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Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of National Faceless Appeal Centre, Delhi [for short to as “NFAC/Ld.CIT(A)”] dated 23.03.2022 for assessment year 2017-18, which in turn arises from the addition made by the Income Tax Officer, Ward-5, Navsari / Assessing Officer in assessment order passed under section 144 r.w.s143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.12.2019. The assessee has raised the following grounds of appeal:-
1. On the facts and in the circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action (A.Y 17-18) Thakordas Parekh & Sons of Assessing Officer in rejecting the books of accounts u/s 145(3) of the Act.
2. On the facts and in the circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of Rs.18,07,500/- by rejecting the genuine cash sales and treating it as unexplained cash credit in the bank account u/s 68 of the Act.
3.On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the actin of Assessing Officer in levying tax on the addition amount of Rs.18,07,500/- by invoking the prs of sec.115BBE of the Act.
On the facts and in the circumstances of the case as well as law on the subject, the Assessing Officer has erred in taxing the income u/s 115BBE @ 77.25% in a retrospective manner by applying the duly substituted S.115BBE inserted retrospectively instead of taxing it at 33.54% as per the old provisions of S.115BBE.
It is therefore prayed that addition made by the Assessing Officer and confirmed by CIT(A) may please be deleted.
Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
Brief facts of the case are that assessee is a partnership firm engaged in the business of trading in gold & silver ornaments, filed its return of income for assessment year (AY) 2017-18 on 02.09.2017 declaring total income of Rs.7,49,450/-. The case of assessee was selected for scrutiny. During assessment, the Assessing Officer noted that assessee has made cash deposit of Rs.32.50 lakh in bank with The Gandevi Peoples’ Co-Operative Bank Ltd., in (A.Y 17-18) Thakordas Parekh & Sons the demonetization period. The assessee was asked to explain the source of such cash deposits. The assessee explained that cash deposit was out of cash sales and accumulated cash balance available in cash book. On verification of details for month-wise cash sales and labour income, cash deposited and cash expenses submitted by assessee-firm, the assessing officer was of the view that cash sales in the months of October & November, 2016 were tremendously increased in comparison to sales of corresponding period of preceding year as well as sales up to September, 2016. On the basis of such observation, the Assessing Officer doubted the genuineness of such cash transaction or sales. On further verification comparative chart of sales, the Assessing Officer noted that in the month of October, 2016, sales of Rs.25,19,253/-, which is more than double as compared to any of the current year’s months’ sales figures as well as in the immediate preceding year’s months. In November, 2016, the sales were reported at Rs.14,04,098/-, which was very high in comparison the sale of preceding year. The assessee explained that due to festival occasion of Navaratri and Deepawali, sales were (A.Y 17-18) Thakordas Parekh & Sons increased. On verification and comparison of month-wise sales of immediate previous year, no such increase in sales were found. The Assessing Officer asked the assessee to provide the list of customers with their names and addresses. The assessing officer noted that no such details were furnished by assessee. The Assessing Officer after making comparison of sales of October and November 2015, with the current year’s moth of October and November 2016 found that sale report by assessee is not in line with earlier year sales and there was excess sale of Rs.14,61,332/- and Rs.3,46,177/- aggregating to Rs.18,07,500/-. The assessee claimed to have sold to unidentified persons prior to demonetization period. On the basis of such observation, the Assessing Officer issued show cause notice dated 20.12.2019 why the amount of Rs.18,07,500/- should not be treated as unexplained cash credits under section 68 of the Act and taxed under section 155BBE of the Act. The assessing officer recorded in the show cause notice that assessee-firm has failed to furnish complete details of parties to whom sales were made leading to cash generation. Further assessee failed to justify the abrupt (A.Y 17-18) Thakordas Parekh & Sons cash sales just before demonetization period. Thus, the book of assessee is also liable to be rejected. On such observation, the Assessing Officer proposed to reject the book of assessee and to make addition of Rs.18,07,500/-.
