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Facts
The assessee, engaged in trading electrical home appliances, filed its return for AY 2017-18. Its case was selected for scrutiny due to large cash deposits during the demonetization period. The Assessing Officer made an addition of Rs. 1,21,53,767 under Section 68 of the Income Tax Act, alleging undisclosed income from artificially inflated cash sales. The CIT(A) deleted this addition, leading the Revenue to appeal to the ITAT.
Held
The ITAT upheld the CIT(A)'s decision, confirming that the assessee had adequately explained the source of the cash deposits as legitimate cash sales from the preceding period, particularly during the festive season. The tribunal found no flaws in the assessee's audited books of accounts or explanations, concluding that the AO failed to disprove the genuineness of the transactions and erred in invoking Section 68.
Key Issues
Whether cash deposits made during the demonetization period, claimed to be from regular cash sales during the festive season, constitute unexplained income under Section 68 of the Income Tax Act, 1961, when the assessee's audited books of accounts are accepted and explanations provided.
Sections Cited
143(3), 143(2), 142(1), 68, 131
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Income Tax Appellate Tribunal, DELHI BENCHES : B : NEW DELHI
Before: SHRI M. BALAGANESH & SHRI ANUBHAV SHARMA
ACIT, Vs Hari Om Retail Private Ltd., Circle 10(1), 7679, Near Amba Cinema, Delhi. Ghanta Ghar, Shakti Nagar, Delhi – 110 007. PAN: AACCH5933J (Appellant) (Respondent) Assessee by : Shri Vibhu Gupta, Advocate Revenue by : Shri Ajay Kumar Arora, Sr. DR Date of Hearing : 21.08.2024 Date of Pronouncement : 28.08.2024 ORDER PER ANUBHAV SHARMA, JM:
This appeal is preferred by the Revenue against the order dated 12.02.2024 of the National Faceless Appeal Centre, Delhi (hereinafter referred as NFAC or ‘FAA’) in Appeal No. CIT(A), Delhi-4/10909/2019-20 arising out of the appeal before it against the order dated 29.12.2019 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’), ACIT, Circle-11(2), Delhi (hereinafter referred to as the Ld. AO).
On hearing both the sides, it comes up that, the assessee- company is engaged in the business of trading in electrical domestic home appliances through various retail outlets in Delhi and continued to remained engaged in the aforesaid business, as such, even during the above assessment year. As for the previous year relevant to the assessment year 2017-18, is concerned, the assessee-company filed its return declaring income of Rs.56,79,600.The case of the assessee was compulsorily selected for scrutiny (CASS) vide notice dated 24.09.2018 issued under section 143(2) of the Act and the main reason for selection was ‘Large value cash deposit during demonetization period’. During the course of assessment proceedings, various notices under section 142(1) of the Act were issued by the assessing officer which were duly replied by the assessee-company. However, in the impugned assessment completed vide order dated 29.12.2019 passed under section 143(3)of the Act, income of the assessee has been assessed at Rs.1,78,33,367 as against income of Rs.56,70,600 declared by the assessee. While assessing the income, the assessing officer made addition of Rs.1,21,53,767 under section 68 of the Act alleging that the same represents the undisclosed income of the assessee-company.
2.1 On appeal, vide order dated 12.02.2024, the Ld. CIT(A) had deleted the sole addition made by the assessing officer. Against the aforesaid order of the CIT(A), the department has now filed an appeal before the Tribunal and raised the following grounds:-
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred, in deleting the addition of Rs. 1,21,53,767/-treated as “undisclosed income” on account of artificially inflated cash sales u/s 68 of the Act and ignoring the fact that the assessee has tried to artificially show the exorbitant cash sales to inflate the high cash-in-hand during demonetization period and nature & source of cash-in-hand so deposited remained unexplained?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred, in deleting the addition of Rs. 1,21,53,767/-u/s 68 of the Act, ignoring the fact that the assessee has failed to discharge the primary onus casted upon him to prove the nature & source of such cash credit and genuineness of the transaction, in view of the decision of Hon’ble Apex Court in the case of Rupal Jain Vs. CIT (2023)?
3. That the department craves to add or amend the grounds of appeal before Hon’ble ITAT is finally heard or disposed of.”
Heard and perused the record.
