Loading judgment…
Facts
The assessee deposited Rs. 72,40,000/- cash in its bank accounts during the demonetization period. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) (CIT(A)) added this amount to the assessee's income under Section 68 r.w. Section 115BBE, deeming the explanation for the source unsatisfactory. The assessee contended the cash deposits were from cash sales and existing cash in hand from its hardware trading business, with audited accounts and sufficient cash balance prior to demonetization.
Held
The Tribunal found the assessee's explanation regarding the source of cash deposits to be cogent and having definitive probative value. It noted that the assessee's books of account were not questioned, and the cash balance shown was sufficient to cover the higher denomination notes deposited. The Tribunal concluded that the Revenue Authorities proceeded on a wrong presumption of facts, set aside the CIT(A)'s order, and directed the AO to reverse the additions.
Key Issues
Whether the cash deposit made during the demonetization period, claimed to be from cash sales and existing cash in hand, can be added to the assessee's income under Section 68 of the Income Tax Act, 1961.
Sections Cited
Section 143(3), Section 68, Section 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “E” DELHI
Before: SHRI KUL BHARAT & SHRI PRADIP KUMAR KEDIA
The captioned appeal has been filed by the Assessee against the order of the Commissioner of Income Tax (Appeals)-, National Faceless Appeal Centre (NFAC), Delhi (‘CIT(A)’ in short) dated 17.11.2023 arising from the assessment order dated 23.12.2019 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2017-18.
As per the grounds of appeal, the assessee has challenged the addition of Rs.72,40,000/- on account of cash deposited in the bank account during demonetization period.
Briefly stated, the assessee filed its return of income in A.Y.2017-18 declaring total income of Rs.18,46,120/-. In the course of assessment proceedings, the AO observed that assessee had deposited cash of Rs.72,40,000/- in its two Indian Overseas Bank accounts. The AO sought explanation towards source of cash deposits in the bank account during demonetization period. The assessee filed the comparative statement of credit and cash sales deposited in the bank account, details of purchases and sales etc. to support the source of cash deposit. The assessee essentially contended before the AO that the cash deposits are out of cash sales and existing cash in hand. The AO invoked the provisions of Section 68 of the Act and held that the explanation offered towards source of cash deposits in the bank account during demonetization period by the assessee are not satisfactory. The AO accordingly invoked Section 68 r.w. Section 115BBE of the Act and enhanced the taxable income towards aforesaid cash deposits.
Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) however was also not convinced by the explanation offered towards source of cash deposits by the assessee. The CIT(A) thus declined to interfere with the order of the AO.
Further aggrieved, the assessee preferred appeal before the Tribunal.
The ld. counsel for the assessee at the outset submitted that the assessee-company is engaged in the business of trading of hardware, electrical goods and spare parts for which purchases are directly imported from China. There are no local purchases and all the purchases by the assessee are subjected to custom duty. The total purchases made by the assessee are sum of Rs.4,36,85,893/- and the sales affected against these purchases are stands at Rs.6,53,93,828/- which comprises of credit sales of Rs.5,46,86,952/- and cash sales of Rs.107,06,876/-. Thus, a very miniscule per centage of 16.37% sales is derived from cash sales. The accounts of the assessee are audited and the audited accounts have been filed before the AO. During the year under consideration, the assessee has deposited cash in its bank account out of cash sales made by it and the cash sales are made in the regular course of business of the assessee out of imported purchases. The ld. counsel referred to a tabulation statement of cash and credit sales to submit that these figures are self-explanatory and supports the bona fides of the cash generated in the course of business. The ld. counsel pointed out that whereas the credit sale stands at Rs.83.63%, cash sales stands at 16.37% which is quite ordinary and reasonable. The assessee has paid custom duty on purchases and also paid VAT and CST on such sales.
6.1 The ld. counsel also pointed out that the copy of cash book was also filed by the assessee before AO/CIT(A) and is also produced before the Tribunal from where it can be ascertained that cash sales did not continue during demonetization period i.e., after 08.11.2016 and the observation of the AO/CIT(A) is incorrect and contrary to the facts on record. The CIT(A) has thus drawn adverse inference on wrong assumption of facts. The cash sales between 10.11.2016 to 05.12.2016 is only Rs.51,293/- in aggregate therefore, the factual position is apparent on the face of record and the inference drawn by the Revenue Authorities are on account of misconceived notions. Furthermore, no defect has been pointed out by the AO in the books which were duly audited as well as placed before the Revenue Authorities. The assessee has made small per centage of total sales in cash for which there is no prohibition in law and significantly the sales are out of imported goods which are duly accounted and subjected to custom duty etc.
