ALOK MAHESHCHANDRA AGRAWAL,JALGAON vs. DCIT - 1, JALGAON, JALGAON

ORDER

PER DR. DIPAK P. RIPOTE, AM:

“1 On facts and in circumstances of the case and in law, the learned The Commissioner of Income-tax (Appeals), National Faceless Appeal Centre [hereinafter referred to as learned CIT(A) erred in passing the Order u/s. 250 of the Income-tax Act, 1961 (the Act) without appreciating the provisions of law, statutory schemes, facts, submissions, documents and case laws. The Appellant prays that the entire assessment be treated as bad in law.

2.1 The learned CIT(A) erred in law in upholding the invoking of provisions of Sec.68 ofthe Act for making addition on account of closing cash balance of Rs.18,69,425 even though the Appellant had explained the nature and source thereof. The Appellant prays that the addition made u/s 68 of the Act be deleted in toto.

2.2 The learned CIT(A) erred in upholding the addition on account of closing cash balance as unexplained cash credit u/s. 68 of the Act by ignoring the explanation and documentary evidence furnished In the Appellant. The Appellant prays that the addition made u/s. 68 of the Act be deleted in toto.

2.3 The learned CIT(A) erred in upholding the addition made u/s. 68 of the Act by the Assessing Officer in respect of Closing Cash Balance on the presumption that cash balance was inflated to introduce unaccounted cash by the Appellant even though explanation for regular cash deposits was provided with supporting documents. The Appellant prays that the addition made u/s. 68 of the Act on this account be deleted in toto.

2.4 The learned AO erred in upholding the addition made u/s. 68 of the Act by the learned AO even though the books of accounts, inventory records, audit reports, etc. were duly accepted by the learned AO and addition was made merely on the speculation that the Appellant has inflated amount of stock/sales as return of income was filed after announcement of demonetisation. The Appellant prays that the addition made u/s.68 of the Act on this account be deleted in toto.

2.5 The learned CIT(A) erred in upholding the addition without considering the amount of cash sales, cash balances and regular cash deposits by the Appellant throughout the year.

The Appellant prays that the addition made u/s. 68 of the Act on this account be deleted in toto. 2.6. The learned CIT(A) erred in upholding the addition made on the assumption that invoices are bogus as they do not mention complete address and VAT registration number without considering the fact that the Appellant is a retailer and not all the customers would have VAT registration. The Appellant prays that the addition made u/s.68 of the Act on this account be deleted in toto. 2.7 The learned CIT(A) erred in upholding the addition of closing cash balance made on the assumption that it was inflated after announcement of demonetisation without considering the fact that this cash balance was duly deposited in the bank on 02-04- 2016 i.e. prior to announcement of demonetisation on 08-11- 2016. The Appellant prays that the addition made u/s. 68 of the Act on this account be deleted in toto. 2.8 The learned CIT(A) erred in upholding the addition of closing cash balance merely on the basis of difference between debits and credits in the bank account which was then assumed to be difference between actual and manipulated closing stock by the learned AO without any logical explanation. The Appellant prays that the addition made u/s.68 of the Act on this account be deleted in toto. 2.9 The learned CIT(A) erred in upholding the addition of closing cash balance on the basis of events like the Appellant had not taken any action against Assessment Order or proceedings u/s. 2nd of the Act and VAT Returns were revised, etc. The Appellant prays that the addition made u/s. MS of the Act on this account be deleted in toto. 2.10 The learned CIT(A) erred when he upheld the addition of entire amount of closing cash balance as income of the Appellant, and, not the profit embedded therein. I he Appellant prays that the addition made u/s. 68 of the Act be deleted in toto. 2.11 The learned C1T(A) erred in upholding the addition made by the Assessing Officer on this count based on speculation and without any evidence and ignoring the details provided by the Appellant. The Appellant prays that the addition made u/s. 68 of the Act be deleted in toto.”

Brief facts of the case : 2. Assessee is an individual engaged in the business of trading of edible oil. Assessee filed Return of Income for A.Y.2016-17 on 19.01.2017 declaring total income at Rs.13,42,710/-. Assessee’s case was selected for scrutiny. The Assessing Officer(AO) at para no.6, 7 & 8 of the assessment order observed as under :

