CHIRAGBHAI S. GADHIYA,SURAT vs. I.T.O., WARD-3(2)(6),, SURAT

Assessee represented by Miss Chaitali Shah, CA Department represented by Shri Vinod Kumar, Sr. DR Date of hearing 31/05/2023 Date of pronouncement 28/07/2023 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 National Faceless Appeal Centre, Delhi (NFAC)/Commissioner of Income Tax (Appeals) [in short, the ld. CIT(A)] dated 25/08/2021 for the Assessment Year (AY) 2016-17 wherein the assessee has raised following grounds of appeal. “1. On the facts and circumstances of the case as well as law on the subject, the assessing officer has erred in making addition of Rs. 24,91,375/- on account of unexplained cash credit u/s 68 of the I.T. Act, 1961.

2. On the facts and circumstances of the case as well as law on the subject, the assessing officer has erred in rejecting books of account of the assessee.

3. It is therefore, prayed that above penalty levied by the assessing officer may please be deleted.

4. Appellant craves leave to add, alter or delete any ground(s) either before on in the course of hearing of the appeal.”

Chiragbhai S. Gadhiya Vs ITO 2. Brief facts of the case are that the assessee is engaged in the business of textile value addition work and job work on retail basis. The assessee filed return of income for A.Y. 2016-17 on 26/03/2017 declaring income of Rs. 3,23,570/-. The case was selected for scrutiny. During the assessment, the Assessing Officer noted that during demonetization period from 09/11/2016 to 31/12/2016, the assessee made cash deposit of Rs. 62.00 lacs in bank account maintained with Bank of Baroda, therefore, the case of assessee was scrutinized as per guidelines issued by Central Board of Direct Taxes (CBDT) vide Circular No. 225/391/2017 dated 24/11/2017. During the assessment, the Assessing Officer asked to furnish cash from various persons, details of textile labour income and income on sale of plot. The Assessing Officer recorded that no documentary evidence was furnished, proof of genuineness of certain transactions. The assessee was also asked to furnish source of cash in hand in his balance sheet as on 31/03/2016 with necessary evidence. The assessee furnished cash book of F.Y. 2015-16 stating the source of cash, as such, cash was received from Sanjay Silk Mils, Vitrang Creation, Yagnika Silk Mills and Zapiya Fashion. In order to verify the transaction, the Assessing Officer issued notice under Section 133(6) of the Income Tax Act, 1961 (in short, the Act) at the address of the parties. The Assessing Officer recorded that all notices were returned back with comments “incomplete/address not known”. The Assessing Officer Chiragbhai S. Gadhiya Vs ITO deputed Inspector of Income Tax to verify the existence and the capacity of creditors. The Assessing Officer recorded that the Inspector furnished adverse report from whom the cash was received. The Inspector reported that no such parties are available at the address filed by the assessee. The Assessing Officer issued notice dated 30/08/2018 asked the assessee to file confirmation, return of income and proper address of all the parties to prove the genuineness of transaction. The Assessing Officer further recorded that no response was received from the assessee. The Assessing Officer issued a final show cause notice dated 27/09/2018. Contents of show cause notice is recorded in para 5 of assessment order. In the show cause notice, the Assessing Officer asked as to why the cash in hand of Rs. 24,91,375/- as on 31/03/2016 should not be added for A.Y. 2016-17 as unexplained cash credit. The Assessing Officer recorded that assessee filed reply to show cause notice. The contents of reply is not recorded by Assessing Officer. The Assessing Officer recorded that such reply is not found acceptable. The Assessing Officer further recorded that authorised representative of assessee argued that the debtors from whom cash was received was part of audited balance sheet for A.Y. 2015-16 and assessee made sale to them in A.Y. 2015-16 on credit basis. Such contention was also not accepted by Assessing Officer by taking a view that the assesse failed to prove the genuineness of transaction by not furnishing confirmation, Chiragbhai S. Gadhiya Vs ITO ITR and proper address. The Assessing Officer treated the opening cash balance as on 30/03/2016 of Rs. 24,91,375/- as income from unexplained sources in the assessment order dated 30/10/2018 passed under Section 143(3) of the Act.

