Loading judgment…
Facts
The assessee, engaged in proprietorship concern M/s Parshant Silver Handicrafts, had their return of income scrutinized following a search action. The Assessing Officer (AO) alleged out-of-books transactions, including sales and purchases, based on seized documents (LP-1 and LP-2) and discrepancies found during a survey. The AO also noted a significant cash deposit during the search that was not intimated.
Held
The Tribunal held that the AO was justified in rejecting the assessee's books of accounts under Section 145(3) due to unaccounted sales. The Tribunal estimated the profit on out-of-books sales at 0.30%, subsuming additions for out-of-books purchases and accommodation entries. However, the addition of Rs. 510 Lacs for cash deposit was deleted as it was found to be accounted for in the books and its separate addition would amount to double taxation.
Key Issues
Whether the AO was justified in rejecting the assessee's books of accounts and making additions for out-of-books sales, purchases, and unexplained cash deposits; and whether the estimated Net Profit Rate applied was appropriate.
Sections Cited
145(3), 132(4A), 292C, 68, 115BBE, 133A, 131(1A), 69A, 34(4)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “DB” BENCH, AGRA
Before: HON’BLE SHRI SATBEER SINGH GODARA, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2019-20 arises out of an order of Learned Commissioner of Income Tax (Appeals), Kanpur-4 [CIT(A)] dated 28-06-2022 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 30-09-2021. Having heard vehement arguments of both the sides and upon perusal of case records, the appeal is disposed-off as under. During the year, the assessee being resident individual carried out business activities in proprietorship concern namely M/s Parshant Silver Handicrafts. Assessment Proceedings 2.1 The assessee’s return of income was scrutinized pursuant to search action on R.S. Bullion and Jewellers Group of cases at Mathura on 19-07-2018. The assessee declared income of Rs.258.34 Lacs. On the basis of material found during search, it was alleged by Ld. AO that the assessee carried out certain out-of-books transactions and accordingly, show-caused the assessee. In the notice, Ld. AO alleged that the document LP-2 (Page Nos. 22 & 23) contained transactions of Gold / Silver purchase and sale from different parties. The details were written quantity wise and amount wise. The names of the parties were mentioned in pencil. Total sale was made to 24 parties for quantity of 2153.840 Kg. The sale value of silver was worked out at Rs.40000/- per Kg. The assessee failed to explain the document satisfactorily. The Ld. AO worked out out-of-book sales on the basis of these documents. 2.2 Thereafter, Ld. AO referred to survey on M/s Prashant Silver Handicrafts wherein incriminating material marked as LP-1 containing Pages 1 to 141 was found. These pages are alleged to be real cash book of the assessee. The physical stock was found to be much less in comparison to book stock. The Ld. AO, on the basis of these pages, also alleged that the assessee made out-of-books purchases. 2.3 The assessee contended that the LP-2 Pages 23 & 22 did not belong to the assessee and the same had no reference to the assessee. The pages do not bear any dates and the same belong to his wife Smt. Shashi Devi Agrawal and related to her business of commission. The assessee, in the alternative, stated that the amount of net profit as embedded in alleged unaccounted sales could be brought to tax. The rate of profit as shown in the audited books was stated to be 0.31%. 2.4 Regarding LP-1 Page No.128, the assessee stated that M/s Akanksha Jewellers has been a new party to the assessee who contracted for purchase of silver bullion at a particular price. The assessee insisted for security against contracted price and therefore, that party deposited sum of Rs.20 Lacs as ‘amanat money’. As soon as the party made the payment to the assessee through cheque, the amount so kept was refunded which was found recorded on Page No.128. Thus, there was no accommodation entry as alleged to be received by the assessee. The assessee issued sales bills and delivered contracted goods in due course which were recorded in regular books of account. Therefore, separate addition was not required. Similar explanation was furnished for entry as found noted on Page No.125. The Page No.2 was stated to be not belonging to the assessee. The same was merely computer print-out which did not bear name of the assessee nor it reflected any of the business transactions. 