3.1 The ld. DR has submitted that the CIT(A) has failed to consider the facts that AO had established that the claim of the assessee of surplus cash generated from festive season sales is not sustainable. The ld. DR has relied the order of the AO.
3.2 On the contrary, the ld. AR has reasserted the submissions as made before the Ld. CIT(A) and relied the findings of Ld. CIT(A). It is submitted that once cash sales stood accepted, stock stood accepted there is no question of doubting the cash balance of the assessee-company which was deposited in the bank accounts. Once the books of account were accepted by the Department and the cash sales recorded therein were considered in arriving at the assessed income of the assessee-company, the cash deposited in banks against such cash sales could not be treated as undisclosed income of the assessee under section 68 of the Act without bringing on record any credible evidence/material. Reliance in this regard is placed on following decisions:
• CIT v. Kailash Jewellery House: of 2010 (Del HC)
• Agson Global Pvt Ltd vs ACIT:
(Del ITAT) [Para 125]- Confirmed by Delhi High Court in of 2021 • M/s. Rama Hygienic Products Pvt. Ltd. vs. ACIT: ITA No.1455 of 2021 (Del ITAT)[enclosed as Annexure-2] • HazoorilalJewellers Pvt Ltd. vs. ACIT: ITA No. 195 of 2021 (Del. ITAT) • Parish Agarwal vs. ITO: ITA No. 272 of 2023 (Del. ITAT) • Jagson International Ltd [TS-478-ITAT-2023(DEL)] • Navkaar Traders v. ITO [ITA No. 194/Del./2020] (Del. ITAT) • DCIT vs. Bawa Jewellers Pvt. Ltd.: ITA No.352 of 2021 (Del. ITAT) • ITO vs. Aditi Gems N Jewellery: ITA No. 3748 of 2023 (Del. ITAT) • Jet Freight Logistics Limited: [TS-762-ITAT- 2022(Mum)] (Mum. ITAT) 3.3 Further, it is contended that it is not open to the Revenue to have simply doubted that cash deposited was not out of the cash sales made by the assessee and duly recorded in the books of account etc., but from unaccounted sources, without any cogent reasons. Reliance was placed on the decision in CIT v.
Paradise Holidays 325 ITR 13 (Del. HC), Ashoke Refractories (P.) Ltd. vs CIT: 279 ITR 457 (Cal HC)] 3.4 Then it is submitted that section 68 of the Act is not applicable to business receipts recorded as sales. It is also submitted that receipts in cash against sale consideration cannot be added under section 68 of the Act for which reliance wa placed on the following cases:
• DIT vs. Keshav Social & Charitable Foundation: 278 ITR 152 (Del HC) • Smt. Harshila Chordia vs ITO: 298 ITR 349 (Raj HC) • Kishore JeramBhai Khaniya, Prop. M/s Poonam Enterprises: (Del ITAT) • ACIT vs Pradeep Agarwal: 159 ITD 54 (Chand. ITAT)
3.5 It is submitted by Ld. AR that the assessing officer has made a vague and unsubstantiated allegation that cash deposit is not corroborated based on surmises, conjectures and suspicion and overlooked the audited books of accounts maintained and produced by the assessee-company wherein the entire sales have been declared which have been accepted as such. It is submitted that the suspicion howsoever strong cannot take the place of proof. Reliance was placed on decision in Uma Charan Shaw & Bros. Co. v. CIT (SC): 37 ITR 271, Dhakeshwari Cotton Mills Ltd. v CIT: 26 ITR 775 (SC).
Giving thoughtful consideration to the material before us and the submissions it comes up that AO has not disputed the nature of business activity of the assessee-company as trading of electrical domestic home appliances. It is also not disputed and otherwise also established before us that the purchases are made from companies like Samsung India, Sony India, LG Electronics, Whirlpool, IFB etc. and the sales are made to end customers from various retail outlets.