6.2 The ld. counsel referred to decisions of the Co-ordinate Bench of Tribunal in the case of Anantpur Kalpana Vs. ITO, (2022) 138 taxmann.com 141 (Bangalore) and Mahesh Kumar Gupta vs. ACIT, (2023) 104 ITR (T) 519 (Jaipur) to support its case. The ld. counsel also referred to the decision of Co-ordinate Bench in R.S. Diamond India Pvt. Ltd. vs. ACIT, (2022) 98 ITR (T) 505 (Mum) to submit that where books of account of the assessee have not been questioned and the cash balance shown therein is sufficient to cover higher denomination notes which were legal tender at the relevant time no adverse inference in realm of suspicion and conjectures is plausible. The assessee in such case was not required to prove the source of receipt of said higher denomination notes which were legal tender at that time. The ld. counsel thereafter referred to the decision rendered in the case of Charu Agarwal vs. DCIT (2022) 96 ITR (T) 66 (Chandigarh) to contend that where the cash deposited post demonetization out of cash sales has been accepted by the Sales Tax / VAT Department and the AO has not doubted the sufficiency of stock available to make cash sales, no fault can be found with the explanation of the assessee.
6.3 The ld. counsel thus submitted that the action of the CIT(A) and the AO are driven by misconception of facts and wrong inference drawn as a result of misconception. The ld. counsel thus urged for reversal of the unjustified addition.
The ld. DR for the Revenue, on the other hand, referred to and relied upon the first appellate order and the assessment order and submitted that the assessee has failed to discharge the onus which lay upon it to justify the source of cash deposits.
We have carefully considered the rival submissions and perused the material available on record.
8.1 The source of cash deposits during demonetization period is subject matter of controversy. As noted in the preceding paragraphs, wide ranging submissions have been made on behalf of the assessee and tabular statement showing configuration of cash and credit sales have been referred to and relied upon. The tabulation reflects month- wise credit sales and cash sales etc. The tabulation statement is reproduced hereunder for ready reference:
O M GA N P A TI M A R K E T I N G P V T . L T D . S TA T E M E N T O F C A S H A N D C R E D I T S A L E S F . Y . 2 0 1 6 - 1 7 T o t a l 6 5 3 9 3 8 2 8 M O N C R E D I T C A S H TO T A L Q TR P A G V A T 5 % V A T 5 % C . S . T. 2 % C . S . T 2 % C . S . T . 5 % C . S . T. 5 % V A T+ C . S . S T T H S A L E S A L E S A L E S A L E E TO TA L ( Q TR ( Q T R 2 % + C . S . T. N O . ( Q TR ) TO TA L ) TO TA L ) 5 % O F P B V A T A p r i l 4 0 4 8 3 0 2 3 1 8 2 0 0 4 3 6 6 5 0 2 1 8 9 8 3 1 . 0 0 6 2 3 3 . 4 4 1 2 9 1 0 . 5 0 M a y 3 8 0 3 9 5 8 2 8 4 3 0 0 4 0 8 8 2 5 8 1 0 9 7 6 2 8 7 1 9 8 1 7 0 . 5 0 9 6 6 . 9 6 3 8 2 5 . 0 0 2 0 7 9 4 . 5 0 5 1 7 0 6 0 . 4 0 4 7 4 7 5 0 9 7 . 5 0 21,168.40 J u n e 2 5 2 1 5 2 7 - 2 5 2 1 5 2 7 8 7 0 9 6 . 0 0 1 3 9 6 8 . 0 0 4 0 5 9 . 0 0 J u l y 2 4 0 5 6 9 4 3 3 5 4 3 7 2 7 4 1 1 3 1 1 2 6 5 9 5 . 8 8 1 2 2 . 8 8 1 0 5 3 . 