2.5 However, going by the presumption of Sec. 132(4A) and 292C, Ld. AO rejected the explanation of the assessee and proposed rejection of book and application of Net Profit Rate of 0.38% on entire sales including regular sales which was the profit rate as shown by the assessee for AY 2016-17. This rate was the maximum rate as shown by the assessee during AYs 2013-14 to 2018-19. The assessee opposed the rate on the ground that turnover in AY 2016-17 was 652 crores in comparison to turnover of Rs.1163 crores in this year. Such substantial increase in sales was not possible without sacrificing with rate of profit. The profit rate and turnover for various years was detailed as under: - AY NP Rate Turnover 2013-14 0.19% 50.93 Crores 2014-15 0.14% 371.55 Crores 2015-16 0.29% 681.67 Crores 2016-17 0.38% 652.74 Crores 2017-18 0.31% 814.44 Crores 2018-19 0.18% 1824.07 Crores 2019-20 0.22% 1163.36 Crores The assessee stated that average Net Profit of 7 years would be 0.25%. However, Ld. AO did not accept the same. Finally, Ld. AO added unaccounted sales to regular sales and arrived at revised turnover of Rs.1163.36 Crores. The Ld. AO applied net profit rate of 0.38% and computed net profit of Rs.447.86 Lacs. After adjusting profit as already shown by the assessee, the differential of Rs.186.24 Lacs was further added to the income of the assessee. 2.6 The Ld. AO also made another addition of Rs.510 Lacs. The same was nothing but cash deposited by M/s Prashant Silver Handicrafts during the course of search without informing / without taking permission of the Authorized officer of the searched team. The statement of assessee’s son was recorded u/s 131(1A) on 15-11-2018. He stated that the same was sale proceeds of cash sales of bullion. It was noted by Ld. AO that M/s Prashant Silver handicraft made cash sale of Rs.626.28 Lacs on single day selling about 1611.783 Kg of silver. The Ld. AO held that the sales bills were bogus and mere after-thought to accommodate the unaccounted money as cash sales. The assessee assailed the same on the ground that there was no prohibition in law which prevent the assessee to deposit money in its bank accounts during the course of search. So far as the allegation that sales invoices were unsigned, it was stated that the same were not found in the seized documents but the same were submitted to investigation wing after search. Since the volume was high, the assessee took fresh print-outs and submitted the same instead of submitting photocopies of such invoices. Therefore, adverse inference on the basis of unsigned invoices was misconceived and ill-founded. However, Ld. AO added the deposits as income from other sources u/s 68 r.w.s. 115BBE and framed the assessment. Appellate Proceedings 3. The Ld. CIT(A) duly considered the elaborate written submissions of the assessee. The Ld. CIT(A) concurred that no cogent explanation could be furnished by the assessee on out-of-books sales. During assessment proceedings also, the assessee could not match every item as mentioned on the seized pages. The substantial adjudication of Ld. CIT(A) was as under: - 6.4 l have carefully perused the observations of AO and the submissions of the AR. In the assessment order the AO has produced detailed show cause notice issued to the appellant dt. 26.09.2021 in which it was mentioned that in page no. 22 & 23 of LP-02 seized from residential premise of Sh. Bipin Babu Agrawal at Kamla Vihar Colony, Mathura, transactions of Silver were mentioned and total sale of silver to 24 parties is made which sums to 2153.840 Kg and after working out the value of the Silver @Rs. 40,000/- Kg, the same valued at Rs. 8,61,53,600/-. When the appellant i.e. Sh. Bipin Babu Agrawal was confronted to the same, in his statement recorded on oath dt. 20.07.2018 no cogent explanation regarding to the same could be given by him. In the assessment proceedings also, the appellant could not explain by matching every amount mentioned in these pages with the sales book and hence the AO concluded that this sale was made out of books. 6.5 Further during the course of search/ survey, stock was taken at M/s. Prashant Silver Handicrafts (prop. concern of the appellant) and M/s. Nishant Silver Handicrafts, Brijwasi Complex, Mathura and discrepancy was found since the physical stock could not tally with the stock as per books. This difference was mentioned in the show cause notice dt. 26.09.2021 as under: …… No satisfactory explanation of the discrepancy in stock as per books and as found in physical verification could be given by the appellant. The AO concludes that the stock found in physical verification is much less than the stock as per books, therefore it is clear that out of books sales was done. 6.6 The AO has further placed reliance on LP-01 (containing pages 1 to 141) found and impounded during survey proceedings conducted u/s 133A of IT Act at Prashant Silver Handicrafts, Kinari Bazar, Namak Ki Mandi, Agra. In page no. 128 of this LP-01, cash payment of Rs. 20,00,000/- is shown to M/s. Akanksha Jewellers on 21.06.2018 and on the same date amount of Rs. 20,00,000/- is received from this concern in Bank account no. 46905. In page no. 125 of this LP-01 on 20.06.2018, cash payments to various persons are shown i.e. Balaji Jewellers (Rs.12,61,754/-) Akanksha Jewellers (Rs.10,00,000/-) and Rajjo MTR (Rs. 3,00,000/-) and same amounts have been received from these persons in the bank accounts. Thus the AO concluded that accommodation entries of Rs.45,61,754/- (Rs. 20,00,000/- + Rs. 25,61,754/-) are taken. 