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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the Revenue, pertaining to Assessment Year (AY) 2017-18, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-4, Surat [in short “the Ld. CIT(A)”], Surat, in Appeal No. CIT(A), Surat- 4/11357/2019-20, dated 17.11.2022, which in turn arises out of an assessment order passed by Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 29.12.2019.
The grounds of appeal
raised by the Revenue are as follows:
1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.1,78,84,325/- made u/s 69A of the I.T. Act despite the facts that the assessee has failed to explain the source of cash deposited in its bank accounts during the demonetization period.
/AY.2017-18 M/s Charu Jewels 2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in observing that the cash sales made by the assessee in November, 2016 being the demonetization month were not abnormal and even less than the cash sales made in the earlier 3 months despite the facts that the sale in the month of November 2016 was only for 8 days as the demonetization was announced on 08/11/2016.
3. In addition to Ground No. 1 & 2, on the facts and in the circumstances of the case and in law, the CIT(A) has erred in observing that the cash sales made by the assessee in November, 2016 being the demonetization month were not abnormal and even less than the cash sales made in the earlier 3 months, despite the cash balance of the assessee in the earlier months prior to demonetization was in the range of Rs. 1 Cr. to Rs.2 Cr. and no documentary evidences such as bills/vouchers/invoices etc. were furnished by the assessee and further on perusal of monthly VAT returns, it could be seen that there was a column to mention 'Description of top Three Commodities' wherein the assessee has to mention tax/retain invoices nos. in said period, whereas the assessee has not mentioned sr.no. as well as number of invoices issued in said months which clearly shows that the assessee has nothing to support the cash deposited during the demonetization period.
4. Without prejudice to and in addition to the grounds No. 1, 2 and 3, on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer ignoring the principles of "Human Probability Test" i.e. preponderance of probabilities which is applicable for Income Tax proceedings.
5. On the facts and in the circumstances of the case and in law, the Ld. CIT (A)-4 ought to have upheld the order of the Assessing Officer.
6. It is, therefore, prayed that the order of the Ld. CIT (A) may be set aside and that the assessing officer may be restored to the above extent.”
Brief facts, as discernible from the orders of lower authorities are that assessee before is a partnership- firm and has filed its return of income for the year under consideration on 25.10.2017, declaring total income at Rs.4,06,390/-. The said return of income was processed by the Department u/s 143(1) of the Act. Thereafter, the case of the assessee was selected for complete scrutiny, under Manual Criteria. The statutory notice u/s 143(2) of the Act has been issued on 29.09.2018 and duly served upon the assessee on its registered e-mail
/AY.2017-18 M/s Charu Jewels address as well as through speed post also. Notice u/s 142(1) of the Act was issued on 06.11.2019 along with detailed questionnaire.
During the scrutiny proceedings, the assessing officer observed that as per return of income for the year under consideration, during the demonetization period, the assessee has made cash deposits to the tune of Rs.9,08,00,000/- in its bank account bearing no.08712080000153 with The Kotak Mahindra Bank Ltd. Besides, the above stated bank accounts, assessee also having another bank account bearing no.00670330001527 with HDFC Bank Ltd., in which, as per assessee's claim, no cash deposits were made during demonetization period. Vide questionnaire dated 06.11.2019, the assessee was requested to furnish the details of cash deposits made during the demonetization period along with source thereof. In addition to the above, assessee was also requested to furnish bills/invoice/vouchers/ confirmation in respect of cash sales made a week before the announcement of the demonetization of old Rs.1000/- and Rs.500/- notes. In order to verify the amount of cash deposited during the demonetization period, bank statements were called for by issuing notice u/s 133(6) of the Act to the Bank Manager, Kotak Mahindra Bank Ltd and HDFC Bank Ltd., Surat. The assessing officer observed that there is no discrepancies in the amount of cash deposited, declared in the return, during the demonetization period. Thereafter, a detailed show-cause notice was issued on dated 22.12.2019 and duly served to assessee through electronic mode. The relevant portion of the show-cause notice of Assessing Officer is reproduced below: “Your case has been selected for scrutiny