5 0 5 5 5 9 1 5 . 2 1 A u g 3 5 1 7 9 6 5 4 6 7 5 6 0 3 9 8 5 5 2 5 1 1 4 4 6 2 9 6 1 7 6 7 6 8 . 7 5 5 , 2 5 , 3 4 5 . 6 3 5 2 0 9 . 8 0 1 0 , 9 3 3 . 0 8 9 4 8 3 . 0 0 1 9 6 3 6 . 5 0 5 4 S e p 3 4 7 0 8 3 0 1 2 4 8 8 1 0 4 7 1 9 6 4 0 2 2 1 9 8 1 . 0 0 6 5 0 0 . 4 0 O c t 5 9 2 5 8 7 0 3 7 0 3 9 0 9 9 6 2 9 7 7 9 4 7 9 6 3 8 . 9 5 1 8 5 0 . 0 0 2 0 0 8 3 1 4 9 9 5 5 6 0 3 . 3 5 N o v 2 4 8 6 3 0 0 3 6 4 2 3 4 0 6 1 2 8 6 4 0 2 4 9 9 0 7 . 0 0 4 9 3 8 . 0 0 1 4 4 1 8 0 . 0 0 6 5 8 , 6 8 , 5 8 2 . 9 5 3 2 , 3 6 9 . 4 0 5 4 6 5 1 . 0 0 D e c 4 0 5 9 0 7 0 2 6 5 6 6 0 4 3 2 4 7 3 0 1 3 9 0 3 7 . 0 0 2 7 4 3 1 . 4 0 8 6 2 1 . 0 0 J a n 5 7 9 0 5 8 5 2 6 9 1 3 0 6 0 5 9 7 1 5 2 4 6 3 6 3 . 0 0 1 0 6 1 8 . 4 0 3 0 0 7 6 . 7 5 F e b 7 3 6 8 9 6 0 1 1 9 7 6 0 7 4 8 8 7 2 0 2 2 8 8 8 0 9 6 3 5 6 0 6 5 . 0 0 6 8 2 4 . 4 0 1 3 1 0 . 0 0 7 8 1 0 1 1 5 5 8 . 5 5 3 8 1 2 6 . 8 0 3 7 5 2 9 . 2 5 1 0 8 7 2 1 4 . 6 0 M a r 9 2 8 7 8 9 1 5 1 7 7 0 9 3 3 9 6 6 1 4 0 9 1 3 0 . 5 5 2 0 6 8 4 . 0 0 6 1 4 2 . 5 0 T o t a l 5 4 6 8 6 9 5 2 1 0 7 0 6 8 7 6 6 5 3 9 3 8 2 8 2 8 8 0 5 8 4 . 6 3 1 0 2 5 9 7 . 6 8 1 3 2 6 1 1 . 2 5 1 3 2 6 1 1 . 2 5 3 1 1 1 5 7 9 3 . 5 6 P e r c 8 3 . 6 3 1 6 . 3 7 1 0 0 . 0 0 e n t a g e 8.2. With reference to the tabular statement, the assessee submits that the cash sales as a whole is only 16.37% of the total sales and the remaining sales are through banking channel. The assessee has paid custom duty on corresponding purchases while importing the goods and also paid State levy, i.e., VAT etc. and also Central Levy, i.e., CST on all sales carried out including cash sales. The cash book has been produced which shows that assessee was having cash in hand of Rs.71,83,662/- on the evening of announcement of demonetization period. The assessee has hardly made any cash sales of few thousands during demonetization period. Thus, the cash deposited during demonetization period is out of cash sales made prior to the advent of demonetization. The AO as well as the CIT(A) has proceeded on wrong presumption of facts towards sale during the demonetization period.
8.3 The assessee has also provided several tabulation statement analyzing the factual matrix such as comparative statement of cash and credit sales month-wise, comparative statement of cash sales and cash deposit for F.Ys. 2015-16 and 2016-17 as well as cash flow statement for A.Y. 2016-17 showing opening balances, cash sales, cash paid and the closing balances.
8.4 The explanation offered by the assessee cannot be seen with any doubt in view of such overwhelming facts and circumstances towards source of cash existing in the present case. The explanations offered by the assessee are cogent and do carry definitive probative value. The source of cash deposit explained on behalf of the assessee thus cannot be disregarded in the absence of any cogent adverse material. We thus find substantial force in the plea of the assessee.
8.5 The order of the CIT(A) is thus set aside and the AO is directed to reverse the additions towards cash deposits in question.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 04/04/2024