6.7 In page no. 2 of LP-01 sale/ purchase of Bullion is mentioned, quantity-wise and amount-wise, from 29.03.2018 to 28.04.2018 and the appellant has purchased 609.409 KG Silver for Rs.2,43,62,627l- from Vipin and payments for the same are made in cash amounts from 14.04.2018 to 22.04.2018 i.e. Rs. 2,52,00,000/- (detailed table made in page 5 of assessment order). Further silver of 300 KG is purchased from 29.04.2018 to 08.05.2018 for Rs.1,21,22,700/- from Vipin and payments for the same are made in cash from 03.05.2018 to 04.05.2018 i.e.Rs. 1,14,00,000/-(detailed table made in page 6 of assessment order). Thus against the purchase of silver of 909.409 Kg (609.409 Kg and 300 Kg), which is found in page 2 of LP-01, the purchase consideration is shown as Rs. 3,64,85,327/- (Rs. 2,43,62,6271- + Rs. 1,21,22,700/-) and against the same payment of Rs. 3,66,00,000/- is made in cash from 01.04.2018 to 04.05.2018. The AO has considered this as out of books purchase. 6.8 The AO has given details of receipts of cash by M/s. Prashant Silver handicrafts as per LP-01 along with dates, names and amounts. From the same the total cash receipt of Rs.6,62,54,944/- is found during FY 2018-19 which comprises Rs. 2,55,80,000/- on 22.06.2018, Rs. 2,90,00,000/- on 21.06.2018 and Rs. 1,62,54,944/- on 20.06.2018 (detailed table made in page 6, 7 & 8 of assessment order). The AO has concluded that no satisfactory reply could be given regarding to the cash receipts from the concerned persons which are tabulated date-wise in the assessment order page no. 6 to 8 and hence he concluded that unaccounted sale of Rs.6,62,54,944/- is made in AY 2019-20 as per this annexure LP-01. 6.9 Further during the course of search proceedings on 19/20.07.2018, cash amount of Rs.5,10,00,000/- was deposited in the bank account of M/s. Prashant Silver Handicrafts i.e. prop. concern of the appellant without making any intimation to the authorized officers of the search team. The AO observes that Sh. Prashant Agrawal S/o Sh. Bipin Babu Agrawal in his statement on oath dt. 15.11.2018 admitted that he got this cash amount deposited in the bank account through his employees. The source of this cash was explained as sale proceeds of cash sale of Bullion. When the appellant was asked to explain the source of the same in post search inquiries, the appellant explained that this cash amount was proceeds of cash sales of 1116.783 Kg of silver amounting to Rs. 6,26,28,177/- as was made on 18.07.2021. The AO observes that the cash sale of such a big magnitude cannot be made in a single day in a season which is neither a festive nor a marriage season. The AO further observes that it was found that all the sales invoices had the weight of silver bullion of 1.207205 Kg approximately and all invoices were unsigned. The AO observes that during the course of search proceedings without informing to the search team, cash amount of Rs. 5,10,00,000/- was deposited in the bank account clandestinely. And when the search was over, the assessee manipulated cash book and booked cash sales below Rs. 50,000/-. There was no marriage season or festive season due to which such a huge cash sales could be made in a single day. All the cash sale invoices were having weight of silver bullion as 1.207205 Kg. approximately and all the invoices were unsigned and were submitted during post search proceedings. The AO further observes that the assessee failed to produce cash book of that date to show that he had that much of cash in hand during the search proceedings. 6.10 Based on above observations, the AO made two additions. Out of books sales of Rs.15,24,08,544/- (as per page no. 22 & 23 of LP-02 found from residence of appellant at Kamla Vihar, Colonny, Mathura total cash sales to 24 parties of 2153.840 Kg @Rs. 40,000/- per kg amount of unaccounted sales of Rs. 8,61,53,600/- and out of books cash sales on 20.06.2018 to 22.06.2018 as per LP-01 found from prop. concern of appellant at Kinari bajar, Namak Ki mandi, Agra totaling to Rs. 6,62,54,944/-) was added to the total accounted turn-over of Rs. 1178,60,08,578/- and the NP rate was estimated @0.38%, which was NP rate of AY 2016-17 shown by appellant himself and NP was computed as Rs. 4,47,86,832/- as against NP shown by the appellant as Rs. 2,61,62,636/-. Thus addition of Rs.1,86,24,196/- was made on account of rejection of books of accounts by invoking provisions of section 145(3) of IT Act and estimating NP by taking best NP rate of appellant himself in last 7 years which was @0.38% of AY 2016-17. Another addition of Rs. 5,10,00,000/- was made u/s 68 of IT Act since the source of cash deposited in the bank without informing to the search team could not be satisfactorily explained and the explanation given by the appellant that the same was out of sales proceeds, was not found as genuine by the AO. 6.11 In the assessment as well as appellate proceedings, the AR tried to explain that pages 22 & 23 of LP-02 in which out of book sales of Rs. 8,61,53,600/- is mentioned does not belong to the appellant since the same bear no reference to the assessee or any date. It was submitted that the same belong to the wife of the appellant i.e. Smt. Shashi Devi Agrawal and relate to her business of commission. In this regard it is noteworthy that the appellant could not furnish any details and documents of Smt. Shashi Devi Agrawal which may prove beyond doubt that the names and amounts of silver sale appearing in page no. 22 & 23 of LP-02 may be matched and it