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Facts
The assessee is challenging an order from the CIT(A) that sustained additions made by the Assessing Officer regarding cash sales, negative cash balance, and disallowance of payments under Section 40A(3). The assessee claims the CIT(A) erred by disregarding additional evidence and passing a non-speaking order. There was a delay in filing the present appeal.
Held
The Tribunal condoned the delay in filing the appeal. For the issue of cash sales, the matter was remitted back to the CIT(A) for fresh adjudication. Regarding the negative cash balance, the addition made by the Assessing Officer was deleted. However, the disallowance of Rs. 2,00,000/- under Section 40A(3) was upheld.
Key Issues
Whether the CIT(A) erred in disregarding additional evidence and passing a non-speaking order on issues of cash sales and negative cash balance, and whether the disallowance under Section 40A(3) was justified.
Sections Cited
68, 69A, 40A(3), 143(3), 46A
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Income Tax Appellate Tribunal, “E” BENCH MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
1. This appeal filed by the assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide order no. ITBA/NFAC/S/250/2023-24/1062929907(1), dated 19.03.2024 passed against the assessment order by the Assistant Commissioner of Income Tax – 9(2)(2), Mumbai, u/s. 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 29.12.2017 for Assessment Year 2015-16.
In the facts and circumstances of the case and in law, the Learned National Faceless Appeal Centre (NFAC), CIT(Appeals) has erred in disregarding the additional evidences filed under rule 46A of the LT. Rules, 1962 in the course of appellate proceedings and passing a non speaking order, not giving any reasons for rejecting the appellant's submission.
In the facts and circumstances of the case and in law, the Learned National Faceless Appeal Centre (NFAC), CIT(Appeals) has erred in dismissing the appeal without granting any hearing to the appellant thereby grossly violating the principles of natural justice.
3. In the facts and circumstances of the case and in law, the Learned National Faceless Appeal Centre (NFAC), CIT(Appeals)has erred in sustaining addition made by the Ld. Assessing Officer of Rs.65,02,516/- as unexplained cash credit under section 68 of the Act for cash sales disregarding the documentary evidences submitted by the appellant. 4. In the facts and circumstances of the case and in law, the Learned National Faceless Appeal Centre (NFAC), CIT (Appeals)has erred in sustaining addition of Rs. 14,87,170/- which was the highest peak negative balance during the year as unexplained money under section 69A of the Act for negative cash balance made by the Ld. Assessing Officer disregarding the documentary evidences submitted by the appellant. 5. In the facts and circumstances of the case and in law, the Learned National Faceless Appeal Centre (NFAC), CIT(Appeals)has erred in sustaining addition for the payments made during the year of Rs. 2,00,000/- under section 40A(3) of the Act..
It is noted that there is a delay of 75 days in filing the present appeal before the Tribunal for which an application along with affidavit for condonation of delay is placed on record. Assessee claims that the impugned order by ld. CIT(A) was uploaded on the e-filing portal. However, no physical copy of the notices for hearing and impugned order were served upon the assessee which remained only in the e- mails. Assessee could not access the e-mails since its Managing Director was going through certain acute medical conditions during the same time. He, after resuming the office checked up with the portal and it came to his knowledge about passing of order by the ld. CIT(A). Thereafter, immediate action was taken up for necessary compliance of filing the present appeal, hence a delay of 75 days. We have considered
Brief facts of the case are that assessee is engaged in the business of trading of audio and video products. It filed its return of income on 30.09.2015 reporting total income as a loss of Rs.37,45,419/-. There are three additions/disallowances made in the assessment completed u/s. 143(3) which are: i) Addition of Rs.65,02,516/- u/s. 68 towards cash sales ii) Addition of Rs.14,87,170/- on account of negative cash balance in the cash book. iii) Disallowance of Rs.2 lakhs u/s. 40A(3) for payments made to a party named Shriji Electronics.
