ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE1-(1), HYDERABAD vs. ANAND'S GOLD PRIVATE LIMITED, HYDERABAD

Brief facts of the case are that the assessee company is engaged in the business of trading in bullion and gold jewellery and other precious metals. The assessee has filed return of income for the A.Y.2017-18 on 31/10/2017, declaring total income of Rs.1,54,546/-. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing

Learned CIT-DR submitted that the learned CIT(A) erred in deleting the additions made towards cash deposited during demonetization period without appreciating the fact the assessee has made cash deposit of Rs.2.22 crores prior to demonetization period, but however made cash deposit of Rs.16.24 crores during the demonetization period. Learned CIT- DR further submitted that the assessee was maintaining minimum cash balance prior to demonetization period, whereas cash balance during the demonetization period was more than 16.5 crores. Further, from the analysis made by the Assessing Officer with regard to cash sales and cash deposit during the demonetization period and the corresponding period of earlier year, there are clear anomalies with regard to cash sales and cash deposited which is against not only human probability, but also shows an attempt of the assessee to explain cash deposited during the demonetization period. The Assessing Officer had also brought out clear facts to the effect that there was a uniform pattern in cash sales, which is almost below Rs.2,00,000/- in all cases, which is against the theory of human probability. Further, the assessee has not maintained relevant details of names and addresses of the customers, their phone number and PAN. The Assessing Officer, after considering relevant facts and also by following the decisions of Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT and CIT Vs. Durga Prasad More (supra), held that even sales can be considered as unexplained cash credit under section 68 of the 7 Act, if the assessee does not explain the credits with necessary evidence. Learned DR further referring to report of investigation carried out by the DDIT (Investigation) Wing-2, Hyderabad submitted that the report has brought out clear fact to the effect that the sales and purchases reported by the assessee is not genuine and therefore passed on the information to the Assessing Officer for taking necessary action as per the provisions of the Act. Learned CIT(A) without appreciating the facts simply accepted the explanation of the assessee and deleted the addition made by the Assessing Officer towards cash deposits. Therefore, he submitted that the addition made by the Assessing Officer should be upheld. In this regard, he relied upon the decision of Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT and CIT Vs. Durga Prasad More (supra). Learned DR also relied upon the decision of ITAT Hyderabad in the case of Vaishnavi Bullion Private Limited 2022(12) TMI 1309.

Learned Counsel for the assessee on the other hand supporting the order of the learned CIT(A) submitted that the sole basis for the Assessing Officer to disbelieve the sales declared by the assessee is on the basis of cash balance maintained by the assessee before the date of demonetization, during the demonetization and after demonetization period, but the fact remains that sales declared by the assessee cannot be doubted on the basis of cash in hand held by the assessee. Learned counsel for the assessee further submitted that the Assessing Officer conveniently ignored comparative analysis of total sales, cash sales, credit sales of last two years and 8 subsequent one year to demonetization period and if we go by the reports submitted by the assessee, there is no abnormal variation in total sales, cash sales and credit sales. Further, the assessee also explained the reasons for the increase in cash sales during October and November 2016 when compared to earlier months and explained that during festival season, sales of jewellery is always increased when compared to other periods. Further, the assessee had also explained sales declared during demonetization period with relevant sales bills, which is further supported by stock-in-trade held by the assessee. Although the Assessing Officer doubted the purchases made during the financial year and has drawn adverse inference only on the basis of purchases from related parties. But the assessee has filed all the details including the name and address of the person from whom purchases were made and also filed relevant evidence to prove the payments against purchases through banking channel. The assessee had also explained reasons for not obtaining phone number and PAN of the customers and submitted that in case of sales is less than Rs.2 lakhs, there is no requirement of obtaining PAN of the buyer as per Rule 114B of IT Rules, 1962. Learned CIT(A) after considering the relevant facts had rightly deleted the additions made by the Assessing Officer, and therefore the order of the learned CIT(A) should be upheld.

We have heard both the parties, perused the material on record and gone through the orders of the authorities below. We have also carefully considered relevant case laws cited by both the parties in support of their contentions. The facts borne out

There is no dispute with regard to the fact that there is no abnormal variation in total sales, cash sales, credit sales and also cash deposited into bank account for the financial year 2016-17 when compared to financial year 2014-15 and 2015- 16. Assessee has filed a comparative statement of purchase, sales, cash sales and cash deposited into bank account for four financial years including the financial year 2016-17 and from 10 the details filed by the assessee, we find that there is uniform pattern of cash sales, credit sales and total sales. In fact, the cash sales during the financial year 2016-17 is less when compared to cash sales during the financial year 2014-15 and 2015-16. Therefore, going by the analysis of purchase and sales, there is no abnormality in sales declared by the assessee during the demonetization period. From the above, it is undisputedly clear that the Assessing Officer has conveniently ignored the supporting evidences filed by the assessee to justify the cash sales made during the period October 2016 and upto 08/11/2016, because, if we go by the analysis of purchase and sales, there is no reason for doubting the sales declared by the assessee during the period of October and November, 2016. Further, the Assessing Officer has not made out any case of discrepancy in the books of accounts maintained by the assessee nor made out a case for any incorrectness in purchase, sales declared during relevant period. In fact, purchases are supported by necessary purchase bills and sales declared by the assessee including cash sales are supported by sale bills. Although the Assessing Officer made observation with regard to uniform cash sales, in our considered view, only on the basis of uniform pattern of sales, it cannot be held that the sales declared by the assessee is not genuine. Further in so far as the non-maintenance of phone number and PAN of the buyers, in our considered view, as per Rule 114B of IT Rules, 1962 there is no mandatory requirement of PAN of the buyers in case sales to single customer does not exceed Rs.2 lakhs. Similarly, in respect of KYC compliances, the same is mandatory, in view of amendment to provisions of Money Laundering Act,2002 w.e.f.