maybe concluded that this page belongs to Smt. Shashi Devi Agrawal. The presumption of section 132(4A) and section 292C of IT Act applies in case of those persons who are in control and possession of the premise in which seized material is found and in this particular case, this presumption may apply in case of appellant as well as his wife. But since the nature of entries clearly indicates that the same are silver quantities, the AO has rightly considered the same as belonging to the appellant since he is in the business of silver bullion. To rebut this presumption, the appellant was required to furnish cogent evidences which may prove that the contents of pages belong to Smt. Shashi Devi Agrawal and not to the appellant. The appellant deals in purchase and sale of silver bullion and the quantities mentioned in the seized papers indicate the same. There is no mention of any percentage of commission amount. The names and quantity of silver is clearly mentioned and the quantity of silver sums to 2153.840 Kg. The same has been rightly valued by taking rate of Rs. 40,000/- per Kg at Rs. 8,61,53,600/-. And since the appellant could not show the same as credited in his books, the AO has concluded the same as out of books sale. In this regard it is noteworthy that the AO has taxed NP @0.38% which is almost in accordance to alternative submission of the appellant, in which he submitted to tax the same at the NP rate of 0.31% in his submission dt. 22.06.2021. 6.12 In the matter of difference in the stock as per books and as physically found during survey proceedings, in case of prop. concern of the appellant i.e. M/s. Prashant Silver Handicraft, (i) as per books, Gold bullion was 2.205 Kg, however actual stock was found as 40 grms during survey, (ii) as per books Silver bullion was 35.972 Kg, however actual stock was found as 8.600 Kg during survey and (iii) as per books Gold ornaments were 207.622 Grms, however Nil stock was found during survey (the details are given in the show cause notice dt. 26.09.2021). In this regard the appellant has submitted that the shortage of stock should not be treated as unaccounted sales. The AR submits that in the show cause notice this was not mentioned and stock was not taken in his presence but this submission is misleading since this was clearly mentioned in show cause notice dt. 26.09.2021. Further entire survey proceedings were conducted in the presence of staff and employees of the appellant. In the post search inquiries and in the assessment proceedings, this difference was confronted to the appellant and his AR. In the show cause notice dt. 26.09.2021 in page no. 7 the stock difference position taken during the survey was clearly produced and hence AR cannot take plea that the same was not confronted to the appellant. Further the plea that it might be possible that entire stock was not inventoried, is not acceptable since it could not be clarified as to what are those places, in which such stock was kept which could not be inventoried. Further the difference could not be explained by giving concrete evidences by the appellant, therefore the conclusion of the AO is right that the out of book sales was made by the appellant. The plea of the appellant that had the assessee made any unaccounted sales, documents evidencing credit sales would have been found, is misleading since out of book sales is done in cash (actually out of books) and avoiding all payment trails. The evidences of such cash sales have been found and the details of the same are mentioned in foregoing paras. 6.13 In the matter of accommodation entry of Rs. 20,00,000/- from M/s. Akansha Jewellers, in which cheque dt. 21.06.2018 of Rs. 20,00,000/- was taken from this concern against the cash of equal amount given to this concern, the AR submits that this was new party and cash amount was taken as security i.e. Amanat Money. No documentary evidence, confirmation of M/s. Akanksha Jewellers alongwith its books could be furnished to support the claim. It is hard to believe that the appellant accepted cash as security, though the option of cheque of this amount could also have been exercised. From the nature of business of the appellant, it is clear that with such a large turn-over of around Rs. 1200 crores, no such instances of cash security could be found in the whole search from any other party, though the sales are made to so many other parties. The sale of goods does not require security in cash. Similar is the case with accommodation entries of Rs. 25,61,754/- taken from Balaji Jewellers, Akanksha Jewellers and Rajjo MTR on 20.06.2018 as per page no. 125 of LP- 01. The plea of the AR that the cash was taken as Amanat Money and returned after getting cheque is not convincing since taking cheque in lieu of exact amount of cash on the daily basis cannot be Amanat Money. In case of Akanksha Jewellers this is found that cash of Rs. 10,00,000/- is given and cheque taken on 20.06.2018 and further cash of Rs. 20,00,000/- is given and cheque taken on 21.06.2018. Further it is strange that cheque is not taken as security. Moreover the appellant failed to furnish any evidence to support the claim, that these were amounts of Amanat Money, hence such claim cannot be accepted. 