ACIT, CIRCLE-1, TIRUNELVELI vs. ESAKKIMUTHU MUTHUVEL IYAPPAN, TIRUNELVELI

आयकर अपीलीय अिधकरण ‘ए’’ �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI माननीय �ी मनोज कुमार अ�वाल ,लेखा सद� एवं माननीय �ी मनु कुमार िग�र, �ाियक सद� के सम�। BEFORE HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM AND HON’BLE SHRI MANU KUMAR GIRI, JM आयकरअपील सं./ ITA No.794/Chny/2022 (िनधा�रणवष� / Assessment Year: 2017-2018) The Assistant Commissioner of Vs. Shri Esakkimuthu Muthuvel Iyappan, Income Tax, No.4, Highways Road, Circle 1, Tisayanvilai, Tirunelveli 627 011. Tirunelveli 627 657. [PAN : ARUPM 4796J] (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/ Appellant by : Shri. T. Vasudevan, Advocate ��यथ� क� ओर से /Respondent by : Shri ARV Srinivasan, IRS, Addl.CIT सुनवाई क� तार�ख/Date of Hearing : 19.06.2024 घोषणा क� तार�ख /Date of Pronouncement : 24.07.2024 आदेश / O R D E R PER MANU KUMAR GIRI (Judicial Member)

This appeal filed by the revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals)(NFAC) Delhi [CIT(A)] dated 29.07.2022 for Assessment Year 2017-18 in the matter of an assessment framed by the Ld.AO u/s.143(3) on 27-12-2019.The grounds taken by the Revenue are as under: -

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‘’1. The order of the CIT(A) is opposed to law on the facts and in the circumstances of the case. 2.1 The Commissioner of Income Tax(A) erred in deleting the addition of Rs 2,54,20,600/- holding that the deposit made by the assessee in Specified Bank Notes(SBNs) after announcing demonetization were out of the cash sales made during the month of October 2016 & November, 2016, whereas the total cash sales made during the month of October 2016 and November, 2016 was Rs. 1,15,06,503/-. The learned CIT(A) has failed to note that the Government of India had issued notification and as per the notification, the assessee was barred to accept the SBN notes after 08.11.2016. The learned CIT(A) has failed to consider that even for the cash sales made after 8.11.2016, assessee should not have accepted the SBNs. 2.2 The learned CIT(A) erred in not remanding the additional evidences/ new evidences submitted before the CIT(A) viz., VAT Returns, Sales and purchase register etc to the Assessing Officer as per Income Tax Rules 46A(3), as these details were not furnished before the Assessing Officer by the assessee during scrutiny assessment proceedings. 3. For these and such other grounds that may be adduced at the time of hearing, it is prayed that the order of the CIT(A) may be reversed and that of the Assessing Officer restored’. As is evident, two issues fall for our consideration i.e., (1) addition of cash deposits; (2) CIT(A) erred in not remanding Additional evidences/new evidences to AO under Rule 46A.

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CASS. During the course of assessment proceedings, in response to notices u/s

142(1) dated 25.07.2019, 13.09.2019 and 01.11.2019, AR of the assessee appeared

and filed manually the required details. The AO passed assessment order dated

31.12.2019, rejected arguments of the assessee and made an addition of

Rs.2,54,20,600/- as unexplained cash credit u/s.68 r.w.s.115BBE of the Act towards

cash deposit of SBN in bank account after demonetisation, i.e; after 08.11.2016.

The relevant findings of the AO are as under:

‘’2. Notice U/s. 143(2) was issued on 24.09.2018 and duly served on the assessee on 24.09.2018. Subsequently, Letter dated 13.09.2019 and Notice u/s. 142(1) dated 01.11.2019 calling for details were issued. In response to the above notice / letters, the authorized representative Shri. S. Jacob, Income Tax Practitioner, appeared and furnished the required details.. 3. An assessee with turnover Rs. 5,15,27,000/- cannot produce proper book of accounts. Instead of cash book, an abstract was produced. This would not assist in analyzing the closing and opening balances month-wise.

