SATYAM MINERALS PRIVATE LIMITED,JAIPUR vs. ITO, WARD 5(2), JAIPUR, JAIPUR

ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A) dated 05-06-2024, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2017-18 raising therein following grounds of appeal. ‘’1. That on the facts and circumstances of the case and in law, the ld.CIT(A) grossly erred in sustaining an addition of Rs.55.40 lacs u/s 68 of the Act by treating the cash deposits in bank account during demonetization period as unexplained.

2. That on the facts and circumstances of the case and in law, the lower authorities grossly erred in not giving sufficient opportunity of being heard to the appellant.’’ 2 ITA NO,938/JP/2024 M/S. SATYAM MINERALS PVT LTD VS ITO, WARD 5(2), JAIPUR 2.1 The brief facts of the case are that the assessee is a private limited company engaged in the business of manufacturing and trading of mineral products. The assessment under section 143(3) was framed by making the addition of Rs.55.40 lacs by the AO on account of unexplained cash deposit, by treating the same as undisclosed income under section 69 A of the Income Tax Act. 2.2 Aggrieved by the said order, assessee also preferred appeal but remained unsuccessful before ld. CIT(A). 2.3 Against the order of ld. CIT(A), now the assessee has preferred the present appeal before us on the grounds mention here in above. 2.4 The Ground No. 1 raised by the assessee relates to challenging the order of ld. CIT(A) in sustaining the additions under section 68 of the Income Tax Act by treating the cash deposits in bank account during demonetization period as unexplained. 2.5 In this regard ld. AR Reiterated the same arguments as were raised by him before the lower authorities and also relied upon his written submissions whose contents are as under:- Ground No. 1 That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) grossly erred in sustaining an addition of Rs. 55,40,000/- u/s 68 of the Income-tax Act, 1961 by treating the cash deposits in bank account during demonetizaion period as unexplained.

Brief Facts : The appellant is a private limited company engaged in the business of manufacturing and trading of minerals products. Almost entire sales is B2B sales and through banking channels. Books of accounts were duly audited under the Companies 3 ITA NO,938/JP/2024 M/S. SATYAM MINERALS PVT LTD VS ITO, WARD 5(2), JAIPUR Act, 2013 as well as under the Income-tax Act, 1961. During demonetization, the assessee deposited cash in bank account in old currency notes amounting to Rs.55,40,000/-. In support of the source of cash deposits, the assessee submitted cash book, bank statements of Punjab National Bank and Standard Chartered Bank and other documents during the assessment proceedings in which cash balance was duly reflected in the cash book pre demonetization before cash deposit in bank account. However, the learned AO still made the impugned addition of Rs.55,40,000/- by treating the cash deposits as unexplained. Even the books of account were not rejected u/s 145(3) of the Income-tax Act, 1961, and the addition was made merely on surmises and conjectures dehors the material on record. While making the impugned addition, the AO wrongly concluded at page no. 11 of the assessment order that transactions were not routed through Standard Chartered Bank on the erroneous reasoning that the nomenclature of bank accounts mentioned in cash book/books of account are “Standard Chartered Bank” which is without bank account number and “PNB 1939002100238868” where bank account number is mentioned. The AO also misrelied on information obtained u/s 133(6) from Standard Chartered Bank regarding closure of old bank account number which was neither shared to the assessee nor any query was raised to the assessee. The AO failed to consider the Standard Chartered Bank statements of new account number furnished during the assessment proceedings (paper book page no. 97). The learned CIT(A) merely confirmed the action of the AO and dismissed the appeal. Being aggrieved, the appellant has preferred this appeal in order to get justice. Appellants Humble Submissions : It is humbly submitted that both the lower authorities erred not only in appreciating the facts and circumstances of the case but also erred in analyzing the provisions of the law. This is explained as under :-