6.14 In the matter of page no.2 of LP-01 found and impounded from Prashant Silver Handicrafts Kinari Bazar, Namak Ki Mandi, Agra, unaccounted purchases of 609.409 Kg Silver from 29.03.2018 to 28.04.2018 of Rs. 2,43,62,627/- from Vipin for which payment of Rs. 2,52,00,000/- was made between 14.04.2018 to 22.04.2018 and further purchase of silver of 300 Kg from 29.04.2018 to 08.05.2018 of Rs. 1,21,22,700/- from Vipin for which payment of Rs. 1,14,00,000/- was made between 03.05.2018 to 04.05.2018, the AR has submitted that the said page do not belong to assessee. This submission defies the prepositions and presumptions of section 132(4A) and 292C of IT Act. The AR has submitted that no bullion has been recovered as the result of search, therefore it cannot be said that unaccounted purchase is made by the appellant. In this regard it is observed that ample evidences of out of book sales have been found, therefore the possibility of getting physical excess stock is substantially reduced and such plea cannot save appellant from the conclusion of unaccounted purchase which is clear from the seized material. Further the appellant has clandestinely deposited cash amount of Rs. 5,10,00,000/- in Bank without informing to the search team during course of search. The same indicates availability of sale proceeds in cash of such out of books purchases. The onus lies on the appellant to deviate from evidences found during search since presumption of section 132(4A) and 292C of IT Act about the correctness of the contents and about the same belonging to the appellant is categorical. In page no.2 of LP-01, there are clear details of quantity as well as amount of purchase of Silver and more so there are date-wise payment details. Not only this, name of person is also written from which these purchases are made. It is not on the department to find out the person from which such unaccounted purchases are made. The onus is on the appellant to disprove the contents of the seized material and the appellant failed to discharge this onus.
6.15 In the matter of cash sales of Rs. 6,62,54,944/-, which is comprised of cash sale of Rs. 1,62,54,944/- on 20.06.2018, cash sale of Rs. 2,90,00,000/- on 21.06.2018 and Rs. 2,55,80,000/- on 22.06.2018 mentioned in LP-01 (detailed given in page no. 6 to 8 of assessment order), the appellant submits that these amounts represent the sales made by the assessee on these dates. The AR claims that the names written against the cash amounts are intermediaries, through whom sales are made in cash. In this regard it is observed that the intermediaries could not be produced, nor any evidences could be furnished which may prove beyond doubt that such persons were intermediaries to whom sales are made in cash which is above Rs. 50,000/-. It is clearly an after-thought that the appellant has taken recourse to justify his cash sales which is above limit of Rs. 50,000/- In- fact PAN details were required to be taken in the cash sales above Rs. 2,00,000/- as per the provisions of Rule 114B of IT Rules. Thus provisions of law have been violated and to cover the same, the theory of intermediaries is taken recourse of. Therefore it is concluded that the AO has rightly considered these sales as out of book sales. 6.16 In the matter of addition of Rs. 5,10,00,000/- towards the cash deposited in the business bank account during the course of search proceedings without making any intimation to the search team, the AR submits that books of accounts were found during the course of search which show that cash sales have been made prior to the date of search and so much of cash was available in the books. However this submission is not correct. In the course of search stock was verified and it was found that there is difference in the stock as per books and as physically found during survey proceedings. In case of prop. concern of the appellant i.e. M/s. Prashant Silver Handicraft, (i) as per books, Gold bullion was 2.205 Kg, however actual stock was found as 40 grms during survey, ii) as per books Silver bullion was 35.972 Kg, however actual stock was found as 8.600 Kg during survey and (ii) as per books Gold ornaments were 207.622 Grms, however Nil stock was found during survey. Likewise during search/ survey proceedings all the books of accounts were verified and the same were tallied but the appellant kept this amount of Rs. 5,10,00,000/- beyond the reach of the search/ survey team and did not inform about the same. Thus the matching and tallying of the bills and sale proceeds and books of accounts which was done without this amount of Rs. 5,10,00,000/- was obviously dis-balanced by this sum of Rs. 5,10,00,000/-. At the time of search/ survey, this cash deposit was not brought to the notice of the search team. During the search/ survey on 19/20.07.2018, the search team has matched all the books of accounts without considering this amount of Rs.5,10,00,000/-. The appellant could not bring to the notice to the search team that there was some sale proceeds in cash which was outside the searched premises and which was required to be considered so that the same can be taken into consideration while matching the