The show cause notice was replied by assessee by filing reply dated 23.12.2019 and 28.12.2019 respectively. The assessee-firm, in its reply dated 23.12.2019 contended that there was no specific trend in monthly cash collection during both the years due to numerous reasons like retail cash business, festival season, marriage seasons, agricultural crop sales season, NRI customer season etc. Thus, it is not correct method to compare monthly sales with the previous year’s monthly sales. The comparative details of cash sales and labour income from April, 2015 to November, 2015 similarly for April, 2016 to November, 2016 respectively in the following manner:- Month Cash sales, labour Months Cash sales, labour income & debtors income & debtors April, 2016 5,73,008 April,2015 17,93,639 May, 2016 7,01,996 May, 2015 10,81,907 June, 2016 6,55,811 June, 2015 6,96,865 July, 2016 8,51,013 July,2015 8,48,829 Aug.2016 8,38,405 Aug.2016 11,07,845 Sept.16 9,19,784 Sept.2016 7,14,212 Oct.2016 25,19,253 Oct.2016 7,58,187 Nov.2016 14,04,098 Nov.2015 9,92,183 (A.Y 17-18) Thakordas Parekh & Sons 4. The assessee also contended that no discrepancies is point out except for the details of customers, which should not be considered as grounds for rejection of books of account under section 145(3) of the Act. The reply of assessee was not accepted by Assessing Officer and Assessing Officer held that average monthly sales up to November, 2016 was Rs.14,04,098/-. Therefore, sales of assessee for the month of October and November, 2016 respectively should be around the same figure. However, in the month of October,2016, the assessee has shown sales of Rs.25,19,253/-, which is considerable high but no cogent reason for jumping of such sales just before pre- demonetization period. Therefore, the aggregate of excess sales of Rs.18,07,500/- to unidentifiable persons were treated as unexplained cash credits and added to the income of assessee and taxed under section 115BBE of the Act. The Assessing Officer passed assessment order under section 144 r.w.s. 143(3) of the Act on 30.12.2019.
5. Aggrieved of the additions the assessee filed appeal before Ld. CIT(A). The case of assessee migrated before NFAC/Ld. CIT(A). Before NFAC/Ld. CIT(A) assessee filed detailed (A.Y 17-18) Thakordas Parekh & Sons written submission and said submission of assessee recorded in pages 11 to 24 of the order of NFAC/Ld. CIT(A). In the submission, it is noted that assessee maintains its books of account as per statutory requirement and are regularly audited under section 44AB. During the assessment, the assessee-firm furnished complete details through various submissions including copy of cash book, bank book, daily stock register, details of sale for the month of September to November, 2016, details of purchase for the month of September to November 2016, confirmation of purchaser parties, ledger copy of purchaser parties, gross profit & net profit chart for the last three years, copy of stock statement, copy of annual VAT return of current year as well as earlier years and list of top parties to whom sales were made with their names and addresses respectively. The assessee also stated that they have provided the details like names and brief address of all those customers to whom the retail sale below Rs.2.00 lakh but assessee was not required to collect the statutory details such as, PAN and address proof of such customers whose sales are less than Rs.1.00 lakh, generally, the jewellery purchased in less than Rs.1.00 (A.Y 17-18) Thakordas Parekh & Sons lakh, the assessee stated that assessee provided details of PAN of top sales of party and Assessing Officer has not made any independent inquiry or deputed Inspector nor issued any notice under section 133(6) of the Act. The assessee, on the basis of comparative sales of April, 2015 to April, 2016 and April, 2016 to October, 2016 submitted that there was no much variation in total sales in both the years. No defect was pointed out in the books of account of assessee. On the contrary, Assessing Officer rejected assessee’s books of account in arbitrary and unjustified manner. The assessee submitted that even if the book of assessee was not found to be acceptable to the Assessing Officer, he ought to have estimated the profit involved in such sale of Rs.18,07,500/-.
6. The NFAC/Ld. CIT(A) after considering the submission of assessee held that demonetization was declared by Government in November, 2016, many businessmen were suddenly left with unaccounted demonetised currency notes of Rs.500/- & Rs. 1,000/-. Various means were adopted to deposit the demonetised currencies and give them the colour of white. Various methods were attempted to explain (A.Y 17-18) Thakordas Parekh & Sons the source of the currencies as one of the methods allegedly being adopted is to increase the figure of sales during the few months prior to the period of demonetization period in the form of cash sales. The cash sales of assessee in October and November, 2016 were exponentially increased. The explanation for increasing of assessees sales, however, festival seasons, in November, such contention is not acceptable as there was no such increased in earlier years. The Assessing Officer rejected the books of account of assessee as the sales could not be verified. The Assessing Officer has given sufficient reasons and made addition of Rs.18,07,500/- on the issue of taxing the addition under section 115BBE of the Act. The NFAC/Ld. CIT(A) held that Section 115BBE is applicable from 01.04.2017. Hence, tax rate prescribed under section 115BBE will be applicable. Further aggrieved, the assessee has filed present appeal before the Tribunal.