assessment under the category of compulsory scrutiny selection criteria of the Board for the Financial /AY.2017-18 M/s Charu Jewels Year 2018-19. It is seen that till date you have not made any compliance to various notices issued during the course of assessment proceedings. You are totally non-cooperative and your reluctant approach towards on- going scrutiny proceedings compelled the undersigned to make the following additions/disallowance for want of documentary evidences: [1] In the return of income, you have reported that during demonetization period, you have made cash deposits of Rs.9,08,00,000/- in your bank accounts bearing no.08712080000153 with the Kotak Mahindra Bank. Out of this 9.08 crore, Rs.9.00 crore are in demonetized currency. On perusal of your submission, it is seen that you have made income declaration under PMKGY of Rs.6.17 crore as well as Rs.1.00 crore in IDS, 2016. For the remaining amount viz.2.11 crore [9.08-6.17-1.00] you have claimed its source as cash sales. However, you have not submitted any documentary proof of sales i.e. bills and vouchers, VAT return etc in support of your claim. Merely claiming cash sales as source of cash deposit without furnishing the supporting documents in the form of bills/invoices/voucher, cannot discharge the burden of proof lies upon you unless and until requisite documents furnished to substantiate your claim. Without prejudice to the above, all the data submitted by the assessee in respect of sale and purchase of jewellery are not duly supported by the VAT returns. Therefore, in view of the above facts, you are hereby show- caused as to why the cash deposited to the extent of Rs.2.11 crore during the demonetization period should not be added to your total income by invoking the provision of section 69A of the Act.”
In response to the above show-cause notice, the assessee filed its explanation before assessing officer, vide its letter dated 27.12.2019. In the meantime, information had been received by assessing officer from Kotak Mahindra Bank Ltd, regarding SBNs deposited by the assessee-firm during the demonetization period. The assessee had deposited Rs.9,00,00,000/- SBNs in its bank account with Kotak Mahindra Bank Ltd. In the reply to the show-cause notice, the assessee has explained that main source of cash deposits made during the demonetization period was assessee's disclosure of Rs. 1.00 Crore under IDS 2016 and Rs.6.17 Crore in PMKGY.
However, assessing officer rejected the contention of the assessee and observed that assessee has failed to justify the abnormal raise in the cash deposits made during the demonetization period.
/AY.2017-18 M/s Charu Jewels The Cash Book was submitted by the assessee during the assessment proceedings. Thereafter assessee has filed the invoices/bills on 26/12/2019 i.e. at the fag-end of the time barring so that further inquiry could be stalled. On perusal of the invoices, it has however surprised to note that on 5th 6th and 7th Nov.2016, there were a large number of sales invoices issued. Further almost all the bills issued were below Rs.50,000/- therefore, assessing officer noted that these are not genuine invoices. The assessing officer also rejected the VAT returns filed by the assessee. So far as opening balance of cash in hand is concerned, it was duly verified by assessing officer with the last year return of income and the same was found to be correct. Therefore, out of the total SBNs deposited in the bank during demonetization period i.e. Rs.9,00,00,000/-, opening cash balance of Rs.4,15,675/- as on 01.04.2016 as well as disclosure made under IDS, 2016 of Rs.1.00 crore and Rs.6.17 crore under PMKGY are treated as explained and the remaining amount of Rs.1,78,84,325/- [9,00,00,000 - 1,00,00,000 - 6,17,00,000 - 4,15,675] was to be treated as unexplained money.
The assessing officer also observed that in cases where assessee deposited huge Cash in bank accounts during Demonetization period (9th November, 2016 to 30th December, 2016), but the sources were neither explained nor such money offered for taxation, the onus is on the assessee to prove that the Cash deposits made did not bear the character of income. In this case, the assessee had failed to prove this fact that the Cash deposited during demonetization period are normal business receipts and therefore, assessing officer held that the amount of cash deposited during Demonetisation period, represented
/AY.2017-18 M/s Charu Jewels income from undisclosed sources. The assessee has concealed its true income which otherwise is taxable. Therefore the entire sum of Rs.1,78,84,325/-deposited in old notes was deemed by assessing officer, as unexplained money u/s 69A of the Income Tax Act, 1961 and added to the Total income of the assessee. The assessing officer also stated that the total income assessed should be taxed u/s 115BBE of the Act at the rate of 60% tax rate.
Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has deleted the addition made by the Assessing Officer. The ld CIT(A) observed that there was no abnormal sales during the period. Besides, VAT return filed for the impugned assessment year (AY) has been accepted by the VAT authorities as per the order u/s 32/34/35 of Gujarat Value Added Tax Act, 2003 dated 20.10.2020. In the said assessment order, the sales by the assessee in the income tax return have been accepted. The ld CIT(A) also observed that assessee`s cash sales are about 74% of the total sales and the cash deposit to the tune of Rs.1.78 crore added by the assessing officer as unexplained money was not abnormal after verifying the figures for earlier two assessment years. The month-wise total sales and cash sales, were tallying with the monthly VAT returns and the annual VAT return filed by the assessee, therefore, based on this factual the ld CIT(A) deleted the addition. Aggrieved by the order of ld. CIT(A), the Revenue is in appeal before us.
Learned Departmental Representative (ld. DR) for the Revenue, argued that assessee had deposited cash in bank accounts, but the sources were not explained by the assessee. No doubt, out of Rs.9.08
/AY.2017-18 M/s Charu Jewels crores, the assessee had declared Rs.6.17 Crores under PMKGY Scheme and Rs.1 Crore in IDS 2016, despite of this, a few incomes has been concealed by the assessee. Therefore, the onus is on the assessee to prove that the cash deposits made are from genuine sale of business. Therefore, ld DR contended that addition made by the assessing officer may be confirmed.
Shri Rasesh Shah, Learned Counsel for the assessee submitted that assessee has made income declaration under PMKGY of Rs.6.17 crore as well as Rs.1.00 crore in IDS, 2016 scheme and paid the taxes on total amount of Rs. 7.17 crores (Rs.6.17+ Rs.1.00), therefore such honest assessee should not be punished. Despite of this, the assessing officer made addition of Rs.1.78 crore. The ld Counsel submitted that there was no abnormal sales during the period. Besides, VAT return (showing sales) filed by the assessee for the impugned assessment year (AY) has been accepted by the VAT authorities, therefore genuineness of the sale should not be doubted. Therefore, ld Counsel contended that ld CIT(A) has passed the speaking order considering all aspects and facts of the assessee, hence such speaking order may be upheld.
We have heard both sides in detail and also perused the records of the case including the paper book filed by the assessee- company running in to 326 page. The necessary facts of the case have already been discussed in paragraphs above. On examination of the facts and circumstances of the case, we find merit in the submission of ld Counsel for the assessee to the effect that assessee has made income declaration under PMKGY of Rs.6.17 crore as well as Rs.1.00 crore in IDS, 2016 scheme and paid the taxes on total amount of Rs. 7.17
/AY.2017-18 M/s Charu Jewels crores (Rs.6.17+ Rs.1.00). We note that despite of payment of huge taxes by the assessee, the assessing officer made further addition of Rs.1.78 crores in the hands of the assessee, taking differential amount between sales and amount declared in PMKGY of Rs.6.17 crore as well as Rs.1.00 crore in IDS, 2016 schemes. We note that assessee`s cash sales are about 74% of the total sales and this trend can be seen in past assessment years therefore it cannot be said that during the demonetization period the assessee has made more cash sales. We note that considering the cash sales of past years, the sales during the demonetization period is not abnormal sales. We note that during the demonetization period, the assessee had deposited cash amounting Rs.9.08 Crores in its bank account no. 08712080000153 maintained with Kotak Mahindra Bank. Further, out of the above amount of Rs.9.08 Crores, the assessee had declared Rs.6.17 Crores under PMKGY Scheme and Rs.1 Crores in IDS 2016. Subsequently, assessment order u/s 143(3) of the Act was framed by the assessing officer on 29.12.2019, by making addition of Rs.1,78,84,325/-. Such addition was worked out by the assessing officer in the assessment order stating that out of the total SBNs deposited in the bank during demonetization period i.e. Rs.9,00,00,000/-, opening cash balance of Rs.4,15,675/- as on 01.04.2016 as well as disclosure made under IDS, 2016 of Rs.1.00 crore and Rs.6.17 crore under PMKGY are treated as explained and the remaining amount of Rs.1,78,84,325/- [9,00,00,000 - 1,00,00,000 - 6,17,00,000 - 4,15,675] was to be treated as unexplained money.