books. After the lapse of around 4 months i.e. on 15.11.2018 when statement of Sh. Prashant Agrawal was being taken, he came with a plea that this cash amount of Rs. 5,10,00,000/- was sale proceeds incurred on 18.07.2021. The AO has brought into notice that the alleged sale bills were not in order, the alleged invoices were unsigned and claimed and so called cash sales of Rs. 6,26,28,177/- for silver of 1611.783 Kg was done in a single day by generating each invoice of approximately 1.207205 Kg. There was no seized material, which could be produced in support of the contention of the appellant. The contention of cash sales could not be backed by cash book found on the day of search. The AO has categorically mentioned in page 22 of assessment order that cash book of the day could not be provided by the appellant to show that cash book found during the search and that produced in the post search proceedings matched. .17 The AO has made 2 additions, the first addition is of Rs. 1,86,24,196/- which has been computed by applying NP rate of 0.38%, which is best rate of the appellant himself in past 7 years i.e. in AY 2016-17 on the entire sales i.e. accounted turn-over of Rs.1163,36,00,034/- and unaccounted sales of Rs.15,24,08,544/-. It appears that AO has considered shortage of actual stock physically found during the survey/ search in comparison to books, to be taken care of in this NP rate estimation hence separate addition has not been made. Another addition of Rs. 5,10,00,000/- is made by concluding that this amount of Rs. 5,10,00,000/- was unaccounted income of the appellant which came to the notice after the search. After the search, it came to the notice that appellant was in possession of this cash amount of Rs. 5,10,00,000/- and the same was clandestinely deposited in Bank account and the search team was kept in dark, thus no verification of this amount could be done with the books. However later on the appellant claimed that the same was cash sales proceeds. In this regard it is further noteworthy that the AO has made addition of only NP on the out of book sales of Rs.15,24,08,544/- and it appears that the addition of unaccounted purchase of Rs. 3,64,85,327/- (Rs. 2,43,62,627/- + Rs. 1,21,22,700/-) and accommodation entries of Rs. 45,61,754/- (Rs. 20,00,000/- + Rs. 25,61,754/-) has been considered to be embedded in the addition of Rs. 5,10,00,000/- since this cash may be considered as proceeds of sales of unaccounted purchases and benefit of accommodation entries totaling to Rs.4,10,47,081/- and some other such unaccounted stock sales which could not be found in search. The assessee had no cogent explanation of this unaccounted purchased stock and accommodation entries totaling to Rs.4,10,47,081/-. The AO has made addition of Rs. 5,10,00,000/- which was cash lying outside the searched premises and which was deposited in the bank without intimating the search team. This amount of Rs. 5,10,00,000/-, which could not be proved as sales proceeds by furnishing cash books during the search and the explanation which was given by the appellant after the 4 months of the search was not found genuine by the Investigation Wing as well as by the AO, therefore can be considered to be generated from such stock which was purchased out of books. 6.18 The appellant has made submission that in the show cause notice, the addition was proposed to be made u/s 68 of IT Act but in the assessment order the AO could not conclude whether the same is made u/s 68 or section 69 of the Act. In this regard it is worth to observe that in the post search inquiries and before the AO, the appellant explained the source of this cash amount of Rs. 5,10,00,0000/-, as from cash sale proceeds. However these cash sales were not found as genuine, since the same were claimed to be made on 18.07.2018, just a day before date of search i.e. 19.07.2018, but none of such cash sale vouchers, produced before the AO were from the seized material. These cash vouchers were not found in order, the same were unsigned. Therefore the source of this cash amount could not be explained satisfactorily. During search, this cash amount of Rs.5,10,00,000/- was not brought to the notice of the authorized officers of the search team and the search team verified and tallied all the books in absence of this amount, then it is hard to believe, the books shall tally with this amount without manipulating the same. How can later on appellant claim that the books are matching with this amount of Rs.5,10,00,000/- as sale proceed, without manipulating the sales. Hence the source of this cash amount, which was deposited in the banks remained unexplained beyond doubt. Therefore, it is observed that the addition has been rightly made u/s 68 of IT Act. Now if we go back to the source of this cash amount of Rs. 5,10,00,000/-, as explained in the preceding paras the same might be generated from such unaccounted purchases of stock, evidences of which were found upto Rs. 3,64,85,327/- and further the accommodation entries were found upto Rs. 45,61,754/-. These findings of the search conclusively prove that the source of this cash amount of Rs.5,10,00,000/- was out of unaccounted stocks and unaccounted income.
