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Facts
The assessee, engaged in hire purchase financing, appealed against an addition of Rs. 50,90,194. The addition was made on account of alleged unexplained cash credits, claimed to have been sourced from collections of installment dues from customers during the demonetization period. The assessee provided documentary evidence, including registration certificates and money receipts, which were not disputed by the lower authorities.
Held
The Tribunal held that the Assessing Officer (AO) erred in rejecting the documentary evidence provided by the assessee without proper verification or independent inquiry. The Tribunal noted that the cash collected was deposited within a short period after 8th November 2016, which was consistent with the assessee's business operations and the nature of cash collection from widely spread customers. The addition was based on presumption and assumption, which is not legally tenable without disproving the authenticity of the evidence.
Key Issues
Whether the addition of Rs. 50,90,194/- on account of alleged unexplained cash credits during the demonetization period is justified in the absence of proper verification and inquiry by the Assessing Officer, despite the assessee providing documentary evidence.
Sections Cited
143(3), 250, 145(3), 68, 69, 131, 133(6)
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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: SH. UDAYAN DASGUPTA & SH. KRINWANT SAHAY
This appeal is filed by the assessee against the order of the ld. CIT(A) National Faceless Appeal Centre NFAC (Delhi), passed u/s 250 of the Income Tax Act, 1961 dated 29.12.2023 which has emanated from the order of the ITO, Ward 1(3), Jammu passed u/s 143(3) of the I. T. Act, 1961 dated 26.12.2019.
2. The grounds of appeal taken by the assessee in the memorandum of appeal in form 36 are as follows:
“1. On the facts and in the circumstances of the case, the Authorities Below have factually and legally erred in not appreciating the facts of the case in right perspective on the following counts:
At no stage, the Audited Books as produced by the appellant during the (a) course of hearing of the case were rejected u/s 145(3) of the Act by pointing out any specific discrepancy or mistake. This fact is evident from the Body of the Assessment and Appeal orders. As on date, it is a settled Law that without rejecting book results u/s 145(3) of the Act, no valid addition can be made. The Authorities Below have however ignored this vital fact while dismissing the appeal and confirming the addition of Rs.50,90,194/- on the basis of misconceived presumptions and surmises that the sale proceeds of the Vehicles as shown in the Audited Books were a 'Colorable Device', relying heavily on the judgment of honorable Supreme Court in the case of M/s Mac Dowells & Compay vs. CTO (1985). Such presumptions were totally unfounded for and without any basis in absence of any incriminating material brought on record. Thus such findings of the Authorities Below are factually and legally incorrect and the same deserve to be quashed summarily on this sole ground and addition made on the basis of such findings deserves to be deleted summarily.
The Authorities Below did not address the objection of the appellant (b) Company that the provisions of section 68 of the Act were incorrectly invoked in the present case to make the impugned addition of Rs.50,90,194/-. In fact under these provisions, the additions are warranted on account of the un-explained cash credits only, whereas in the present case it is a case of acquisition of un-explained money within the meaning of section 69 of the Act. Thus to this extent the impugned addition of Rs.50,90,194/- is legally incorrect and the same deserves to be deleted on this sole ground. .
The Authorities Below did not dispute the sale of the Vehicles a sale (c) proceeds etc. as recorded in the Audited Books at any stage in any manner. Thus the sale of the Vehicles is an admitted fact. In the circumstances, as a natural corollary, the sale proceeds of such vehicles cannot be negated on the basis of presumptions and surmises only treating the same as a Colorable Device in absence of any incriminating material brought on record. Thus the addition so made is factually and legally incorrect and the same deserves to be deleted summarily.
The sales of the Vehicles are duly documented and evident from the (d) Registration Certificates (RCs). The purchase of these vehicles was also financed by the Banks. In the circumstances, the turn-over of these vehicles and its sale proceeds cannot be denied on the basis of presumptions and surmises on the plea of colorful device in absence of any clinching incriminating material brought on record. In the circumstances, the addition so made is factually and legally incorrect and the same deserves to be deleted summarily.
The Authorities Below have also failed to appreciate the normal Human (e) Psychology of the owners of the Appellant Company. Due to sudden declaration of Demonetization by the Govt, of India, the appellant Company had channelized all its resources to collect the out-standing sale proceeds of its sold vehicles by all means to minimize the outstanding Dues. Thus such human behavior was not an abnormal act to be treated as colorful device by the Authorities Below. Thus the findings of Authorities Below regarding colorful device is absolutely uncalled for warranting no adverse view. Thus the addition so made and confirmed by the Authorities Below on the basis of such imaginary hunch istotally uncalled for and deserves to be deleted summarily.