I have heard the submission of Ld. Authorized Representative (Ld.AR) for the assessee and learned Senior Departmental Representative (ld. Sr DR) for the Revenue. The Ld. AR for the assessee submits that during the year (A.Y 17-18) Thakordas Parekh & Sons under consideration, the assessee disclosed gross profit of Rs.26,65,677/- at a profit margin of 26.95% of total turnover of Rs.98,92,855/- in the earlier year, there is a slight fall in the gross profit ratio though turnover was increased during the assessment. The assessee furnished complete details as required by Assessing Officer. In the sale bills, the name of persons and complete address were written. The Assessing Officer wrongly held that sales were made to unidentified persons but no independent inquiry was done by Assessing Officer from those customers to whom sales were made. On the sales were made in below of Rs.1.00 lakh, which was supported by sales bill/ labour bills, stock register and VAT returns and other details were also filed, but no defect was pointed out by Assessing Officer in the books of assessee. The assessee made more sales in October & November, 2016 as compared to preceding months of last year. The book of assessee cannot be rejected without specifying any defect found by Assessing Officer. To support such submission, Ld. AR for the assessee relied upon the following decisions: CIT vs. Amitbhai Gunvantbhai [1981] 129 ITR 573 (Guj), 10 (A.Y 17-18) Thakordas Parekh & Sons R.B. Jessaram Fatehchand vs. CIT 75 ITR 33, CIT vs. Vikram Plastics 239 ITR 161 (Guj) St.Teresa’s Oil Mill vs. State of Kerala 76 ITR 365 (Ker) 8. On the addition of Rs.18,07,500/- on account of unexplained cash credits, the ld. AR for the assessee submits that Assessing Officer wrongly rejected the books of account of assessee and no addition can be made as increased sales was on account of Diwali festival and booming sales compared to the earlier year. In the last year, Diwali festival was in the month of November and during the year under consideration, the Diwali festival fall in the month of October. The assessee also furnished details of sales of preceding and succeeding years respectively. On the basis of such figure, the Ld. AR for the assessee claimed that assessees sale increased about 32% in the current year compared to earlier year and there is a marginal increase of 20% in sales of current year compared to assessment year 2014-15. So sales made in the assessment years 2013-14 to 2016-17 is very much comparable with the sales of current year. In the year, sales just increased by 32% in a span of four years and so on an average the sales increased by only 8%, which is because of increasing in gold & silver price. The assessees figure of sales re comparable with the sales of 11 (A.Y 17-18) Thakordas Parekh & Sons the past years. All the sales were supported with documentary evidence and turnover of assessee matched with the turnover disclosed to the VAT Department and assessee had duly paid VAT @ 1% on the turnover disclosed. Therefore, sales cannot be disturbed by Assessing Officer unless it does not match with the turnover disclosed before VAT Department. To support such submission, the Ld. AR for the assessee relied on the following case law: Narendra G. Goradia vs. CIT (1998) 234 ITR 571 (Bom) Lakshmi Rice Mills vs. CIT (1974) 97 ITR 258 (Pat) Gur Prasad Hari Das vs. CIT (1963) 47 ITR 634 (All) Kanpur Steel Co. Ltd. vs. CIT (1957) 32 ITR 56 (All) Sri Sri Nilkantha Narayan Singh vs. CIT (1951) 20 ITR 8 (Pat) CIT vs. Kulvant Rai 291 ITR 36 (Del) Atish Singla Vs Income Tax Officer [ITA No.1185/Del/2021 dated 06.04.2022 Agson Global Pvt. Ltd. vs. ACIT 115 taxmann.com 342 (Del.Trib) Asst. Commissioner of Income-tax Vs M/s Hirapanna Jewellers [ITA No.253/Viz/2020 dated 12.05.2021] [128 taxmann.com 291 (Viz.Trib.) 9. On taxing such addition under 115BBE, the Ld. AR for the assessee submits that assessee is doing business of gold & (A.Y 17-18) Thakordas Parekh & Sons silver ornaments and assessee has no other source of income and assessee-firm has always earned business income only, and has always shown returned income from business under section 28 of the Act. The amount deposited in bank account of assessee is required to be considered as business income and there is no question of presuming to have any other source of income and Section 115BBE of the Act cannot be applied on such addition. Ld. AR for the assessee further submits that amendment made in Section 115BBE is not applicable in assessees case.To support such submission, Ld. AR for the assessee relied upon on the following case law: Dr. T.A. Qureshi vs. CIT 287 ITR 547 (SC) Lakhmichand Baijnnath vs. CIT 35 ITR 416 (SC) Nalinikant Ambalal Mody vs. CIT 61 ITR 428 (SC) CIT vs. D.P. Sandu Bros. Chembur (P.) Ltd. 273 ITR 1 (SC) CIT vs. Shilpa dyeing & Printing Mills (P.) Ltd. 39 taxmann.com 3 (Guj) J.K. Chokshi vs. ACIT Tax Appeal No.149 of 2003 (Guj) Green Associates vs. PCIT -Tax Appeal No.1199 of 2018 (Guj) DCIT vs. Radhe Developers India Ltd. 329 ITR 1 (Guj) CIT vs. Mhaskar General Hospital in Tax Appeal No.1474 of 2009 (Guj) Daulatram Rawatmull vs. CIT 64 ITRT 593 (Cal) Mansfield and Sons vs. CIT 48 ITR 254 (Cal)
