COTTAGE ARTS EMPORIUM ,MADURAI vs. THE ASSISTANT COMMISSIONER OF INCOME TAX,NON CORPORATE CIRCLE 2, MADURAI

This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, in ITBA/NFAC/S/250/2023-24/1060079543(1) dated 24.01.2024. The assessment was framed by the Assistant Commissioner of Income Tax, Non-Corporate Circle 2, Madurai for the assessment year 2017-18 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 25.12.2019.

The first issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in making addition of Rs.21,49,500/- being cash deposit made during demonetization period in specified bank notes out of cash sales claimed by assessee, which was disbelieved by the authorities below. For this, assessee has raised various grounds which are argumentative, exhaustive and factual and hence, need not be reproduced.

Brief facts are that the AO during the course of assessment proceedings noticed that the assessee firm has made cash of Rs.28,49,500/- during demonetization period and when the AO required the assessee to explain the cash deposits made, the assessee explained vide letter dated 11.11.2019 that the assessee is forced to make cash sales on 08.011.2016 as soon after the demonetization was announced by the Prime Minister of India as assessee’s all customers are foreign nationals and guided by tourist guide and other brokers for purchase of items. The assessee has produced complete sales bills and paid VAT also and accordingly, cash sales were made. The AO analyzed cash deposit made in four branches i.e., for the financial years 2015-16, 2016-17 & 2017-18 and noted that before demonetization except only in one branch and that only once, the assessee has deposited cash rather all sales are through cheque or credit cards. Hence, it is no humanly possible that assessee has made cash sales and hence, he disbelieved cash deposits. We noted that the assessee has produced all the sales bills and explanation regarding cash sales was that the same was done after 8’o clock on 08.11.2016 after the announcement of demonetization due to which, under trade compulsion from brokers and tourist guides, cash sales was made. The AO disbelieved the story despite the fact that the auditor has given complete details of cash sales uploaded with the VAT Department with the Tamil Nadu and uploaded VAT returns to substantiate the tax sales. The auditor has completely given the details of cash deposits and cash sales and the certification issued by him and the relevant certificates are as under:- From the above certificates, it is clear that the cash deposit as noted by AO at Rs.28,49,500/- actually it is Rs.24,87,500/- and this includes claimed to have been returned by the employees of Rs.7,00,000/-. The AO has not believed the cash sales and after disbelieving the sales, disallowed the cash sales and added to the returned income of the assessee amounting to Rs.21,49,500/-. Aggrieved, assessee preferred appeal before CIT(A).

The CIT(A) also confirmed the action of the AO vide para 7.2.2 which reads as under:-

We have heard rival contentions and gone through facts and circumstances of the case. We noted that the actual cash deposit to the tune of Rs.24,87,500/- which is supported by the statement of bank account. Admittedly, the assessee is having cash balance available with the various branches (as per certificate of auditor) amounting to Rs.3,41,690/- and the assessee has made cash sales after 8’o clock on 08.11.2016 for an amount of Rs.14,45,800/- which is supported by sales bills. Admittedly, this amount is Rs.17,87,500/- and not Rs.21,49,500/- as disallowed by the AO, We believe that the cash sales is clearly supported by sales bills, cash book and ledger as well as the VAT returns filed by the assessee before AO and CIT(A) and even now. There is no reason to disbelieve the cash sales and hence, we accept the explanation of assessee, which is also certified by the auditor of the assessee and hence, we accept the explanation and admit that the cash sales is to the tune of Rs.14,45,810/- and there is opening cash balance available with the assessee on 08.11.2016 at Rs.3,41,690/- that means total cash deposit of Rs.17,81,500/- is explained and no addition on this count is warranted. Accordingly, the addition made by the AO of Rs.21,49,500/- is deleted.

The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of the AO in making addition of unexplained cash deposit of Rs.7,00,000/- u/s.68 of the Act. For this, assessee has raised various grounds which are argumentative, exhaustive and factual and hence, need not be reproduced.

The brief facts are that the assessee deposited cash of Rs.24,87,500/- after demonetization out of Rs.17,87,500/- pertains to earlier amount which we have adjudicated and deleted the addition. The remaining cash of Rs.7,00,000/-, the assessee claimed before AO that it has given advance salary to its employees in Chennai branch as detailed out in the auditor certificate and for the sake of clarity the same is being reproduced :-

On query from the Bench, the ld.counsel for the assessee could not produce any evidence that these three employees namely Shri P. Hari, Shri P. Anandakrishnan and Shri M. Suresh have withdrawn their amounts from respective bank accounts on the same day or before 8th and handed over to the assessee. Since there is no evidence available before us, we cannot believe that these employees have returned the amount back. To that extent, this amount of Rs.7,00,000/- added by the AO and confirmed by the CIT(A), is confirmed. This issue of assessee’s appeal is dismissed.

In the result, the appeal filed by the assessee is partly-allowed.