2. The appellant craves the right to add amend an d alter the grounds on or before the hearing.”
Condonation of delay: It is pointed out by the Registry that the appeal is filed belatedly by 51 (fifty one) days. The appellant has filed an application for condonation of delay in form of an affidavit sworn by the director of the appellant company Mr. Sandeep Prabhakar , explaining the fact that the name of the appellant company was originally M/s Sangam Hire Purchase Company Ltd, with address at old Nehru Market, Jammu PIN: 180001 , and subsequently the name of the company has been altered to Hindvee Small Finance Limited, its registered address has been changed to Vaishali Nagar, Jaipur, Rajasthan 302021, and the same was intimated to Hindvee Small Finance Ltd. v. ITO the income tax department on 19/04/2023, and subsequently all communications from the department is being received at the new address. In course of hearing the Ld AR of the assessee explained that in the instant case the order of the Ld CIT(A) has been passed on 27th December, 2023, and the appeal should have been filed within sixty days therefrom ie by 28th February, 2024 , but the same was actually filed on 18th April, 2024 , because the order was not communicated to the new address at , Jaipur, Rajasthan, and the new email is stated to be kssharmaandcompany@gmail.com. Moreover, on account of change in name, any delivery attempt by postal authorities, at old address might have been returned undelivered.
Subsequent, to gathering of information in the month of April 2024, regarding disposal of the appeal by the first appellate authority, the director of the appellant company contacted his lawyer and took immediate steps to file the appeal after deposit of necessary tribunal appeal fees, on 18th April, 2024, which was belated by fifty one (51 days) and he prays for condonation of the said delay, which was neither intentional nor willful.
The Ld DR did not object to the said application for condonation. assessee in filing the appeal was bonafide and considering the reasons shown by the assessee, we condone the delay, and admit the appeal to be heard on merits.
The brief facts of this case are that the appellant company is engaged in the business of hire purchase financing of tourist vehicles and loans are advanced to small tour operators and taxi drivers, for purchase of vehicles, who are located mainly in the state of Jammu and Kashmir ,and earn their livelihood by operating tourist vehicles and the assessee company is engaged in the same business since more than last twenty years and during the year under appeal, the business office was located in Jammu . For the purpose of running this business in the Kashmir Valley , many marketing and sales agents are engaged by the assessee through whom tourist vehicles are financed and loans are advanced mainly to individuals, who are all Cab operators and taxi drivers, and these sales agents are also entrusted with the responsibility of collections of the installments, for and on behalf of the company, from taxi drivers and operators , whose vehicles has been financed by the assessee and collections are received in cash and also through bank channel , with full cooperation and support of the sales agents . The entire business of hire purchase financing were carried out as per RBI guidelines, and the financed vehicles where all registered with the local RTO office, under the Motor Vehicles Act 1988,and the within the State.
All vehicles, financed are duly registered in the names of the individual taxi operators and drivers as the case may, with hypothecation in favour of the assessee company, till continuation of the loan tenure . The entire business of hire purchase finance are duly recorded in books of accounts and due compliance with all Government authorities has been made as per requirements under various Acts.
During the year under appeal, regular return has been filed along with copies of statutory audit reports and audited balance sheet and in course of scrutiny proceedings, full set of books of accounts, cash book, ledger, journals, registers, along with supporting documents, invoices and bank statements, were produced before the AO , along with full details and identity of the clients (customer) to whom advances has been given and the respective registration numbers of vehicles (which has been financed) , and registered against each customer on hire purchase basis, details of installments collected from each persons , mode of collection and all other supporting particulars as required and called for by the AO.
Subsequently, the assessment has been completed on a total income of Rs. 57,90,683/- u/s 143(3) of the Act 61, by making an addition of Rs. 50,90,194/- u/s 68, on account of alleged, unexplained cash credits, recorded in regular cash book for the months of October and November 2016, which has been explained by the assessee to have been sourced out of collections of outstanding installment dues from customers comprising of principal and interest, both, and the said collections made are claimed by the assessee to be fully documented, vouched and verifiable.
Subsequently, the matter was carried in appeal before the first appellate authority and the Ld. CIT(A), NFAC, dismissed the appeal of the assessee by observing as follows:
“6.4 The appellant company has furnished the name of numerous parties from whom it has claimed the recovery of amount due from them in the month of October & November, 2016. First, the appellant has not provided the complete name, address and PAN of the parties from whom it has received payment in cash. Secondly appellant has uploaded scanned copies of receipts issued to customers wherein net even the name of the appellant company has been printed. Thus, the sanctity and veracity of such receipts are highly doubtful and thus, such receipts seem to be ser- produced only.
