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Facts
The Revenue appealed against the order of the CIT(A) who deleted an addition of Rs. 1,22,52,334 made under section 68 of the Income Tax Act. The Assessing Officer (AO) had rejected the assessee's books of accounts and made the addition due to an abnormal increase in cash sales during the demonetization period, suggesting channelization of unaccounted money. The assessee, engaged in wholesale trading of gold bullion and jewellery, argued that its sales growth was consistent with overall turnover growth and supported by audited books and VAT returns.
Held
The Tribunal held that the CIT(A) was justified in deleting the addition. It found that the assessee's books of accounts were maintained regularly and audited under various laws. The AO's allegations regarding the non-maintenance of stock registers and an absurd computation of bogus sales based on a human probability test were not supported by evidence. The revenue failed to controvert the evidence produced by the assessee to substantiate the cash deposits.
Key Issues
Whether the CIT(A) was justified in deleting the addition made by the AO under section 68, especially when the AO rejected the assessee's books of accounts due to an alleged abnormal increase in cash sales during the demonetization period.
Sections Cited
68, 145(3)
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Income Tax Appellate Tribunal, JODHPUR BENCH (Virtual
Before: DR. MITHA LAL MEENA, HONBLE & SHRI UDAYAN DAS GUPTA, HONBLE
This appeal by the revenue is directed against the order of National Faceless Appeal Centre, Delhi [in short NFAC/CIT(A)] in respect with Assessment Year 2017-18 where the department has taken the following grounds of appeal:
"
Whether in the facts & circumstances of the case Id. CIT(A) is justified in deleting the addition of Rs. 1,22,52,334/- made u/s 68 after rejecting books u/s 145(3), when AO has established in assessment order that books of accounts the assessee could not be relied as proper stock register was not maintained by the assessee and sale bills produced by the assessee did not contain name of item sold, gross weight, net weight and labour charges.
Whether Id. CIT(A) is justified in holding that increase in cash sales of Rs. 3 Cr. Approx in a period of 7.25 months is commensurate with the figures of increase in annual turnover i.e. 18 Cr. Approx, by ignoring the fact that in percentage terms increase in turnover during A.Y. 2017-18 was only 85% (Rs. 38. 37. Cr. From 20.72 Cr.) whereas cash sales during first 7.25 months of A.Y. 2017-18 increased by 528% as compared to proceeding years (Rs. 3.65 Cr. From 0.58 Cr.).
Whether the Id. CIT(A) is justified in deleting the addition by not giving any finding on observation of AO regarding test of human probability when there was abnormal increase of 288% in cash sales shown by assessee during 01.10.2016 to 08.11.2016 as compared to sales from 01.04.2016 to 30.09.2016 whereas there was a fall of 27% of the same during corresponding period in preceding year.
That the tax effect involved in this case is above the limit laid down in Circular No. 05/2024 dated 15.03.2024 issued by the CBDT, New Delhi." The crux of the issue challenged by the department is that CIT(A) has not given any finding to the Assessing Officer's (In short "the AO") observation on human probability test when there was an abnormal increase in cash sales during demonetization period.
