, by the Assessing Officer (AO) for alleged unexplained cash deposits during the demonetization period for Assessment Year 2017-18. The AO suspected manipulation of cash sales in preceding months (May-July 2016) to justify the deposits and rejected the books of accounts under Section 145. This addition was subsequently confirmed by the Commissioner of Income Tax (Appeals).
Held
The Income Tax Appellate Tribunal (ITAT) found that the addition by the AO and confirmed by the CIT(A) was based purely on assumptions, surmises, and conjecture, without any cogent reasons or supporting evidence. The Tribunal noted that the assessee had adequately explained the source of cash deposits from regular business sales, a fact not disputed by the AO regarding the demonetization period itself. Therefore, the ITAT concluded that the impugned order and the additions made were unsustainable in law.
Key Issues
Whether the addition under Section 68 for unexplained cash deposits during the demonetization period was valid when the assessee provided a source from regular business sales and the AO's allegations of manipulation were based on conjecture without evidence; and whether the rejection of books of account under Section 145 was justified.
Sections Cited
Section 68, Section 145, Section 143(2), Section 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH: ‘F’: NEW DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI SUDHIR PAREEK
Appellant against order dated 18.01.2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) [for the sake of convenience, hereinafter referred to as “CIT(A)], pertaining to Assessment Year 2017-18.
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. 1.1. The assessee has raised the following grounds of appeal:
1. That on the facts, circumstances and legal position of the case, Worthy CIT(A), NFAC in Appeal No. CIT (A), Delhi- 7/10980/2019-20 has erred in passing order u/s 250 dtd. 18.01.2024 as the same is in contravention of provisions of s. 250 of the Income Tax Act, 1961 (hereinafter referred to as Act") 2. That on facts, circumstances and legal position of the case, Worthy CITIA) has erred in confirming addition of Rs. 38,23,657/- made by Ld. AO u/s 68 of the Act by erroneously holding cash deposit in bank during demonetization period from alleged unexplained sources.
3. That on facts, circumstances and legal position of the case, the order passed by Ld. AO and thereafter confirmed by the Worthy CITIA) deserves to be quashed since the same has been passed without affording reasonable opportunity of being heard to the appellant.
4. That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same.”
Brief facts of the case may be summarized as that the assessee company is running business of restaurant activities running Restaurants under the name “chilli”and “Cinnabon” renowned dining restaurant chains. The assessee company e-filed its return of income declaring income of Rs. 68,36,050/-. The case was selected for scrutiny assessment and statutory notice u/s 143(2) of the Income Tax Act, 1961 was issued on 12.04.2019, 17.09.2019 & 18.11.2019 through ITBA, which was duly served upon the assessee company. During the assessment, the learned Assessing
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. Officer (AO) made an addition of Rs. 38,23,657/- under Section 68 of the Act, holding that the cash deposits during the demonetization period were from unexplained sources. The Ld. CIT(A) confirmed the addition made by the AO.
Heard rival submissions and carefully perused the materials on record for disposal of this appeal.
In the course of hearing, the Ld. AR submitted that assessee / appellant is in the business of hospitality services and running restaurants since long. The appellant gets cash sales from the renowned and premium dining restaurants chains of 'Chilis' and 'Cinnabon'. The food outlets are located at very posh areas like Big Mall or Famous Markets of that area and incurred a total rent of Rs. 2.30 crore for running these outlets at these very areas. The same business is carried out by the appellant company from the different locations Chandigarh, Noida and Delhi during the year in question.
By appended Copy of the ITR, computation of Income, Audited Financial Statement and Tax Audit report for the year in question further submitted, that the Appellant had made a whopping sale of Rs. 21.56 cr for the year in question. The per-day sales come to Page 3 of 17
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. around Rs. 7 Lacs. Around 50% of these sales were made in cash which was collected by the appellant from its retail customers and was being deposited in bank account after regular intervals of 3-4 days. The appellant was registered under Service Tax Act, 1994 and regularly filing its service tax returns and paying Taxes on the services rendered out. Thereafter, when Service Tax regime was replaced by the GST regime, assessee also got himself registered under GST Act, 2017. Further, submitted that at the time of announcement of demonetization, appellant was having cash in hand of Rs. 11,25,624/- in these 3 different food outlets. The total cash deposit during demonetisation period was Rs. 71,13,901/. But out of this, Rs. 11.25 Lacs (Cash in Hand as on night of 08.11.2016) was in SBNs and rest was deposited in new currency or continued currency. As above submissions as per appellant it is not a case where only the suspended currency was deposited but was a case where the deposit of suspended currency during demonetisation was around 15% only. The Ld. AO has not even doubted or disputed this fact. Out of total cash deposit of Rs.
71,13,901/- during demonetisation period, the Ld. AO added Rs. 38,23,657/- to be out of unexplained income on the allegation that Page 4 of 17
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. appellant has increased the turnover of months of May, June & July, 2016. But as per appellant Cash in hand as on 08.11.2016 was only Rs. 11,25,624/- and deposit thereafter was out of sales made after 08.11.2016 which fact the Ld. AO is not even doubting.
4.1. The Ld. AR further submitted, the Ld. AO did not find anything adverse as there was no drastic increase in cash sales, no increase in monthly cash deposit, even the cash sales of the appellant were reduced from the earlier period of same year. On the basis of his own pattern drawn by the Ld. AO, he made addition of Rs. 38,23,657/- u/s 68 alleging cash deposit made during the period of demonetization to be unexplained cash credit. For making the above addition, Ld. AO made comparison of deviation of cash sales during the year in question and immediately preceding FY i.e 2015-16. On this comparison, Ld. AO held that during FY 2015-16, the maximum deviation of Monthly Cash Sales from Average Monthly Cash Sales is of 18.54% whereas, during the month of May, 2016 to July, 2016, deviation from Average Monthly Cash Sales is more than 18.54%, which is termed as absolutely baseless comparison. The Ld. AO assumed that the deviation in monthly cash sales over and above 18.54%, was from manipulation in cash Page 5 of 17
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. sales in order to account for a part of cash deposited during the demonetization period. The Ld. AR further vehemently submitted that there was no any single evidence which could create doubt about the genuineness of explanation tendered by the appellant.
4.2 It was further submitted that the business activity of the assessee was also impacted. However, the Ld. AO did not even consider this fact and while taking average sales per month, he also took the sales of the month in which assessee's business was affected due to demonetization. For calculating the deviation, the period before announcement of demonetization should have been considered separately. The Ld. AO calculated the deviation by comparing the normal period sales to the abnormal period sales, which was absolutely incorrect. The Deviation in cash sales during this period is as under:
Month Month wise Monthly Avg. Deviation Deviation Cash Sales Cash Sales (In Rs.) (In %) (In Rs.) (In Rs.) April 94,96,950 98,27,561 -3,30,611 -3.36 May 1,12,15,448 98,27,561 13,87,887 14.12 June 1,14,21,514 98,27,561 15,93,953 16.22 July 1,11,57,276 98,27,561 13,29,715 13.53 August 91,22,752 98,27,561 -7,04,809 -7.17 September 79,32,378 98,27,561 -18,95,183 -19.28 October 84,47,240 98,27,561 -13,80,321 -14.05 Total 6,87,93,558 - - -
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. 4.3 The Ld. AR contended that it is evident from the above that for the period before demonetization, the maximum increase in monthly cash sales from the average monthly cash sales is 16.22%, which is less than the maximum deviation in monthly cash sales during the preceding financial year. Therefore basis on which the addition made was completely incorrect. On account of cash deposited during the demonetization period was that Ld. AO was of view that assessee has manipulated its cash sales for the Month of May, 2016 to July, 2016. However, the Ld. AO failed to appreciate the fact that assessee was a registered person under Service Tax Act, 1994. They have to report the amounts of services rendered by the appellant periodically and deposited the amount of service tax collected on such service. Assessee has filed its service tax return pertain to first half of the year in question on 25.10.2016 i.e., well before the announcement of demonetization. The sales carried out during the period was duly reported in the said return. So, it is submitted on behalf of the appellant when assessee filed its service tax return before the announcement of the demonetization, then how someone can manipulate its sales figures during the said period? Furthermore, when service tax return was duly accepted by Page 7 of 17
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. the authority and appellant has paid the taxes on sales carried out of the business activity, whether AO can still doubt sales carried out by the appellant.
4.4 It is also submitted that, it is an utmost important fact that Ld. AO did not raise any doubt and duely accepted cash sales made during the demonetization period. There was no substantial increase witnessed during demonetization period or immediately preceding month. The Ld. AO only alleged that assessee has manipulated his cash sales of earlier months. It is most important fact to note that assessee claiming that cash in hand as on November 8, 2016 was of Rs. 11,25,624/ and cash deposited during period of demonetization was made through cash sales during this period and cash in hand available with the assessee on the date of announcement of demonetization.
4.5 As per submissions advanced on behalf of the appellant, It is not the case where assessee is claiming that the entire cash deposits during demonetization was explained through earlier period cash sales. Now, when assessee did not claim that the cash deposited during the demonetization, was from earlier period cash
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. sales, the action of Ld. AO of making addition of Rs. 38,23,657/- alleging manipulation of earlier period cash sales and treating the said cash deposit as unexplained is absolutely invalid. Whether allegation of manipulation of cash sales in the month of May, 2016 to July, 2016 and cash deposited during demonetization have any nexus between them? The answer, in the present case, is negative.
4.6 The Ld. AR further contended that, it is clear that assessee had made the cash deposited during the demonetization period which was out of cash sales made during the demonetization and duly accepted by the Ld. AO Therefore, when the source of cash deposit was explained and was found genuine and not doubted by the Ld. AO, the addition made on the basis of incorrect appreciation of facts deserves to be deleted and past trend of the assessee's business clearly shows that the turnover of the appellant increased multiple folds in the last 3 years. During the year in question, assessee carried out sales of Rs. 21.76 Cr from the above said business activities out of which cash sales were Rs. 10.11 cr. The nature of business of the assessee is also such where major portion of sales are realized in cash on daily basis. These cash receipts are deposited in bank account on regular intervals. It is also an utmost Page 9 of 17
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. important fact that cash was deposited during the entire year in question and even in the period of demonetization on regular intervals and on small amounts only. There was no lumpsum cash deposits made during the demonetization period also which could have created doubt on the source, and furthermore, it is absolutely clear that entire cash deposit made in the bank accounts during demonetization was received from sales carried out during the year in question. Moreover, the sale carried out by the appellant was already offered for taxation as it has been already added to the turnover of the assessee. Therefore, the amount in question has been wrongly added u/s 69A as amounted to double taxation of the same income and allegation of Ld. AO regarding manipulation of cash sales made during the month of May, 2016 to June, 2016 was completely on the basis of surmises and conjectures without specifying any valid reason and without having any valid evidence.
Further, Ld. AO wrongly made addition of Rs. 38,23,657/-, alleging cash deposit to be unexplained cash credits even when the same are from explained sources as clearly detailed above.
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. 5. The learned DR relied upon orders passed by both lower authorities by stating that there is not any legal infirmity in the impugned order and appeal has no substance to interfere.
In the course of hearing, the Ld. AR submitted that when tax authorities has duly accepted the Service Tax /VAT return or not adversely intimated, same cannot doubted by the Ld. AO and he relied upon order passed by co-ordinate Bench in the case of M/s Aruljothi Exports Pvt. Ltd. vs. ACIT in Chennai, extract of relevant para 3 reproducing as below:
“3. From the records, it emerges that the assessee has maintained proper books of accounts and the same are subjected to Tax Audit. No infirmity has been pointed out by Ld. AO in the physical stock as maintained by the assessee. The assessee has valued the stock on the basis of net realizable value. The assessee's submissions were that there was damage to the stock due to heavy rains and floods. It could also be seen that the assessee is registered with commercial tax department and filing its sales tax returns. Apparently, the trading results have been accepted by commercial department and there is no adverse material on record, in this regard. In such a case, shortage of stock as mathematically computed by Ld. AO could not be upheld. The decision of Hon'ble High Court of Madras in the case of CIT vs. Anandha Metal Corp. (152 Taxman 300) supports the case the assessee wherein it was held that unless the competent authority under the Sales Tax Act differs with the closing stock of the assessee, the return accepted by the Commercial Tax Department is binding on the income-tax authorities. Therefore, Assessing Officer has no power to scrutinize the return submitted by the assessee to the commercial tax department which has been accepted. The Assessing Officer did not have any jurisdiction to go beyond the value of the closing stock declared by the assessee and accepted by the Commercial Tax Department. We find that similar fact exists in the present case. Therefore, following the same, we delete the impugned addition. Page 11 of 17
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. 6.1 The Ld. AO also relied upon judgement delivered by Hon’ble Madras High Court in the case of Commissioner of Income Tax vs.