4.1 We have examined the contemporaneous documentary evidences filed by the assessee-company before the assessing officer: a) ITR, Computation, audited financials, tax audit report along-with all schedules, annexures, notes. b) Cash book for the AY 2016-17 and 2017-18 along with details of stock as on 31.03.2016 and 31.03.2017; No.1700/Del/2024 c) Details of party Details of party-wise sales and purchases in the AY wise sales and purchases in the AY 2017-18 along with party name, address, PAN No. and 18 along with party name, address, PAN No. and 18 along with party name, address, PAN No. and amount; d) Chart showing comparison of month Chart showing comparison of month-wise cash sales wise cash sales and total sales for AY 2016 and total sales for AY 2016-17 to 2018-19 e) Chart showing comparison of month Chart showing comparison of month-wise cash sales and wise cash sales and cash deposits for AY 2016 cash deposits for AY 2016-17 to 2018-19; f) Tabulation showing comparison of cash sales and cash Tabulation showing comparison of cash sales and cash Tabulation showing comparison of cash sales and cash deposits, cash in hand, sales, G.P. and N.P. for AY deposits, cash in hand, sales, G.P. and N.P. for AY deposits, cash in hand, sales, G.P. and N.P. for AY 2016-17 and 2017 17 and 2017-18; g) Details of sales for the period from 01.11.2016 to 08.11.2016; h) Reconciliation of sales and purchases with DVAT returns for FY 2016-17; i) Details of month-wise and location-wise cash sales for the period 01.11.2016 to 08.11.2016; j) Details of N.P. and G.P. ratio for the last 3 years; k) Details of amount deposited bank-wise/branch wise during the demonetization period; l) Month-wise stock statement for the AY 2016-17 and 2017-18; m) Copy of bank statements of various accounts for the period 01.11.2016 to 31.12.2016; 4.2 The matter on record shows that in the FY 2016-17, the total revenue from operations were Rs.142,49,50,251 vis-à-vis the revenue of Rs.126,61,03,622 in the FY 2015-16. Out of the total sales made by the assessee-company, the cash sales in the FY 2016-17 were Rs.67,42,34,993 vis-à-vis the cash sales in the FY 2015-16 of Rs.70,49,13,073. Hence, cash sales is an integral part of the business model of the assessee-company. It is also established that cash sales froms substantial percentage of the total sales.
4.3 The orders depicts that in the month of October 2016, total sales of Rs.21,43,40,225 were made by the assessee-company out of which cash sales were Rs.10,69,95,526. The case of assessee is that such high sales (including cash sales) were on account of festive season (Ganesh Chaturthi, Navratri / Durga Puja, Mahanavmi, Vijayadashami, Dhan Teras, Deepawali, Bhai Dooj, etc). Similar pattern of huge sales (including high cash sales) is observed every year during the festive season. Chart showing comparison of total sales (including cash sales) made by the assessee in the AY 2017-18 vis-à-vis its comparison with the sales made in AY 2016-17 and 2018-19 is filed before the lower authorities and also before us.
4.4 Thus as a result of spurge in cash sales and festive holidays, if the assessee-company had a closing cash balance of Rs.1,68,49,238 as on 31.10.2016, the same cannot be doubted on mere fact that this period coincided with demonetization period. The Ld. CIT(A) has thoroughly examined these aspect and we consider it relevant to reproduce the part of Ld. CIT(A) order below:-
Thus, it can be observed from the assessment order that the AO has found the cash balance in the month of October 2016 as inexplicably very high when compared to earlier months in FY 2016-17 and also in earlier financial years. However, I find that the AO has not been able to find out even a single mistake in the books of accounts of the Appellant. The AO has not been able to bring on records even a single evidence of manipulation in sales by the Appellant. Slight variation in cash sales in the month of October 2016 and November 2016 when compared with FY 2015-16 or 2017-18 cannot be a ground to conclude that sales are inflated so as to accommodate SBNs belonging to various customers. In fact, I find that the Appellant has been able to explain the reasons of high cash sales in the month of October 2016 and as to why the cash could not be deposited in the bank account on the following day. The Appellant has explained in its reply to show cause letter issued by the AO that the high cash sales are attributable to dhanteras and Diwali which fell on 28thoct (Friday) and 30th October (Sunday). The cash so generated could not be deposited as banks were closed being Diwali and also being Saturday and Sunday. Relevant part of Appellant’s reply submitted in the course of assessment proceedings is extracted below for reference:……………………………………… Thus, it can be observed from the above factual submission that the Appellant has duly explained the reasons for high cash sales in October 2016 being dhanteras and Diwali falling on 28th and 30thOctober. The Appellant has also explained the cash so generated on account of cash sales could not be deposited being bank holiday. The Appellant has also submitted before the AO that it is not that the Appellant has not been able to reach similar sales figures as has been done in