We, further noted that in the first available opportunity, the assessee has furnished all relevant details in respect of cash deposited during demonetization period into bank account when the DDIT(Investigation) Wing has carried out enquiries with regard to source for huge cash deposit into bank account. In fact, the appellant has submitted all relevant information including supporting evidence for sales and cash in hand available as on 08/11/2016 to explain the source for cash deposits. From the above, it is undoubtedly clear that the additions made by the Assessing Officer towards cash deposited into bank account u/s 68 of the Act is purely on suspicion and surmises, without there being any contradictory evidence to suggest that the sales declared by the assessee is not genuine. It is not the case of the Assessing Officer that the cash sales made prior to 08/11/2016 were not recorded in the books of accounts. It is also admitted fact that the assessee has filed VAT returns and declared sales to VAT authorities. Closing stock of the year is carried forward as opening stock of the next year and even in the subsequent year, scrutiny assessment was made by accepting the opening stock which shows that the sales made in the year under consideration and income earned thereon was never disputed. Although the Assessing Officer doubted

We note further that the Assessing Officer ignored all evidence filed in support of the claim for cash deposit, which is in favour of the assessee. However, consider only the elements which go against the assessee, which is evident from the discussion of the Assessing Officer in the assessment order to draw adverse inference against the assessee. The Assessing Officer rested his discussion only on the basis of cash in hand maintained by the assessee during demonetization period, prior to demonetization period and post demonetization period. According to the Assessing Officer, the cash balance held by the assessee is against human tendency. In our considered view, theory of human tendency or probability cannot work in a situation which is an exception to the normal conditions / situations. No one was aware as to what was the right step to move. Further huge amounts cannot be sent at a time through any one employee to avoid the risk of employees running away, theft, snatching money from employees etc. Therefore, the adverse inference drawn by the Assessing Officer considering human probability that no prudent person would carry huge

Coming back to various case laws relied upon by both the authorities. The Assessing Officer took support from the decision of Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT and CIT Vs. Durga Prasad More (supra). In our considered view, both the cases are on the theory of human probability and if we go by the facts of both the cases, the argument taken by the assessee before the authorities is contrary to the theory of human probability. Therefore, on the basis of the facts of both the cases, Hon'ble Apex court came to a conclusion that the conduct of the assessee is against human probability and therefore cannot be accepted. In the present, although the Assessing Officer took support from the decisions of these two cases, but facts are entirely different. In fact, the evidence submitted by the assessee in support of sources for cash deposit undoubtedly proves the genuineness of sales declared by the assessee and the cash balance held as on 08/11/2016. Therefore, merely for the reason of carrying excess cash balance during a particular period when compared to other periods, it cannot be held that the argument of the assessee is against the theory of human probability, more particularly, when evidences clearly suggest that the explanation of the 14 assessee is genuine and supported by necessary evidences. Therefore, in our considered view, reliance placed upon by the learned Assessing Officer on the above cases is misplaced and cannot be accepted. The Assessing Officer had also relied upon the decision in the case of Rekha Kishnaraj Vs. CIT (250 Taxmann 333)(SC) to argue that even sales can be considered as unexplained cash credit. No doubt even unexplained credits on account of supply of goods also can be considered u/s 68 of the Act, if the assessee is unable to satisfy three conditions provided therein. Further, if the explanation of the assessee with regard to sale of goods and revenue generated there from is supported by relevant evidence, then the credits out of sales cannot be treated as unexplained cash credits. In the present case, sales declared by the assessee are fully supported by necessary evidence including purchase bills, sales bills and stock-in-trade held by the assessee. The AO, neither made out a case of sales without purchases or negative stock-in-trade when compared to sales declared by the assessee. In absence of any finding as to genuineness of purchases and negative stock-in-trade, in our considered view, sales declared by the assessee, which are supported by relevant sale bills and stock in trade need to be accepted. Therefore, in our considered view, case laws relied upon by the AO are not applicable. Learned DR relied upon the decision of ITAT Hyderabad in the case of Vaishnavi Bullion Private Limited Vs. ACIT in 58/Hyd/2021, 560/Hyd/2020, 59/Hyd/2021. We find that the facts of the present case are entirely different from the facts considered by the coordinate Bench of ITAT in the case of 15 Vaishnavi Bullion Private Limited and therefore, the case law relied upon by the Learned LD. DR is not considered.

The assessee has relied upon the decision of ITAT Visakhapatnam Bench in the case of ACIT Vs. M/s Hirapanna Jewellers in [2021] (28 taxmann.com 291). The coordinate Bench of ITAT dealt with case having similar facts ,wherein, the assessee was also jeweller and deposited cash into bank account during demonetization period. The Bench after considering the relevant facts held as under:

In view of this matter and considering the facts and circumstances of the case, we are of the considered view that the Assessing Officer has erred in making addition towards the cash deposited into bank account during demonetization period as unexplained cash credit u/s 68 of the Act. The learned CIT(A)

In the result, appeal filed by the Revenue is dismissed.