SRI RAJANI GOLD,VIJAYAWADA vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), VIJAYAWADA

1. This appeal is filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter in short “Ld.CIT(A)”] vide DIN & Order No. Sri Rajani Gold ITBA/NFAC/S/250/2022-23/1048899643(1) dated 18.01.2023 arising out of order passed under section 143(3) of the Income Tax Act, 1961 (in short ‘Act’) dated 31.12.2019.

At the outset, it is noticed from the appeal record that there is a delay of 64 days in filing the appeal before the Tribunal. Explaining the reasons for belated filing of the appeal, the Ld. AR drew our attention to the affidavit filed by the assessee along with a petition seeking for condonation of delay and read out the contents of the petition which is as under:

On perusal of the contents of the affidavit filed by the assessee as well as the submission of the Ld. AR, we find that the assessee is prevented by a reasonable and sufficient cause in filing the appeal beyond the prescribed time limit with a delay of 65 days. Therefore, we hereby condone the delay of 65 days in filing the appeal before the Tribunal and proceed to adjudicate the appeal on merits in the following paragraphs.

Brief facts of the case are that, assessee-firm is carrying on business of bullion trading in gold and silver and trading in gold ornaments and silver articles and filed its return of income on 17.02.2018 for the A. Y. 2017-18 admitting a total income of Rs.43,31,080/-. The case was selected for complete scrutiny and statutory notices under section 143(2) and 142(1) of the Act were issued and served on the assessee from time to time calling for information relevant for computation of total income. Subsequently, survey operation was conducted on 22.11.2016 and statement was recorded from the Managing Partner, Sri. Yenugula Vinod Kumar on 22.11.2016 under section 133A of the Act. Statements are also recorded on 23.11.2016 and 29.12.2016.

The Assessee finally submitted explaining the sources for cash deposits made during the demonetization period in Specified Bank Notes amounting to Rs.31,14,71,000/- are arising out of the cash sales and advances received towards sale of bullion before and after demonetization period. The Ld.AO noticed that the books of accounts of the assessee have been manipulated in such a manner and therefore not relying on the books of accounts rejected the same by invoking provisions of section 145(3) of the Act. The Ld.AO based on Page No. 4

Considering the business and turnover of the assessee, Ld.AO estimated the income of the assessee at 1% of the turnover of Rs. 79,92,05,016/- amounting to Rs. 79,92,050/-.

The Ld.AO rejected the explanation of the assessee that the sources for cash deposits are receipt of cash sales and cash advances received against sales made by it. The Ld.AO noticed that assessee has accepted Specified Bank Notes (SBNs) which are not a legal tender and cannot be treated as Cash or Money for the purpose of any transaction except for depositing in bank stating that Government of India notified Rs.1000 and Rs.500 will not be a legal tender w.e.f. 09.11.2016. Considering the above facts, Ld.AO found that the assessee was owner of the cash deposited into bank account, but has not offered any acceptable and cogent explanation regarding the source of Cash Credit, treated

On being aggrieved by the order of the Ld.AO, assessee filed an appeal before Ld. CIT(A). Before Ld. CIT(A) assessee made similar representations / submissions regarding the Specified Bank Notes. Ld.AR also submitted that the assessee made purchases through banking channels which was not disputed by the Revenue Authorities. The Ld.AR, before Ld. CIT(A) also submitted that the amount of Rs. 31,41,71,000/-was treated as turnover and estimate of 1% on the turnover was made by the Ld.AO in addition to the treatment of the same amount as unexplained under section 68 of the Act. Considering the above submissions, Ld. CIT(A) reduced the turnover from Rs.79.92 crores to Rs.48.17 crores while estimating the same 1% on the turnover and confirming the addition of Rs.31,74,33,706/- as unexplained while dismissing the appeal of the assessee.

Aggrieved by the order of the Ld. CIT(A), assessee is in appeal before us by raising the following revised grounds of appeal: -

The order of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case.

The learned Commissioner of Income Tax (Appeals) ought to have held that the provisions of S.68 are not applicable to entries in the bank account in as much the pass book issued by the bank is not a book of account maintained by the appellant.