6.5. The appellant has furnished copies of Registration Certificates (RCs) of the vehicles purchased between 2006 to 2016. The copies of these registration certificates by no means explain and justify that the appellant has received payment from these parties in cash during the month of October & November (till 8th November). Here hire Charges of vehicles in last 10 years by the appellant company is not under question, thus copy of RCs submitted by the appellant were neither asked for by the Id. AO nor these RCs prove anything to substantiate the claim of the appellant. Therefore, it is clear that the appellant has miserably failed to furnish any type of documentary evidence to explain huge cash in hand accumulated by it within 38 days just before the declaration of demonetization. No documents submitted by the appellant can be verified independently. Therefore, I am of the considered opinion that the appellant has failed to furnish documentary evidence to explain and justify the source of huge cash deposited by it during the demonetization period.”
Now the assessee is in appeal before the tribunal on the grounds contained in the memorandum of appeal. Before the tribunal the assessee has filed a paper-book 2016-17 (relevant to the assessment year under appeal), copy of audited financial statements along with audit report , details of date wise receipts serially numbered , consisting of names of hire purchase parties with respective vehicle registration numbers and amounts received (collected) from each , pertaining to the period 5th September 2016 to 8th November, 2016 (both days inclusive) along with copies of corresponding receipt books serially numbered, bearing names of each person, as supporting documentary evidence of receipt(collection) of funds, and copies of written submissions filed before lower authorities in course of assessment and first appeal.
The Ld AR of the assessee submitted that though the grounds of appeal contained in the memorandum of appeal is in essay form, there is only one single issue of dispute in this appeal, which relates to the addition of Rs. 50,90,194/- u/s 68 of the Act 61, on account of alleged cash credit, which has been subsequently deposited in bank during the demonetization period.
He further submitted that during the scrutiny proceedings full sets of books of accounts including cash book, ledger, bank book, documentary evidences relating to names and address of borrowers, registration numbers of vehicles, serially numbered receipt books (evidencing the collection of installments) from the borrowers were all accepted.
He further argued that the books of accounts produced and examined by the AO in course of proceedings, has not been rejected u/s 145(3) of the Act 61, and the only allegation leveled by the AO is that the cash collected from various borrowers, who are all the customers of the assessee, by way of recovery of vehicle loans (inclusive of principal and interest), are not genuine, simply because cash has been deposited in bank by the assessee during the demonetization period.
The Ld AR further submitted that it is the normal business activity of the assessee company , engaged in the business of motor vehicle financing of tourist vehicles , in the Kashmir valley , since many years , and that collections from individual taxi operators and drivers are collected in cash , through the agents , and the said cash are deposited with the assessee company , against which money receipts ( serially numbered ) are issued to them , as evidence of payments. He submitted that hard bounded serially numbered money receipt book containing names of borrowers identified by registration number of vehicles were produced before the AO for verification and copies of the same are also filed for records, and the AO has admitted the same in the assessment order (paragraph –2, page–3 of assessment order), the relevant portion reads as follows:
“1. The assessee was asked to submit documentary evidence w.r.t. large cash receipts before the starting of demonetization period. The assessee was only able to furnish 2nd copy of the receipt issued to customers which does not prove the genuineness of the transactions. The assessee also furnished copies of identity proofs of S persons from whom the assessee firm has received cash. However, it does not prove the genuineness of all the transactions which runs into receipts of hundreds of people.
Thus, the entries recorded in the books of the accounts regarding the cash receipts of Rs 54,76,806/- during the period of 38 days before demonetization do not appear to be genuine by any stretch of imagination. It is very clear that this has been done to incorporate the cash balance so as to justify the cash deposited during the demonetization period.”
The Ld AR explained that the original money receipt are in the custody of the borrowers from whom collection is made and it is the 2nd copy of the receipts which are part of the records of the assessee (which are produced for verification) and the said copy also contains full names and address of borrowers with corresponding registration number of vehicles financed by the assessee (on hire purchase) and since all the vehicles are duly registered before Motor Vehicle authorities , the identity and genuineness of the driver or tour operator are already proved before the State Government authority, evidenced by individual driving license, without which registration would not have been possible and it was always open to the AO to have made any verification or enquiry , from the office of the M V Department , to clear any doubt regarding the genuineness or existence of the motor vehicles financed by the assessee , because these are all subject to clearance of hypothecation in the blue book ( endorsed in favour of the assessee till existence of loans being repaid ). company Shri Ram Nath and Smt. Bimla Rani, both were seriously ill due to old age and were not able to devote sufficient time for conducting the day to day affairs of the company, and were contemplating to sell off the business or transfer the same and has undertaken special drive towards collection of all outstanding dues from the market before transfer of management and as resultant effort, a good amount of outstanding dues were collected during the months of September 2016 to November 2016 , which are all recorded in cash book and are evidenced by serially numbered money receipts, which were all produced for verification. (For the records he informed that the said promoter director Sri Ram Nath, unfortunately expired in the year 2019).