Fy 15-16 Apl 15 May 15 Jun15 July 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Cash sales 4904138 4747129 2712404 3535967 4937404 3324945 3184281 2398538 1704809 Deposited 250000 5000 15000 5698190 5121000 904000 1213000 4110000 1661000 by cash Fy 16-17 Apl 16 May 16 Jun16 July 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Cash sales 3653280 4300222 1677491 1748110 3700716 4381387 5973021 5533482 3531220 Deposited by 1340500 90000 1225000 431000 865000 1088500 3238400 28659000 86500 cash The assessee deposited Rs. 32,38,400/- into Bank in October 2016. In the absence of the cash book, it is difficult to obtain exact cash position on month ends or on 08.11.2016. From the SBN deposit of Rs. 2,86,59,000/-, the cash deposit of Rs. 32,38,400/- is reduced. The difference of this Rs. 2,54,20,600/- is assessed as unexplained cash credits u/s. 68 r.w.s. 115BBE and added to the retuned income.

appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has reiterated his

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submissions made before the AO towards source for cash deposits made in bank accounts. The relevant part of written submissions dated 22.04.2022 is extracted as under: "1. The learned Assessing Officer has determined income from business as Rs. 2,69,85,490/- as against the return income of Rs. 15,64,890/- thereby made an addition of Rs. 2,54,20,600/- and passed order u/s 143(3) of the income Tax Act, 1961." "2. The learned Assessing Officer has enhanced the returned income by Rs.2,54,20,600/- u/s 68 of the income Tax Act, 1961 towards cash deposit of SBN in the bank account after demonetization, i.e., after 8-11-2016." "3. The appellant has made cash deposit out of the cash sale on credit in pre-demonetization period and the realisation included currencies which were no longer valid. The cash deposit of SBN in the bank account could not be separately taxed as unexplained cash credit, particularly when it was credited by way of sales in the books which was duly audited and the income returned is considered by the AO." "4. During the course of the scrutiny proceedings, the appellant produced the cash book and bank statement for the period from 01.04.2016 to 31.03.2017. The Assessing Officer after the perusal of the bank statements has arrived at the following and the analysis of cash book and bank statement is as follows:

FY 2016-17 Cash sales Deposited by cash April 2016 36,53,280 13,40,50 May 2016 43,00,222 90,000 June 2016 16,77,491 12,25,000 July 2016 17,48,110 1,41,000 Aug 2016 37,00,716 8,95,000 Sep 2016 43,81,387 10,88,500 Oct 2016 59,73,021 32,38,400 Nov 2016 55,33,482 2,86,59,000 Dec 2016 35,31,220 86,500

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The Assessing Officer, after analysing the bank statements, has decided to make addition of Rs. 2,54,20,600/- u/s 68 of the Income Tax Act, after deducting the deposit made for the month of October, 216 of Rs. 32,38,400/- from the SBN deposit of Rs. 2,86,59,000/-." "5. The Assessing Officer, arbitrarily, decided to make addition of Rs. 2,54,20,600/- u/s 68 of the Income Tax Act, without considering the abstract of the cash book and bank statements, submitted during the course of the scrutiny proceedings." "6. Moreover, the sales in Sep, Oct and Nov 2016 will generally be high, due to festival seasons like Dassara, Deepavali (Dan Teras), Marriage Muhurtham, etc. So, cash sales in these months will be generally high, compared to other months. Further, the appellant keeps sufficient stocks to meet the huge demand during festival." "7. The appellant is regular in filing the VAT returns. All the sales (Credit/cash) are subjected to VAT and all VAT returns are filed up to date and corroborate with sales shown in the financial statements for the FY 2016-17. The appellant is regular in filing the returns with statutory authorities and don't do any other transaction other than what is reported in the books of accounts and all cash sales are fully explained and accounted for. Hence by no stretch of imagination, these can be termed or classified under unexplained income/investment and do not fall under the provisions of section 68 and/or 69A of the Income-Tax Act." "8. The Assessing Officer while framing the assessment order failed to consider the above facts. Also, the fact that the appellant has deposited the cash sales and also out of the sale on credit into the bank account consisting SBN made during pre-demonetization period since the cash is no longer a valid currency." "9. The ITAT in ACIT v Hirapanna Jewellers (2021) 128 Taxmann.com (Visakhapatnam- Trib) has held that purchases, sales and stock are interlinked and inseparable. Every purchase increases the stock and every sale decreases the stock. To disbelieve the sales either the assessee should not have sufficient stocks in their possession, or there must be defects in the stock registers/ stocks. Once there was no defect in the purchases and sales, and the same matches inflow and the outflow of stock there was no reason to disbelieve the sales. Since assessee had already admitted the sales as revenue receipt, there was no case for making the addition under section 68 or tax the same under section 115BBE again." "10. Moreover sec. 68 of the Income Tax Act, 1961 for cash credits states that: Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer satisfactory, the sum so credited

