RAKESH MALHOTRA,,DELHI vs. ITO, WARD-36(4), CIVIC CENTRE, MINTO ROAD, DELHI

Before me the Ld. Counsel for the assessee, at the outset, submits that the Assessing Officer made addition in respect of cash deposits observing that the assessee has not given any explanation or evidences to substantiate the cash deposits. Ld. Counsel submits that in the course of assessment the assessee duly submitted all the details as called for by the AO which included cash book, bank statement, profit and loss account, balance sheet, sales account with both cash and credit sales. Ld. Counsel submits that it was explained that the payment for purchase was made through banking channels and similarly the credit sales were realized through bank only. The cash deposited in bank was out of cash accumulated through cash sales. Ld. Counsel submits that the AO, however, alleges non-compliance by the assessee.

Ld. Counsel further submits that perusal of the balance sheet would reveal that assessee had outstanding trade debtors of Rs.10,61,289/- and trade creditors of Rs.36,50,418/- as on 31.03.2017. Ld. Counsel submits that the AO did not accept the availability of cash which were deposited in the bank on the ground that there are no cash transactions in the preceding and subsequent year.

The ld. Counsel submits that the Assessing Officer did not disturb the book results of the assessee, did not reject the books of account not doubted sales, purchases and stock. The Assessing Officer having accepted the trade results and the books of account, there is no justification in not accepting the cash sales only for the reason that the assessee did not record any cash sales in the earlier

On the other hand, the Ld. DR strongly supported the orders of the authorities below. Ld. DR further submits that the Assessee has not produced the required information called for by the AO. In reply the Ld. Counsel for the assessee submits that all the information were produced before the AO and also before the Ld.CIT(Appeals). Ld. Counsel further invited our attention to the written submissions filed before the Ld.CIT(A) at pages A3, A4, page 2 and 20 of the Paper Book and submitted that the assessee furnished all the details before the AO and the acknowledgment of e-proceedings in uploading of the information which clearly suggest that the assessee has furnished the information.

Heard rival submissions, perused the orders of the authorities below. In so far as furnishing of information is concerned, it is observed that the assessee furnished cash book, bank book, balance sheet, profit and loss account, cash details, sales account alongwith the submissions in response to the notices issued by the AO.

On perusal of the assessment order, it is observed that though the assessee has furnished cash book, bank book, balance sheet, profit and loss account, details of cash deposited, sales account, etc. the AO did not reject the information filed by the assessee.

In my opinion, on the sole reason that there are no cash sales in the immediately preceding year and also subsequent year cannot be the basis for rejecting the explanation of the assessee that the cash deposits were made out of cash sales especially when the assessee produced cash book, sales, purchases, etc. to demonstrate that the cash deposited were made out of cash sales not rejected the books of account, not doubted the purchases, sales and further accepted the book results without rejecting the books of account.

In the case of M/s Fine Gujaranwala Jewellers Vs. ITO (supra) the coordinate bench of Delhi Tribunal in dated 27.03.2023 observed as under:

In the present case, the department has not rejected the books of accounts of the Assessee accepted in VAT. The regular books of accounts were maintained in the normal course of business in which no flaw, fallacy or deficiency was pointed out by the AO. It is well settled law that once the assessing officer accepts the books of accounts and the entries in the books of accounts are matched, there is no case for making the addition as unexplained. In the assessee case of R S Diamond India Pvt. ltd. Vs. ACIT, Fine Gujranwala Jewellers, (A.Y. 2017-18) the Income Tax Tribunal Bench at Mumbai has held as under:- "4. I have heard the parties and perused the record. The facts that the deposit made into the bank account is from out of the books of accounts and the said deposits have been duly recorded in the books of I.T.A.No.3571/Del/2023 account are not disputed. It is the submission of the assessee that it had received advance money from walk in customers for sale of jewellery over the counter and the amount so received was duly recorded in the books of account. The said amount alongwith other cash balance available with the assessee was deposited into the bank account after announcement of demonetization by the Government of India. He also submitted that the assessee has raised sale bills against the said advances in the name of respective customers. Since the transaction was less than Rs.2.00 lakhs, it was stated that the assessee did not collect complete details of the customers. Thus, it is seen that the advance amount collected from customers, the sales bill raised against them etc., have been duly recorded in the books of account. The impugned deposits have been made from cash balance available with books of account. I also notice that the Assessing Officer has not rejected the books of account. When cash deposits have been made from the cash balance available in the books of account, in my view, there is no question of treating the said deposits as unexplained cash deposit as opined by the Assessing Officer.

The Ld A.R relied on certain case laws which are relevant to the issue under consideration. In the case of Lakshmi Rice Mills (1974) 97 ITR 258 (Patna), it has been held that, when books of account of the assessee were 3 R. S. Diamonds India Private Limited accepted by the revenue as genuine and cash balance shown therein was sufficient to cover high denomination notes held by the assessee, then the assessee was not required to prove source of receipt of said high denomination notes which were legal tender at that time. In the case of M/s. Hirapanna Jewellers (ITA No. 253/Viz/2020 dated 12.5.2021), it was held that when the cash receipts represented the sales which has been duly offered for taxation, there is no scope for making any addition under section 68 of the Act in respect of deposits made into the bank account.

Further, in the case of Lakshmi Rice Mills v. CIT [1974] 97 ITR 258 (Pat.) Hon'ble Patna High court held as under: "It is, in my view, a fundamental principle governing the taxation of any undisclosed income or secreted profits that the income or the profits as such must find sufficient explanation at the hands of the assessee. If the balance at hand on the relevant date is sufficient to cover the value of the high denomination notes subsequently demonetized and even more, in the absence of any finding that the books of account of the assessee were not genuine, the source of income is well disclosed and it cannot amount to any secreted profits within the meaning of the law." Thus, considering the above ratio, when the Assessee's books of account were not rejected, the Lower authorities ought not to have made additions.”

In the case of Anantpur Kalpana Vs. ITO (supra) the Bangalore Bench of the Tribunal held that where AO made addition u/s 68 of the Act on account of cash deposited by assessee in its bank account post demonetization, since such cash deposit was towards assessee sale proceeds which was already offered to tax by the assessee and admitted by Revenue as revenue receipt, impugned

In the case of Mukesh K. Waghasia Vs. ITO (supra) the Surat Bench of the Tribunal held that where assessee having explained that cash deposited in bank account was out of cash turnover as declared under 44AD and the assessee also having submitted memorandum of trading and profit and loss account and balance sheet impugned additions of such cash deposit were to be deleted.

The above decisions applies to the facts of the assessee’s case. Therefore, in view of the above discussion and placing reliance on the decisions referred to above, the AO is directed to delete the addition made u/s 69A/68 of the Act. The grounds of appeal of the assessee are allowed.

In the result, appeal of the assessee is allowed.