S.No. Particulars Paper Book Page No. 1 Return of Income alongwith Audit Report & Audited Financial 1 to 52 Statements for AY 2017-18 & AY 2016-17 (Relevant Page No. 8, 52) 2 Cash Book 53 to 67 3 Bank Statements – Standard Chartered Bank 68 to 83 4 Bank Statements – Punjab National Bank 85 to 95 4 ITA NO,938/JP/2024 M/S. SATYAM MINERALS PVT LTD VS ITO, WARD 5(2), JAIPUR 5 Screenshot of online reply by assessee to AO during 96 to 97 assessment proceedings During the assessment proceedings, assessee had furnished the books of account comprising cash book, sales/purchase register/bills etc. which clearly indicate that on the date of cash deposit during demonetization, assessee was having sufficient cash balance to deposit in bank. Since remaining cash balance had lost its validity of being classified as a legal tender pursuant to announcement of demonetization policy by the Government of India, the assessee had no choice but to deposit the cash available with it in the designated bank account in Specified Bank Notes during the period 09/11/2016 to 31/12/2016. All cash that has been deposited in Specified Bank Notes during the demonetization period i.e. 09/11/2016 to 31/12/2016 cannot be classified as unexplained income of the assessee. What is to be seen is as to whether the assessee had sufficient cash balance in its books for making the said deposits in the bank account. In the instant case, the assessee had sufficient cash balance in its books which is evident from the cash book furnished as there is no negative cash balance on any day. Moreover, the ld. A.O. failed to establish the utilization of cash elsewhere and that the cash in hand as per cash book was not available with the assessee at the time of deposit of cash in the bank account during demonetization. The ld. A.O. also accepted the books of account as they were not rejected under the provisions of section 145(3) of the Act. It is now a settled law that no addition can be made without rejecting the books of account u/s 145(3) of the Act. Reliance is placed on the following judgment of Pilani Industrial Corporation Limited Vs ACIT (ITAT Delhi)

29.04.2024 wherein following the Hon’ble Supreme Court judgment in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 it was held as under :- “9. Hon’ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 has held that when entries in books of account in regard to cash balances were held to be genuine, there was no escape from conclusion that assessee had offered reasonable explanation as to source of all high denomination notes which it encashed on 19th January 1946 and it was not open to ITAT to accept genuineness of those books and accept assessee’s explanation in part and reject same in regard to balance sum. It was observed that the ITAT in arriving its conclusion indulged in suspicions, conjectures and surmises and acted without any evidence or upon a view of facts which could not reasonably be entertained or finding was perverse which could not be sustained and Supreme Court was entitled to interfere with such findings and therefore the addition was deleted.

5 ITA NO,938/JP/2024 M/S. SATYAM MINERALS PVT LTD VS ITO, WARD 5(2), JAIPUR 10. From perusal of above material fact especially treating the cash deposit as unexplained cash on basis of books of account without rejecting the same is legally not permissible as per ratio of judgment in Lalchand Bhagat Ambica Ram’s case (supra). Therefore, the impugned orders dated 18.12.2019 and 31.03.2023 are not legal and sustainable and deserve to be set aside.”

Reliance is also placed on the judgment of Rahul Cold Storage Vs ITO (ITAT Raipur) decided on 29.11.2022, wherein it was held as under :- “13. Considering the aforesaid facts, I am of the view that as the treating of the cash deposit of Rs.46.55 lac (supra) as an unexplained cash credit u/s.68 of the Act by the A.O in itself militates against the acceptance of the book results of the assessee by him, therefore, there can be no justification in upholding the addition so made by him. I, thus, on the basis of my aforesaid observations vacate the addition of Rs.46.55 lac (supra) made by the A.O u/s.68 of the Act. Thus, the Ground of appeal No. 1 raised by the assessee is allowed in terms of the aforesaid observations.”

