JCIT NON CORPORATE CIRCLE 2, COIMBATORE vs. TARA JEWELLERY, COIMBATORE

This appeal filed by the revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 30.11.2022 and pertains to assessment year 2017-18.

The revenue has raised the following grounds of appeal: “1. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) was right in accepting the assessee's :-2-: ITA. No: 276/Chny/2023 comparative working on the average cash deposits for the months from April to December of the current and the subsequent year, while comparing the cash deposits, to prove that the difference is minimum?

At the time of hearing, we find that there is a delay of 33 days in appeal filed by the revenue for which a petition for condonation of delay, along with affidavit explaining reasons :-4-: ITA. No: 276/Chny/2023 for delay has been filed. The ld. DR, Shri. D. Hema Bhupal, JCIT, referring to affidavit filed by the Assessing Officer submitted that, the delay in filing of appeal is due to the fact that the data involved in this case is voluminous and verification of the data with respect to the claim of the assessee before the ld. CIT(A) for preparation of grounds of appeal was time consuming. The delay in filing of appeal before the Tribunal is neither willful nor wanton of any undue benefit. Therefore, the delay of 33 days in filing of appeal may be condoned.

The Ld. Counsel for the assessee, on the other hand fairly agreed that the delay may be condoned.

We have heard both the parties and considered relevant contents of petition filed by the assessee for condonation of delay and after going through reasons given by the assessee for not filing the appeal within time allowed under the Act, we find that the reasons given by the Assessing Officer comes under reasonable cause and thus, the delay in filing of appeal by the revenue is condoned and appeal filed by the revenue is admitted for adjudication.

Being aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee has filed detailed written submissions on the issue, which has been extracted at Para 4 of Pages 2 to 4 of ld. CIT(A) order. The sum and substance of arguments of the assessee before the ld. CIT(A) are that, the Assessing Officer never disputed availability of opening cash in hand as per books of accounts maintained for the relevant assessment :-7-: ITA. No: 276/Chny/2023 year as on 08.11.2016, which is over and above the cash deposits during demonetization period. Although, the Assessing Officer has made a comment on sale declared by the assessee, but the observations of the Assessing Officer is on the basis of surmises and suspicion, without there being any evidence with the Assessing Officer to allege that sales declared by the assessee prior to date of demonetization period is bogus in nature. The assessee has produced all evidences including books of accounts, corresponding sale bills and purchase bills and stock register to prove genuineness of sales declared for the relevant period.

The ld. CIT(A), after considering relevant submissions of the assessee and also taken note of certain judicial precedents, including the decision of ITAT Visakhapatnam Benches in the case of ACIT vs Heera Panna Jewellers in and also the decision of Hon’ble Delhi High Court in the case of PCIT vs Agson Global Pvt Ltd, reported (2022) 441 ITR 550, held that the Assessing Officer did not point out a single mistake in the stock position sales, cash position as per books of accounts maintained by the assessee. There was no findings in the entire impugned assessment :-8-: ITA. No: 276/Chny/2023 order pointing out any discrepancy either in sales declared by the assessee or corresponding purchases. The Assessing Officer, had made a casual observation with regard to sales declared by the assessee without there being any evidence to suggest that cash sales declared prior to the date of demonetization is bogus sales. Therefore, the ld. CIT(A) held that when the appellant is able to provide necessary evidence to prove sales declared for the relevant assessment year with corresponding bills and vouchers and also stock details, then merely for the reason that there is an increase in sale for the above period, when compared to previous financial year, the sales declared by the assessee cannot be disputed. Therefore, the ld. CIT(A) held that the assessee has explained source for cash deposits during demonetization period out of opening cash in hand available as on 08.11.2016 and said cash balance is explained out of sales declared prior to the date of demonetization. Thus, deleted additions made by the Assessing Officer towards cash deposits of Rs. 4,99,50,000/- u/s. 69A of the Act r.w.s. 115BBE of the Act. Aggrieved by the ld. CIT(A) order, the revenue is in appeal before us.