Briefly the facts as per record are that the assessee is engaged in the business of wholesale trading in Gold Bullion and also trading and manufacturing of jewellery in the name and style of M/S. H.R.D.K. Bullion & Refinery (P) Ltd. During the year under consideration, on turnover of Rs.38,97,91,375/-, the assessee has shown gross profit of 4.16% and net profit of 0.92%. The turnover of the assessee has been increased by Rs.17,69,70,589/- i.e., 83.15% as compared to the preceding year. During the demonetization period, the assessee has deposited cash in its bank accounts as detailed under: S.No. Account No. Bank Amount 4163400000283 Yes Bank 2, 15,31,500/-
The AO has stated in its order that "On perusal of month wise purchase and cash sale details filed along with the submission 07.11.2019, it was found that in the month of October and November 2016 there was cash sales of Rs.1,05,51,398/- and Rs. 1,61,37,368/- respectively. Further to mention that as per date stock details, there was cash sales of Rs. 1,18,49.690/- and sales on credit and banking channel was of Rs. 14,32,900/- on 08.11.2016. The total cash sales from 01.11.2016 to 08.11.2016 was shown at Rs. 1,59,71,694/- after the date of 08. 11. 2016 i.e. from 09.11.2016 to 31.12.2016 total cash sales was of Rs.1,81,554/- only. Thus, the AO observed that "it is clear that the assessee has channelized his own unaccounted money in the business in the name of sales to customers and the cash sales during the month of Oct. 2016 and Nov. 2016 (up to 08.11.2016), would not be more than Rs.92,79, 166/-. Hence, the excess cash deposit of Rs. 1,22,52,334/ (Rs.2, 15,31, 500- Rs.92, 79, 166] claimed in the garb of cash sales amounting to Rs. 1,22,52,334/- is taxed treating it is as income of the assessee u/s 68 of the Income-tax Act, 1961. 5. The assessee being aggrieved with the assessment order went in appeal before the learned CIT appeal who has granted relief to the assessee by observing as under:
The appellant assessee in its' submissions have stated that "Complete day to day records in form of cash book, ledger, stock register & sales, purchases bills are maintained by assessee. The accounts of assessee are subject to tax audit u/sec. 44AB of Income Tax Act, 1961. Needful Audit Repott audited financial statements al/ were e-fi/ed with return & dunng assessment proceedings. That tax audit repott of the year contain full quantitative details of quantity treaded, purchases sales & opening & closing stock. Only the manufactunng records kangamise are not propedy maintained by assessee. But at any stage the quantity of items traded & manufactured are having no deviation even the A O. has unable to prove the same, That further complete sales for the year & in past are subject to "SALES TAX" "VAT RETURN FILED". Thus A. O. cannot deny for corresponding purchase to sales on day to day basis. The appellant assessee with its submissions have provided documentary evidences to this appellate authority which are as following: i Ledger ii Stock register and sales iii Purchase bills iv Tax Audit report V Sales Tax return vi VAT return filed All these documentary evidences are carefully considered by this appellate authority.
The appellant assesse has also provided a chart of GP and NP rates which are produced hereunder, Year ended on orber beer Salest Sear Insomn 2015-16 Γ1 012015. 69,53,808.00 8,01 94 416.00 2016-17 31 03 2016 $5,91,52000 20,72.29.266.00 2017-18 31.03.2017 59.93.791.00 38,37,97.674.00 3. it is noted that the assessee had made a sale of Rs 38,37,97,674/-(P&L account is hereunder reproduced). Trading Account for the year ending Fist March, 2017 PARTICULARS AMOUNT CURRENT YEAR PREVIOU SYEAR AMOUNT CURRENT YEAR (Amount in Rs.) PREVIOU PARTICULAR'S SYEAR TO OMNNING STOCK BY SALE'S 363797674 207229266 7277543.1 73775431 8607267.0 FINISHED GOODS 303797674 13 2 TO MANUFACTURING EXPENSES LABOUR PAID ET DIRECT INCOME 224070 DO 124070.00 DIRECT INCOIS TO PURCHASE-FINISHED GOODS/STOCK IN TRADE INDIRECT INCOME 5993701.0 50937010 5551520 PURCHAS 384444911 8856011 201611435 0 61 61 TO GROSS PROFIL 16198537 10404657 BCLOSING STOCK CRUSHER COOOS 22707686 22797686. 12775431 412319067 220098329 TOTAL 412319067 220098329 10 67 SON'
The assessing officer in its Assessment order has stated that "Futther, looking to the business trend of the assessee there is abnormal hike in the cash sales that too in pre demonetization period as compared to the regular sales declared either in earlier months or in preceding year. It is not out of place to mention here that there was no drastic change/downfall in the rates of gold or silver which induced the customers to make huge investment in gold jewellery during that period. In the submission, the assessee has claimed that on account of installation of new machinery, there was increase in sales not only during the demonetization period but after it also. The contention of the assessee is factually incorrect as after the date of demonetization i.e., 09.11.2016 to 31.12.2016, there was cash sales of R$. 1, 81,554/- only, " From the submissions and documentary evidences provided by the appellant assessee, this appellate authority is in the view that 'there was year on year growth in the total turnover of the appellant assessee, so if there (s a growth of total turnover of the appellant assessee then there will also be a growth in cash sales in the case of the appellant assessee. (Chart is hereunder produced) Ay 2015-14 1012015 6 2016-17 31.05.2016 2017-18 31.03.201 1,10,870.00 59.93.701.00、38,397,624.00 887 46 A 1,61,98,537.00 4.16% 6 Assessment Year 2017-18 0.92% This appellate authority find's weight in the submission filed by the appellant assessee as shown by the appellant assessee in the above mentioned chart that there was sale growth from preceding year of approximately 18 Cr and increase in cash sale from preceding year (for the period 01 st April to 08th November for both years is Rs. 3,06,37,053/- calculation is given below - Assessment Year Cash Sale from 1st April to 8th Nov 2016-17 58,02,606/- 2017-18 3,64,39,659/- Increase In cash sates 3,06,37,053/- Source of cash sale figure from the table given by the assessing officer in the assessment order. From the above discussion in the opinion of this appellate authority the increase in cash sale amounting Rs 3 cr approx. in a period of 7.25 months is commensurate with the figures of increase in annual turnover i.e. 18cr approx. In view of the above-mentioned facts from point i to v, of submission of assessee, this appellate authority finds enough weight in the evidences and submissions of the appellant assessee and hence the addition made by the AO amounting to Rs 1,22,52,334/- u/s 68 of the income tax act 1961 is deleted.