The only contention of the assessee is with respect to the addition made by the Revenue Authorities under section 68 of the Act aggregating to Rs.31,41,71,000/-, considering it that the assessee accepted cash in demonetised currency. On this issue Ld. Authorised Representative [hereinafter “Ld.AR”] submitted that assessee has purchased gold bullion by making payments to the sellers through RTGS / NEFT which was not disputed by the Ld.AO. Ld.AR vehemently argued that the only objection of the Ld.AO is acceptance of Specified Bank Notes after announcement of demonetization stating that it is not a legal tender consequent to announcement of the demonetization. The Ld.AO has also not disputed the turnover of the assessee, Ld.AR argued. Further, Ld.AR also stated that the VAT returns showing the purchase and sales of bullion were also submitted before the Revenue Authorities for verification.

The Ld.AR placing reliance in the case of ITO v. Sri Tatiparti Satyanaraya in dated 16.03.2022 wherein the Specified Bank Notes (Cessation of Liabilities) Act, 2017 permitted Specified Bank Notes to be legal tender till 31.12.2016. Ld.AR also relied on the case of Page No. 7 Sri Rajani Gold CIT v. Bhaichand H. Gandhi [(1983) 141 ITR 0067] and the decision of the Co-ordinate Bench of Chandigarh in the case of Smt. Charu Aggarwal v. DCIT [2022] 140 taxmann.com 588 (Chandigarh – Trib). He therefore pleaded that the addition made by the Revenue Authorities be deleted.

Per contra, Ld. Departmental Representative [hereinafter in short “Ld.DR”] submitted that the purchase and sale are disproportionate in November, 2016 till the date of Survey. He therefore pleaded that the assessee has manipulated the books of accounts subsequent to demonetization. Ld. DR placed reliance on the following case laws: -

Ld. DR, therefore pleaded that the order of the Ld. CIT(A) be upheld.

We have heard rival contentions and perused the material available on record including the cases cited by both the parties. It is an undisputed fact that the assessee has purchased gold bullion and by making payment towards the same in the form of RTGS/NEFT. The only contention of the Ld.AO is that the assessee has accepted the Specified Bank Notes towards the sale of gold bullion in spite of the Specified Bank Notes being declared as an illegal tender w.e.f.

Further, from the documents submitted before the Revenue Authorities and also before us, we find that the assessee has declared the turnover and also purchases in the VAT Returns on a monthly basis which was also not disputed by the Revenue Authorities. The only issue agitated by the Ld.AO is with respect to the validity of the acceptance of sale consideration in High Value Denomination Notes subsequent to demonetisation. In this connection this bench in the case of ITO v. Sri Tatiparti Satyanaraya(supra) has held as follows:-

In our considered view, the provisions of section 68 of the Act cannot be invoked by the Revenue Authorities, since the assessee has offered explanation regarding the sales made and disclosed the same in the VAT Returns of the assessee. We also find from the statements of the Managing Partners recorded under section 131(1A) of the Act on 29.12.2016, the assessee has raised cash sales of gold bullion from 08.11.2016 to 21.11.2016 commenced date of survey to 2763 customers. The revenue has also not disputed the above statements. Merely because of disproportionate quantities of purchase and sales during the period of demonetization wherein the purchase bills and sales bills have been submitted by the assessee and the payments made to the suppliers by way of RTGS/NEFT has been provided by the assessee, cannot be a valid reason for invoking the provisions of section 68 of the Act by rejecting the books of accounts unless if there is any corroborative evidence regarding the source of cash seized during the survey proceedings. The Ld AO has also not brought on record any material to prove that the assessee made cash deposits out of bogus sales. In the light of facts and circumstances of the case as discussed above, we find that the only reason by the Ld.AO to make the addition under section 68 is by considering the High Denomination notes as illegal tender from 09.11.2016. From the provisions of the Specified Bank Notes (Cessation of Liabilities) Act, 2017, we find that these Specified Bank Notes can be measured in monetary

In the result, appeal of the assessee is allowed.