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may be charged to income-tax as the income of the assessee of that previous year. Since the appellant had already admitted the sales as revenue receipt, there was no case for making the addition under section 68 of the Income Tax Act, 1961." In view of the above it is prayed that the addition made by the Assessing Officer shall be deleted. We shall be pleased to submit any information or details that may be required in this regard’’.

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Assessee found not to be involved in any other income generated activities, it is these sales, which are source of the deposits. In context the opinion of Hon'ble ITAT, Vishakhaptnam Bench n the case of ACIT vs. Hirapanna Jewellers [128 Taxman.com] has to be considered. 'The Bench opined that "Purchases, Sales and Stock are interlinked and inseparable. Every purchase increases the stock and every sale decreases the stock. To disbelieve the sale either the assessee should not have sufficient Stock Registers. Once there was no defect identifies in the purchases sales and the stock register, there is no reason to disbelieve the sales.' When the preponderance of probability is hinted against the assessee the Assessing Officer should have invoked the provision of Section 145(3) of the I.T. Act. The cause of suspicion should trigger the Assessing Officer to use the appropriate legal provisions to bring conclusively concealed particulars. Since the appellant had already the admitted the sales as revenue receipt supported by VAT returns there is no case to decide for making the addition of cash deposits u/s 68 or tax the same u/s 115BBE again. Section 68 of the I.T. Act entailed for cash credits states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature of source there of or the explanation offer by the assess is not satisfactory then sum so credited is taxed as income of the assessee of that Previous Year. In the case of consideration the appellant had already admitted the sales as revenue receipt and hence there is no case for making addition u/s 68 of I.T. Act. The findings of the Assessing Officer that there is abnormal cash deposits in the Financial Year 2016-17 vis-a vis the previous years also is incorrect. The data furnished by the appellant shows the extent of cash deposits made in earlier years. Year F. Y. 2016-17 F.Y. 2015-16 Cash Deposits in bank account 2,54,20,600/- 1,89,74,190/- (upto 31st December of relevant Financial Year)

Thus, the appellant is in the routine practice of doing Business in cash, and offering income to tax on such turnover. In this regard the following judgements can be relied upon; 1. CIT Vs. Mohanakal (2007), 161 Taxman 169/291 ITR 278. 2. CIT vs. Durgaparasad more (1969) 72 ITR 807. 3. JMJ Essential Oil Company vs. CIT (2018), 100 Taxman.com.

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In view of the above the addition made u/s 68 of Rs. 2,54,20,600/- stands deleted. Hence, appeal is decided in favour of the appellant and appeal is allowed’’.

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GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1, TIRUNELVELI To ESAKKIMUTHU MUTHUVEL IYAPPAN 4, HIGHWAYS ROAD THISAIYANVILAI TIRUNELVELI 627657, Tamil Nadu India. PAN: Assessment Dated: DIN & Letter No: ARUPM4796J Year: 17/05/2024 ITBA/COM/F/17/2024-25/1064981 684(1) 2017-18

Sir/Madam/ M/s, Subject: Online service of Orders - Letter Sir, Sub: Providing of copies of replies furnished during assessment proceedings - your own - AY 2017-18-Reg. Ref: Assessee letter dated 15/05/2024

With reference to the above, copies of replies furnished manually during the scrutiny assessment proceedings for the AY 2017-18 are provided as under. Sl.No In response to Replies Furnished 1 Notice u/s 143(2) dt. 24/09/2018 Nil 2 Notice u/s 142(1) dt. 25/07/2019 Trading P&L Account and Balance Sheet for the year ended 31.03.2017 (attached)