October 2016. The Appellant has cited few months where cash sales are nearing the cash sales achieved in October 2016. Thus, there is nothing very unusual about high cash sales in October 2016 and also high cash balance in the same month. In this regard, I find that the AO has not been able to rebut any of the above factual submissions made by the Appellant. I further find that the in his statement recorded u/s 131 of the Act in the course of assessment proceedings, the Director of the Appellant Company has replied to all the queries raised by the 11 AO. The AO has not been able to find any flaw in the replies given by the Appellant. And yet, without negating the factual submissions of the Appellant, the AO has simply concluded that the high cash balance in October 2016 is inexplicable and has thereafter proceeded to add Rs 1,21,53,767/- u/s 68 of the Act on account the same being unexplained excess cash balance.This makes the assessment order a non-speaking order when the AO, after having issued so many notices u/s 142(1) and calling for various details and statements, does not consider the factual submissions made by the Appellant and proceeds to make addition u/s 68 of the Act. Thus, in my considered opinion, the Appellant has duly explained the sources of cash deposits during the demonetisation period as being out of cash sales made in the preceding month. The AO has erred in making the addition of Rs 1,21,53,767/- u/s 68 without negating the factual submissions made by the Appellant and without pointing out any defects in the books of accounts of the Appellant which are duly audited. From perusal of facts of this case, the Doctrine of preponderance of probabilities is clearly attracted. The normal rule which governs civil proceedings is that a fact can be said to be established if it is proved by a preponderance of probabilities. This is for the reason that under Section 3 of the Evidence Act, 1872, a fact is said to be proved when the court either believes it to exist or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists. The belief regarding the existence of a fact is thus to be founded on a balance of probabilities. A prudent man faced with conflicting probabilities concerning a fact-situation will act on the supposition that the fact exists, if on weighing the various probabilities he finds that the preponderance is in favour of the existence of the particular fact as a prudent man. So the Court applies this test for finding whether a fact in issue can be said to be proved. The first step in this process is to fix the probabilities, the second to weigh them, though the two may often intermingle. The impossible is weeded out at the first stage and the improbable at the second. Within the wide range of probabilities, the Court has often a difficult choice to make but it is this choice which ultimately determines where the preponderance of probabilities lies. Important issues like those which affect the status of parties demand a closer scrutiny than those like the loan on promissory note. The nature and gravity of an issue necessarily determines the manner of attaining reasonable satisfaction of the truth of the issue. In 12 civil cases this, normally, is the standard of proof to apply for finding whether the burden of proof is discharged. The normal rule which governs civil proceedings is that a fact can be said to be established if it is proved by a preponderance of probabilities and not the one relating to beyond reasonable doubt. In this case, it is evident from the facts that preponderance of probability is working in favour of the Appellant. The Appellant has been able to substantiate that the cash deposits made during the demonetisation period is on account of cash sales generated in the preceding period. These facts have already been discussed above. Thus, in view of facts of the case and discussions made hereinabove, I am of the considered opinion that the Appellant has duly explained the source of cash deposits as being out of cash sales. Therefore, the AO has erred in invoking provisions of section 68 of the Act and making the impugned addition of Rs 1,21,53,767/-. The said addition is, therefore, directed to be deleted. Grounds are, thus, allowed.
4.5 Thus where the books of account of the assessee-company have been audited and accepted by the assessing officer. The assessing officer has not disputed the cash sales made during the year which were duly recorded in the regular books of account, quantitative details of stock were being maintained, including the sales effected in cash. Thus, all the purchases, stock, sales (including cash sales) were accepted by the assessing officer. Then sales were fully recorded in books and also corroborated with VAT returns which have been accepted by the sales tax/ VAT authorities, with VAT/ sales tax having been paid thereon.
Assessee had sufficiently discharged the onus, and same has been duly examined by the Ld. CIT(A).
In view of the above discussion there is no error in the findings of the Ld. CIT(A) while deleting the addition of Rs.1,21,53,767 made by the assessing officer under section 68 of the Act. The grounds have no substance and the appeal of Department is dismissed.
Order pronounced in the open court on 28.08.2024.