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Facts
The assessee, KDJP Steels Private Limited, filed its return of income for AY 2017-18. The Assessing Officer (AO) made an addition of Rs. 48,00,000/- on account of cash deposits during the demonetization period. The CIT(A) upheld this addition.
Held
The Tribunal held that the AO made the addition without bringing on record concrete evidence that the cash deposited was other than cash in hand. The AO accepted the books of account but could not have discarded the part of trading and cash sales. The cash deposits from the cash book could not be held as unexplained.
Key Issues
Whether the addition made by the AO on account of cash deposits during demonetization was justified without concrete evidence, despite the assessee's books of account being accepted?
Sections Cited
143(1), 143(3), 142(1), 250, 69A, 68, 115BBE
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Income Tax Appellate Tribunal, DELHI BENCHES : C : NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI VIMAL KUMAR
ORDER PER VIMAL KUMAR, JM:
The appeal filed by the assessee is against the order dated 21.10.2024 of the ld. Commissioner of Income-tax (Appeals), NFAC [hereinafter referred to as the Ld. CIT(A)] u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of the order dated 27.11.2019 of the ld. AO/ITO, Ward 14(1), Delhi (hereinafter referred to as ‘the ld. AO’), for Assessment Year 2017- 18.
Brief facts of the case are that the assessee filed return of income on 31.10.2017 declaring income of Rs.11,13,765/- which was processed u/s 143(1) of the Act on 22.04.2018. The case was selected for scrutiny u/s 143(3) of the Act under CASS parameter “Abnormal increase in cash deposits during demonetization as compared to pre-demonetization period.” Notice u/s 142(1) was issued. Assessee submitted details online. Notice u/s 143(2) was issued and received on 13.08.2018. On completion of proceedings, the Ld. AO vide order dated 27.11.2019, made addition of Rs.48,00,000/-.
Against order dated 27.11.2019 of Ld. AO the assessee filed appeal before the Ld. CIT(A) which was dismissed vide order dated 24.10.2024.
Being aggrieved, the appellant/assessee filed present appeal with the following grounds of appeal:-
1. That the learned C1T(A) has erred both on facts and in law in sustaining the addition made by the learned AO of Rs. 48,00,000/- to the returned income, which even included cash in hand as on 08.11.2016.
2. That the learned C1T(A) in his order in para 5 has abruptly concluded that ‘from the details available in the invoices, the identity and genuineness of the buyers could not be verified'. The aforesaid finding is not only erroneous but is wholly arbitrary. In fact, had any enquiry been made the customers could have been identified,
3. That the learned CIT(A) has failed to appreciate that the assessee has maintained in the regular course of its business, not only cash book but also stock register which reflected the said sums of deposit represented sale made by it from its stocks. The learned AO having accepted the books of accounts including stock register could not have concluded in an arbitrary manner that the assessee has failed to explain the source of cash sales in the books of accounts which represented sale consideration received by it from its customers. The findings of the learned AO, which had been noted by the learned CIT(A) in para 5.1 that ‘there have not been cash sales during the year’ is wholly erroneous and is arbitrary; whereas infact there had been cash sales of Rs. 36,43,479/- which has not been disputed having been made.
4. That the learned CIT(A) has sustained the addition on mere suspicion despite the fact that it is well settled rule of law that suspicion howsoever be strong, it is insufficient to record a finding of fact on mere suspicion.
5. That the learned CIT(A) has also felled to appreciate the purported report of the Inspector is not a report of Inspector but was merely his perception. That infact, the learned Inspector had been directed to make field enquiries, whereas no such enquiries had made and infact the assessee had not been supplied with copy of the purported report and as such the purported report could not be made any basis for concluding that the sums represented unexplained deposits and were not cash sales.
6. That the learned CIT(A) has further failed to appreciate that the AO having not disputed that its stocks held in the closing stock at the end of the year had correctly been reflected, was unjustified to hold the credits did not represent the sales which were duly recorded as per the invoices issued in the regular course of business.
7. That the findings of authorities below that within the time it was not possible to weigh and deliver the stock is wholly erroneous in as much as the authorities have failed to appreciate that there was no need to have weighed the sheets which alone were sold by the assessee and were of standard weight and the steels were supplied by multiplying the number of steels with the standard weight of such sheets. That in any case and without prejudice the assumptions have been made to hold that the assessee could not have delivered the stocks within short time is wholly erroneous.”