2. Lower authorities arbitrarily ignored that source of cash deposits of Rs.55,40,000/- was opening cash balance as at 01.04.2016 of Rs.42,32,266/- as per audited financial statements and cash withdrawals from bank accounts as per bank statements amounting to Rs.25,66,600/- (PNB Rs.12,14,100/- & Standard Chartered Bank Rs.13,52,500/-, Details annexed at Annexure-A): It is humbly submitted that the opening cash balances as at 01.04.2016 was Rs.42,32,266/- which is evident from the audited financial statements (relevant paper book page no. 8) and cash book (paper book page no. 53). Thus the source of cash deposits during demonetization to this extent is fully explained. Further, cash withdrawals from bank accounts (PNB Rs.12,14,100/- & Standard Chartered Bank Rs.13,52,500/-, Details annexed at Annexure-A) of Standard Chartered Bank (Rs.13,52,500/-) are also there which is evident from the cash book (paper book page no. 53 to 67) and Standard Chartered Bank A/c No. 75105091059 Statements (paper book page no. 68 to 83) and PNB A/c No. 1939002100238868 Statements (paper book page no. 85 to 95). The bank statements and cash book were duly available with the AO which is evident from the screenshot of reply filed during assessment proceedings (paper book page no. 97) but the learned AO still failed to consider them and made the impugned addition in an arbitrary manner. The learned AO got misguided by two things – First that the transactions were not routed through Standard Chartered Bank on the erroneous reasoning that the nomenclature of bank accounts mentioned in cash book/books of account are “Standard Chartered Bank” which is without bank account number and “PNB 1939002100238868” where bank account number is mentioned. Secondly, the Standard Chartered bank account no. 75105075460 was already closed on 01.07.2013 according to information obtained from bank u/s 133(6). Regarding first erroneous 6 ITA NO,938/JP/2024 M/S. SATYAM MINERALS PVT LTD VS ITO, WARD 5(2), JAIPUR conclusion by the learned AO it is humbly submitted that it is no where mandatory for the assessee to write bank account no. with the bank account name in the name of the ledger in its books of account. In the tally software used by the assessee, the space of writing ledger account name is limited which was occupied by the ledger name “Standard Chartered Bank”, hence there was not much space left to write the entire bank account number whereas in case of Punjab National Bank, the abbreviation “PNB” was used resulting in space to write the bank account number in the ledger name. In any manner, this does not invite any adverse inference against the appellant. Secondly regarding Standard Chartered Bank account number already closed it is humbly submitted that the learned AO sought information from bank u/s 133(6) for old bank account number which was already replaced by the bank suo motu by another new account number. Unfortunately, due to oversight by the appellant CA the old bank account number was mentioned in the return of income filed, however, the new account number bank statement of Standard Chartered Bank was available with the learned AO during the assessment proceedings which is also evident from page no. 97 of the paper book. Further, the AO neither shared this information with the assessee during the assessment proceedings that Standard Chartered Bank has informed that old account no. 75105075460 was already closed in 2013 nor raised any query in this regard during the assessment proceedings but straight was made the impugned addition ignoring the new bank account number 75105091059 statement of Standard Chartered Bank available with him (paper book page no. 97). It is humbly submitted that it is now a settled law that substance shall always overrule the form. In Bhopal Sugar Industries Limited V S.T.O. (1977) 3 SCC 147, Hon’ble Supreme Court held as follows:

“It is well settled that while interpreting the terms of the agreement, the Court has to look to the substance rather than the form of it. The mere fact that the word “agent” or “agency” is used or the words “buyer” and “seller” are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conferred. Thus the mere formal description of a person as an agent or buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent” Moreover, Article 265 of the Constitution says that no tax shall be levied or collected except by the authority of law.

7 ITA NO,938/JP/2024 M/S. SATYAM MINERALS PVT LTD VS ITO, WARD 5(2), JAIPUR In this regard, reliance is being placed on the judgment of Hon’ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. 26 ITR 775 wherein it was held that a suspicion remains a suspicion unless the same is established and can never take place of reality. Assessment cannot be made on guesswork without any reference to any material on record. In view of the above, it is most respectfully requested that the impugned addition, being illegal and justified, may kindly be deleted.

Ground No. 2 That on the facts and circumstances of the case and in law, the lower authorities grossly erred in not giving sufficient opportunity of being heard to the appellant. Appellant’s Humble Submissions: Submissions covered in the ground of appeal no. 1.

