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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 15.03.2022 for assessment year 2017-18, which in turn arises from the addition made by the Income Tax Officer, Ward-1(2)(4), Surat / Assessing Officer in assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 27.12.2019. The assessee has raised the following grounds of appeal:- “1) The learned Commissioner of Income Tax (Appeals) NFAC has erred in law and on facts in confirming ads made by Ld. AO as per order passed u/s 143(3) of the Act.
(A.Y 17-18) Sai Petroleum i. Addition u/s 68 r.w.s. 115BBE of the Act amounting to Rs.13,65,241 as unreconciled cash deposited in Bank accounted as cash sales during demonetization period. ii. Addition u/s 68 of the Act amounting to Rs.10,00,000 received from debtors as unaccounted cash deposited in bank during demonetization period.
2) The learned Commissioner of Income-Tax(Appeals), NFAC has erred in law and on facts by not taking into consideration and giving judgment on ground of appeal no. 3 that. “The Ld. AO has erred by duplication of income of cash sales, firstly as sales as per profit and loss account and secondly as cash deposited in Bank.”
3) The learned Commissioner of Income-tax (Appeals) NFAC has erred in law and on facts by not taking into consideration and giving judgment on ground of appeal no. 4 that. “The Ld. AO has erred by treating cash sales and recovery from debtors as unaccounted investment and charging tax accordingly.”
4) The Appellant prays for granting such other relief as may be deemed just and proper by your honour’s considering the factual and legal aspects of the case of the appellant.
5) The appellant craves leave to add, amend, alter, modify, substitute, delete, change, vary, withdraw all or any of the ground or grounds of appeal.”
Brief facts of the case are that assessee is a partnership firm and dealer of Indian Oil Corporation (IOC). The assessee is engaged in the business of selling of petrol and diesel of IOC. The assessee filed its return of income for the year under consideration i.e. assessment year 2017-18 on 30.09.2017 declaring income of Rs.1,27,417/-. The return was selected for compulsory scrutiny as there was a survey (A.Y 17-18) Sai Petroleum under section 133A of the Act on the office premises of assessee on 21.03.2017. During survey action, cash transaction during demonetization period was verified. It was noted during the survey that assessee made cash sales of Rs.2.82 crores whereas cash of Rs.3.11 crores Specified Bank Note (SBN for short) of Rs.500/- and Rs. 1,000/- were deposited from 09.11.2016 to 04.12.2016. Thus, there was difference between cash sales and cash deposits. During the course of survey, assessee stated that they have receivable of Rs.17.81 lakh from Swastik Transport Udhna and Swastik Logistics, Udhna, which were deposited on11.11.2016, still there was difference of Rs.11.18 lakhs considering such anomaly, the assessee voluntary disclosed an amount of Rs.12.51 lakh under Pradhan Mantry Garib Kalyan Yojona (PMGKY). During the course of assessment proceedings, the Assessing Officer noted that cash-in-hand as per physically count was arrived at Rs.4,38,620/-, however, as per cash book, it was shown as “negative” of Rs.18.35 crores. Pointing out of such discrepancies, the partner of assessee treated that non-merger of daily cash sales on cash books reconciled would be filed within five (A.Y 17-18) Sai Petroleum days. The Assessing Officer on further perusal of return, noted that assessee has deposited cash of Rs.3.73 crores during monetization period in their bank account of Surat Peoples Co-operative Bank Ltd. The Assessing Officer issued show cause notice on various points to assessee.
The contents of said show cause notice are recorded in para-3.2 of assessment order. For appreciation of fact, the contents of such show cause notice is reproduced below: “(i) During the course of survey conducted at the business premises cash-in-hand was found at Rs.4,38,620/- whereas as per books of account there was a negative balance in cash book as on 21.03.2017 of Rs.18,35,55,117/-. You have assured during the statement u/s 131 that the reconciliation will be submitted to the department within 5 days. The same is still pending. Please provide the reconciliation and the reasons for appearing cash short of Rs.18,35,55,117/-.
(ii) During the course of survey proceedings it was stated that cash deposited during the demonetization period was Rs.3,73,46,565/- whereas the position emerged from the Annexure at page no. 147 shows total deposits was of Rs.56,45,085 + Rs.3,68,02,582/- of valid currency and old currency respectively. Please clarify the difference in this regard.
(iii) During the course of survey proceedings you claimed to receive the cash of 17,81,846/- from M/s Swastik Transport Udhna and M/s Swastik Logistic Udhna. Please provide the copy (A.Y 17-18) Sai Petroleum of ledger account of both the partis with complete address and PAN along with certified ledger with the respective party.