The ld. Authorised Representative for the appellant-assessee submitted that the ld.CIT(A) failed to appreciate that the ld. AO framed assessment order at an income of Rs.59,13,765/- against the returned income of Rs.11,13,765/-. An average addition of Rs.48 lakhs was made. The assessee’s submission of cash sale to 93 customers was held to be not justified. The assessee is engaged in the business of trading in iron and steel including GP/GC sheets, both on wholesale and retail basis. The complete books of account, statutorily required, including cash book, ledger, stock register on day-to-day basis is being maintained. The assessee is assessed to income-tax for the last ten years. Copy of cash credit account statement of Yes Bank of assessee for the year under consideration is placed at pages 64-68 of the paper book; copy of cash book for the period 09.11.2016 to 31.12.2016, i.e., for demonetization period is placed at pages 69 to 75 of the paper book; copy of ledger account of major suppliers of the assessee is placed at pages 76 to 81 of the paper book; and copies of sales invoice, i.e., from invoice number 0612 to invoice No.0715 are placed at pages 89 to 192 of the paper book. On receipt of notice dated 13.08.2018, a detailed reply dated 28.11.2019 as placed at pages 193 to 196 of the paper book were submitted. The assessee responded to another notice dated 19.11.2019 with a letter dated 23.11.2019 placed at pages 197 to 206 of the paper book. The ld. AO had not held that the assessee’s cash balance as on 01.04.2016 of Rs.54 lakhs which had generated out of sales made in cash of Rs.44,08,165/- on 08.11.2016 and the remaining sum was the opening balance as on 07.11.2017. The assessee claimed sales on 08.11.2016 of Rs.48 lakhs to 93 customers from 8 PM to 11 PM after demonetization was announced. A copy of the report of the Income-tax Inspector, who made inquiries, was not provided to the assessee as is clear from 4 page 201 of the paper book. The detailed submissions dated 18.05.2024 are at pages 247 to 294 of the paper book.
5.1 No addition could be made by the AO, without bringing on record concrete evidence that the cash deposited by the assessee, is other than the cash in hand already available, which cash represented the sale consideration and such cash sales represented the turnover of the assessee which turnover had duly been accepted. Reliance is placed on following judicial pronouncements: a) CIT vs. Associated Transport (P.) Ltd. reported in 212 ITR 417 (Cal) b) Lalchand Bhagat Ambica Ram vs. CIT reported in 37 ITR 288 (SC) c) S.R. Venkataraman vs. CIT reported in 127 ITR 807 (Kar)
5.2 Ld. AO having accepted the books of accountsof assessee cannot even discard a part of trading account i.e. cash sales in the instant case. Ld. AO has not even disputed such cash sales, had it been so then he would have reduced the declared turnover by Rs.44,08,165/-. In absence of any defect in the books of accounts maintained by the appellant, cash deposit in the bank account out of balance available in cash book could not be held to be unexplained u/s 69A or section 68 of the Act. Reliance is placed on the following judicial pronouncements: a) 441 ITR 550 PCIT vs Agson Global (P) Ltd. (Delhi High Court) b) 315 ITR 185 (P&H) CIT vs. OM Overseas b) 320 ITR 116 (All) CIT vs. Mascot India Tools & Forgings (P) Ltd. 5 c) 64 DTR 409 (Jai) Asstt. CIT vs. Shankar Exports d) 325 ITR 13 (Del) CIT vs. Paradise Holidays e) dated 03.08.2010 CIT vs. M/s Rice India Exports Pvt. Ltd. f) dated 04.05.2017 CIT vs. M/s Pashupati Nath Agro Food Products (P) Ltd 5.3 Once cash sales to the tune of Rs. 78,58,256/- have already been offered as income, in the total sales of the year amounting to Rs 49,79,97,649/-, then money available as a result of such cash sales which have been deposited in the bank cannot be taxed as income under section 68/69A of the Act as that would tantamount to double taxation. Double taxation is not permissible in law. Reliance is placed on the following judgments: i) 72 ITR 291 (SC) CIT v. LaxmiPat Singhania vs. CIT ii) 118 ITR 50 (SC) State of Uttar Pradesh vs. Raja Buland Sugar Co. Ltd. iii) CIT vs. Vishal Exports Overseas Limited (Guj) in Tax Appeal No. 2471 of 2019 iv) CIT vs. Kailash Jewellery House (Del) in ITA 613/2010 5.4 Section 68/69A of the Act does not apply to a sum already disclosed as income as held by the judgment of Hon’ble Hon’ble Delhi High Court in the case of DIT vs. Keshav Social & Charitable Foundation in 278 ITR 152 (Del).