In view of the above, it is most respectfully requested that the appeal may kindly be allowed.’’ 2.6 On the other hand Ld DR appearing on behalf of the respondent relied upon the orders passed by the revenue authorities. It was submitted that the source of cash deposit made by the assessee could not be explained by him in spite of providing sufficient opportunities and therefore in the absence of any explanation with regard to the cash deposit the additions were rightly made and sustained by the revenue authorities. 2.7 We have heard the counsel for both the parties and also perused the material placed on record, judgement cited before us and also the orders passed by the revenue authorities. From the records, we noticed that Assessee is a private limited company engaged in the business of manufacturing and trading of mineral products. As per Assessee, almost entire sales are B2B sales and through banking 8 ITA NO,938/JP/2024 M/S. SATYAM MINERALS PVT LTD VS ITO, WARD 5(2), JAIPUR channel's. The books of accounts were also duly audited under the Companies Act 2013 as well as under the Income Tax Act 1961. During the demonetization the assessee deposited cash in bank account in old currency notes amounting to Rs.55.40 lacs and in support of disclosing the source of the said cash deposits the assessee, submitted cash book, bank statements of Punjab National Bank and Standard Chartered Bank and other documentary evidences in which cash balance reflected in the cash book pre-demonetisation before cash deposit in bank account. Even in spite of that AO still made the additions by treating the cash deposits as unexplained. After evaluating the documents placed on record, we found that the cash in hand was duly reflected in the books of accounts and in support thereof, our attention was drawn to the following documents. S.No. Particulars Paper Book Page No. 1 Return of Income alongwith Audit Report & Audited Financial 1 to 52 Statements for AY 2017-18 & AY 2016-17 (Relevant Page No. 8, 52) 2 Cash Book 53 to 67 3 Bank Statements – Standard Chartered Bank 68 to 83 4 Bank Statements – Punjab National Bank 85 to 95 5 Screenshot of online reply by assessee to AO during assessment 96 to 97 proceedings The assessee also furnished the books of accounts comprising cash book sales/purchase register/ bills etc which clearly indicated that on the date of cash deposit during demonetization the assessee was having sufficient cash balance to deposit in bank. Since the remaining cash balance had lost its validity of being 9 ITA NO,938/JP/2024 M/S. SATYAM MINERALS PVT LTD VS ITO, WARD 5(2), JAIPUR classified as a legal tender pursuant to announcement of demonetization policy by the Government of India. Therefore in those peculiar circumstances, the Assessee had no other choice but to deposit the cash available with him in the designated bank account in specified Bank notes during the demonetization period with effect from 9/11/16 to 31/12 /16. Thus the cash cannot be classified as unexplained income of the assessee. Now at this stage what is to be seen by us is as to whether the assessee had sufficient cash balance in its books for making the said deposits in the bank account. In this regard, we noticed that the revenue authorities ignored that source of cash deposit of Rs.55.40 lacs was comprising of opening cash balance as on 1. 04.2016 of Rs 42,32,266/- as per audited financial statements and cash withdrawals from bank accounts as per bank statements amounting to Rs. 2,56,600/-, the details of which are already placed on record in the shape of paper book and in detail the cash withdrawals from bank accounts (PNB Rs.12,14,100/- & Standard Chartered Bank Rs.13,52,500/-. Details annexed at Annexure-A) of Standard Chartered Bank (Rs.13,52,500/-) are also there which is evident from the cash book (paper book page no. 53 to 67) and Standard Chartered Bank A/c No. 75105091059 Statements (paper book page no. 68 to 83) and PNB A/c No. 1939002100238868 Statements (paper book page no. 85 to 95). The bank statements and cash book were duly available with the AO which is evident from the screenshot of reply filed during assessment proceedings (paper book page no.