The Ld. Counsel for the assessee, on the other hand submitted that there is no dispute with regard to the fact that the assessee has maintained books of accounts and also submitted necessary sales bills in support of cash in hand available as on 08.11.2016. The Assessing Officer, has not made any observation with regard to the incorrectness in books of accounts maintained by the assessee. In fact, the assessee has furnished all books of accounts which were audited by Accountant u/s. 44AB of the Act. The assessee has also furnished details of total sales, cash sales, cash deposits for two financial years and explained that there is no abnormal increase in cash sales for the impugned assessment year. The Ld. Counsel for the assessee, further submitted that the assessee is not required to collect KYC details of all customers, in case of sales does not exceed Rs. 2 lakhs to a single customer. In the present case, sales made to customers does not exceed Rs. 2 lakhs in any case. Therefore, the provision of Rule 114B of I.T. Rules, 1962 does not apply. The ld. CIT(A), after considering relevant facts has rightly deleted additions :-11-: ITA. No: 276/Chny/2023 made by the Assessing Officer. In this regard, he relied upon the decision of ITAT Chennai Benches, in the case of ITO vs Sahana Jewellery Exports Pvt Ltd in dated 20.12.2023.

We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We have also carefully considered relevant reasons given by the AO to make additions towards cash receipts amounting to Rs.51,39,39,100/- u/s.68 of the Act. The AO has made additions towards cash receipts pertains to sale of jewellery for the period from 01.04.2016 to 08.11.2016 u/s 68 of the Act, on the ground that the assessee could not prove the identity of the creditors, genuineness of transactions, and :-14-: ITA. No: 276/Chny/2023 creditworthiness of the parties. The genesis of the dispute started from the point of verification of source for cash deposits into bank account during demonetization period amounting to Rs.48,73,80,000/-. In fact, the assessee has made cash deposits of Rs.48,73,80,000/- to Oriental Bank of Commerce, Coimbatore, State Bank of India, SME Branch, Coimbatore, and State Bank of India, Main Branch, Coimbatore, in aggregating Rs.48,73,80,000/-. The assessee has explained source for cash deposits out of trade advances received from various persons and same has been subsequently converted into sale of jewellery. The assessee has accounted sales made before 08.11.2016 in its books of accounts and cash balance available as on 08.11.2016 as per cash book maintained by the assessee was at Rs.48,82,75,750/-.

During the course of assessment proceedings, the AO called upon the assessee to file details of name and address of the persons from whom it has received trade advances for sale of jewellery. The assessee has filed a list of persons from whom it has received trade advances for sale of jewellery. Out of list submitted by the assessee, the AO has issued summons u/s.131(1) of the Act, to 50 persons to verify the genuineness of the assessee claim of receipt of cash from them. Out the above 50, summons issued to 40 persons returned by the Postal Authorities citing ‘addressee cannot be located’ or ‘no such person’ or ‘no such address’ or ‘insufficient address’ or ‘no such address at the above place’. In response to summons, three persons were responded and out of three, two persons namely, Shri N.Armugam and Smt.B.Deepa denied having any kind of transactions with the assessee. Further, one person namely Shri A.M.Vargies confirmed having paid advance to the assessee company and also purchased jewellery from them. The Assessing Officer, on the basis of enquiry conducted u/s.131(1) of the Act, came to the conclusion that the assessee could not substantiate cash receipts received from various persons towards sale of jewellery before the date of demonetization. Therefore, vide letter dated 24.12.2019 called upon the assessee to file confirmation from all the parties and also called upon the assessee to show cause ‘as to why’ the credits should not be considered as unexplained cash credit u/s.68 of the Act. In response, the assessee submitted that as per law, it is not required to collect complete address and PAN from the persons to whom it has sold jewellery. Further, as per Rules 114B of the Income Tax Rules 1962, if sale value of :-15-: ITA. No: 276/Chny/2023 jewellery is in excess of Rs.2 lakhs to a single person, then, it is required to collect PAN. Since, there is no requirement of collecting PAN, the assessee does not having details of PAN and correct postal address of the persons from whom it has received trade advances for sale of jewellery. Therefore, assessee submitted that the question of filing confirmation letter from the parties, from whom, it has collected advance for sale of jewellery does not arise, and consequently, cash receipts cannot be assessed u/s.68 of the Act. The assessee had also explained the AO that it has sufficient cash balance as on 08.11.2016 as per books of accounts maintained for that assessment year and argued that the total cash deposits into bank account is explained out of cash in hand. The assessee has also made an alternative submission that it has sufficient cash withdrawal from very same bank account on various dates, which has been recorded in books of accounts of the assessee and source for cash deposits is also out of cash withdrawal from very same bank account. The assessee had also filed necessary books of accounts, including cashbook, sales register, sale bills, purchase details along with bills and stock details to prove that there is no discrepancy in books of accounts and also the assessee has reported sales made before the date of demonetization to GST authorities.

