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Facts
The assessee, A.G. India Retail Pvt. Ltd, engaged in trading, faced an addition of Rs. 34,14,000/- under Section 68 read with Section 115BBE by the AO for cash deposits during the demonetization period, sourced from recorded cash sales. The CIT(A) upheld this addition. The assessee argued that the deposits were from legitimate cash sales and that the assessment order was void ab initio due to the absence of a mandatory show cause notice as per CBDT Instruction No. 20/2015.
Held
The Tribunal admitted the additional ground concerning the show cause notice. It held that the Assessing Officer's addition was based on conjectures, as he had accepted the assessee's books of accounts and cash sales without contrary material. Relying on the Supreme Court's decision in Lalchand Bhagat Ambica Ram, the Tribunal found the addition not legally permissible and the CIT(A)'s sustenance of it erroneous. The grounds challenging the addition were allowed.
Key Issues
Whether the addition for cash deposits during the demonetization period, made when the assessee's books of accounts and cash sales were accepted, was justified. Whether the assessment order was void ab initio due to the absence of a mandatory show cause notice.
Sections Cited
Section 143(3), Section 68, Section 115BBE, CBDT Instruction No. 20/2015
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Income Tax Appellate Tribunal, DELHI ‘A’ BENCH,
Before: SHRI VIKAS AWASTHY & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order of the NFAC, Delhi dated 12.12.2023 pertaining to A.Y. 2017-18.
2 2. The assessee has raised the following ground of appeal:
“1. Arbitrary ad-hoc Addition of cash deposit of Rs. 34,14,000/· during demonetization period
That on the facts and in the circumstances of case and in law where an appeal is filed before the Tribunal against the order of the ld. CIT(A)–NFAC not justified in upholding the impugned addition of Rs. 34,14,000/-made by AO, on account of cash deposited during demonetization period without appreciated that: i) The appellant company has deposited cash duringthe demonetization period out of the cash sale made to the different parties before the demonetization period. ii) The ld. CIT(A) as well as the Assessing Officer erred and bad in law by not considering that complete cash sales cannot be considered doubtful because the sale is made from the purchase available in the stock register maintained properly by the appellant. iii) The CIT (A) as well as learned assessing officer erred and bad in law and facts by not considering the fact that administrative office of the company shifted to Gurgaon during the financial year under consideration resulting it is very difficult to regularly deposit the cash in Pitampura bank branch. iv) The appellant has duly submitted the stock register and cash ledger showing the sale has been made out of the stock available to the appellant and duly accounted in the books of accounts and reconciled with VAT return for the respective periods. v) The learned assessing officer erred in passing the impugned order in violation of principle. of natural justice and not giving the opportunity of being heard before making the Impugned addition and CIT(A) upheld the impugned order passed by Assessing Officer.”
The Ground no 1(v) was not pressed, hence the same is dismissed.
The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of both the ld. Counsels, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules and have also perused the judicial decisions relied upon by both the sides.
Before proceeding further, we find that the assessee, vide an application dated 16.07.2024, has craved leave to raise the following additional ground of appeal:
4 “That impugned assessment order passed u/s 143(3) is nullity, void ab initio and without authority of law as underlying order is passed without issue of mandatory show cause notice as mandated in CBDT Instruction No. 20/2015 dated 29.12.2015.”
The ld. DR strongly objected to the admission of this additional ground stating that no point of law is involved and the assessee is raising the additional ground purely on facts and, therefore, as per the ratio laid down by the Hon'ble Supreme Court in the case of NTPC 229 ITR 383, such ground cannot be allowed to be raised at this stage.
Per contra, the ld. Counsel for the assessee stated that all the relevant details are very much on record and as per CBDT Instruction No. 20/2015 dated 29.12.2015, the impugned assessment order is null and void ab initio. The ld AR relied on the judgment of the Hon'ble Supreme Court in the case of NTPC 229 ITR 383 and Singhad Technical Education Society 397 ITR 344.
We have carefully considered the orders of the authorities below qua the additional ground raised
by the assessee. We find that the issue raised is a legal one. Respectfully following the judgment of the 5. Hon'ble Supreme Court in the case of NTPC [supra], we admit the additional ground of appeal.
Briefly stated, the facts of the case are that the assessee is engaged in the business of trading of various types of plastic sheet, plastic items and ball bearing and others merchandise items.
The Assessing Officer passed assessment order u/s 143(3) dated 27.12.2019 with income assessed at Rs.1,21,14,522/- in place of returned income of Rs 87,00,522/- with total addition of Rs.34,14,000/- u/s 68 read with section 115BBE of the Act.
Aggrieved, the assessee went in appeal before the ld. CIT(A) who dismissed the appeal after confirming the order passed by the Assessing Officer for making addition of Rs.34,14,000/- (60 % of cash deposited during demonetization of Rs.58,17,266/-) being sourced from recorded cash sales in defect free audited books of accounts.
The ld. CIT(A) rejected the assessee’s claim that it had made cash deposits in bank during demonetization period from out of accumulated cash sales available upto 31.10.2016 as not corroborated with any evidence. He also accepted the Assessing Officer’s finding
6 that trend of cash deposit made during demonetization and during F.Y. 2015-16 have huge difference and sustained the addition made by the Assessing Officer.