Before us, the assessee submitted the following documents and evidences, to explain remaining amount of Rs.1,78,84,325/-, (which
/AY.2017-18 M/s Charu Jewels were filed before lower authorities), viz: (i) Tax Audit report along with Audited Financial Statements (vide Pb.14 to 32), (ii) Acknowledgement of Return of Income alongwith Computation (vide Pb.33 to 35), (iii) VAT Annual Return (vide Pb.36 to 40), (iv) VAT Audit report (vide Pb.41 to 63), (v) VAT returns for the month of October, November and December (vide Pb.64-75), (vi)Notice u/s 142(1) issued by assessing officer (vide Pb.76 to 79),(vii)Letter of reply filed by assessee, before assessing officer (vide Pb.80 to 81),(viii) Show cause notice issued by assessing officer (vide Pb.82 to 84),(ix) Letter filed before assessing officer (vide Pb.85 to 86),(x) Show cause notice issued by assessing officer (vide Pb. 87 to 88), (xi) Letter of reply filed before assessing officer (vide Pb.89 to 91),(xii) Letter of reply filed before assessing officer (vide Pb.92 to 93),(xiii) Letter of reply filed before assessing officer (vide Pb.94 to 97),(xiv) VAT Assessment Order (vide Pb.98 to 107), (xv)Relevant page of ITR of AY 2016-17 (vide Pb.108),(xvi) Form 1 and 2 filed under PKMGY (vide Pb.109 to 112), (xvii) Form 2, Form 3 and Form 4 filed under IDS, 2016 (vide Pb.113 to 116),(xviii)Cash Book for the period 01.10.2016 to 31.12.2016 (vide Pb.117 to 134),(xix) Bank statement of Kotak Mahindra Bank (A/c No.08712080000153) for the period from 01.04.2016 to 31.03.2017 (vide Pb.117 to 134),(xx) Sample sales bill for the period 05.11.2016 to 07.11.2016 (vide Pb.217 to 247),(xxi) Sales and sales return book (vide Pb.248 to 307),(xxii) Purchase and purchase return book (vide Pb.308 to 323),(xxiii)Month wise details of sale for FY 2015-16 & FY 2016-17 (vide Pb. 324 to 325),(xxiv) Chart of cash and bank balance from FY 2013-14 to FY 2018-19 (vide Pb.326).
/AY.2017-18 M/s Charu Jewels 13. Taking into account the above factual documents and evidences, we note that during the impugned assessment year (AY), the assessee's cash sales are Rs.21.67 Crore out of total sales of Rs.29.27 Crore. This shows that the assessees cash sales are about 74% of the total sales. The following table shows the month-wise total sales and cash sales which are tallying with the monthly VAT returns and the annual VAT return filed by the assessee.