In light of above factual matrix, if one examines the issue, the AO has rejected the contention of the assessee on two grounds. The first and foremost reasons given by the AO to reject the explanation of the assessee is that persons from whom assessee claims to have been received advance are not responded to summons issued u/s.131(1) of the Act, and in few cases, they have denied any kind of transactions with the assessee. According to the AO, the assessee could not discharge its onus cast upon as per the provisions of Sec.68 of the Act, in respect of cash receipts, and thus, opined that cash receipts claimed to have been received by the assessee from various persons is unexplained cash credits taxable u/s.68 of the Act. The second reason given by the AO was that there is a contradiction in the claim of the assessee in so far as source for cash deposits are concerned in as much as initially, the assessee claims to have explained cash deposits out of cash receipts from various persons towards sale of jewellery and subsequently changed its stand and argued that source for cash deposits is out of cash withdrawals from very same bank account. In so far as the first and foremost reason given by the AO to assess cash receipts u/s.68 of the Act, we find that :-16-: ITA. No: 276/Chny/2023 there is a distinction between cash credits and cash receipts towards sales. If assessee claims certain cash credits in his books of accounts and not able to explain credits to the satisfaction of the AO, then, such cash credits need to be examined in light of provisions of Sec.68 of the Act. In case, the assessee claims that it has received trade advances in cash and the same has been subsequently converted into sales by issuing sale bills, then, said trade advance cannot be examined in light of provisions of Sec.68 of the Act, because, trade advances have been subsequently converted into sales and sales has been accounted in the books of accounts of the assessee. Therefore, in our considered view, the AO has committed a fundamental mistake in examining the cash receipts claimed to have been received by the assessee towards sale of jewellery in light of provisions of Sec.68 of the Act.

Be that as it may. The fact remains that, the assessee has furnished name and address of the customers from whom it has received cash for sale of jewellery. The assessee need not obtain confirmation and submit to the AO, because, the law does not mandate colleting PAN details of the persons, if sale value of jewellery does not exceed Rs.2 lakhs as per Rule 114B of Income Tax Rules, 1962. In so far as compliance of KYC norms, it is mandatory under Prevention of Money Laundering Act, 2002, w.e.f.04.05.2023 onwards and not applicable for the impugned assessment year. Therefore, in our considered view, when the assessee has furnished name and address of the persons from whom it has received trade advances for sale of jewellery, the assessee has satisfactorily discharged onus cast upon to furnish name and address of the persons. Therefore, the observation of the AO in light of provisions of Sec.68 of the Act, that the assessee has not satisfactorily explained cash receipts is unwarranted and devoid of merits.

Having said so, let us come back whether the assessee could able to explain source for cash deposits made during demonetization period or not. It is an admitted fact that the assessee was having sufficient cash balance as per cash book maintained for the relevant period. In fact, cash in hand as on the date of demonetization i.e. 08.11.2016 was at Rs.48,84,03,169/- and said cash balance is backed by cash receipts recorded in the books of accounts before the date of demonetization. Further, cash receipts from various persons have been further substantiated with sales made to them :-17-: ITA. No: 276/Chny/2023 before the date of demonetization. In fact, the assessee has filed various evidences, including sales bills to support its arguments. The AO never disputed sales declared by the assessee nor pointed out any discrepancy in purchase or stock in trade held in the business of the assessee before the date of demonetization. In fact, the assessee has filed comparative sales for the month of April, 2016 to November, 2016 and corresponding April-15 to November, 2015 and we find that there is no abnormal deviation in sales declared for the month of November, 2016 when compared to earlier periods. It is not a case of the AO that the assessee has declared sales without purchases. In fact, a sale declared by the assessee is backed by corresponding purchases, and is supported by necessary purchase bills. The AO could not point out any discrepancy in stock register maintained by the assessee nor made out a case that the assessee has declared sales without there being any stock in hand. Therefore, in absence of any contrary findings to the effect that the sales declared by the assessee is not backed by any corresponding purchase or supported by stock in hand, in our considered view, simply sales cannot be rejected on the ground that sale for the particular month or period is higher when compared to corresponding previous period. In our considered view, there cannot be any reason for uniform sales in all days or month or year. There may be various reasons for increase or decrease in sales which depends upon various factors, including festival sales, clearing sales, yearend sales, etc. Therefore, in our considered view, the explanation of the assessee that it has received cash from various customers towards sale of jewellery and subsequently the advances have been converted into sales, appears to be bona fide and reasonable.

Coming back to second observation of the AO in rejecting explanation of the assessee with regard to source for cash deposits. Initially, assessee claims that source for cash deposits is out of trade advances received in cash from various persons. However, during the course of assessment proceedings itself, the assessee claimed that it was an error in making a submission that it has received trade advances from various persons before the date of demonetization, but fact remains that authorized representative who appeared and made submissions before the AO made an inadvertent error of copying submission made in another group case which is also pending for assessment. Further, immediately after noticing the above inadvertent error, the assessee has submitted :-18-: ITA. No: 276/Chny/2023 details of cash book along with bank statements and explained that it has sufficient cash withdrawal aggregating to Rs.150 Crs. from very same bank account on various dates before the date of demonetization and after utilization of the cash for the purpose, for which, it has been drawn the net withdrawal was at Rs.136.85 Crs. The assessee was carrying cash balance in books and once demonetization was announced, the available cash balance in Specified Bank Notes, has been deposited into bank account. We have perused relevant cash book and bank statements which are available in paper book and after considering relevant materials, we find force in the arguments of the assessee for simple reason that as per the details furnished by the assessee like bank statements, cash book, it is undoubtedly clear that assessee was having sufficient withdrawals from very same bank accounts before the date of demonetization which was recorded in the books of accounts of the assessee. Further, the cash balance maintained by the assessee as per books of accounts as on 08.11.2016 was much higher than the amount of cash deposited to bank account during demonetization period. Therefore, in our considered view, when the assessee is able to file necessary evidences to prove that there was sufficient cash withdrawal from very same bank account which is further backed by bank statements, where it has been clearly evident that there are sufficient cash withdrawals, in our considered view, there is no reason for the AO to reject explanation of the assessee that cash deposits are out of cash withdrawals from very same bank account.