(iv) During the course of survey a aum of Rs.12,51,000/- was offered voluntarily under the PMGKY scheme. Please provide the copy of account of relevant entry made in books of account and also produce the copy of tax challan in this regard. How the corresponding entries have been passed in partners account may also be explained. (vi) During the year under consideration it has been noticed that one BMW Car was purchased beside the three other vehicles including Mercedes Benz and Innova Car. Please justify the use of 4 vehicle in business and details of personal use of these vehicle with copy of log book maintained for all these vehicles. Also clarified it in the light of that number of working partners are only 2 in the firm.
(vii) Provide the commission being received or the difference of rate of sale and purchase of petrol and diesel during the yar and in previous year and justify the fall in GP as well as fall in Net Profit.”
The Assessing Officer further noted that assessee obtained several adjournments and filed its submission on 13.12.2019. In the submission, they submitted that assessee received cash of Rs.9,43,429/- [Rs.7,25,275/- +Rs.2,18,154/-] on 11.11.2016 from Swastik Transport Udhna and Rs. 56,571/- on 11.11.2016 was received from Swastik Logistic. Thus, as such cash of Rs.10.00 lakhs from Swastik Logistics & Swastik Transport Udhana and 5 (A.Y 17-18) Sai Petroleum furnished their ledger accounts. In order to verify the genuineness of such claim, the Assessing Officer issued notice under section 133(6) to Swastik Transport Udhana and Swastik Logistics Udhna.
Both the entities furnished their respective ledger accounts with the assessee. On perusal of ledger accounts of Swastik Transport Udhna, the Assessing Officer noted that certain inconsistency. The Assessing Officer noted that assessee claimed to have received Rs.9,43,429/- (7,25,275/- + 2,18,154) on 11.11.2016 in cash from Swastik Transport Services, Udhna. However, in the book of Swastik Transport Service Udhna no such payment was appearing. As per the information furnished, in response to notice under section 133(6). Further as per ledger account of Swastik Transport Service Udhna, they have paid Rs. 16,000/- on nineteen times i.e., total of Rs.3.04 lakhs from 01.12.2016 to 20.12.2016, which were not reflected in the books of assessee.
The Assessing Officer further recorded that on perusal of ledger account of Swastik Logistics Udhana, he noted that assessee claimed to have received Rs.56,571/- on (A.Y 17-18) Sai Petroleum 11.11.2016 in cash from Swastik Logistics Udhna. However, in the book of Swastik Logistics Udhna, such figure is not reflected on 11.11.2016. The Swastik Logistics Udhana has shown in its books of account, the payment of Rs. 19,500/- in cash on 15.11.2016, Rs. 18,000/- on 25.11.2016 and Rs.19,071/- on 28.11.016 respectively. On comparing both the ledgers there are many more inconsistencies i.e., assessee claimed to have received Rs.18,000/- cash on 1st, 2nd, 3rd, 4th, 5th & 6th December, 2016, whereas no such cash payments were made by Swastik Logistics Udhana as per copy of ledger accounts produced under section 133(6) of the Act.
The Assessing Officer made summary of cash sales from 01.11.2016 to 07.11.2016 and further on 08.11.2016 to 10.11.2016 and compared average sales of both the period and held average sales in the period of 08.11.2016 to 10.11.2016, which was higher, which is assumed to be @ 25% more, comparative to the period prior to demonetization period. The assessing officer worked out to be Rs.7,11,978/- from 08.11.2016 to 10.11.2016 respectively. The Assessing Officer on comparison of average (A.Y 17-18) Sai Petroleum cash sales from 01.11.2016 to 07.11.2016 and further from 08.11.2016 to 10.11.2016 worked out at Rs.20.77,219/-. On the basis of average cash sales before 08.11.2016 to 10.11.2016 and subsequent to 08.11.2016 to 10.11.2016. The Assessing Officer worked out unaccounted income of Rs.13,65,241/- (20,77,219/- - 7,11,978/-) and brought the same for taxation under section 68 r.w.s. 115BBE of the Act. The Assessing Officer also added Rs.10.00 lakh on account of discrepancies between assessees ledger account vis-à-vis ledger account of Swastik Transport Services Udhna and Swastik Logistics Udhana (Rs.7,25,275/- + Rs.2,18,154/-) respectively. This addition of Rs.10.00 lakh was also added under section 68 and taxed under section 115BBE of the Act.
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 written submission and said submission of assessee recorded in para-5 of the order of NFAC/Ld. CIT(A). In the submission, the assessee stated that Assessing Officer added average selling amount of Rs.13,27,417/- as (A.Y 17-18) Sai Petroleum unaccounted income without verifying actual sales and genuineness of such transactions working of average sales were made on hypothetical working and without basis. The Assessing Officer also added addition of Rs.10.00 lakh in guise of cash received from debtors as unaccounted income without verifying genuineness of such transactions and facts of the case.