As such, the Ld AR argued, that the allegation of the AO regarding in- genuineness of the money receipts produced, evidencing the collections of funds, are simply based on presumption and assumptions, because in the matter before the tribunal, no single specific instance is pointed out by the AO, where any verification or enquiry has been conducted or any of the borrowers (car drivers or tour operators) has been summoned or any adverse information has been gathered from the local Motor Vehicles authority either. In other words, he argued that in spite of the list of so many borrowers with vehicle numbers being submitted and placed on record (all being residents of Jammu and Kashmir), not a single verification has flowing out of any specific verification of any single borrower. He further argued that in absence of any specific instance regarding any particular borrower relating to any single registration number correlating to any specific money receipt being proven to be false, incorrect, or inaccurate, the date wise entries in the regular books of accounts, cannot be doubted on mere presumption and assumption and branded as incorrect , because there is no case of rejection of books of accounts and the AO has rightly NOT rejected the books, and in absence of rejection of books the book results are to be accepted.
The Ld AR of the assessee further drew our attention to the submission filed by the assessee dated 29/11/2023, before the Ld first appellate authority , to argue that copies of registration certificates of vehicles (commonly known as the blue book), containing the vehicle owners name and identity, were all submitted before the AO and also before the first appellate authority , which contains full address of the owners (customers), but no verification or enquiry has been conducted , at any stage , and without bringing any material on record to disprove the authenticity or genuineness of the money receipts, or without pointing out, any discrepancy in such documents, the same cannot be branded as un reliable , simply on assumption , and the same is not legally acceptable .
Hindvee Small Finance Ltd. v. ITO 21. The Ld AR thereafter, referred to the financial statements and audited balance sheet ( placed at pb. page 34 to 39 ) to explain that cash collections (receipts) during the year are all documented and supported by proper receipts relating to each specific parties (customers) which are identifiable , and during this FY, there has been reduction of outstanding amount of hire purchase stock under long term loans by Rs. 25.10 lakhs item-8 of audit report (recovery of principal amount), and recovery of short term H.P. stock recoverable (item-9 of audit report) of an amount of Rs.32.14 lakhs, because of the special drive initiated by the directors.
Thereafter, he referred to the Cash Book as on 1st November, 2016 ( placed in 22. page 23 of the PB ), to point out that the cash book balance as on 8th November, 2016, at the close of business hours was Rs. 54,49,531/- , and the said cash was immediately deposited in the banks on three successive days , 10thNovember Rs. 15 lakhs, 11thNovember Rs. 20.50 lakhs, and 12th November Rs.15 lakhs, which proves that cash was already collected much earlier and was in custody of the assessee, since much before the announcement of demo date, and it is not a case that the assessee accepted SBN notes from customers post demonetization , and went on depositing cash throughout the entire demo period. He further submitted that , in this nature of business , it would not have been possible to gather and collect SBN notes from borrowers within a day or two for deposit in bank because all individual tour operators and taxi owners are spread all over the Kashmir valley. The Ld AR further cash has been deposited, is ample proof that the cash was already collected and available with the assessee much earlier to 8th November, and as such the date wise reflection of the same in the cash book balance , since October, 2016 onwards, is proved beyond doubt, because in the instant case the assesseehad the cash and has deposited it immediately.
Before concluding his arguments, the Ld AR submitted that in the instant case, the deeming provisions of section 68 of the Act 61, is legally not applicable , because in the instant case, there is no cash credit as such, because there is no increase in liability in this case because realization of “loans and advances”( principal amount) during the year will reduce the outstanding balance of “Long term loans and advances ”as reflected in the asset side of the balance sheet and there is no increase in capital or liability, and the other part is recovery of interest portion ( contained in the EMI ), which is already a part of “revenue from operation” and has formed a part of the total income subjected to taxation , and taxing the same again u/s 68 of the Act 61 , will lead to double taxation, and he prays for deleting the addition of Rs.50. 90 lakhs, sustained u/s 68 of the Act by the Ld first appellate authority.
Per contra the Ld DR, relied on the order of the Ld. CIT ( A ) and argued that on the facts of the case the assessee has not been able to explain and justify the Hindvee Small Finance Ltd. v. ITO source of cash deposit in bank during demonetization period and as such the order of the Ld first appellate authority needs to be sustained, more so considering the fact that only five I.D. proofs has been provided (as per page 3 of Asstt. Order), to which the ld. AR, countered that copies of vehicle registration certificates are all on record, which is the proof of I.d. and address of vehicle owners itself.