4.1. We deal with the above three issues seriatim.
On the first issue, it is submitted by the assessee that it made sales in cash of Rs. 65,02,516/- during the relevant Assessment Year which formed part of the audited financial statement and was duly offered to tax. During the course of appeal proceedings before the Commissioner of Income Tax (Appeals) assessee had filed an application under Rule 46A of the Income-tax Rules, 1962 (the Rules) for admission of additional evidence, including the cash sale customer ledgers, invoices of cash sales containing details of the customer, product description, etc. Ld. Commissioner of Income Tax (Appeals) remanded the matter to the ld. Assessing Officer for examination of such records. However, ld. Assessing Officer in his remand report dated 10.06.2019 did not comment anything about the said documentary records. Thereafter, even the Ld. Commissioner of Income Tax (Appeals) in his entire order dated 19.03.2024 did not adjudicate the said issue. There EWOW AV Pvt. Ltd., AY 15-16 are no findings given by the ld. Commissioner of Income Tax (Appeals) w.r.t. the above ground, thereby passing a non-speaking order. Assessee further, placed reliance on the following judicial precedents wherein it has been held that when cash sales forms part of the turnover offered to tax, no separate addition is required:
a) CIT Vs. Vishal Exports Overseas Ltd [ITA No.2471 of 2009-Guj. HC] b) CIT Vs. Kailash Jewellery House [ITA No.613/2010- Delhi HC] c) ACIT vs. Hirapanna Jewellers [ITA No.: 253/Viz/2020; order dated 12.05.2021] 5.1. On this issue, ld. Sr.DR placed reliance on the orders of the authorities below.
5.2. Before us, ld. Counsel for the assessee referred to the application submitted before the ld. CIT(A) under Rule 46A of the Rules wherein all the details relating to the cash sales made by it were placed on record. A remand report was called by the ld. CIT(A) which was furnished by the ld. Assessing Officer vide its report dated 10.06.2019. However, in the said remand report, ld. AO did not dealt with the material as well as the issue in respect of addition of Rs.65,02,516/- on account of cash sales.
5.3. From the perusal of order of ld. CIT(A), it is noted that no finding has been given on this specific issue raised by the assessee in ground no.2 except for stating summarily in para 5 about assessee accepting in the assessment proceedings, the receipts of advance not recorded in the cash book. Thus, he found no incongruity in the assessment order and addition was confirmed and the ground raised by the assessee in this EWOW AV Pvt. Ltd., AY 15-16 issue was dismissed. Before us, ld. Counsel for the assessee fairly submitted that this issue may be remitted back to the file of ld. CIT(A) for denovo meritorious adjudication by taking into consideration the material placed on record, substantiating the claim of the assessee.
5.4. In the given set of facts and on perusal of the material on record, we find it appropriate to accept the prayer so made by the ld. Counsel. Accordingly, we remit this issue back to the file of ld. CIT(A) for denovo meritorious adjudication, by passing a speaking order after taking into consideration, the material placed on record. Needless to say that, assessee be given reasonable opportunity of being heard to furnish any further details, if it so desires to substantiate its claim. Accordingly, ground no.3 raised by the assessee is allowed for statistical purposes.
On the second issue relating to addition of negative cash balance in the cash book, assessee contended that it had appointed a tax professional to represent it for the assessment proceedings. On account of some inadvertent mistake, an erroneous cash book was submitted before the ld. Assessing Officer with certain negative balance. Ld. Assessing Officer thus, made addition of Rs. 14,87,170/- being peak of such negative balance. During the course of proceedings before the ld. Commissioner of Income Tax (Appeals), assessee filed an application under Rule 46A for admission of additional evidence, including the correct cash books forming part of audited books of accounts. Ld. Commissioner of Income Tax (Appeals) remanded the matter to the ld. Assessing Officer for examination of such records, however, ld. Assessing Officer in his remand report dated 10.06.2019 stated that such additional evidence was inadmissible as assessee could not provide reason for not submitting the said cash book during the assessment proceedings.
EWOW AV Pvt. Ltd., AY 15-16 6.1. Assessee submitted that merely because a wrong cash book was inadvertently submitted during the course of assessment proceedings by his authorized representative, this by itself cannot be the sole reason to make addition, disregarding the fact that the books of accounts of the assessee were subjected to audit under the provisions of the Companies Act, 1956, as well under the provisions of section 44AB of the Act. The auditor did not give any findings/qualification that cash was running negative during the year. It is also not the case where the ld. Assessing Officer was in possession of any information which suggested that the assessee had made any transaction in cash out of the books. Assessee further submitted that the addition made is purely on account of assumptions disregarding the audited books of accounts. According to the assessee, ld. Assessing Officer did not even reject the books of accounts, thus disregarding the correct cash book which also forms part of the audited books of accounts is unjustified. Even otherwise, merely because wrong details were submitted before the ld. Assessing Officer cannot be the sole ground to reject the correct details as submitted in the form of additional evidence.
