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Facts
A search and seizure operation was conducted on Hazoorilal Jewellers Pvt Ltd on 17.11.2016. The assessee surrendered Rs. 3,67,13,530/- as additional income due to stock valuation differences, including it in a revised return as business income, which the AO taxed under Section 115BBE. During the demonetization period, the assessee deposited Rs. 17.50 crores, claiming it as cash sales and advances, but the AO added Rs. 11.99 crores as unexplained cash credit under Section 68. Additionally, an ad hoc disallowance of Rs. 18,23,000/- was made for advertisement and exhibition expenses.
Held
The Tribunal held that the voluntarily surrendered income was business income not subject to Section 115BBE, as the higher tax rate was introduced after the search. It upheld the CIT(A)'s deletion of the Rs. 11.99 crores addition under Section 68, finding the cash deposits legitimate and properly accounted for through verifiable sales. The Tribunal also upheld the deletion of the ad hoc disallowance for advertisement and exhibition expenses, as they were for business purposes and adequately supported by documentation.
Key Issues
1. Whether additional income voluntarily surrendered during a search, arising from stock valuation differences, should be taxed as business income at normal rates or at higher rates under Section 115BBE of the Income Tax Act. 2. Whether cash deposits made during the demonetization period, claimed as sales and advances, constitute unexplained cash credits under Section 68. 3. Whether an ad hoc disallowance of advertisement and exhibition expenses is justified when books of account are not rejected and expenses are supported by evidence.
Sections Cited
143(3), 153A, 132, 127, 142(1), 139(1), 139(5), 115BBE, 68, 69, 69A, 69B, 69C, 69D, 145(3)
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Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
O R D E R PER M. BALAGANESH, A. M.: The appeal in filed by the assessee and ITA No. 1. 432/Del/2021 filed by the revenue for AY 2017-18, arise out of the order of the Commissioner of Income Tax (Appeals)-29, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. 234/2018-19 dated 08.02.2021 against the order of assessment passed u/s 143(3) r.w.s. 153A of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.12.2018 by the Assessing Officer, ACIT, Central Circle-28 , New Delhi (hereinafter referred to as ‘ld. AO’).
As these are the cross appeals therefore, they are taken up together and disposed of by this common order for the sake of convenience.
The only issue to be decided in this appeal of the assessee is as to whether the ld CIT(A) was justified in confirming the taxation of additional income of Rs. 3,67,13,530/- u/s 115BBE of the Act in the instant case.
We have heard the rival submission and perused the material available on record. The assessee company is trading of jewellery. It does retail sales as well as wholesale exports. A search and seizure operation was carried out in the premises of the assessee u/s 132 of the Act on 17.11.2016. During the course of search, various materials/ documents were found and seized and statements were also recorded. The case of the assessee was centralized vide order passed u/s 127 of the Act by the Ld PCIT on 17.07.2017. Later notice u/s 153A of the Act stood issued to the assessee for AYs 2011-12 to 2016-17 and notice u/s 142(1) of the Act for AY 2017-18 dated 27.07.2018.
During the search, a Government empanelled valuer was summoned to assist in the valuation of the stock of jewellery found at the time of search. The valuer adopted a rough method and took the weight of jewellery on estimated basis completely ignoring the tag in each of the jewellery containing actual weight. Accordingly, the valuation was arrived with the difference in the valuation of stock of jewellery on the date of search. The complete valuation report is enclosed at pages 1 to 36 of the Paper Book dated 15.05.2024. The ld AR before us drew our attention to few pages of the valuation report just to drive home the point certain glaring discrepancies that were reflected in the said valuation report. Specific attention was drawn to page 17 of the Paper Book dated 15.05.2024 wherein, net weight of jewellery was found to be much more than the gross weight of jewellery, which is not possible at all. Similar attention was drawn at page 19 of the Paper Book where SL. No 29 was found missing in the typed valuation report. Further, the ld AR also drew attention at page A of the Paper Book containing the summary of the valuation report wherein, there was total mistakes committed by the valuer. All these entries collectively contributed to erroneous adoption of valuation of jewellery on the date of search by the Govt appointed registered valuer. Obviously, the assessee did not have the luxury of time with it to go through the valuation report page by page during the course of search proceedings. Accordingly, the assessee was forced to make some surrender of additional income at the time of search which was duly made by the Director of the assessee company at the time of recording of statement on 18.11.2016 at 10 PM.