Month Total Sale Cash Sale Cash Sale Credit Sale (Cash (Banking channel receipt) Receipt) Apr - 16 9661882 6879800 1034254 1747828 May -16 42802436 33845419 3598591 5358426 Jun- 16 23210860 18942485 2816603 1451772 Jul-16 41819066 37205101 1668079 2945886 Aug-16 31638934 25111773 4401743 2125418 Sep - 16 24031919 19532984 4468529 30406 Oct -16 51507705 43948369 5487747 2071589 Nov-16 20670414 18412087 1627160 631167 Dec - 16 8783956 2571636 6044656 167664 Jan-17 14119421 2153260 9377916 2588245 Feb -17 14874271 3776655 9699709 1397907 Mar-17 9609056 4352491 5087536 169029 Total 292729920 216732060 55312523 20685337 From the above table, the ld CIT(A) observed that the assessee's cash sales in the demonetization month are Rs.1.84 Cr. which are much less than the previous 3 months i.e. October 2016 it was Rs.4.39 Cr. in September, 2016 it was Rs.1.95 Cr. and in August, 2016 it was Rs.2.51 Cr. This proves that the cash sales in the month of November, 2016, which is the demonetization month, were not abnormal and so to say, were less than the earlier 3 months. As regards the total cash sales for the earlier 2 assessment years the figures were 77% for assessment year (AY) 2015-16 and 71% for AY 2016-17, hence, the cash sales of 74% during the impugned AY were not abnormal but were in the range of 70% to 77%. Further, the cash balance
/AY.2017-18 M/s Charu Jewels maintained by the assessee in the months prior to the demonetization was verified and it was found that the assessee was having a cash balance in the range of Rs.1.26 Cr. to Rs.2.14 Cr. in the month of October, 2016 and highest balance in earlier 2 months were Rs.0.54 Cr. in the month of September, 2016 and Rs.0.64 Cr. in the month of August, 2016. Apart from the above data which proves that the cash deposit to the tune of Rs.1.78 Cr. added by the assessing officer as unexplained money was not abnormal after verifying the figures for earlier two assessment years.
The ld CIT(A) has also noted that VAT return filed for the impugned assessment year (AY) has been accepted by the VAT authorities as per the order u/s 32/34/35 of Gujarat Value Added Tax Act, 2003, dated 20.10.2020. In the said assessment order, the sales by the assessee in the income tax return have been accepted. Thus, the cash sales made by the assessee, as part of the total sales, which are disputed by the assessing officer, in making the addition is not on the correct footing. During the appellate proceedings, the assessee relied on the decision of Hon'ble ITAT Chandigarh Bench in the case of Smt. Charu Agarwal vs DCIT reported in 140 Taxmann.com 588 dated 25.03.2022. In the said case, the Hon'ble ITAT held that cash sales made during the month of October 2016 where in line of cash sales in the earlier years and equal to sales in the month of July, 2016. Opening stock, purchases, sales and closing stock declared by the assesse were not doubted and hence, the cash deposited in post demonetization period by the assesse have to be considered out of cash sales which had been accepted by the Sales Tax / VAT Department and not doubted by the assessing officer. It was further
/AY.2017-18 M/s Charu Jewels held that the assesse had sufficient stock available to make cash sales and therefore, sales made by the assesse out of existing stock were sufficient to explain deposit of cash realized from such sales in the bank account and could not have been treated as undisclosed income of the assesse.Therefore, ld CIT(A) held that the ratio of the decision of Hon'ble ITAT referred to above by the AR of the assessee is applicable to the facts of the assessee's case.
The ld CIT(A) observed that the cash sales made by the assessee in November, 2016, being the demonetization month were not abnormal and even less than the cash sales made in the earlier three Months. Even the cash balance of the assessee in the earlier months prior to demonetization was in the range of Rs. 1 Crore, to Rs.2 Crore, which justify the deposit of cash to the tune of Rs.1.78 Crore made by the assessee during the demonetization period. The assessee has already declared an amount of Rs.6.17 Cr. in PMGKY and Rs. 1Cr. in IDS, 2016 and hence, the cash deposited in addition to these declarations of Rs.1.78 Crore in the facts and circumstances of the assessee’s case need to be accepted as the cash generated from regular sales which are accepted by the VAT authorities. Based on this factual and legal position the ld CIT(A) deleted the addition made by the assessing at Rs.1,78,84,325/-. We have gone through the above findings of ld CIT(A) and noted that conclusion reached by ld CIT(A) does not have any infirmity. On a careful reading of the Ld.CIT(A) order and the findings thereon, we do not find any valid reason to interfere with the decision and findings of the Ld.CIT(A) therefore, we confirm the findings of ld CIT(A) and dismiss the appeal filed by the Revenue.
/AY.2017-18 M/s Charu Jewels 16. In the result, appeal filed by the Revenue is dismissed.
Order is pronounced on 19/10/2023 in the open court.