The NFAC/Ld. CIT(A) after considering the contents of assessment order, submission of assessee held that average cash sales comparative from 01.11.2016 to 07.11.2016 were higher than from 08.11.2016 to 10.11.2016 comparative immediately pre-demonetization period. Thus, the Assessing Officer rightly assessed that assessee introduced unaccounted income of Rs.13,65,241/- as unexplained and similarly addition of Rs.10.00 lakh allegedly received from Swastik Transport Udhna and Swastik Logistics Udhna was introduced as unaccounted income in the assessees books of account. Further, aggrieved the assessee filed present appeal before the Tribunal.
I have heard the submission of Ld. Authorized Representative (Ld.AR) for the assessee and learned Senior (A.Y 17-18) Sai Petroleum Departmental Representative (ld. Sr DR) for the Revenue. The Ld. AR for the assessee submits that assessee is a dealer of IOC and selling petrol and diesel and other petroleum and chemical products whereas 75% to 80% of sales of assessee made in cash. On 08th November 2016, SBN of Rs.500/- and Rs.1000/- denomination was ban by Government of India. However, it is known fact that petrol pumps, hospital and medical stores were allowed to accept SBN of Rs.500/- and Rs. 1,000/- notes respectively. Due to allowing such SBN, there was jump cash sales of assessee particularly in SBN. As there was survey under section 133A on 21.03.2017 in assessees premises, therefore, the return of assessee was selected for scrutiny. During scrutiny assessment, assessee filed its reply from time-to- time. The assessing officer also issued show cause notice about cash-in-hand and reconciliation about shortage of cash. The Assessing Officer also issued show cause notice on other various issues. The Ld. AR for the assessee submits that Assessing Officer also noted that during the survey, assessee offered Rs.12.51 lakh under PMGKY scheme and sought clarification about the treatment of such (A.Y 17-18) Sai Petroleum amount in the books of account. The assessee furnished complete details and no further show cause notice or any clarification about discrepancies was sought for from the assessee by Assessing Officer. The Assessing Officer in order to verify the fact about sundry creditor from Swastik Transport Services Udhana and Swastik Logistics Udhana issued notice under section 133(6) of the Act and obtained ledger accounts of as in their books of account. On the basis of assessees ledge account, and in the books of accounts of sundry creditors, the Assessing Officer made addition of Rs.10 lakhs by noting alleged discrepancy. Similarly, the Assessing Officer made addition of Rs.13,65,241/- by taking view that average cash sales was @ 25% more than cash sales immediately before the demonetizing period. The Assessing Officer prepared average cash sales on and from 8th, 9th & 10th November, 2016 as well as average cash sales from 01.11.2016 to 11.11.2016 and added a difference of Rs.13,65,241/-.
The ld AR for the assessee submits that both the additions were made without issuing any show cause notice to the assessee and no opportunity to explain about alleged (A.Y 17-18) Sai Petroleum discrepancies in the books of sundry creditor as well as in the alleged average difference in cash sales. Such addition is based on hypothetical working. Second addition was based on the alleged discrepancy in the ledger of assessee as well as ledger accounts of sundry creditors. Both the additions made without giving any opportunity or show caused and as such both the additions are liable to be deleted.
The NFAC/Ld. CIT(A) also confirmed. The Ld. AR for the assessee submits that assessee could explain the figure, had the Assessing Officer given opportunity of hearing to assessee. The Ld. AR for the assessee invited my attention on page-57 of the paper book No.1 filed, wherein cash sales on 01.04.2016 of Rs. 16,281.00 and on 11.04.2016 shown cash of Rs. 9,714.00 was shown, however such amount was received by way of cheque from Swastik Logistics Udhna, copy of such cheque drawn on ICCI Bank, Udhna dated. 12.04.2016 is filed at page-40 of paper book No.2. The Ld. AR for the assessee submits that similar discrepancy that the assessee could very well be explained. However, no opportunity to explain such discrepancy was given to assessee.
(A.Y 17-18) Sai Petroleum 13. To support his submissions, the Ld. AR for the assessee relied on the following case laws; ITO Vs Mohammedarif Ibrahim Bhai Shaikh (ITA No.115/AHD/2019) dated 31.05.2022, Maruti Suzuki India Limited Vs Additional Commissioner of Income Tax in Writ Petition No.6876 of 2008, 14. The ld AR for the assessee submits that in both the cases it was held that addition made without giving any show cause notice vitiate the principal of naturel justice and such addition are unjustified and un-called for.
In other alternative submission, Ld. AR for the assessee submits that sales of assessee was not disputed by the Assessing Officer though the books of assessee was not rejected. Therefore, without disputing the sales, the addition made by Assessing Officer under section 68 is not justified. The Ld. AR for the assessee further submits that petroleum products are essential commodity and its quantity is measured at different level and as such the assessee cannot be allowed much more quantity than the permissible limit prescribed by IOC, first quantity is measured by IOC Officer, secondly it is also checked by District Level Authority. It is undisputed fact that the sale of the assessee is accepted.