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3 Notice u/s 142(1) dt. 13/09/2019 Comparative schedule (attached) 4 Notice u/s 142(1) dt. 01/11/2019 Cash abstract, ITR-V, Computation of income, P&L account and BS (attached)

NAGARAJAN KASI SHANKAR CIRCLE 1, TIRUNELVELI Furthermore, ld.Counsel referred para 9 of the co-ordinate bench order in the case of DCIT Vs M/s ANS Jewelry ITA No.1151/Chny/2023 dated 03.04.2024 and contended that in similar situation Tribunal concurred with the ld.CIT(A) order deleting the addition. The para 9 of co-ordinate bench order in the case of DCIT Vs M/s ANS Jewelry ITA No.1151/Chny/ 2023 dated 03.04.2024 held as under: ’’9. From the fact, it emerges that the assessee is dealing in precious metals. It transpired that the assessee deposited cash during demonetization period, the source of which was stated to be out of sales generated by the assessee up-to 08-11-0216. In support, the assessee furnished details of total cash deposited during earlier financial year as well as during this financial year with break- up of cash deposited before demonetized period as well as cash deposited after demonetized period and cash deposited during those corresponding periods in earlier year. The assessee also furnished monthly summary of sales along with summary of opening and closing cash balances. From the tabulation, it could be seen that the assessee is always conducting substantial sales in cash which are regularly being deposited in the bank account. The assessee is maintaining healthy opening cash balance since financial year 2015-16. The assessee has maintained opening cash balance of Rs. 25.31 Lacs in this year. During financial year 2016-17 also, the assessee is carrying out cash sales and maintaining healthy cash balance throughout the year. The assessee has incurred cash sales up-to 08-11-2016 which has been utilized to make impugned cash deposits in the bank accounts. Such sales have been offered in the Sales Tax Return as well as in the Income Tax Return which has been accepted. The stock-in-trade has moved out of assessee's books of account. The books have not been rejected by Ld. AO and in fact, no single defect could be pointed out by Ld. AO in the books or financial statement of the assessee. When the sales has been reflected in the books of accounts and offered to tax, adding the same would amount to double

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taxation which is impermissible in law. The books are subjected to Tax Audit u/s 44AB and the assessee has maintained quantitative details of the stock-in-trade. The cash sales proceeds have been credited in the books of accounts and the same form part of assessee's cash book. On these facts, it could very well be said that the assessee's claim was backed up by sufficient documentary evidences. The allegation of Ld. AO is that such abnormal sales could not be achieved by the assessee immediately upon announcement of demonetization by the Government. However, such allegations are bereft of any concrete evidence on record. It is trite law that no addition could be made merely on the basis of suspicion, conjectures and surmises. In the present case, the assessee has duly discharged the burden of establishing the source of cash deposit and the onus was on Ld. AO to disprove the same. However, except for mere allegation and few statistics, there is nothing on record to support the conclusions drawn by Ld. AO that the assessee's own unaccounted money was introduced and accommodated under bogus customers' name during the demonetization period. The demand of Ld. AO to produce CCTV recording after lapse of considerable period of time could not be said to be reasonable particularly when all the other evidences supports the case of the assessee. There is no finding by Ld. AO that any particular sales affected by the assessee exceeded threshold limit which would require collection of tax at source (TCS). Since cash generated out of sales has been credited in the books of accounts, the provisions of Sec.69A could not be invoked in the present case. The case laws as cited by Ld. CIT(A) duly supports the case of the assessee. Under these circumstances, the impugned additions have rightly been deleted by Ld. CIT(A). The same could not be faulted with. Therefore, the corresponding grounds raised by the revenue stand dismissed’’.