We have heard the rival submissions and considered the materials on record and the contents of the paper book submitted by the assessee. Firstly we look into the cash book as contained in the paper book (page – 23), and we observe that the closing cash balance as on 8th November, 2016 , is reflected at Rs. 54,49,531/- , and the cash in hand as on the 8th November, has been immediately deposited in bank on three successive days , i.e. on the 10th, 11th and 12th November ( 9th.November being bank closure ), which reinforces the argument of the assessee that the cash was collected well in advance by the asessee in normal course of business , much earlier to the date of declaration of demonetization and it has been deposited immediately within three days (admittedly in Kashmir valley the entire deposit could not have been carried to bank on a single day because of security reasons) and it is not a case where SBN are being deposited throughout the entire period.
The relevant page of the cash book is reproduced for ready reference: numbers, corresponding money receipt numbers and names of the borrower (hire purchase party) and the amount tendered by each one of them, (as enclosed in Paper Book Page 10-13) which are also date wise entered and reflected in the cash book print out submitted in the paper book. (The relevant pages are reproduced for ready reference):
Thirdly, we observe that the Ld CIT(A) has accepted that all the copies of vehicle registration certificate ( blue book ) were duly submitted before the AO and are on record, which proves the availability of the respective names and address and corresponding vehicle numbers , of the borrower and fourthly , the copies of the date wise money receipts issued to the parties against cash collection , which are serially numbered , are all submitted before the AO ( the original being in the custody of the parties). On the face of such existing documentary evidences, it is seen that no verification of such documentary evidences has been made by any authority at the lower stage, nether by summoning any borrower u/s 131 or by causing any enquiry verification or enquiry in respect of any parties, has been brought out in the assessment order. In other words in course of assessment proceedings, the AO has not been able to bring out any single instance ( amongst so many parties available ) , to prove that the contents of the documentary evidences submitted by the assessee , are wrong or incorrect or false. There are no instances of any letters being returned unserved.
As such we are of the opinion, that without causing any sort of verification or enquiry to disprove the authenticity of the documentary evidences submitted by the assessee, the submitted evidence cannot be simply brushed aside.
In the instant case we find that the nature of hire purchase finance of vehicles is a business which is carried on by the assessee in normal course for many years and the financing of the motor vehicles against specific registration numbers (registered before RTO), cannot be denied and the outstanding balance as at the beginning of the financial year as on 01/04/2016 , is reflected in the audited balance sheet at Rs. 64.73 lakhs, under the head Hire Purchase Stock (Long Term), and an amount of Rs.32.14 lakhs is reflected under the head H.P. stock recoverable within one year (short term) out of which the recovery of the principal amount is being made and the remaining portion is out of the hire purchase charges recovered, which is already its contention the assessee has produced serially numbered date-wise money receipts, containing vehicle numbers and corresponding names and address available in the registration blue book, and the same has not been proved to be false and no single case of cross verification has been done by the AO, to disprove the authenticity of the said documentary evidences.
Moreover, we find that the hire charges receipts portion, amounting to Rs.21.94 lakhs has been accepted by the AO and has formed a part of the total income in the Profit and Loss A/c which cannot be brought to tax again, as cash credit, u/s 68 of the Act 61.
Regarding applicability of section 68 of the Act 61, we rely on the Hon’ble Supreme Court in case of CIT vs. P. Mohanakala reported in 291 ITR 278 while dealing with scope of provision of section 68 of the Act the Hon’ble Court held that:
“the opinion of the AO that the explanation furnished by the assessee as not satisfactory is required to be based on proper appreciation of materials and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.”
In other words, once the assessee submits the primary evidence with regard to identity and credit worthiness of creditor and the genuineness of the transaction, the inquiry in order to find out genuineness of the evidence or bring material contrary to facts explained by the assessee. The AO cannot reject the primary evidence furnished by the assessee without appreciating the facts available on record or without bringing contrary material to form the belief that primary document or explanation furnished by the assessee is not satisfactory.
In the instant case the AO has simply brushed aside the evidence submitted without any verification, which is not as per provisions of law.
As such considering all the factual aspects of the matter, we are of the opinion that cash balance available in the regular cash book on 8th November, 2016, as reflected, cannot be denied to the assessee, and the SBN deposited in the bank A/c by the assesseee subsequent to 8th November, 2016, also stands covered by the said available cash balance.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in accordance with Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 as on 24.02.2025