(A.Y 17-18) Sai Petroleum Once the sales of assessee was not disputed, no addition on the basis of alleged excess average sales can be made by Assessing Officer. To support his submission, Ld. AR for the assessee relied upon the following case law: Income Tax Office Vs Manasa Medicals [ITA No.552/Bang/2022 dated 31.10.2022 Atish Singla Vs Income Tax Officer [ITA No.1185/Del/2021 dated 06.04.2022 Asst. Commissioner of Income-tax Vs M/s Hirapanna Jewellers [ITA No.253/Viz/2020 dated 12.05.2021] Shree Sanand Textiles Industries Ltd. vs. DCIT [ITA No.995/Ahd/2014 dated 06.01.2020] Mrs. Umamaheswari vs. Income Tax Officer [ITA No.527/Chny/2022 dated 14.10.2022] 16. On the other hand, Ld. Senior Departmental Representative (Ld. Sr-DR) for the Revenue submits that assessee neither raised additional ground of appeal before NFAC/Ld. CIT(A) nor before the Tribunal that assessee was not given any show cause notice before making such addition and in absence of any specific additional grounds of appeal, the assessee is precluded for raising such objection that assessee was not given opportunity, thus, such submissions of the assessee is not liable to be considered. Such submissions can only be considered only on raising 14 (A.Y 17-18) Sai Petroleum additional grounds of appeal. The Ld. Sr-DR for the Revenue submits that Assessing Officer in para-3.2 and 3.3 of the assessment order has clearly specified the discrepancies in the ledger account of sundry creditors vis- à-vis the ledger account of assessee. so far as other addition on account of difference in sale is concerned, the assessing officer worked out the difference of cash sales and made additions. Both the additions are self-explanatory and may be sustained.
17. In short rejoinder, the Ld. AR for the assessee submits that he has not argued that which is not available on record or anything against the fact which is not available on record and fact that no show cause notice was issued to assessee before making such addition in apparent on the record and this submissions are purely legal in nature and in connection with the additions.
18. 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. There is no disputes that as per Reserve Bank of India (RBI) guidelines, the assessee was (A.Y 17-18) Sai Petroleum allowed to accept the SBN of Rs. 500/- and Rs. 1000/-. It is also in the common knowledge that cash sales of entities, which were allowed to accept SBNs were increased for certain period. The case of assessee throughout the proceedings are that major part of his business is in cash sales. Such fact is not otherwise in disputes that majority of transactions of petrol pumps are in cash. I find that during the assessment, the assessing officer in order to verify the receipt of cash from sundry creditors, issued notice to both the sundry creditors and obtained the copy of ledger accounts of the assessee. The assessing officer compared the ledger accounts of the assessee in the books of sundry creditors and find certain discrepancy and added Rs. 10.00 lakhs. The assessing officer nowhere recorded that the information and the evidences obtained by him from sundry creditors were shares with the assessee or any show cause to explain the discrepancy was issued to the assessee. Before me, at the time of making submissions, the ld AR for the assessee explained certain discrepancy about the amount of Rs. 25,925/- received by way of cheque dated 12.04.2016 from Swastik logistic, though the same amount (A.Y 17-18) Sai Petroleum was shown by Swastik Logistic in cash in their books. Thus, I find merit in the submissions of the ld AR for the assessee that had the assessing officer issued show cause notice on such alleged discrepancy, the assesse would have explained all the entry. I find that coordinate division bench of Ahmedabad Tribunal in Mohammedarif Ibrahim Bhai Shaikh (supra) by following the decision of Hon’ble Delhi Court in Maruti Suzuki India Limited (supra) held non- issuance of proper show cause notice can be fatal to the proceedings under Income tax Act. Admittedly, there is no reference of show cause notice in the assessment order, thus, by not issuing show cause notice, the assessing officer violated the basic principal of natural justice, therefore, both the additions are liable to be deleted.
I also find merit in the submission of ld AR of assessee that when the sales of the assessee is not doubted by the assessing officer and accepted the books result, the addition of section 68, on the basis of higher average sales is also not justified. Similar view was taken by division bench of Bangalore Tribunal in ITO Vs Manasa Medicals (supra). Thus, the addition of Rs. 13,65,241/- is also deleted with (A.Y 17-18) Sai Petroleum these additional observations. So far as objection of ld Sr DR for the revenue that the assessee has not raised objection of non-issuance of show cause notice before making addition, I find that such submission is purely legal submissions and could be raised even at this stage, as it is apparent from the contents of the assessment order itself. Thus, the objection of ld Sr DR for the revenue is rejected. In the result, grounds no. 1 of the appeal is allowed. Remaining grounds of appeal
are general in nature and needs no specific adjudication.
20. In the result, the appeal of the assessee is allowed.