6.19 There is no basis of making a claim that these cash sales of Rs. 5,10,00,000/-were verified during the search, as is claimed by the appellant in a ground of appeal
. No seized material could be produced which may show that such vouchers of 18.07.2018 were found and seized. Rather the same would have raised an obvious question on the day of search, as to where is the claimed cash sale proceed. The physical cash shortage, would have been obviously brought to the notice and reported in search report. No such cash shortage is reported by search teams. Only the stock shortage is reported. Thus on the date of search, the books tallied without this cash amount of Rs.5,10,00,000/-. 6.20 The sum and substance of entire discussion is that the appellant has indulged into an act of making deposit of cash amount of Rs. 5,10,00,000/- clandestinely without informing the search team and the same was later on tried to be explained as sales proceeds. Thus, though the books tallied on the date of search without this amount of Rs.5,10,00,000/-, later on an attempt has been made to bring this amount into the books, source of which was not properly explained and hence the same needs to be added u/s 68 of IT Act. But as discussed above there was unaccounted purchases and accommodation entries totaling to Rs. 4,10,47,081/- which could also not be explained by the appellant. In the unaccounted purchases and accommodation entries, there is requirement of the investment amount, the same needs to be brought to the tax. The same was required to be added u/s.69A of IT Act. But it appears that the AO has considered the same to be embedded in the addition of Rs.5,10,00,000/- and by giving a kind of telescopic benefit another addition has not been made. Therefore, it is observed that the AO has rightly made an addition of Rs. 5,10,00,000/- which covers these unaccounted purchase and accommodation entries of Rs. 4,10,47,081/-. However in this regard it is observed that the appellant has included this amount of Rs. 5,10,00,000/- in his so-called declared turn-over as per books of Rs. 1163,36,00,034/-and the AO has taxed NP of the same @0.38% i.e. Rs. 1,93,800/-, therefore to refrain from double addition of NP amount, the same is reduced from this addition and net addition of Rs. 5,08,06,200/- (Rs. 5,10,00,000/- - Rs. 1,93,800/-) is hereby confirmed. 6.21 The AR has claimed that provisions of section 145(3) have been invoked without fulfilling the underlying conditions of this section, but this submission is not correct since as observed in detail, the unaccounted sales have been found and hence the books cannot be considered to be correct and complete to that extent. The evidences have been found during the search and detailed discussion have been made regarding the same, therefore the objection of the appellant is not tenable. The AO has rightfully and very judiciously invoked the NP rate which was achieved by the appellant in his own business in AY 2016-
17. Therefore the decision of the AO to invoke the provisions of section 145(3) of IT Act is hereby upheld. The reliance of the appellant in the various judicial pronouncements in the matter of rejection of books of accounts and invocation of provisions of section 145(3) of IT Act is misplaced since in the search proceedings the evidences have been found and seized and they clearly indicate that the books do not incorporate out of books sales and the same are discussed in the foregoing paras. Further another addition of Rs. 5,10,00,000/- u/s 68 of IT Act can very well be made since alongwith the rejection of the books of accounts and estimation of NP on the disclosed turn- over and unaccounted sales, emanates from such cash which was clandestinely deposited without informing to the search team and an attempt was made to bring the same into the books. The AO has also placed reliance on some judicial pronouncements which support this stand, that the additions can be made u/s 68, 69, 69A, 69B, 69C of IT Act inspite of rejection of books of accounts and estimation of net profit. That reliance is justified and the same is upheld.