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declaring total income of Rs.15,64,890/-. The case was selected for complete scrutiny under CASS. 8. The AO passed assessment order dated 31.12.2019, rejected arguments of the assessee and made addition of Rs.2,54,20,600/- as unexplained cash credit u/s.68 r.w.s.115BBE of the Act towards cash deposit of SBN in bank account after demonetisation, i.e; after 08.11.2016. The assessee has filed comparative cash sales and cash deposits into bank account for FY 2015-16 & FY 2016-17 and also cash sales and cash deposits for the month of October & November, 2015 and October & November, 2016. On perusal of details filed by the assessee, which has been reproduced by the ld.CIT(A) in its order, we find that there is no abnormal variation in cash deposits into bank account upto 31st December of relevant Financial Year. Relevant chart is as under:

Year F.Y. 2016-2017 F.Y. 2015-16 Cash deposits in bank account (upto 2,54,20,600/- 1,89,74,190/- 31st Dec of relevant financial year)

Further, it is seen that the cash sales achieved by the assessee for FY 2015-16 has somehow similar pattern as in the cash sales reported for FY 2016-17. If we see the nature of business of the assessee and sales trend, it is crystal clear that the assessee’s sales predominantly in cash, and thus, the cash in hand shown by the assessee as in November 2016 appear to be genuine and bona fide. AO in its

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assessment order has not whispered a single word against assessee that he has routed its own unaccounted money in the garb of cash sales. In CIT versus Daulat Ram Rawat Mull, (1973) 87 ITR 349, the Hon’ble Supreme Court held that onus of proving what was apparent is not real is on the party who claims it to be so. There should be some direct nexus between the conclusions of fact arrived at by the authorities concerned and the primary facts upon which the conclusion is based. Use of extraneous or irrelevant material in arriving at the conclusion would vitiate the conclusion of fact, because it is difficult to predicate to what extent, the extraneous and irrelevant material has influenced the authority in arriving at the conclusion of fact.

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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.

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vaster than that envisaged under a remand report called for by the first appellate authority u/s250(4)’. This interpretation of Kolkata Tribunal is contrary to the judgment of Hon’ble Allahabad High Court. It was observed by Hon'ble Allahabad High Court in Smt. Mohinder Kaur v. Central Government (104 ITR 120 All) as under-

"Sub-rule (1) of the said rule lays down the circumstances in which alone the appellant is entitled to produce additional evidence. Sub-section (4) preserves the power of the Appellate Assistant Commissioner to make further inquiry as contemplated by section 250 of the Act. Thus, it is clear that no part of rule 46A whittles down or impairs the power to make further inquiry conferred upon the Appellate Assistant Commissioner by section 250 of the Act. Similarly, sub-section (5) of the said section confers a power on the Appellate Assistant Commissioner to permit the appellant to raise a fresh point. This power has not been even touched by rule 46A."

Indeed, we observe from the order of the ld.CIT(A) that he was anxious about the manner of inquiry conducted by the AO regarding deposit slips, sales and purchase registers, VAT Returns etc.. The ld.CIT(A) on its own power under section 250(4) & (5) of the Act also examined the VAT Return which was filed with written submission for clarification only. We also noticed that before AO, a balance sheet was filed as on 31.03.2017 wherein VAT input is shown. Failure of AO to ask VAT Return cannot be attributable to assessee. We also noticed that total sales month wise provided to AO has been extracted from VAT record. Therefore, VAT Return given with written submission is nothing but just to facilitate and clarifiy cash

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deposits to ld.CIT(A). Even otherwise, the VAT Return is independent, can be relied upon as a matter of record. To ascertain veracity and genuineness of contentions of assessee from VAT Return does not prejudice to the revenue. In fact, ld.CIT(A) has allowed the appeal of assessee considering multiple factors not as alleged by the revenue. Therefore, it is wrong to say that Ld.CIT(A) has allowed the appeal of assessee only on the basis of VAT return and Sales & Purchase register. Hence, we dismiss this ground of revenue as bereft of merit.

Pronounced in open court on 24th day of July, 2024 at Chennai. Sd/- Sd/- (मनोज कुमार अ�वाल) (मनु कुमार िग�र) (MANOJ KUMAR AGGARWAL) (MANU KUMAR GIRI) लेखा सद� / ACCOUNTANT MEMBER �ाियक सद� / JUDICIAL MEMBER चे�ई Chennai: िदनांक Dated :24-07-2024 KV आदेश क� ��त�ल�प अ�े�षत /Copy to : 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai/Coimbatore/Madurai/Salem. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF