S.S. PRANAV STEELS PRIVATE LIMITED,NEW DELHI vs. ITO WARD 22(1), C.R. BUILDING, I.P. ESTATE, NEW DELHI

O R D E R PER M. BALAGANESH, A. M.: The appeal in AY 2017-18, arises out of 1. the order of the Commissioner of Income Tax (Appeals)-23, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. No: CIT(A), Delhi-8/10336/2019-20 dated 28.02.2024 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 16.12.2019 by the Assessing Officer, ITO, Ward-22(1), New Delhi (hereinafter referred to as ‘ld. AO’).

The only effective issue to be decided in this appeal is as to whether 2. NFAC was justified in confirming the addition made by ld AO on account of cash deposits in the facts and circumstances of the instant case.

We have heard the rival submissions and perused the material 3. available on record. The return of income for assessment year 2017–18 was filed by the assessee on 23.10.2017 declaring total turnover of Rs 44,46,55,438/- and declaring total income of Rs 5,29,170/-. The assessee furnished the entire computation of income, audited financial statements, books of accounts and tax audit report together with its annexures before the ld AO. The ld AO noticed that the assessee is engaged in the business of purchase, sale and trading of mild steel, high carbon and stainless steel wires or various types in retail and had made an addition of Rs 1,31,11,845/- on account of abnormal cash deposited in its bank account during the demonetization period. The assessee was asked to explain the source of the same. The assessee explained that cash deposits were made out of cash sales made during October 2016 , cash realization from debtors and cash in hand as on 08.11.2016. It was also submitted that the cash sales were made to small scale and tiny industries and were duly supported by cash memos. The assessee had maintained large quantity of stocks and cash sales were duly reflected in the monthly stock register for April 2016 to March 2017. The reason for huge increase in cash sales in October 2016 was explained by stating that due to high demand for steel related products in the market due to festival season and rapid manufacturing expansion of the steel industry during second half of Financial Year 2016-17. Total sales disclosed in the books of accounts reconciled with VAT returns and accepted by VAT authorities. There was marginal increase in cash sales to total sales for Financial Year 2015-16 and 2016-17 from 9.78% to 11.10%. It was also submitted that the entire cash balance as on 08-11-2016 were not deposited in the bank account on a single day as the banks were not accepting large cash deposits due to shortage of resources at their end. The assessee also submitted that the opening cash balance as on 01-04-2014 was Rs 37,53,161/- ; closing cash balance as on 31-03-2015 was Rs 50,08,650/- ; closing cash balance as on 31-03-2016 was Rs 26,05,625/- and closing cash balance as on 08-11-2016 was Rs 2,13,52,249/-. The assessee furnished the following documents in support of its explanation of sources for the cash deposits before the ld AO :- a) Bank statements from Financial Years 2015-16 to 2017-18 b) VAT returns with reconciliation c) Monthly cash flow statement for Financial Year 2016-17 d) Cash book for the Financial Years 2015-16 and 2016-17 e) Cash memos for the retail sales f) Monthly inventory movement for Financial Year 2016-17 g) Statement of cash sales from Financial Years 2015-16 to 2017-18 h) Summary of cash deposited

The ld AO, however, did not agree with this contention and sought 4. to adopt the average of cash sales made by the assessee during April to Sep 2016 as sacrosanct and concluded that the cash and credit sale in the month of October 2016 showed an abnormal increase which cannot be accepted. Since there was time for the assessee to file VAT returns for December quarter, the ld AO sought not to accept the cash sales for October 2016 in toto. He resorted to accept the cash sales in the same ratio of credit sales @ 15.98% . In this manner, the acceptable normal cash sales of October 2016 was worked out at Rs 42,74,738/- (being 15.98% of total credit sale of Rs 2,67,50,551/- of October 2016. Further for the first 8 days in November 2016, the cash sales was accepted only in the proportionate manner in the sum of Rs 5,04,330/- ignoring the fact of festival season and other auspicious occasions. The Ld AO also accepted the opening cash balance as on 01-04-2016 at Rs 26,05,625/- and cash realization from debtors to the tune of Rs 8,13,462/-. Accordingly, the ld AO accepted the cash of Rs 81,98,155/- (4274738+2605625+813462) to have emanated from normal business activities and any amount over and above this figure was considered abnormal. Accordingly, he proceeded to make an addition u/s 68 r.w.s. 115BBE of the Act of ₹1,31,11,845/- on account of cash deposits. This action of the ld AO was upheld by the ld CIT(A).

It is not in dispute that the assessee had indeed shown cash sales 5. and is part of the total turnover disclosed by it in the return of income and in the audited profit and loss account. The following points are undisputed and indisputable: – a. The assessee had shown cash sales for month of October 2016 and cash sales from 01.11.2016 to 08.11.2016 and the same is part of total sales disclosed by the assessee in the sum of ₹44.46 crores in the profit and loss account. b The purchase made by the assessee has not been doubted by the revenue. c. The total sales made by the assessee (both cash as well as credit sales) has not been doubted by the revenue. d. The assessee had sufficient stocks to effect the said cash sales and generate cash as an independent source to prove the cash deposits. e. To the extent of sales made by the assessee, corresponding reduction in stock had been duly made. f . Sales made by the assessee, both cash as well as credit had been duly subjected to VAT and the VAT authorities had accepted the turnover declared by the assessee. g. The assessee has furnished month-wise, purchase and sales, both cash as well as credit for the year under consideration as well as for the immediately preceding year. The assessee had also furnished the details of cash received from its sundry debtors which has been accepted by the ld AO. h. The assessee has furnished the complete cashbook, showing the month wise movement before the ld AO. i. There is no negative cash balance on any day that has been alleged by the ld AO. j. There is only minor variation in the figure of cash sales when compared to previous year.