Loading judgment…
No AI summary yet for this case.
Assessee represented by Shri Suchek Anchaliya, CA Department represented by Shri Vinod Kumar, Sr. DR Date of Institution of Appeal 13/03/2023 Date of hearing 25/07/2023 Date of pronouncement 21/08/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of learned National Faceless Appeal Centre, Delhi (NFAC)/Commissioner of Income Tax (Appeals) (in short, the ld. CIT(A)) dated 01/02/2023 for the Assessment Year (AY) 2017-18. The assessee has raised following grounds of appeal: “1. On the facts and circumstances of the case and in law, the ld. NFAC erred in confirming the addition of Rs. 53,21,482/- towards cash deposits made during demonetization period by the appellant, as unexplained/unaccounted income without considering the fact that the appellant has received the cash against the sales made on or before 08th November, 2016.
2. On the facts and circumstances of the case and in law, the ld. NFAC erred in confirming the addition of Rs. 53,21,482/- in the hands of the appellant under section 68 of the Income Tax Act, 1961 on account of unexplained cash deposits without appreciating the fact that the same would lead to double taxation of the same income which was already offered and is unjust to the appellant.
3. The appellant craves leave to add, alter, classify, reclassify, delete or modify any of the above grounds of appeal and requests to consider each of the above grounds without prejudice to one another.”
2. Brief facts of the case are that the assessee is a company, engaged in the business of rough and polished diamonds. The assessee in its audit report has shown revenue from operation at Rs. 257.87 crores. The assessee while filing return of income on 17/10/2013 declared income of Rs. 1,32,546/- for A.Y. 2017-18. The case was selected for scrutiny. During the assessment, the Assessing Officer noted that during demonetization period between 09/11/2016 to 30/12/2016, the assessee made cash deposit of Rs. 56,35,000/- in four different bank accounts i.e. two bank accounts with UCO bank, third bank account with United Bank of India and fourth bank account with Indusind Bank Ltd. The assessee was asked to furnish complete details and source of cash deposit in all bank accounts. The assessee filed its reply and submitted that source of cash deposit was from the cash sale of diamonds. The Assessing Officer after verification of submission of assessee found that the assesse has shown the entire sale of diamonds from September, 2016 to November, 2016. On further verification, it was noted that the entire cash sales is only during this period and there was no cash deposit in earlier years. On the basis of such discrepancies, the Assessing Officer issued detailed questionnaire/show cause notice dated 08/11/2019 seeking comparative chart of cash sales made during the year and previous year, details of cash deposit during current year and previous year. The assessee was also asked to show the details and quality and quantity of diamonds sold during the year, and certification form Gemological Institute of America (GIA) and or Indian/International Gemological Institute (IGI) and also asked as to why the entire cash deposit should not be treated as unexplained cash credit.
The Assessing Officer recorded that the assessee filed his submission through e-proceedings. The contents of reply of assessee is recorded in para 5 of assessment order. The assessee in sum and substance submitted that they are in the business of diamonds and filing their regular return of income. The cash deposit in bank was generated from cash sales and bills for such sales were furnished. There is no reason that cash deposit was other than genuine sale. Sales during the year is similar to the earlier years. The sale of assessee is not doubted. The assessee promotes cashless transactions which is very much in line with the Central Government cashless policy. The assessee is in wholesale business of diamond i.e. B to B (business to business) and import of diamond from foreign and also purchase from local market.
The assessee started B to C trading to increase the sales. The assessee- company done well in October, 2016. The assessee specifically stated that the sales in Diwali period is not against the market tradition. The assessee also stated that sales were before demonetization period and no sales was made during the demonetization period and the cash was deposited before deadline. The cash deposit is Rs. 56,35,000/-only, against the total sale of Rs. 257.87 crores. On the question of Assessing Officer about the name and address of purchasers, the assessee explained that the cash sales was within the prescribed limit of below Rs. 2.00 lacs wherein keeping of such record is not mandatory. For the G.I certification, the assessee submitted that such certification is required for the diamond above 0.50 carrot. The assessee sold smaller size of diamonds, where no grading of diamond is required. The assessee made genuine business sales. All sales are matching with the quantitative details as shown in the invoices.
The reply of assessee was not accepted by the Assessing Officer. The Assessing Officer noted that no such cash sales were reported in earlier years and the submission of assessee is mere an afterthought story. The diamond market remains close after Diwali for 15 days. Thus, it was surprising that how the assessee managed such customers. No quality and quantity wise details traded during the impugned period was furnished for verification. It could not be ascertained whether it was actually out of sales or it was out of undisclosed income of assessee. The assessee has not furnished any details of GIA or IGI certificates. However, the Assessing Officer noted that opening cash balance with assessee was of Rs. 3,13,518 and in absence of required details, the Assessing Officer granted set off/benefit of cash deposit and made addition of Rs. 53,21,482/- (Rs. 56,35,000 – 3,13,518) and brought the same for taxation under Section 115BBE of the Income Tax Act, 1961 (in short, the Act).
Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed written submissions. Besides making similar submission, as made before the Assessing Officer, the assessee also submitted that they are maintaining books of account including purchase and sale register, stock register, ledger, day book, bank book etc. No specific defect or irregularity was found by their auditor. During assessment, the assessee furnished details of purchase alongwith name of parties, their address, ledger account, account confirmation, type of diamond purchased and sample copy. Details of sales, his PAN, address, account confirmation. Statement of month wise quantitative details of polished diamonds. The assessee also furnished summary of cash book. The assessee submitted that the Assessing Officer has not doubted the balance sheet and the sales. The assessee has total turnover of Rs. 257.87 crores including cash turnover which is approximately 0.2% only. The cash generated in the cash sales has been accounted in the books of account. Such books of account was furnished before the Assessing Officer. The Assessing Officer made addition under Section 68 of the Act by taking a view that three parameters for tests of Section 68 i.e. identity, creditworthiness and genuineness of transactions have not been established. The Assessing Officer failed to appreciate that the assesse has submitted all the required documents to prove each and every parameter of transactions. All quantitative details of stock during the assessment period is perfectly tallied with the closing stock. The assessee also relied on certain case laws. In without prejudice submission, the assessee also submitted that all sales made in cash or credit were duly accounted and recorded in the books of account and therefore, income generated through cash credits automatically offered for taxation. Any further ad hoc addition on account of cash deposit will tantamount to double taxation in the hand of assessee.
The ld. CIT(A) after considering the submission of assessee held that on announcement of demonetization of old currency notes of Rs. 500/- and Rs. 1000/-, the legal tender of such notes was allowed till midnight of 15th December for using for limited (various) purposes, some of which were summarized by him in para 4.2 of his order. The ld. CIT(A) noted that commodity of diamonds does not find place in such list prescribed by Government of India. Thus, acquiring of diamond on payment of cash were prohibited in law and nobody ventured to pay cash and acquired diamond after declaration of demonetization by Government of India. Further the claim of assessee about the sale of its stock in cash from September, 2016 to November, 2016 is improbable and is not acceptable and upheld the addition made by Assessing Officer as well as taxing the addition under Section 115BBE of the Act. Further aggrieved, the assessee has filed present appeal before the Tribunal.
We have heard the submissions of the learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue. The ld. AR of the assessee submits that the assessee is in the business of trading of diamonds. The turnover of assessee is more than Rs. 250 crores. The cash sales during the year was very meagre (short). The assessee introduced B to B and B to C business and made a cash sales during the period of September, 2016 to November, 2016. The Assessing Officer doubted the cash sales of assessee. The assessee furnished complete details of sales. All the sales were below the prescribed limit for maintaining names, address and PAN of customers i.e. below Rs. 2.00 lacs. The ld. AR of the assessee submits that most of the sales of assessee was even below Rs. 20,000/-. The assessee were not required to take specification of such pieces of diamonds, which was purchased by local artisans of jewelry or by small trader in a cash counter of assessee. All such details were filed before the lower authorities and copy of which is already placed on record. The books of assessee was not rejected by Assessing Officer. Purchase of assessee was not disputed by Assessing Officer. The stock of assessee was not doubted. The ld. AR of the assessee submitted that he has already included the cash sales in his total turnover and offered the same for taxation. The ld. AR of the assessee submits that once the books of assessee was not rejected and the Assessing Officer made addition without bringing any adverse evidence against the assessee. To support his submission, the ld. AR of the assessee has relied on the following decisions: (i) CIT Vs Vishal Overseas Exports Limited Tax Appeal No. 2471 of 2009 (Gujarat High Court) (ii) ACIT Vs Hirapanna Jewellers (2021) 128 taxmann.com 291 (Vishakhapatnam Tribunal) (iii) R.B. Jessaram Fatehchand (Sugar Dept.) Vs CIT (1970) 75 ITR 33 (Bombay High Court) (iv) M/s Nitisha silk Mills Pvt. Ltd. Vs ITO (Ahmedabad Tribunal)
(v) Mahesh Kumar Gupta Vs ACIT (2023) 151 taxmann.com 339 (Jaipur Tribunal).