Chiragbhai S. Gadhiya Vs ITO CIT(A). The ld. CIT(A) relied upon the decision of Hon'ble Punjab & Haryana High Court in Anil Goel Vs CIT (2008) 306 ITR 212 (P&H), in the said case, it was held that when the assessee was given ample opportunity to make submission by appearing in person or through authorised person, no one had put in appearance nor justifiable reason for adjournment was given. Thus, there was no justification and upheld the addition. Against the specific grounds of appeal about rejection of books of account without invoking Section 145, the ld. CIT(A) held that the assessee has not offered any explanation about the nature and source of the amount credited in the accounts, thus, books of account produced by the assessee were rejected. The ld. CIT(A) specifically recorded that he has seen that Section 145 was invoked as only Section 145 gives the authority to Assessing Officer to reject the books of account. Further aggrieved, the assessee has filed present appeal before this Tribunal.

5. I have heard the rival 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 during the assessment, the Assessing Officer proposed to reject the cash book and to make addition of Rs. 24,91,375/- as cash in hand on 31/03/2016 as unexplained cash credit. The Assessing Officer has not invoked Section 145 and Section 68 of the Act. In Chiragbhai S. Gadhiya Vs ITO response to show cause notice of Assessing Officer, the assessee filed reply on 04/10/2018. Though, the Assessing Officer made addition as proposed in the assessment order, however, books of account was not rejected and made addition under Section 68 of the Act. Thus, impliedly accepted the submission of assessee. The ld. AR of the assessee submits that books of assessee cannot be rejected when debtors could not be traced. The assessee made sales to the impugned debtors in A.Y. 2015- 16 and the amount was reflected in sundry creditors in the audited balance sheet as on 31/03/2015 so the books of account of current year cannot be rejected when books of account of preceding year was duly audited and debtors of Rs. 28,94,233/- were appearing in the audited financial statement. The sales made during the earlier year were supported by bills and challans. In the course of assessment proceedings, the assessee filed sales register for financial year 2014-15, copies of bills and ledger accounts of the parties. The assessee also filed cash book of current year where sale proceeds were received from debtors and creditors. No defects were found by Assessing Officer. The auditors has not made any clarification in the audit report of F.Y. 2014-15. The ld. AR submits that the assessee has made declaration in IDS-2016 of Rs. 50.00 lacs for A.Y. 2015-16 and therefore, the defects, omission if any, is covered by declaration made by assessee. The reliance placed by ld. CIT(A) in Unit Construction Co. Ltd. Vs JCIT 260 ITR 189 (Cal.) is Chiragbhai S. Gadhiya Vs ITO misplaced. In the said case, it was held that it was not necessary to reject the books of account to make addition under Section 69 r.w.s. 69B. It was submitted that even without rejecting books of account, addition cannot be made. The ld. AR of the assessee submits that the Assessing Officer in the assessment order, referred the guidelines of CBDT issued on 24/11/2017. Such guidelines were issued as standard operating procedure (SOP) for verification of issues arising out of cash deposit due to demonetization where the return of income is revised or filed belatedly. In such guidelines, it was laid down that verification should be made where significant higher cash in hand is disclosed as on 31/03/2016 or on 31/03/2015 compared to preceding year in the belated return. The guidelines are in respect of cash deposits of high denomination notes falling in the assessment year 2017-18. The assessee has shown cash balance of Rs. 24,91,375/- as on 31/03/2016 and thus the case was taken for limited scrutiny independently. As the assessee has shown large cash and not because of cash deposited of Rs. 62.00 lacs during demonization period. No addition was made in A.Y. 2017-18 when the cash was deposited. Even protective addition was not made. The Assessing Officer made addition of alleged unexplained cash on hand appearing in the balance sheet as on 31/03/2016. The item is appearing on the asset aside of the balance sheet and not liability side of the balance sheet and therefore no addition under Section 68 can be made.