6.22 Looking to the facts and circumstances of the case, the additions of Rs. 1,86,24,196/- and Rs. 5,08,06,200/- are therefore confirmed and relief of Rs.1,93,800/- is hereby allowed. All the grounds of appeal are adjudicated accordingly.
In the above background, Ld. CIT(A) substantially confirmed the impugned additions. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. The factual matrix that emerges is that on the basis of incriminating material as seized from the residential premises of the assessee, it was concluded that the assessee made out-of-books sales. No plausible explanation could be furnished by the assessee to rebut the conclusion of Ld. AO. The premises of assessee’s proprietorship concern was subjected to survey action wherein physical stock was found to be much less than the physical stock which bolstered the conclusion that the assessee made out-of-books sales. On the basis of documents marked as LP-1 (containing pages 1 to 141) found and impounded during survey proceedings conducted u/s 133A on M/s Prashan Silver Handicrafts, various payments in cash were found noted. On the basis of the same, Ld. AO alleged that these amounts were in the nature of accommodation entries which were quantified at Rs.45.61 Lacs. The material also revealed out of books purchases which were quantified as Rs.364.85 Lacs. The Ld. AO also made separate additions of Rs.510 Lacs which was nothing but cash deposited by the assessee during search. The same was on the ground that the cash was deposited without any intimation or prior permission of authorized officer. The statement of assessee’s son was recorded wherein he stated that the deposit was out of sales. This plea was rejected by Ld. AO.
In the above background, Ld. AO rejected the books u/s 145(3) and added out-of-book sales to the regular sales shown by the assessee and applied Net Profit Rate of 0.38% on entire sales despite the fact that the assessee had shown Net Profit Rate of 0.22% on regular sales which were not in dispute. Therefore, the application of estimated profit rate on entire sales including regular sales which were not in dispute, could not be held to be justified. There is no justifiable reason to tinker with the net profit rate as shown on regular sales since the same was not disputed by Ld. AO.
So far as the alleged out-of-books sales are concerned, it is quite clear that no plausible explanation could be furnished by the assessee to controvert the allegation of Ld. AO. Therefore, Ld. AO would have no option but to apply Net Profit Rate on these out-of-books sales. Since as per the audited statement, the assessee has reflected Net Profit Rate of 0.22% on regular sales, the profit on these unaccounted sales could be estimated at slightly higher value. We estimate the same at 0.30%. The Ld. AO would apply this rate on out-of-book sales and redetermine the profits of the assessee. The profit shown on regular sales would be accepted. It could be seen that Ld. AO has not made any separate addition of out of books purchases and alleged accommodation entries since Ld. AO has applied estimated Net Profit Rate on sales turnover. The accommodation entries are between the parties which have business dealing with the assessee. Therefore, these two components would subsume in Net Profit as estimated by us and no separate addition thereof would be required. The Ld.AO was quite logical in not making separate addition of these two components. The observation of Ld. CIT(A) that Ld. AO has not made separate addition of these components by granting telescoping benefit from addition of Rs.510 Lacs is not borne out of the assessment order and therefore, these findings could not be accepted. In nutshell, the profit shown in regular sales would be accepted. The profit on out-of-books sales shall be estimated at 0.30% which would subsume the addition of out of books purchases and alleged accommodation entries. We order so.
So far as the addition of Rs.510 Lacs is concerned, we concur that nothing prevented the assessee to make cash deposit during search. The amount so deposited by the assessee is duly found recorded in the books of accounts of the assessee against sales. The print out of sales invoices was furnished by the assessee to investigation wing. The allegation of Ld. AO that these are bogus sales is not supported by any concrete evidence on record. The assessee has duly accounted the sales against impugned cash deposits in its books of accounts. The cash deposits are duly substantiated by the cash book of the assessee. Making separate addition thereof would amount to double taxation which is impermissible. Therefore, this addition stands deleted. We order so. The Ld. AO is directed to recompute the income of the assessee in terms of our above order.
The appeal stands partly allowed. Order pronounced u/r 34(4) of Income Tax (Appellate Tribunal) Rules, 1963. (SATBEER SINGH GODARA) (MANOJ KUMAR AGGARWAL) "ाियक सद" /JUDICIAL MEMBER लेखा सद" / ACCOUNTANT MEMBER Dated: 28-03-2025 आदेश की "ितिलिप अ"ेिषत / Copy of the Order forwarded to : 1. अपीलाथ"/Appellant 2. ""थ"/Respondent 3. आयकरआयु"/CIT 4. िवभागीय"ितिनिध/DR 5. गाड"फाईल/GF