5.5 Sales and purchases made prior to demonetization were duly declared in the VAT returns and no revision of VAT returns was undertaken, this amply proves that the cash received during demonetization period is purely through sales of traded goods i.e. GP/GC iron sheets and nothing else. Also, the turnover of the assessee stood accepted by the VAT department for the year under consideration vide an order dated 22.10.2018 (Kindly see page 236-246 of paper book), which was duly filed before AO vide a reply dated 25.11.2019, which documentary evidence was completely brushed aside by the AO.
5.6 There is no dispute on the sufficiency of stocks available for sale is clearly established from above details. The assessee is maintaining financial books of accounts with proper inventory records and all sales made are duly recorded therein. These records have been subjected to audits under Companies Act as well as Income Tax Act and no discrepancies were noticed therein.
5.7 The finding of CIT(A) that from the details available in the invoice, the identity and genuineness of buyers could not be verified is without any merit since the assessee, vide reply dated 15.11.2019 filed before AO, assessee duly submitted all the relevant invoice raised by it on 93 parties (Kindly see pages 89- 192 of paper book), which had name and address of the customers on it. Hence, the contention with respect is that, CIT(A) failed to appreciate that, AO did not carry any enquiry and sat back with folded hands and failed to do his duty. It is well settled law, that AO is an investigator as well as an adjudicator, and by lapse on his part in performing his duties, assessee cannot be saddled with huge liabilities. AO, being part of the department has all wherewithal and requisite resources to conduct enquiries. Reliance is placed on following case laws- A) CIT vs. FCS International Marketing reported in 203 CTR 601 (P&H) B) Pr. CIT vs. Krishna Devi reported in 431 ITR 361 (Del) C) CIT vs. Nova Promoter and Finlease (P) Ltd. reported in 342 ITR 169 (Del)
5.8 The appellant is also placing on record the extract from the stock register from 01.11.2016 to 08.11.2016 to establish that GC/GP Sheets which were of standard weight and were sold in numbers as Annexure ‘A’. The stock register shows that, assessee had sold JC/JP sheets only and since such sheet were sold in numbers, since they are of standard weight. In such circumstances it is submitted that, the finding of the AO, that it was not possible to weigh such sold stocks on a single day, is based on mere assumptions and presumptions, overlooking the fact that the assessee had sold sheets which are duly recorded in the stock register. In fact, closing stock had been carried over in the next year and had also been accepted in the succeeding year. In such circumstances, the finding of the AO, that such stocks remained unsold and credits appearing in books of account are not well explained, is not only erroneous but overlooks the facts on record. It is well settled rule of law, that suspicion howsoever strong it may be, cannot partake character of an information/evidence/material.
5.9 On the facts of the case section 115BBE of the Act is not applicable, as for application of section 115BBE of the Act, the primary condition is that the assessee should first fall in any of the sections, i.e. section 68 and from sections 69 to 69D of the Act. The appellant has given complete explanation regarding the source of cash deposited is out of sale of trading goods and thus, out of assessee’s own cash book and the same has been duly examined by the learned AO in order of assessment so passed under section 143(3) of the Act. Reliance is placed on following case laws: i) SMILE Microfinance Pvt. Ltd. vs ACIT (Madras High Court) in WP(C) No. 2078/2020 5.10 The appellant also seeks to rely upon the judgment of Hon’ble Supreme Court in the case of Kishnichand Chellaram vs. CIT , reported in 125 ITR 713, wherein it has been held that any adverse material collected by the AO behind the back of the assessee is of no evidentiary value and is to be completely discarded and ignored.
The ld. Departmental Representative relied on the orders of the ld. AO and the Ld. CIT(A).
From examination of the record, in the light of the aforesaid rival contentions, it is crystal clear that the ld. AO, without bringing on record any concrete evidence that the cash deposited by the assessee is other than cash in hand, made the addition. The ld. AO, who accepted the books of account of the assessee, could not have discarded the part of trading. The ld. AO did not dispute cash sales, so, he could not have reduced the declared turnover of Rs.44,08,165/- in the absence of any defect in the books of account maintained by the assessee. The cash deposit in the bank account out of balance available in cash book could not have been held as unexplained u/s 69A of the Act. Reference to the judgement in PCIT vs. Agson Global (P) Ltd. is important.
Moreover, sale and purchase made prior to demonetization were duly declared in VAT returns. The turnover of the assessee was accepted by VAT Department, vide order dated 22.10.2018, available at pages 236 to 246 of the paper book. There is no dispute regarding sufficiency of stock available for sale which was recorded in records subjected to audit under the Companies Act and the Income-tax Act. Therefore, the addition made by the ld. AO, being illegal, is set aside. The grounds of appeal No.1 to 7 are allowed.
In the result, the appeal filed by the assessee is allowed.