(A.Y 17-18) Thakordas Parekh & Sons CIT vs. Chensing Ventures (2007) 291 ITR 258 (Mad) CIT vs. S.K. Srigir & Bros. 171 Taxman 264 (Kar) 10. On the other hand, Ld. Senior Departmental Representative (Ld. Sr-DR) for the Revenue supported the order of lower authorities. The ld Sr DR for the revenue submits that all the submissions made by ld AR for the assessee has already been considered by ld CIT(A). The assessee failed to substantiate the sudden jump in the sales in the month of October and November 2016 compare with the corresponding period of same month in 2015. On the issue of rejection of books of account, the ld Sr DR for the revenue submits that the assessing officer in para 5.5 of assessment order has clearly recorded the satisfaction regarding rejection of books of account. The ld Sr DR for the revenue prayed for dismissal of appeal.
I have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. I have also deliberated on the case law cited by Ld. AR for the assessee. The assessing officer made addition of Rs. 18,07,500/- by taking view that the sales shown by the assessee in the month of October 2016 is not in line with earlier years corresponding moths and sales is shown (A.Y 17-18) Thakordas Parekh & Sons to unidentified person and taxed the same under section 115BBE. The ld CIT(A) confirmed the addition and treatment of taxing under section 115BBE by taking view that cash sales of assessee in October and November, 2016 were exponentially increased. The explanation for increasing of assessees sales, in November 2016, was not accepted by taking view that there was no such increased in earlier years. The books of account of assessee as the sales could not be verified. Before me, the ld. AR for the assessee vehemently argued that the assessee provided complete details of the purchaser and their bills, the address and phone numbers were also mentioned on such bills, the assessing officer or by ld. CIT(A) has not made any investigation of facts. It was also vehemently submitted that all the sales were supported with documentary evidence and turnover of assessee matched with the turnover disclosed to the VAT Department and assessee had duly paid VAT @ 1% on the turnover disclosed and sales cannot be disturbed by Assessing Officer unless it does not match with the turnover disclosed before VAT Department. Though, I find merit in the submissions of ld AR for the (A.Y 17-18) Thakordas Parekh & Sons assessee that no investigation of facts was carried out by the assessing officer or by ld CIT(A) about the details provided by the assessee. However, fact remained the same that abnormal sales in the month of October 2016 created doubt in the mind of lower authorities. The explanation of assessee about exceptional jump in the sales particularly in cash sales was that market is governed by various factors like agriculture sales, festivals and marriage seasons, was also not accepted by lower authorities. I have independently considered such facts and find that there cannot be such abnormal jump in the sale all of sudden. However, facts remained the same that the lower authorities have not investigated the fats from the details of purchaser provided by the assessee. Therefore, I am of the view that to avoid the possibility of revenue leakage instead of entire difference in sales the profit element should be taxed. Hence, I direct the assessing officer to treat 25% of profit on the excess sales identified by the assessing officer. To make it more clear, 25% of addition is treated as profit of the assessee qua the alleged unidentifiable sales. In the result, ground No. 2 & 3 of the appeal is partly allowed.
(A.Y 17-18) Thakordas Parekh & Sons 12. So far as taxing the addition under section 115BBE, is concerned, as I have directed the assessing officer to taxed the profit element only. Thus, the addition which is sustained to that extent be treated on account of business income and be taxed under normal provisions of the Act. Hence, ground No. 4 of the appeal is allowed.
Ground No. 1 relates to rejection of books of accounts. Considering the fact that I have partly confirmed the action of the lower authorities, therefore, the adjudication of ground No. 1 has become academic.
In the result, the appeal of the assessee is partly allowed.