The Ld. Addl CIT (DR) vehemently supported the assessment order. He contended that the Ld. CIT(A) is not justified in deleting the addition of Rs. 1,22,52,334/- made u/s 68 after rejecting books u/s 145(3), when AO has established in assessment order that books of accounts of the assessee could not be relied as proper stock register was not maintained by the assessee and sale bills produced by the assessee did not contain name of item sold, gross weight, net weight and labour charges; that considering the increase in cash sales of Rs. 3 Cr. Approx in a period of 7.25 months as commensurate with the figures of increase in annual turnover i.e. 18 Cr. Approx, by ignoring the fact that in percentage terms increase in turnover during Assessment Year 2017-18 was only 85% (Rs. 38. 37. Cr. From 20.72 Cr.) whereas cash sales during first 7.25 months of A.Y. 2017-18 increased by 528% as compared to proceeding years (Rs.
65 Cr. From 0.58 Cr.) and that the Id. CIT(A) is not justified in deleting the addition by not giving any finding on observation of AO regarding test of human probability when there was abnormal increase of 288% in cash sales shown by assessee during 01.10.2016 to 08.11.2016 as compared to sales from 01.04.2016 to 30.09.2016 whereas there was a fall of 27% of the same during corresponding period in preceding year.
The defendant Ld. Counsel for the assessee supported the impugned order by reiterating the submission made before him with supporting documentary evidence as discussed in the impugned order. He contended that cash deposits made by assessee were duly recorded in books of account which were audited under various laws applicable and were supported by credible evidence like copies of invoices, stock register maintained on a day to day basis, and VAT returns filed from time to time and order of VAT authorities accepting sales made by assessee during year under consideration. Accordingly, he argued that the Ld. CIT (A) has been justified in deleting the impugned addition made under section 69A of the act and pleaded that the decision of the CIT (A) be upheld.
We have heard both the sides and given thoughtful consideration to the factual matrix discussed hereinabove. It is undisputed fact that there is not even a whisper of any defect, error or infirmity pointed out either by the AO or the Ld. Addl. CIT (DR), in the books of account maintained by the assessee which were audited both under the Companies Act and under the Income tax Act. The books of account have been maintained in the regular course of business and cash deposits in the books of account are duly reflected in the books of account. The AO allegation of non- maintenance of stock register is factually incorrect while making absurd computation of bogus sales on human probability test as regard to an abnormal increase in cash sales during demonetization period without disproving accounted purchases, sales and available cash in audited books and VAT Returns of the assessee to substantiate the cash deposit in the bank account.
From the record, it evident that the Sales made by the assessee as shown in the regular books of account have been accepted as such by VAT authorities while framing the VAT assessment. The assessee was having sufficient stock in hand for making the impugned sales during the demonetization period and it is not the case of the Assessing Officer that the assessee has shown bogus purchases to show bogus sales to cover up cash deposited during the demonetization period. Furthermore, the revenue failed to controvert the evidence produced by the Ld. AR before the CIT (A) and to rebut the availability of disputed cash in the books, on the date of deposits in the corresponding bank account, during the demonetization period.
Considering the factual matrix, we do not find any reason to interfere with the factual findings given on merits by of the Id. CIT(A).
In the result, the appeal of the Revenue is dismissed. Order pronounced on.2.0.1.0.4./2025 under Rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963. Sod (UDAYAN DAS GUPTA) JUDICIAL MEMBER Dated 20../04/2025 Copies to : (1) The appellant. (2) The respondent. (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By Oder