Chiragbhai S. Gadhiya Vs ITO Further no addition under Section 69A as unexplained money can also be made as the cash on hand is duly recorded in the books of account. The assessee made declaration under IDS-2016 and therefore, the defects if any in the books of account of preceding year when the sales was made, is covered. The ld. AR submits that during the assessment proceedings, the assessee relied on the decision of Kolkata Tribunal in Siddhartha Kandar Vs ITO in which was not accepted by Assessing Officer by taking view that the facts are different. In the said case, addition was made for unexplained debtors of Rs. 1,75,200/- which was deleted by the Tribunal by holding that the amount received from debtors at the end of year was duly accounted in the books of account of next year and addition of sundry debtors was held as not sustainable. To support his submission, the ld. AR of the assessee also relied upon the decision of Bangalore Tribunal in Anantpur Kalpana vs ITO ITA No. 541/Bang/2021, Sanand Textiles Industries Ltd. Vs DCIT ITA No. 995/Ahd/2014, decision of Hon'ble Rajasthan High Court in Smt. Harshila Chordia Vs ITO 298 ITR 349, Kolkata Tribunal in Shri Sanjeev Kejriwal Vs ITO ITS No. 371/Kol/2010, Hon'ble Supreme Court in CIT Vs Devi Prasad Vishwanath 72 ITR 194 (SC) and the decision of Delhi Tribunal in Racmann Springs (P) Ltd. Vs DCIT 52 TTJ 660. The ld. AR of the assessee further submits that when books of account was rejected, profit is required to be estimated on the credit made by way of cash in Chiragbhai S. Gadhiya Vs ITO the books. To support such submission, the ld. AR relied on the decision of Hon'ble Apex Court in the case of Brij Bhushan Lal Parduman Kumar Vs CIT 115 ITR 524 (SC) and decision of Ahmedabad Tribunal in Shree Sanand Textiles Industries Ltd. Vs DCIT ITA No. 995/Ahd/2014.

Chiragbhai S. Gadhiya Vs ITO 8. I have considered the submissions of both the parties and have gone through the orders of the lower authorities carefully. The Assessing Officer made addition of Rs. 24,91,375/- by taking a view that the assessee has failed to satisfactorily explained source of credit in the books of account as required under Section 68 of the Act. I find that the Assessing Officer in his show cause notice, asked the assessee to explain the source of cash and genuineness of debtors. The Assessing Officer recorded that the assessee filed reply to the said show cause notice. However, contents of reply is not recorded by Assessing Officer. I find that in response to such show cause notice, the assessee filed detailed reply dated 04/10/2018, copy of which is placed on record at page No. 5 to 7 of paper book. In the reply, the assessee specifically pleaded that the debtors from whom the cash was received was part of audited balance sheet of A.Y. 2015-16. Sales were made in A.Y. 2015-16 on credit basis. Money were receivables as on 31/03/2015, income/profit on those sales which are standing in the balance sheet as sundry debtors already been offered for taxation in A.Y. 2015-16. Those sales which turn into sundry debtors as on 31/03/2015 and again turn into cash during subsequent year is added in the income, it will be taxed twice which is against the law. I find that the Assessing Officer has not referred the contents of reply and conveniently overlooked and simply rejected such contention. The Assessing Officer straightway proceeded to make the Chiragbhai S. Gadhiya Vs ITO addition under Section 68 by making reliance on the report of Inspector that parties are not available at the address provided by assessee. It is settled position that for making addition under Section 68, maintenance of books of account is compulsory and any sum found to be credited and the name of creditors which remained outstanding is treated as cash credit.

raised by the assessee are allowed.

11. In the result, this appeal of assessee is allowed. Order announced in open court on 28th July, 2023.