Aggrieved, the assessee is in appeal before us.
The ld counsel of the assessee has vehemently argued that exhaustive evidence like Cash Book with cash deposit summary, Sales Tax returns, Detailed cash deposit summary, Detailed cash deposit summary with source of cash deposited were filed during assessment proceedings.
Before us, the ld. counsel for the assessee vehemently submitted that the AO had the details of cash sales as per cash book and cash summary flow chart and he made assessment without rejecting the trading results of the assessee. It was submitted that it amounted to double taxation of the same profit. It was argued that cash flow statement is merely rejected by the Assessing Officer on false hypothesis and conjectures without bringing on record any material evidence to show any other utilization of such cash available in hands of assessee. It was further argued that there is no SCN issued
7 prior to impugned asst. as per CBDT Instruction No.20/2015 dated 29.12.2015 which is fatal to impugned asst.
The ld. counsel for the assessee further submitted that having accepted the books of accounts by both the authorities, book results could not be disturbed once it is admitted that cash sales are recorded in books and forming part of turnover of the business. For this proposition the ld. counsel for the assessee relied upon :
i) Delhi High Court in CIT vs Kailash Jewellery House dated 09.04.2010 ii) Delhi High Court in PCIT vs Agson Global Pvt Ltd (2022) 441 ITR 550 (Del) iii) ITAT Delhi decision in Rama Hygienic Products Pvt Ltd in order dated 27.09.2023 iv) ITAT Delhi decision in Pilani International vs ACIT Circle 21(2) in ITA No.1606/Del/2023 order dated 29.04.2024 based upon Hon’ble Supreme Court decision in case of Lalchand Bhagat Ambica Ram vs CIT (1959) 37 ITR 288. v) ITAT Delhi in case of Durga Fire Work vs ITO Ward 59(8) in ITA No.383/Del/2024 order dated 03.07.2024
8 vi) Fine Gujaranwala Jewellers v. ITO in IT Appeal No. 1540(Delhi) of 2022 reported in [2023] 151 taxmann.com 340 (Delhi-Trib.)
The ld. counsel for the assessee further submitted that on basis of undisputed fact that there is no SCN issued prior to impugned asst, same is fatal defect leading to nullification of impugned assessment. The ld. counsel for the assessee referred to para 4 of CBDT Instruction No.20/2015 dated 29.12.2015 which is reproduced as under :-
‘In all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issuean appropriate show cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show cause notice.”
9 18. Per contra, the ld. DR relied upon the orders of the Assessing Officer.
We have heard the rival submissions and have perused the relevant material on record. We find that the Assessing Officer has made the addition only on the ground that the assessee has not explained the holding of cash receipt in hand instead of depositing the same in bank as was done in A.Y 2016-17. The Assessing Officer came to the conclusion that as the assessee has not kept cash in hand in earlier years, therefore, the amount of Rs. 57,17,266/- “definitely bears some unaccounted income of the assessee” which the assessee has deposited in the bank account in the garb of cash sales and he estimated a 60% of cash deposited as income u/s 68 r.w.s 115BBE of the Act.
We find that the Assessing Officer has not questioned the cash sales and has also not rejected the books of account. The AO has accepted the sales made during the year and the books of accounts of the assessee. We find considerable force in the ld AR argument that when the AO has not questioned the audited books of account and the cash
10 flow statement and cash book, he cannot draw an adverse view without bringing any contrary cogent material. The Assessing Officer has also not pointed out any element of undisclosed income in the form of cash sales and has also not substantiated as to how the cash deposits relates to the assessee’s unaccounted income. When the AO draws the conclusion that the cash in hand “definitely bears some unaccounted income of the assessee”, we find that the AO has travelled in the realm of conjectures. We also note that the Assessing Officer’s conclusion that 60% of the cash deposited constitute unaccounted deposits to be added u/s 68 is not supported by any cogent and material evidence.
In that view of the matter, we are of the considered view that the ratio of Hon’ble Supreme Court decision in case of Lalchand Bhagat Ambica Ram vs CIT (1959) 37 ITR 288 forcefully apply to the facts and circumstances of the instant case. The Hon’ble Supreme Court Lalchand Bhagat Ambica Ram (supra) had held that when entries in books of accounts in regard to cash balances were held to be genuine, there can be no escape from the conclusion that assessee had offered reasonable explanation as to source of all high
11 denomination notes which it encashed on 19th January 1946 and it was not open to ITAT to accept genuineness of those books and accept assessee’s explanation in part and reject the same in regard to balance sum. In the instant case, the AO has relied on the figures of cash deposits on the basis of books of accounts of the assessee and once he relies on the book results, he cannot reject the assessee explanation with regard to cash deposit.
In conclusion therefore, we hold that the addition made by the Assessing Officer is based on suspicions, conjectures and surmises. We also hold that the addition is not legally permissible and the ld. CIT(A) fell in error in sustaining the addition. Accordingly, the grounds 1(i) to 1(iv) raised by the assessee are allowed. As we have decided the case on merits we are not giving any opinion on the additional ground taken by the assessee.
12 23. In the result, the appeal of the assessee in is allowed.
The order is pronounced in the open court on 27.08.2024.