Submission of ld.AR : 4. Ld.AR submitted that entire thrust of the Assessing Officer is on only one issue i.e.Assessee filed Return of Income after Demonetization and therefore, introduced Unaccounted Cash. Ld.AR invited our attention to the bank statement to demonstrate that AO has made addition of cash deposit of Rs.32,13,324/- which was deposited on 02.04.2016. Ld.AR raised the question that how assessee could have imagined on 02.04.2016, when he deposited cash in bank that after 7 months Demonetization is going to take place. Therefore, the entire case of the Department is baseless. Ld.AR submitted that it is alleged by assessee that VAT Return was filed after Demonetization. Ld.AR also stated that it has been alleged by AO that Bills issued by assessee did not contain complete address of the purchaser. Ld.AR submitted that Assessee is a retailer. Throughout the year, assessee has issued the bills to the purchasers and hardly any bills contain address. Inspite of that Department has accepted the sale. Ld.AR submitted that in retail business no purchaser provides address. Ld.AR has enclosed sample bills in the paper book. Ld.AR also submitted that AO has made addition based on an imaginary calculation of closing stock which he arrived based on bank statement. No accounting book provides for calculation of closing stock based on bank statements. Assessee’s books of accounts are audited. Assessee maintains proper stock register. Assessee maintains proper inventory. AO has not verified any of these details and arrived at an imaginary closing stock. During the year, assessee’s total sales were Rs.49,59,04,360/- out of which sale of Rs.41,67,92,775/- was in cash. The assessee deposits the cash in bank within next one to two working days. This has been consistent practise even in earlier years. The AO has not challenged either the sale or purchase, but made an addition on surmises. Therefore, the Addition is not sustainable in law.

Submission of ld.DR : 5. Ld.DR relied on the order of AO and ld.CIT(A). However, ld.DR could not answer the specific query raised by Bench regarding calculation of closing stock based on bank statement as done by AO. Ld.DR accepted that there is no such method prescribed in the Act or Accounting Standards to calculate closing stock based on bank statement.

Findings &Analysis : 6. We have heard both the parties and perused the records. Admittedly, the assessee is a Trader. The Assessee’s sale throughout the year is mainly in cash. Total sale during the year is Rs.49,59,04,360/-.During the year, the assessee has deposited Cash. Assessee had submitted before us that most of the Bills issued by him do not contain address as in retail business customers do not provide address. The Assessee in the paper book has filed copies of some bills and we noted that nowhere address of the customers was mentioned. The AO has accepted this entire sale. AO has not challenged the purchases.

6.1 It was submitted by the Assessee before the AO that the opening cash Balance on 29/03/2016 was Rs.28,51,434/- out of which Rs.24,00,000/- was deposited in Bank on 29/03/2016. The closing cash balance as on 31/03/2016 was Rs.32,13,324/- accumulated out of cash balance of Rs.451434/- of 29/03/2016, accumulation of cash sales Rs.11,04,573/- of 29/03/2016, 7,26,521/-of 30/03/2016, and Rs.9,62,426/- of 31/03/2016. Assessee claimed that no cash was deposited in Bank on 30th March,31 March and 1stApril . The assessee had submitted cash book, bank statement before the AO. AO has not doubted these facts.

6.2 However, AO has calculated difference in the closing stock based on the Bank Statement. However, in the accounting standards prescribed by ICAI and in the standard accounting books, no such method is provided for calculating the difference in closing stock based on the bank statement. Ld.DR has accepted that no such method exists. This shows that the AO has calculated the difference in closing stock arbitrarily. The Ld.CIT(A) has not applied mind but just confirmed the addition. Therefore, there is no merit in the addition made by the AO based on arbitrary calculation of closing stock.

6.3 As far as not mentioning of Address of customers on the bills is concerned, it is observed that AO has accepted the entire sale, when admittedly most of the bills did not contain address of the customers.

6.4 The Hon’ble Bombay High Court in the case of R.B. Jessaram Fetehchand Vs. CIT [1970] 75 ITR 33(BOM) has observed as under on the issue of cash sale without address of the customers: Quote, “All that is not done is that the addresses are not entered and on enquiry the assessee was unable to supply the addresses. Since, having regard to the nature of the transaction and the manner in which they had been effected, there was no necessity whatsoever for the assessee to have maintained the addresses of cash customers, the failure to maintain the same or to supply them as and when called for cannot be regarded as a circumstance giving rise to a suspicion with regard to the genuineness of the transactions.” Unquote.

6.5 The above observation of Hon’ble Bombay High Court is squarely applicable to the present case. We have already stated that the AO has accepted the entire sale and purchases. Therefore, not having address of the customers in this typical retail business cannot be the ground for addition that too part addition. AO has accepted Total Sale of Rs.49,59,04,360 /- most of which is in cash, bills are without address of the customers, then AO cannot selectively add Rs.32,13,324/-stating that Assessee failed to prove genuineness of cash sales. Assessee had produced the cash book, sales register to prove the cash sale.

6.6 In these facts and circumstances of the case we are of the opinion that the addition made by the AO of Rs.32,13,324/- is arbitrary and without any basis. Hence the AO is directed to delete the impugned addition. Accordingly, grounds of appeal raised by the assessee are allowed.