On the other hand, the ld. Sr. DR for the revenue supported the orders of lower authorities. The ld.Sr.DR for the revenue submits that all the submissions of assessee was considered by the lower authorities. The ld. Sr. DR for the revenue submits that the details of sales made in cash as shown by assessee on page No. 52 to 68 of paper book clearly indicates that all the impugned sales are below Rs. 20,000/- and such entry is nothing but based on concocted and imaginary story, which is nothing but self-serving theory propounded by the assessee. The assessee has no past history of making sales either on B to B model or B to C model, that too, in cash. The ld. Sr. DR for the revenue prayed for dismissal of appeal of assessee. To support his submission, the ld. Sr. DR for the revenue supported the decisions Hon’ble Supreme Court in the case of CIT Vs Durga Prasad Morey (1971) 82 ITR 540-SC and Sumati Dayal Vs CIT (1995) 214 ITR 801/80 Taxman 89-SC.
We have considered the submissions of both the parties and perused the record carefully. We have also perused all the details filed by the assessee in his paper book. We have also deliberated on various case laws relied by the ld AR for the assessee. The assessing officer made addition of Rs. 53,21,482/- by taking view that the assessee claimed that the cash deposits during the demonetization was generated on cash sales, no such cash sales were reported in earlier years and the submission of assessee is mere an afterthought story. The assessing officer also held that diamond market remains close after Diwali for 15 days in Surat. And it was surprising that how the assessee managed such customers during closing period of market. No quality and quantity wise details traded during the impugned period was furnished for verification. It was not ascertained whether, the cash deposits were out of sales or it was out of undisclosed income of assessee. The assessing officer also held assessee has not furnished any details of GIA or IGI certificates. We find that the assessing officer made addition of cash deposits after granting set off of cash in hand. As noted above, before ld CIT(A), the assessee filed detailed written submission, which we have categorically recorded. We find that the ld CIT(A) after considering assessment order and the submissions of the assessee upheld the view of the assessing officer. The ld CIT(A) while affirming the action of assessing officer held that on announcement of demonetization of old currency notes of Rs. 500/- and Rs. 1000/-, the legal tender of such notes was allowed till midnight of 15th December for using for limited use, some of which is referred by ld CIT(A) in para 4.2 of his order. The ld. CIT(A) also held that commodity of diamonds does not find place in such list prescribed by Government of India. The ld CIT(A) further held that the claim of assessee about the sale of its stock in cash from September, 2016 to November, 2016 is improbable and is not acceptable and upheld the addition made by Assessing Officer as well as taxing the addition under Section 115BBE.
Before us, the ld AR for the assessee besides other contentions, vehemently urged that the sales of the assessee was more than Rs. 257 Crores and cash sales of the assessee was merely about Rs. 55.00 lacks, which cannot be doubted, which is less than 0.5%. Further the purchases of the assessee is not doubted, complete details were furnished by the assessee and such details were not doubted by the assessing officer. Though, we find merit in the submissions of the ld AR for the assessee, however, the stand taken by the assessee about the cash sales in the month of October 2016, itself creates doubt. We are conscious of the facts that however, strong suspicious may be, it cannot replace the evidence. Further on going through the evidence, which is filed by assessee to substantiate the cash sales, is the copy of sales register. Surprisingly, all cash sales below the amount of Rs. 20,000/- is shown from 01.09.2016 to 07.11.2016, only two instances of more than Rs. 20,000/- of sales is shown 17.10.2017 and on 201.10.2016. Further, there is no mentioned if such sales on17.10.2017 and on 201.10.2016 is made in cash or through banking channels. We also find that after 08.11.2016 no such sales below Rs. 20,000/- is reflected in the sales register. Such entry shown in the sales register creates doubt of such cash sales.
The Hon’ble Supreme Court in Sumati Dayal Vs CIT(supra) held that if on considering surrounding circumstances and applying the test of human probabilities had rightly concluded that the appellant's claim was not genuine. It could not be said that the explanation offered by the assessee in respect of the said amounts had been rejected unreasonably and that the finding that the said amounts were income of the appellant from other sources was not based on evidence. So applying the test of human probability, we could not convince ourselves, with the submissions of ld AR for the assessee that the cash deposits was from the special cash sales organized by the assessee, which was just before the demonetization period. Still we find some merit in the submissions of ld AR of the assessee that the purchases of the assessee was not doubted and the books of account of assessee was not rejected, therefore, in our view, the entire sales, though it is doubted, cannot be rejected. Therefore, keeping in view the facts that neither the assessee could prove the cash sales just before 8th November 2016, nor the assessing officer rejected the books of assessee nor disputed the purchase, hence, to avoid the possibility of revenue leakage a reasonable disallowance would meet the end of justice. Considering all the facts and circumstances of the case, in our considered view 10% cash generated on alleged cash sales is reasonable to avoid the possibility of revenue leakage. In the result, ground No. 1& 2 of the appeal are allowed. 12. In the result, this appeal of assessee is partly allowed. Order announced in open court on 21st August, 2023.