At this stage, it is necessary to consider certain judicial precedents on this issue. The assessee has relied upon the decision of the Hon’ble Delhi High Court in the case of PCIT v. Agson Global (P) Ltd., reported in [2022] 441 ITR 550 (Delhi) (19-01-2022). The Hon’ble Delhi High Court under identical set of facts, has deleted the additions made by the AO towards cash deposits during demonetization u/s.68 of the Act. The relevant findings of the Hon’ble Delhi High Court are as under: • A careful perusal of the extract of the statement made by managing director of the assessee (as recorded in " the assessment orders in-issue) would show that all that he had stated was that it was the assessee's own money, given in the form of loan and/or bogus sales or purchases, that had been routed back to the assessee in :-19-: ITA. No: 276/Chny/2023 the form of share capital/share premium, albeit, through banking channels. [Para 10.3] • The Tribunal, in this context, records a finding of fact that "no unaccounted income of the assessee" had been introduced in its books of account in the form of share capital. Based on this, the Tribunal concluded that there was 'no confession' made by the managing director that unaccounted income had been introduced by the assessee in the form of share capital. Therefore, according to the Tribunal, the statement made under section 132(4) did not constitute incriminating material. [Para 10.4] • The Tribunal, has correctly analyzed the statement of the managing director. The statement does not allude to the fact that the assessee had introduced 'unaccounted money' in the form of share capital/share premium through investor entities. The retraction letter, as noted by the Tribunal, also did not advert to the introduction of investment of money in the assessee in the form of share capital/share premium. [Para 11.1] • The trail of the money received from various entities in the form of share capital/share application money, concluded that the assessee had been able to place before the Assessing Officer sufficient documentary evidence which established that the money which the assessee had paid to the investor entities was routed back to it in the form of share capital/share premium. [Para 11.4] • That being the position, the Tribunal concluded that the assessee had been able to prove the identity of the investors, their creditworthiness and genuineness, which are the ingredients of section 68. [Para 11.5] • In instant case, insofar as the assessee is concerned, it placed the evidence on record, which established the trail of the money, the mode through which the money had travelled from the assessee to the investor entities and back to the assessee, and the fact that each of the investor entities was in existence. Therefore, once the assessee claimed (and it was found as a fact) that it was its own money which was routed back to it in the form of share capital/share premium, the traditional test which :-20-: ITA. No: 276/Chny/2023 is sought to be applied by the revenue, for triggering the provisions of section 68, which is, that the assessee had to establish the creditworthiness, genuineness and identity of the transactions would have to adapt to the circumstances obtaining in the instant case. [Para 12.1] • Therefore the addition made under section 68 needed to be sustained as untenable, in view of the finding recorded by the Tribunal. [Para 14.4] • The entire purchase and sales had been duly recorded in the regular books of account of all parties; the transactions were routed through regular banking channels; the purchase and sales were duly supported by quantitative details; copies of bank statements showing sales and purchases were placed before the Assessing Officer, and no incriminating documents concerning sales and purchases were found in the course of search and seizure actions. [Para 15.1] • Tribunal also found that in respect of assessment years 2012-13, 2013-14 and 2014-15, sale and purchase transactions were verified and assessment orders were framed under section 143(3). The books of account were duly audited, both, under the Companies Act, 2013 and the Income-tax Act; no defects concerning books were found either by the Assessing Officer or the Commissioner (Appeals). Thus, according to it, no incriminating evidence was found. [Para 15.1] • Insofar as the abated assessment years were concerned i.e., assessment years 2015-16, 2016-17 and 2017-18, it was, apparent that the assessee had purchased goods, which were in value less than the sum for which they were sold. Therefore, as held by the Assessing Officer, in the deviation report, if the purported bogus purchases were to be disallowed then necessarily the sales shown in the assessee's regular books of account would also have to be excluded which would result in the assessee's income falling below the returned/declared income. [Para 15.1] • Furthermore, the Assessing Officer had not placed on record any material to justify the disallowance of 25 per cent of the purchases on the ground that they were bogus without carrying out any inquiry or investigation.

In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the AO is erred in making additions towards cash receipts received for sale of jewellery, which has been subsequently converted into sales, for the impugned assessment year as unexplained cash credits taxable u/s.68 of the Act. The Ld.CIT(A) after considering relevant facts has rightly deleted the additions made by the AO, and thus, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the Revenue.”