PREMIER RESTAURANT PRIVATE LIMITED,DELHI vs. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-20(1), DELHI

PER SUDHIR PAREEK, JM

The aforetitled appeal has been preferred by the Assessee /

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.”

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

Page 2 of 17

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.

on record for disposal of this appeal.

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 - - -

Page 6 of 17

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

Page 8 of 17

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.

Page 10 of 17

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.

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 ITA No. 1089/Chny/2022,

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.

Page 12 of 17

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).“

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.

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

Page 14 of 17

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.

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.

additions made by the AO and sustained by the Ld. CIT(A) are

hereby deleted. Accordingly, the appeal of the assessee is allowed.

Page 15 of 17

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

Sd/- Sd/- (S RIFAUR RAHMAN) (SUDHIR PAREEK) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 29/11/2024. Pooja/-