10 ITA NO,938/JP/2024 M/S. SATYAM MINERALS PVT LTD VS ITO, WARD 5(2), JAIPUR 97) but the learned AO still failed to consider them and made the impugned addition in an arbitrary manner. In our view the AO got misguided by two things while making the additions i.e. First that the transactions were not routed through Standard Chartered Bank on the erroneous reasoning that the nomenclature of bank accounts mentioned in cash book/books of account are “Standard Chartered Bank” which is without bank account number and “PNB 1939002100238868” where bank account number is mentioned. Secondly, the Standard Chartered bank account no. 75105075460 was already closed on 01.07.2013 according to information obtained from bank u/s 133(6). While dealing with regard to the first erroneous conclusion by the AO, in this regard, we noticed that it is no where mandatory for the assessee to write Bank account number with the bank account name in the ledger in its books of accounts. According to the appellant in the Tally software used by the assessee, the space of writing ledger account name is limited which was occupied by the ledger name “Standard Chartered Bank”, hence there was not much space left to write the entire bank account number whereas in case of Punjab National Bank, the abbreviation “PNB” was used resulting in space to write the bank account number in the ledger name. In any manner, this does not invite any adverse inference against the appellant. Secondly regarding Standard Chartered Bank account number already closed in this regard it was submitted by the assessee that AO sought information from Bank under section 133(6) for old 11 ITA NO,938/JP/2024 M/S. SATYAM MINERALS PVT LTD VS ITO, WARD 5(2), JAIPUR Bank account number which was already replaced by the bank suo moto by another new account number, which because of inadvertent mistake the CA of the assessee could not mention and instead mentioned old account number.. But it is important to understand that the new account number bank statement of Standard Chartered Bank was available with the learned AO during the assessment proceedings which is also evident from page no. 97 of the paper book. Further, the AO neither shared this information with the assessee during the assessment proceedings that Standard Chartered Bank has informed that old account no. 75105075460 was already closed in 2013 nor raised any query in this regard during the assessment proceedings but straight was made the impugned addition ignoring the new bank account number 75105091059 statement of Standard Chartered Bank available with him (paper book page no. 97). Apart from our above discussion and observations, we also noticed that the AO accepted the books of accounts as they were not rejected under the provisions of section 145 (3) of the Income Tax Act. Hence now it is a settled law that no addition can be made without rejecting the books of accounts under section 145(3) of the Act and in this regard we place Reliance on the following judgements:- 1. Pilani Industrial Corporation Limited Vs ACIT (ITAT Delhi)

29.04.2024 wherein following the Hon’ble Supreme Court judgment in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 it was held as under :-

12 ITA NO,938/JP/2024 M/S. SATYAM MINERALS PVT LTD VS ITO, WARD 5(2), JAIPUR “9. Hon’ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 has held that when entries in books of account in regard to cash balances were held to be genuine, there was no escape from conclusion that assessee had offered reasonable explanation as to source of all high denomination notes which it encashed on 19th January 1946 and it was not open to ITAT to accept genuineness of those books and accept assessee’s explanation in part and reject same in regard to balance sum. It was observed that the ITAT in arriving its conclusion indulged in suspicions, conjectures and surmises and acted without any evidence or upon a view of facts which could not reasonably be entertained or finding was perverse which could not be sustained and Supreme Court was entitled to interfere with such findings and therefore the addition was deleted.

Therefore considering the totality of facts and circumstances as narrated by us and also keeping in view the principals laid down by the judicial authorities, we are of the view that the allegation of the lower authorities that the entire cash deposits in the bank account during demonetization was unexplained, is arbitrary, whereas the assessee has duly explained and proved by way of documentary evidences, the source of such cash deposits as discussed by us above. Therefore, the addition made by the AO and sustained by ld. CIT (A) are not legally sustainable and 13 ITA NO,938/JP/2024 M/S. SATYAM MINERALS PVT LTD VS ITO, WARD 5(2), JAIPUR deserve to be set aside. Hence, we direct the AO to delete the addition. Accordingly the Ground No. 1 is ground raised by the appellant stands allowed. 3.1 Since, we have disposed off the ground no. 1 in favour of the assessee, hence the ground no. 2 of the assessee is general in nature which needs no adjudication. 4.0 In the result, the appeal filed by the assessee stands allowed with no orders as to costs. Order pronounced in the open court on 30/09/2024.