VINAYAKA TRADERS,NAMAKKAL vs. ITO,WARD-1, THIRUCHENGODE

The Assessee is in appeal before us, challenging the two additions made by the lower authorities:

The brief facts are that, the assessee is a partnership firm, engaged in the business of purchase and sale of rig rod. The assessee had filed its return of income for the assessment year 2017- 18 on 31.10.2017, admitting total income of Rs.3,00,050/-. The case was selected for scrutiny under CASS for which notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) dated 21.09.2018 was issued to the assessee calling for details of large cash deposits during demonetization period. In response to notices, the authorized representative of the assessee submitted relevant documents like audit report, bank account statements, Form no. 26AS, VAT return, invoices of new assets purchased etc and explained that the total cash deposits during demonetization period was at Rs.70,78,000/- and the source for the same is out of cash balance as available with the assessee. However, the ld.AO was not :-3-: ITA. No: 1457/Chny/2023 satisfied with the explanation furnished by the assessee and made an addition of sum of cash deposits at Rs.60,51,280/- to tax u/s. 69A r.w.s. 115BBE of the Act. Further, the Assessing Officer made another addition by comparing the GP ratio admitted by the assessee for the assessment year 2016-17 has disallowed lower GP ratio shown by the assessee this year and made an additions of Rs.8,30,906/- and completed the assessment u/s. 143(3) of the Act on 16.12.2019.

Aggrieved by the impugned order, the assessee preferred an appeal before the ld.CIT(A) and reiterated the submissions made before the Assessing Officer and pointed out that it maintained regular books of accounts with stock inventory and had furnished the audit report, bank account statements, Form no. 26AS, VAT return, invoices of new assets purchased etc and thus, demonstrated before the Assessing Officer that the cash was deposited in SBN was out of cash balance available with the assessee which has been conveniently ignored by the Assessing Officer, therefore he pleaded before the ld.CIT(A) to delete the additions.

However, the ld.CIT(A), citing few case laws sustained the additions made by the ld.AO u/s. 69A r.w.s. 115BBE of the Act and :-4-: ITA. No: 1457/Chny/2023 dismissed the appeal filed by the assessee. Aggrieved by the impugned order of the ld.CIT(A), the assessee has preferred this appeal before us.

The Ld. Counsel for the assessee, assailing that action of the ld.CIT(A) submitted that the ld.CIT(A) erred in sustaining the addition made u/s. 69A r.w.s. 115BBE of the Act, even though the assessee has filed all the relevant documents and details to prove the nature and source of SBNs. The Ld. Counsel for the assessee pointed out that when the Assessing Officer has not disputed the factum of maintenance of books of accounts, factum of audit u/s. 44AB of the Act and the trade results and particularly, the fact that assessee has no other business, addition of cash deposits made during demonetization period cannot be added u/s. 69A of the Act which is arbitrary exercise of power and deserve to be deleted.

Per contra, the ld.DR, on the other hand relied on the actions of the Assessing Officer and the ld. CIT(A), and prayed that the order of the ld.CIT(A) should be upheld.

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The :-5-: ITA. No: 1457/Chny/2023 assessee is a partnership firm engaged in the business of rigs and rods dealing in premium branded rig rod and sale of rig and drilling holder in and around Thiruchengode and uploaded the return of income along with audit report and other financials on 31.10.2017, disclosing an amount of Rs.3,00,050/- which was picked up for scrutiny and the Assessing Officer noted that compared to the earlier years assessee has shown low book profit. Therefore, without rejecting the books of accounts, the Assessing Officer made an adjustment of Rs.8,30,906/- which action of the Assessing Officer cannot be countenanced for the reason that it is common knowledge that due to various factors there would be ups and downs in business which may be due to general recession in that sector. The Assessing Officer has not pointed out any infirmity in the books of accounts maintained by the assessee in the regular course of business and which has been audited by professionals cannot be ignored by the Assessing Officer merely because the assessee during the earlier assessment year 2015-16 has shown GP of 3.08%. Moreover, the Assessing Officer has not taken a GP ratio of assessment year 2014-15, wherein the assessee has shown GP of only 1.72% when the turnover was Rs.11.79 crores whereas in assessment year 2015-16, the assessee had turnover of Rs.8.65 crores; and for assessment year 2018-19, assessee had shown :-6-: ITA. No: 1457/Chny/2023 3.35% when the turnover was Rs.13.34 crores. However, in the year under consideration the assessee has shown turnover of Rs.13.46 crores and have shown gross profit of 2.6%, which cannot be the only reason for making an addition of Rs.8,30,906/-. The impugned action of the Assessing Officer is arbitrary and cannot be sustained in the eyes of the law. Therefore, we direct the deletion of addition made on account of gross profit of Rs.8,30,906/-.

Coming to the addition of SBNs, we note that assessee is a dealer in sale of rigs, drilling holders in and around Thiruchengode and other rural areas. There is no major variation in the turnover when compared with that of the assessment year 2018-19, where the assessee showed the turnover of Rs.13.34 crores, whereas in the relevant year under consideration the assessee has shown a turnover of Rs.13.46 crores. The Assessing Officer has found no infirmity in the books maintained by the assessee and the assessee has filed relevant documents like audit report, bank amount statement, Form no 26AS, VAT returns, invoices etc and demonstrated that the source of deposits of SBNs were trade receipts and the Assessing Officer accepted the nature and source of Rs.10,26,720/- which assessee had cash on hand as on 08.11.2016. According to us, when he has accepted the trade receipts of :-7-: ITA. No: 1457/Chny/2023 Rs.10,26,720/- in the facts and circumstances of the case and in the light of the evidence, he ought to have accepted the remaining cash deposited, unless he is able to show that assessee had unexplained money as prescribed u/s. 69A of the Act, which he deposited as SBNs and as noted the assessee has filed relevant sales invoices, cash register, bank statement and regular books which shows that Rs.70,78,000/- was regular receipts from the business operations. In such factual background, this tribunal has been consistently taking a view that addition is not warranted and for that we refer to the following decisions: - Mrs. Umamaheshwari vs ITO in ITA No: 527/Chny/2022 dated 14.10.2022 - M/s. Mickey Fireworks Industries vs ACIT in ITA No: 264/Chny/2023 dated 26.07.2023. Respectfully following the judicial precedents cited (Supra), we direct the Assessing Officer to delete the addition.