The original return of income was filed by the assessee for AY 2017-18 on 31.10.2017 u/s 139(1) of the Act disclosing total income of Rs. 3,96,75,690/-, wherein, the surrendered income during the search was not included by the assessee. Later a revised return was filed voluntarily by the assessee on 20.09.2018 declaring total income of Rs. 7,63,89,220/-. It is pertinent to note that this revised return was duly filed within the time limit prescribed u/s 139(5) of the Act. In the revised return, the surrender made by the assessee during the course of search to the tune of Rs. 3,67,13,530/- was duly included as business income of the assessee.
The ld AO simply ignored the revised return of income and proceeded to treat the income surrendered during the search in the sum of Rs. 3,67,13,530/- as undisclosed income of the assessee and sought to tax the same by applying higher tax rate prescribed u/s 115BBE of the Act. The assessee preferred appeal against this action of the ld AO before the ld CIT(A). The ld CIT(A) held that the revised return filed by the assessee is a valid return but however, proceeded to treat the additional income disclosed/ surrendered during the search which was included by the assessee in the revised return, as undisclosed income eligible to tax u/s 115BBE of the Act. Aggrieved, the assessee is in appeal before us.
It is pertinent to note that against the action of the ld CIT(A) in holding that the revised return filed by the assessee to be a valid return, the revenue is not in appeal before us.
We have gone through the entire paper book submitted by the assessee and we find that the assessee’s AR vide letter dated 24.11.2018 filed before the ld AO had categorically stated that the additional income offered in the sum of Rs. 3,67,13,530/- at the time of search proceedings u/s 132(4) of the Act was only on account of difference in valuation of stock of jewellery. Since there was absolutely no difference in quantity of jewellery according to the assessee, and the difference arose only in the valuation thereon, the offer made by the assessee in the statement u/s 132(4) of the Act and in the revised return has to be construed only as business income earned by the assessee liable for taxation at normal rate. The same cannot be subjected to applicability of higher tax rate u/s 115BBE of the Act in view of the fact that the ld AO had not treated the same as income of the nature referred to section 68,69,69A, 69B, 69C and 69D of the Act. Once, an income was not held to be in the nature as referred under Sections 68 to 69D of the Act, the provisions of section 115BBE of the Act cannot be pressed into service at all. We find that the source of this additional income of Rs. 3,67,13,530/- had emanated only from the business of the assessee. This fact is also corroborated from nothing being found in the course of search by the search team other than disputing the valuation of jewellery. Hence, the same has to be construed only as business income of the assessee. We have already dealt with the various discrepancies for the method of valuation adopted by the Govt. valuer which was narrated in the earlier part of this order. Hence, the valuation adopted by the Govt valuer deserves to be completely rejected. Hence, the additional income of Rs. 3,67,13,530/- which was offered by the assessee voluntarily in the revised return cannot be construed as undisclosed income or income in the nature referred to in Sections 68 to 69D of the Act and consequently, the provisions of section 115BBE of the Act cannot be applied at all in the facts and circumstances of the instant case. There was absolutely no difference in the item-wise number of stocks. There was neither any excess nor any shortage in the items counted for valuation during search. While valuing the Polki i.e. uncut and unpolished diamonds, diamond and other studded items of jewellery, it was submitted that the valuer was not in a position to decipher the weight of stones and the weight of precious metals in which the stones were embedded, whereas, the assessee had the full and complete break up of bills of the same based on the actual purchase price paid by it for such items to the supplier at the time of purchase of each items of jewellery which indeed had a definite tag and which clearly mentioned separately the weight of precious metal and weight of stones with value for purchasing. This value was completely ignored by the Govt valuer at the time of search thereby resulting in alleged discrepancy. Be that as it may, the discrepancy has been accepted by the assessee in the statement u/s 132(4) of the Act as well as in the revised return filed on 20.09.2018 by offering the discrepancy amount to tax in the sum of Rs. 3,67,13,530/- as business income which is evident from the revised computation of income enclosed at page 36 of the Paper Book.
It is also pertinent to note that the disclosure of additional income was made by the assessee at the time of search on 18.11.2016 while giving statement u/s 132(4) of the Act at 10 PM whereas the higher tax rate of 60% got introduced u/s 115BBE of the Act only pursuant to Taxation Laws (2nd Amendment) Act, 2016 which got notified in the official gazette only on 15.12.2016, being the date of receipt of accent of the Hon’ble President of India which got further culminated as the Taxation Laws (2nd Amendment) Act, 2016. Hence, obviously the provisions of section 115BBE of the Act applying higher tax rate @ 60% cannot be applied at all in respect of search conducted prior to 15.12.2016 and incomes earned prior to 15.12.2016. Hence, the assessee is entitled for relief on this count also.
In view of the aforesaid observations, we have no hesitation to hold that the additional income of Rs. 3,67,13,530/- is to be brought to tax only as business income liable to tax at normal rate and not @60% provided u/s 115BBE of the Act. Accordingly, ground raised by the assessee is allowed.
In the result, the appeal of the assessee is allowed.
We have heard the rival submissions and perused the material available on record. There is no dispute that the assessee is engaged in trading of jewellery. On 10.11.2016 and 11.11.2016, the assessee deposited cash in its bank account to the tune of Rs. 17.50 crores. Since, these deposits were made during demonetization period announced by the Govt. of India from 09.11.2016 to 31.12.2016, the ld AO sought to examine the veracity of the source of such cash deposits. The assessee explained the source to be out of cash sales made by it and advances received against the sales and filed complete details of the same from 24.10.2016 to 08.11.2016 as under:-
CASH SALES ADVANCES - TOTAL CASH CASH COLLECTIONS FOR 24/10/2016 27,20,700.00 10,000.00 27,30,700.00 25/10/2016 76,18,050.00 2,35,000.00 78,53,050.00 26/10/2016 5,21,650.00 4,10,000.00 9,31,650.00 27/10/2016 1,07,50,565.00 20,20,350.00 1,27,70,915.00 28/10/2016 2,00,53,122.00 42,49,750.00 2,43,02,872.00 29/10/2016 1,25/11,694.00 42,52,450.00 1,67,94,144.00 30/10/2016 61,63,000.00 16,37,000.00 78,00,000.00 31/10/2016 01/11/2016 28,49,000.00 28,49,000.00 02/11/2016 1,17,74,410.00 28,56,000.00 1,46,30,410.00 03/11/2016 1,68,08,500.00 26,96,000.00 1,95,04,500.00 04/11/2016 1,55,06,920.00 2,51,850.00 1,57,58,770.00 05/11/2016 1,26,54,650.00 50,000.00 1,27,04,650.00 06/11/2016 1,98,86,650.00 19,74,500.00 2,18,61,150.00 07/11/2016 4,69,10,550.00 44,85,000.00 5,13,95,550.00 08/11/2016 7,49,52,501.00 7,49,52,501.00 TOTAL 25,88,62,962.00 2,79,76,900.00 28,68,39,862.00
The assessee also supported its contention by enclosing VAT/ GST returns during the quarters ended December 2015, December 2016, December 2017 to prove the quantum of sales made during the quarter ended 2016 compared well and reflected normal behaviorial pattern with that of the 2015 and 2016 as tabulated below:-
Sales during Qtr. Ended in Rs. Dec. 2015 80,42,73,485.09 Dec 2016 84,41,69,300.00 Dec 2017 56,13,79,595.00 16. In respect of sales made actually on 07.11.2016 and 08.11.2016, the sale bills were effected from 09.11.2016 to 11.11.2016 by the assessee. The assessee in this regard had explained the same even at the time of search proceedings while recording statement u/s 132(4) of the Act from the Director that due to festive seasons followed by demonetization where the showrooms remained open till midnight reporting large footfalls and human constraint in generating proper sale bill on the same day, there was no option to generate them on the following days i.e. 09.11.2016 till 11.11.2016. These facts stood corroborated with the statement of the Director as well as the accounts manager Shri Sudhir Arora taken during the search operation and thereafter. Further, the information technology in charge person Shri Rajesh Somai in his statement recorded during the search had also stated that sales bills generated and saved on the server cannot be edited nor can the sequence be altered once a bill has been entered. All sale bills even though generated on 09.11.2016 till 11.11.2016 pertaining to 07.11.2016 and 08.11.2016 are serially numbered and not tampered with. Accordingly, it was explained that no cash has been generated extraordinarily by the assessee or in an abnormal way. Cash generation is a regular feature in the trade carried out by the assessee and more so during the concerned period starting from end of October 2016 till 08.11.2016 being festive season, there is nothing unusual or abnormal for effecting huge sales in cash in a jewellery showroom. It is the usual custom prevailing in Hindu religion to buy jewellery on auspicious occasions and during Hindu festivals seasons. Further, CCTV footage during the relevant period was sought by the search team for their examination. Shri Rahati Ji, person in charge CCTV maintainance had stated that the CCTV footage was missing for the said period as it had broken much before the date of announcement of demonetization and that the repairs were conducted to restore the same but did not materlize during the relevant period on the relevant date of purchase. The assessee of course on its part provided the details of expenditure incurred towards those repair bills before the authorities to justify its claim that CCTV system had indeed broken during the relevant period. Further, Shri Sandeep Narang, Director of the assessee company had also deposed that billing software had collapsed and consequentially the assessee‟s staff had taken advance from customers on the “estimated” chits issued by them to the customers for specific items of jewellery. The Page | 8 supply of the said items of jewellery were made afterwards. However, the bills raised and the estimated chits of advance bills were of below two lakhs from a single customer and hence, there was no obligation on the part of the assessee to insist for the PAN of the customers while effecting the trade. The ld AO however, did not heed to the aforesaid contentions of the assessee and proceeded to treat the cash sales made during 07.11.2016 and 08.11.2016 as bogus by comparing the vouchers related to advance and retail invoices for the different periods and concluded without any basis, that the vouchers of cash transactions were fabricated documents and assessee had merely introduced its unaccounted money in the garb of the bogus cash sales and advances which stood subsequently deposited in the bank. The ld AO on the basis of daily average sales and estimation concluded that sales on 07.11.2016 of Rs. 51 lakhs and on 08.11.2016 of Rs. 1.02 crores. Accordingly, the ld AO concluded that legitimate cash available with the assessee till midnight of 08.11.2016 was only Rs. 1.53 crores (Rs. 51+1.02). Accordingly, he proceeded to treat the sum of Rs. 11.99 crores as unaccounted income of the assessee computed in the following manner :-
Sales reflected on 07.11.2016 by assessee Rs. 6.09 crores Sales reflected on 08.11.2016 by assessee Rs. 7.43 crores
Total Rs. 13.52 crores Cash balance available with the assessee as on 08.11.2016 Rs. 1.53 crores Addition made Rs. 11.99 crores
The ld CIT(A) considering the entire contentions of the assessee deleted the addition of Rs. 11.99 crores by accepting the same as regular cash sales by observing as under:-
“9.1 The appellant during the assessment proceedings submitted date wise cash collections on account of sales and advances against sales achieved from 24/10/2016 to 08/11/2016 which is as under : CASH SALES ADVANCES - CASH TOTAL CASH COLLECTIONS FOR THE DAY 24/10/2016 27,20,700.00 10,000.00 27,30,700.00 25/10/2016 76,18,050.00 2,35,000.00 78,53,050.00 26/10/2016 5,21,650.00 4,10,000.00 9,31,650.00 27/10/2016 1,07,50,565.00 20,20,350.00 1,27,70,915.00 28/10/2016 2,00,53,122.00 42,49,750.00 2,43,02,872.00 29/10/2016 1,25/11,694.00 42,52,450.00 1,67,94,144.00 30/10/2016 61,63,000.00 16,37,000.00 78,00,000.00 31/10/2016 - - - 01/11/2016 28,49,000.00 28,49,000.00 02/11/2016 1,17,74,410.00 28,56,000.00 1,46,30,410.00 03/11/2016 1,68,08,500.00 26,96,000.00 1,95,04,500.00 04/11/2016 1,55,06,920.00 2,51,850.00 1,57,58,770.00 05/11/2016 1,26,54,650.00 50,000.00 1,27,04,650.00 06/11/2016 1,98,86,650.00 19,74,500.00 2,18,61,150.00 07/11/2016 4,69,10,550.00 44,85,000.00 5,13,95,550.00 08/11/2016 7,49,52,501.00 - 7,49,52,501.00 TOTAL 25,88,62,962.00 2,79,76,900.00 28,68,39,862.00 As per appellant no cash sales were conducted during the period 09/11/2016, 10/11/2016 & 11/11/2016. The appellant also submitted the Sales data from the VAT / GST returns during the quarter ended December 2015 and 2016 to augment its point that the quantum of sales made during 2016 compared well with the years 2015 . Sales during Qtr. Ending December for the year 2015 and 2016 are as under. Dec. 2015 80,42,73,485.09 Dec 2016 84,41,69,300.00 The appellant has also stated that the copies of the sales register as well as sales bill were provided to the search team on the 18/11/2016. Regarding the backdating of the bills the appellant has stated that due to the festive seasons followed by demonetization wherein the showrooms remained open till midnight, reporting large footfall and human constraint in generating proper sale bills on the same day there was no option but to generate them on the following days that is from Page | 10
09/11/2016 till 11/11/2016. The appellant further mentioned that the IT in charge Sh. Rajesh Somani in his statement recorded during the search had stated that sale bills generated and saved on the server cannot be edited nor can the sequence be altered once a bill had been entered. All sale bills even though generated on 09/11/2016 till 11/11/2016 pertaining to 07/11/2016 & 08/11/2016 were serially numbered and not tampered with. 9.2 I have also gone through the standard operating procedures laid down bythe CBDT regarding verification of cash transactions relating to demonetization. The said Instructions are: 1st instruction issued on 21/02/2017 vide number 03/2017, 2nd instruction issued on 03/03/2017 vide number 4/2017, 3rd instruction issued on 15/11/2017 vide F.No. 225/363/2017-ITA.II and the last on 09/08/2019 vide F.no.225/145/2019- ITA.II. The above instructions provide guidance as to the kind of investigation, enquiry, evidences that the assessing officer is required to take into consideration for the purpose of assessing such cases. The instructions speak about the comparative analysis of cash deposits, cash sales, month wise cash sales and cash deposits. It also provides that whether in such cases the books of accounts have been rejected or not where substantial evidences of wide variation be found between these statistical analyses. The instruction dated 21/02/2017 provides that the assessing officer will look into the basic relevant information e.g. monthly sales summary, relevant stock register entries and bank statement to identify cases with preliminary suspicion of back dating of cash and is or fictitious sales. The instruction has also suggested some indicators for suspicion of back dating of cash else or fictitious sales where there is an abnormal jump in the sales during the period November to December 2016 as compared to earlier year. Non- availability of stock or attempts to inflate stock by introducing fictitious purchases is also some indication for suspicion of fictitious sales. Therefore, it is imperative to examine as to whether the case of the assessee falls into these parameters are not. 9.3 The appellant has submitted that comparative charts were called for by the Assessing Officer during the assessment proceedings in order to analyse the business pattern viz a viz cash sales. The appellant has filed its written submissions, which were also submitted during the assessment proceedings. From the said submissions the comparative charts are reproduced below and the trend emerging from the said charts is also analysed hereunder : Chart No. 1.: Percentage of cash turnover viz a viz total turnover
Period ended Percentage of cash Total Turnover Cash Component sales to total (In Cr.) (In Cr.) turnover 31.03.2015 23.16 0.31 1.33% 31.03.2016 216.88 119.56 55.13% 31.03.2017 283.69 107.83 38.00%
31.03.2018 235.28 63.97 27.19%
The above chart depicts that cash sales are a regular feature of the assessee company’s business and that the cash sales are incurred in all the years, since the inception of business . The percentage of cash sales to the total turnover which was 55.13 % for the period ended 31.03.2016 have actually come down to 38% for the period ended 31.03.2017 i.e. in the current AY 2017-18. Chart No. 2 Total turnover for the quarter ended Dec. 2015 and Dec. 2016.
Particulars Amount Sales during Oct to Dec 2015 80,42,73,485.09 Sales during Oct to Dec 2016 84,41,69,300.00
These figures match with the VAT / GST returns filed by the appellant. Further the figures are comparable from year to year during the same period. The increase in the quarter October to December in the year 2016 is a small 4.9% as compared to the same quarter of 2015 Chart No. 3 : Comparative figures of sales for the month of Nov. 2014, 2015 & 2016. Particulars Amount Sales during Nov 2014 * * 1,66,14,800.00 Sales during Nov 2015 22,19,17,646.00 Sales during Nov 2016 29,17,66,881.00
* Business commenced in August 2014 It may be noted that the turnover of the appellant increased from Rs. 216.88 Cr. in FY 2015-16 to Rs. 283.69 Cr. in FY 2016-17 leading to corresponding increase of sales. Chart No. 4 : Comparison of month wise average daily sales during F.Y. 2015- 16 & 2016-17. F.Y. 2015-2016 F.Y. 2015-2016 F.Y. 2016-2017 F.Y. 2016-2017 Avg sales per MONTHS NET SALES day NET SALES Avg sales per day APRIL 13,19,56,902.19 43,98,563.41 28,31,98,401.00 94,39,946.70 MAY 18,01,09,509.00 60,03,650.30 30,60,59,661.00 1,02,01,988.70 JUNE 9,11,92,545.00 30,39,751.50 18,09,97,095.00 60,33,236.50 JULY 19,40,96,470.00 64,69,882.33 14,85,58,204.00 49,51,940.13 AUGUST 16,40,73,305.00 54,69,110.17 14,13,80,816.00 47,12,693.87 SEPTEMBER 12,94,54,453.00 43,15,148.43 20,00,73,480.00 66,69,116.00 OCTOBER 35,10,71,966.00 1,17,02,398.87 36,54,14,109.00 1,21,80,470.30 NOVEMBER 22,21,60,177.00 74,05,339.23 29,17,66,881.00 97,25,562.70
From the above chart it is seen that the assessee company has reported turnover for the financial year 2016-2017 (Upto November, 2016) which is comparable with the turnover of the immediately preceding previous year both in terms of monthly sales as well as average daily sales. Further the net sales in the months of May 2016 and October 2016 are more than the sales in the month of November 2016. Thus it is not the case wherein the sales are high only in the month of November 2016. Chart No. 5 Comparative data of Cash Collection Oct. Nov. 2016 and 2015. CASH COLLECTION OCTOBER & NOVEMBER 2016 BRANCH ADV. RECEIVED SALES TOTAL GK. (HEAD OFFICE) 68,35,150 34,42,64,002 35,10,99,152 ITC MAURYA (BRANCH) 62,71,500 1,66,01,150 2,28,72,650 94,53,500 18,86,590 1,13,40,090 DLF EMPORIO (BRANCH) 2,25,60,150 36,27,51,742 38,53,11,892 TOTAL
CASH COLLECTION OCTOBER & NOVEMBER 2016 BRANCH ADV. SALES TOTAL RECEIVED GK. (HEAD 68,89,200, 38,85,95,650 39,52,84,850 OFFICE) ITC MAURYA 62,71,500 25,00,021 25,00,021 (BRANCH) TOTAL 68,89,200 39,10,95,671 39,77,84,871
Here again it can be seen that the cash collections from the business by the assesse during October, November, (Festive and wedding season) are comparable for the years 2015 and 2016. In fact the cash collection for the months of October and November 2016 are marginally less than the cash collections for the same period in the year 2015. Chart No. 6 : Normal daily sales in Nov. 2015 Date Amount 04.11.2015 Rs. 1,00,98,217/- 05.11.2015 Rs. 1,16,42,590/- 07.11.2015 Rs. 1,85,78,167/- 09.11.2015 Rs. 2,97,00,470/-
The above figures extracted from the immediately previous year suggest that sales do touch Rs.3 Crores even without there being exceptional circumstance, as were due to an announcement of demonetization.
The above figures extracted from the immediately previous year suggest that sales do touch Rs.3 Crores even without there being exceptional circumstances as were due to an announcement of demonetization. 9.4 From the analysis of the above charts it is observed that cash sales are a normal part of business in the assessee's trade, that in the assessee's trade there are both lean and peak periods therefore comparison of per day sales gives misleading results, that quarter ending December every year sees a lot of festivals as well as mahurat's and marriages and the assessee's business gets almost 40% of its business during this period, that comparative data of cash sales / collections during similar periods / dates compares favourably from year to year with normal business fluctuations and that the assessee company's account properly record and reflect these sales. The charts reflect that the appellant is regularly incurring cash sales. It is a normal business practice in the business of jewellery that part sales are done in cash. The percentage of cash sales to the total turnover which was 55.13% for the period ended 31.03.2016 have come down to 38% for the period ended 31.03.2017 i.e. in the AY 2017-18. Further the sales during the period October to December 2015 were of Rs. 80.42 crores whereas the sales during the period October to December 2016 were of Rs. 84.41 crores which again reflect that the sales were comparable in the said quarters. Again it is seen from the above charts that the sales during the month of November 2015 amounted to Rs. 22.19 crores whereas the sales during the month of November 2016 were of Rs. 29.17 crores, the increase in sales is due to the extraordinary demand for the jewellery on the night of 8.11.2016 due to demonetisation. It may also be seen that the turnover for the FY 2015-16 was Rs. 216.88 crores whereas the turnover for the FY 2016-17 was of Rs. 283.69 crores. Thus, taking into account the increase in turnover during the current year to the year 2015-16, there is no extraordinary spike of sales in November 2016 as compared to November 2015. Also it is seen that the Cash Collections from the Sales and Advances received for the months of October and November 2016 were Rs.38,53,11,892 as compared to the figure of Rs. 39,77,84,871/- for the months of October and November 2015. The analysis of all the charts do not reflect any wide variation in the sales or cash sales incurred by the appellant in the month of November 2016. Thus it cannot be inferred that the appellant has booked non existing sales in its books post demonetisation. 9.5 Now coming to of the method of averaging adopted by the AO to determine the sales per day is also not correct. As seen from charts on prepares it is seen that the average sales per day for the AY 2017-18 has varied from Rs. 1.02 crores in the month of May 2017 to Rs. 47.12 lakhs in the month of August 2017and to Rs 97.25 lakhs in the month of November 2017. Further from the cash sales chart in the pre para it is seen that there is a variation in the cash sales on day to day basis. It is a matter of fact that jewellry buying in India is high during the festival and marriage season and turns lull otherwise. The cash sales versus non cash sales are also totally dependent of the customer. Therefore any method Page | 14 of averaging of daily sales or cash sales on the nature does not have a rational. The principle of law is that when primary evidence is available, it cannot be discarded to prefer an estimate. In this case, the primary evidence as banked upon by the Assessee to support his entries is not contradicted. No evidence or inaccuracy has been brought on record by the Assessing Officer before rejecting the same. It is a matter of fact that the transactions of sales which are a part of the returns submitted by the appellant to the other taxation authorities. 9.6 The Hon'ble ITAT Delhi in the case of Agson Global (P.) Ltd. Vs Assistant Commissioner of Income Tax, Central Circle-28, New Delhi [2020] as reported in 115 taxmann.com 342 has dealt with the similar facts and has pronounced that where cash was deposited by the assessee, who was engaged in purchase and sale of dry fruits etc., in the bank post demonetization, which was treated by the AO as unaccounted income, on the basis of comparative sales with earlier years, no discrepancy in stock, details of purchases and sales, filing of VAT returns etc. the said deposit cannot be added u/s 68 of the Act. 9.7 The appellant has rightly submitted that notwithstanding the announcement of demonetization effective from midnight of 08.11.2016, the government had not imposed any restriction or prohibition on trade and commerce. The appellant has submitted that due to festival season and till the night of 08.11.2016, not only was the regular sales staff, required to be detained for attending to the sales activities including bill preparation and collection, even the accounts staff and the administrative staff had to be posted to the sales and cash counters to attend to the heavy rush of the customers which is a normal business practice. With the normal system becoming overloaded, sales were made on the basis of proformas by the appellant. Due to heavy rush such sales could not be simultaneously loaded into the system and so the formal bills were raised subsequently in lieu of the copy of the proformas handed out originally to the customers at the time of sale on the night of 08.11.2016. The sales as made during the night of 08.11.2016 were of jewellery i.e. finished goods. Also no proof of backdating of sales bills was found during the course of search. The appellant had made entries of the sales made on 7.11.2016 and 8.11.2016 by entering them in the accounting software on 9.11.2016, 10.11.2016 and 11.11.2016 Further, the AO has compared vouchers relating to advances and retail invoices in the assessment order and has observed that since certain entries in some vouchers were missing has concluded that the vouchers of cash transactions were manipulated. As per the Act the appellant may sell the jewellery without obtaining PAN of the customers if the transactions are less than Rs. 2 lacs. Also it is upon the needs of the trade as to whether the address etc. of the customer are to be included in the voucher. Therefore no adverse inference can be drawn from the said findings. All these transactions are recorded in the books of accounts. The books of accounts have not been rejected by the Assessing Officer. The Purchases were with VAT/GST. The Sales were also with VAT/GST. The VAT/GST Authorities have not disputed the said transactions. It is thus a case of Page | 15 sales being made out of the stock in books of the Assessee to the diverse customers on the night of 08.11.2016. 9.8 It is also to be noted that the assessee maintains an average stock of above Rs.150 crores. It is seen from records that the appellant had made declaration under the IDS 2016 Scheme on 19th September, 2016. Accordingly all the items of the jewellery had been inspected, valued and tagged by the assessee before 17.09.2016 (Valuation report dated 18/09/2016) to facilitate a true and a full declaration under the IDS 2016 Scheme. All these tags stood attached to each and every item of unsold jewellery at the time of the search on 17.11.2016. It would be important to note that the sales were properly recorded in the accounts, duly supported by sales bills, when the search took place on the appellant on the 17.11.2016. The assessee has maintained the stock register which was found during the course of the search and was tallied with the stock found. The assessee had maintained the complete stock details in its accounting software. The said books of accounts are audited by the tax auditor. No evidence of bogus sales or bogus purchases or non existing cash in the books of accounts was found during the course of search. Merely because the cash holding as on 7.11.2016 was not deposited immediately on 8.11.2016 cannot lead to the conclusion that the assessee did not have the said cash. It can merely lead to a suspicion but based on this addition cannot be made without evidence that assessee did not have that kind of cash available. 9.9 In this case, all the cash sales have been included in the accounts of the Assessee as part of its Sales for the year. The Assessing Officer has accepted this position by accepting the accounts and causing the assessment to be made on the basis of the returned income appearing in the books of accounts. The Assessing Officer has added the sales already shown which results in the duplication of income which is erroneous and untenable. 9.10 In view of the above facts and discussions and respectfully following the decision of ITAT Delhi in the case of Agson Global (P.) Ltd. Vs Assistant Commissioner of Income Tax, Central Circle-28, New Delhi [2020] as reported in 115 taxmann.com 342, the addition of Rs. 11,99,00,000/- is deleted and this ground of appeal of the assessee is allowed.”