6.2. Further, assessee placed reliance on the decision of Hon'ble ITAT, Delhi in the case of ACIT vs. Gaurav Dhall [ITA 4311/Delhi/2012], wherein it was held that the correct cash book of assessee could not be brushed aside as there could be error in feeding the data in the computer which must have resulted in negative cash balance. In the present case, ld. Assessing Officer examined the correct cash book in the remand proceedings and have not pointed any defect therein.
6.4. Before us, ld. Counsel reiterated the above stated facts and contentions raised before the authorities below. We note that, it is not the case where the ld. Assessing Officer was in possession of any information which suggested that the assessee had made any transaction in cash out of the books. The addition made is purely on account of assumptions disregarding the audited books of accounts. Ld. Assessing Officer did not even reject the books of accounts, thus disregarding the correct cash book which also forms part of the audited books of accounts is unjustified. Even otherwise, merely because wrong details were submitted before the ld. Assessing Officer cannot be the sole ground to reject the correct details as submitted in the form of additional evidence.
6.5. Thus, in the given set of facts and discussion made above, we delete the addition of Rs.14,87,170/- made by the ld. Assessing Officer. Accordingly, ground no. 4 raised by assessee is allowed.
On the third issue in respect of the disallowance of Rs. 2,00,000/- u/s. 40A(3), it was submitted that assessee had made payments on various dates to a party named Shriji Electronics and the same was within the threshold limit specified in section 40A(3). The ledger ot the said party was submitted before the Assessing Officer; however, the disallowance was made. Assessee submitted that even the auditor in the tax audit report has not given adverse findings in clause 21-(d) w.r.t. disallowance u/s. 40A(3). According to assessee, the payments made were also within the threshold limit, hence such disallowance ought to be deleted.
7.1. On this issue, ld. Sr. DR placed reliance on the orders of the authorities below.
7.2. Before us, ld. Counsel submitted that payment of Rs.2,00,000/- in cash was made in 10 installments of Rs.20,000/- each on various dates in respect of amount received from M/s. Shriji Electronics. In this respect, we take note of the observations made by the ld. Assessing Officer in the impugned order in para 6.3 which is reproduced below:
“AR's submission has been considered but not found acceptable. From the two ledgers submitted, it is seen that M/s Shriji Electronics is clearly only a purchase party. From the so called sales ledger, it is seen there are only two broad transactions one receipt of Rs 2,00,000/- on 05.07.2011 and then returning of Rs 2,00,000/- by way of 10 installments of cash during the FY 2014-15. Thus, there are no sales transactions with the said party. Consequently the Rs 2,00,000/- has clearly been paid by the assessee to M/s Shriji Electronics to discharge its liabilities arising out of purchases. The amount has been artificially broken up into several payments of Rs 20,000/- to deliberately try to escape the provisions of Section 40A(3), which prohibit the payment of cash over Rs 20,000/- in respect of a trading liability and/or an expense.”
7.3. Ld. Counsel has referred to the ledger of M/s. Shriji Electronics placed on page 167 of the paper book extracted below:
7.4. Ld. Counsel also referred to page 165 and 166 of the paper book which also contains ledger account of M/s. Shriji Electronics which depicts purchase transactions made by the assessee. From this ledger, the last transaction is dated 15.07.2013 and there is a closing balance of Rs.2,00,000/- (credit) on 31.03.2015. In the first ledger extracted above, there is a receipt of Rs.2,00,000/- on 05.07.2011 for which payments in cash of Rs. 20,000/- each in 10 installments have been made in the period from 22.04.2014 to 30.06.2014 with Nil closing balance as on 31.03.2015. Considering the above verifiable facts, we are in agreement with the observations made by the ld. Assessing Officer and uphold the disallowance made u/s.40A(3) of the Act. Accordingly, ground no.5 is dismissed.
EWOW AV Pvt. Ltd., AY 15-16 8. Ground No.1 and 2 raised by the assessee refers to ld. CIT(A) disregarding the additional evidences filed u/s. 46A of the Rules and providing reasonable opportunity of being heard. In this respect, we have already remitted the matter back to the file of ld. CIT(A) on the issue relating to addition made towards cash sales. Also, assessee has received relief in respect of addition made towards negative cash balance in the cash book. Hence, contentions raised by the assessee in respect of these grounds have also been dealt with while dealing with the merits of the case, as discussed above and hence not adjudicated upon separately.
Accordingly, appeal of the assessee is partly allowed.