M/s Anandha Metal Corporation dated 23.07.2004, relevant part of this order is reproduced as under:
“7. If that be so, unless and until the competent authority under the Sales Tax Act differs or varies with the closing stock of the assessee, the return accepted by the commercial tax department under the T.N.G.S.T. Act, is, in our opinion, binding on the income tax authorities and the assessing officer, therefore, has no power to scrutiny the return submitted by the respondent/assessee to the commercial tax department under the provisions of the TNGST Act and as accepted by the said authorities, unless otherwise it is varied or modified by the authorities under the TNGST Act. Therefore, the assessing officer does not have any jurisdiction to go beyond the value of the closing stock declared by the respondent assessee and accepted by the Commercial tax department.”
In this regard, the Ld. AR vehemently contended that when assessee / appellant filed its Service Tax Return before the announcement of the demonetization. It is hardly possible to manipulate its sales figures for the period in question. And he also paid the taxes on sales carried out of the business activity. The Ld. AO is lacking jurisdiction in doubting sales carried out by the appellant.
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. 7. Extracted relevant part of the impugned order passed by the Ld. AO as under:
“Since the sales claimed to be made by assessee remain unverifiable therefore, I am of view that the account of assessee does not represent the true state of affair and books of account have been manipulated to inflate cash sales and also to suppress cash expenses to cover up its unexplained cash, which has been deposited in the Bank, presenting it as a part of cash sales. So in the light of these facts the books of accounts of the assessee are hereby rejected u/s 145 of the Income-tax Act, 1961, and the income of the assessee is computed in the succeeding para. The assessee, despite being provided a number of opportunities in this case, has not provided details of parties to whom cash sales were made during the year.
Therefore, in view of above facts, and absence of details of parties to whom cash sales were made during the year, it is held that books of accounts for the FY 2016-17 are manipulated to accommodate the part of cash deposited during the demonetization period of Rs. 71,13,901/- (cash deposited during the demonetization period). Further as per provisions of Sec 68 of the Income Tax Act, 1961, the onus to prove the identity, creditworthiness and genuineness of parties from whom cash transactions are suspicious in the present case, is completely on the assessee. The assessee has provided no details of the parties to whom it has claimed to made cash sales during the month of November, 2016 and during the rest of period of the FY 2016-17. Therefore onus to prove the identity, Page 13 of 17
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. creditworthiness and genuineness of cash transactions has not been discharged by the assessee during the assessment proceedings. Therefore, in view of above Facts, it is held that cash sales are manipulated to account for part of the cash deposited during the demonetization period of Rs. 71,13,901/- (cash deposit during the demonetization period).“
In this regard, it was also submitted that there is no any evidence available with the Ld. AO alleging manipulation in the cash deposited and said allegation was made only on simple assumption, surmises and conjectures. It is settled principle of law that suspicion, however strong cannot take the place of evidence.
He also contended that mere substantial jump is not enough to addition without having cogent reasons for the same only on the basis of simply assumption, surmises and conjecture. The Ld. AO rejected the books of account without having cogent reasons or evidence, which is quite unwarranted and also of lacking jurisdiction of the Ld. AO.
It was reiterated that there is no any nexus between alleged manipulation of cash sales in May to July 2016 and cash deposited during demonization. He also contended that cash deposited during the demonization period which was out of cash sales made
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. during the demonization and duly accepted by the Ld. AO, and also that the source of cash deposit explained which was not doubted by the Ld. AO, then addition made on the basis of incorrect appreciation of facts is not sustainable and deserves to be deleted.
In conclusion, after going through entire facts of the case, there is material substances in the submissions advance on behalf of the assessee / appellant and alleged addition can’t be sustained merely made on the assumption, surmises and conjecture. These must be cogent reasons required by law and also the identity, credit worthiness and genuineness of transaction not adversely effected and doubted on mere assumption, and in the absence of the same, the impugned order is unsustainable and impugned addition deserves to be deleted.
In view of the above, the impugned order is set aside, the additions made by the AO and sustained by the Ld. CIT(A) are hereby deleted. Accordingly, the appeal of the assessee is allowed.
ITA No.-432/Del/2024 Premier Restaurant Private Ltd. 12. Consequently, this appeal is allowed as indicated above.
Order pronounced in the Open Court on 29.11.2024