18. We find that all the allegations leveled by the ld AO in his order had been duly replied and made by the assessee before the lower authorities. No discrepancies whatsoever were found during the course of search conducted on 17.11.2016 to 19.11.2016 in the business premises of the assessee which was just 9 days after the date of announcing of demonetization by the Govt of India. The books of account of the assessee had not been rejected and to the extent of cash sales made , corresponding reduction in stock register had been duly made by the assessee. No discrepancy to this effect was either found by the search team at the time of search or by the ld AO in the assessment proceedings. In the assessee‟s appeal, we have already held that the disclosure of Rs. 3,67,13,530/- was made by the assessee‟s Director only on account of difference in valuation of jewellery and not on account of quantity of stock as admittedly nothing untoward thereon was found at the time of search which was just 9 to 10 after the demonization period announced. As stated earlier, the assessee‟s trade practice warranted monetary receipt of cash on its sales. The assessee had also duly explained the reasons behind issuing „estimate‟ chits to the customers for receiving advance in cash for the jewellery sales to be made in future. The sales made during the quarter ended December 2016 is very much comparable with that of December 2015 and December 2017 and no abnormality is being noticed thereon as is evident from the table reproduced in earlier part of this order qua this ground. The turnover of the assessee during the year had indeed increased to Rs. 283.69 crores when compared to Rs. 216.88 crores in the immediately preceding year. The assessee had given adequate justification for huge increase in sales during the fag end of October 2016 till the first fortnight of November 2016 quoting the reasons of festivals season which fact cannot be disputed at all. There is absolutely no basis for the ld AO to arrive at the daily average sales of a particular day and arriving at the availability of cash sales as on 08.11.2016. Further, the very same transactions of Rs. 11.99 crores, being the addition made by the ld AO is already part of actual sales already disclosed by the assessee in its return of income and in the books of account. We hold that adding this sum of Rs. 11.99 crores will only result in double addition. The entire sales made by the assessee had been duly reflected in the VAT/ GST returns and no infirmity in any manner Page | 17 whatsoever was found by the concerned authorities. These facts were duly appreciated by the ld CIT(A) by giving elaborate reasons which are already reproduced hereinabove. None of the factual observations made by the ld CIT(A) were controverted by the ld DR before us except repeating what the ld AO had done in the assessment order. Hence, we do not find any infirmity in the order of the ld CIT(A). Accordingly, the ground (i) to (iii) raised by the revenue are dismissed.
19. Ground Nos. (iv) and (v) raised by the revenue are challenging the deletion of addition of Rs. 18,23,000/- on account of deletion of disallowance of advertisement and exhibition expenses on ad hoc basis.
We have heard the rival submissions and perused the material available on record. The ld AO in the assessment proceedings made an ad hoc disallowance of 10% of total exhibition expenses and advertisement expenses on the ground that the assessee could not produce vouchers for some of the transactions and hence, the same remained unverified. The assessee on its part submitted ledger bills and vouchers before the ld AO and stated that the payments thereon were made by account payee cheques and duly subjected to deduction of tax at source, wherever applicable, and the said TDS were duly deposited to the account of Central Govt. It was submitted that the advertisement have been made in leading media, national and international magazines and hoardings at prominent places. Participation in exhibitions is also carefully selected where leading jewelers, both national and international, participated. The entire ledger account for advertisement and exhibition were indeed produced before the ld CIT(A) by the assessee. In respect of the 3 specific expenses on account of exhibition, which were examined by the ld AO in the assessment order to draw adverse conclusion against the assessee, bills for the same were also provided by the assessee before the ld CIT(A) wherein, it was found that the payments thereon made by account payee cheques after due Page | 18 deduction of tax at source. Hence, the payees were duly identifiable. The ld CIT(A) concluded that the entire expenditure were incurred by the assessee wholly and exclusively only for the purpose of business. Accordingly, he deleted the addition.
We find that the books of account of the assessee, book results of the assessee were not rejected by the ld AO by invoking the provisions of section 145(3) of the Act. Hence, there is no question of making any ad hoc disallowance @10% of total advertisement and exhibition expenses. The same is absolutely without any basis. As stated by the ld CIT(A), even the 3 vouchers which the ld AO stated in the assessment order were produced by the assessee before the ld CIT(A) from where it was found that payments were made to the respective parties by account payee cheques after due deduction of tax at source. Hence, we do not find any reason to interfere in the order of the ld CIT(A) granting relief to the assessee in this regard. Accordingly, the ground Nos. (iv) and (v) raised by the revenue are dismissed.
Ground Nos. (vi), (vii) and (viii) are general in nature and does not require any specific adjudication.
In the result, the appeal of the revenue is dismissed.
To sum up, the appeal of the assessee is allowed and the appeal of the revenue is dismissed.