BABITA JAIN,AMBALA CITY vs. INCOME TAX OFFICER ,WARD -1 AMBALA, AMBALA CANTT

Order PER PARESH M. JOSHI, J.M. : This is an appeal filed by the Assessee who is an individual and a person resident in India in terms of Section 253 of the Income Tax Act, 1961. The relevant Assessment Year is 2017-18 corresponding to the Financial Year 01/04/2016 to 31/03/2017. The assessee derives her income from trading of sugar, edible oil and other food grain items. The assessee is aggrieved by order of Ld. CIT(A) bearing No. ITBA/NFAC/S/250/2023-24/1057560878(1) dt. 31/10/2023 passed under section 250 of the Income Tax Act in the first appellate proceedings (hereinafter referred to as the “impugned order”). Therefore the present second appeal under the Income Tax Act, 1961.

2. That case of assessee was selected for scrutiny under CASS for verification of cash deposits during demonetization period. During the course of assessment proceedings, complete details as required by the AO were furnished by the assessee. That complete books of accounts are maintained comprising cash book, 3. ledger bills and vouchers of expenses and are audited by a Chartered Accountant. That assessee had deposited SBN during demonetization period i.e. 4. 09.11.2016 to 30.12.2016 amounting to Rs. 48,70,000/- in CC account which was normal course of business and during previous year i.e. 08.11.2015 to 30.12.2015 assessee had deposited Rs.40,82,000/-. Further submitted that cash was deposited out of cash balance held as per books of accounts and same was out of cash sales until such date. That the assessee had claimed loss on account of interest on housing loan 5. of Rs. 52,248/- in his return of income which has been disallowed in absence of documentary proof despite of the fact that learned AO has never asked for justification and proof of same. 6. That learned AO has rejected the submissions of assessee and therefore made an addition of Rs. 49,22,248/- as business income and Rs. 52,248/- on account of loss from house property as a result of which assessed the income at Rs. 53,55,786/-.

before Ld. CIT(A):

1. That the learned AO has erred in law and facts in treating the cash deposit of Rs. 48,70,000/- as business income of the assessee.

2. That the learned AO has erred in law and facts in making a disallowance of Rs. 52,248/- on account interest paid to bank for housing loan in the absence of any evidence filed.

3. That the learned AO has erred in law and facts in making an double addition of Rs. 52,248/- covered under Ground No. 2.

4. That the learned AO has erred in law and facts in applying the provisions of s. 115BBE while calculating tax despite Rs. 48,70,000/- added as business Income.

5. That the learned AO has erred in law and on facts in calculating tax u/s 115BBE on disallowance of Rs. 52,248/- on account of interest on housing loan.

6. That learned AO has erred in law and facts in applying an effective tax rate of 77.5 percent (60 percent tax plus 25 percent surcharge plus 3 percent education cess) on the addition of Rs. 49,74,496/- by retrospective applying rate of tax introduced through Taxation Laws (2nd Amen dment Act 2016) dated 15- 12-2016.

7. That the learned AO has erred in law and on facts in completing the assessment on the basis of estimations, probabilities and suspicions ignoring the facts of the case.

8. The appellant craves leave to add to or amend the aforesaid grounds before disposal of the appeal.

13. In the impugned order Ld. CIT(A) has stated that there is absolutely no response from the assessee despite notices after notices. Total five notices were issued i.e; on 27/01/2021, 22/08/2023, 30/08/2023, 08/09/2023 and 18/09/2023. He has called the act of assessee as non responsiveness.

5.3. In the present case, all the above notices were issued to the assessee as per section 282 of the Act read with rule 127 of Income tax rules, 1962. To follow the principles of natural justice, many notices were issued to the appellant. However, the appellant has failed to utilize the opportunities presented to him. Hence, I am of the considered opinion that the appellant is not seriously interested in pursuing appeals on hand. The law aids those who are vigilant, not those who sleep upon their rights. This principle is embodied in well known dictum, "VIGILANTIBUS ET NON DORMIENTIBUS SERVIUNT LEGES". Considering the fact that appellant has not responded to the notices 5.4 issued, it is observed that the appellant has no valid explanation to offer. The appellant could not avail the opportunities provided even after sufficient time granted. Mere filing of appeal is not sufficient but submissions along with evidences are necessary to substantiate his case. In the present case the appellant has failed to substantiate his case by furnishing relevant submissions/evidence. The appellant has not submitted valid explanation supported with corroborative evidence. Since, the appellant failed to avail the opportunities accorded in the form 5.5 of notices mentioned supra, this office has no option but to pass an ex-parte order based on the material available on record i.e assessment order, grounds of appeal (filed by appellant), statement of facts (filed by appellant). Accordingly, the appeal is adjudicated based on the facts available on record in the ensuing paras.

6.2 The AO in the order under appeal has categorically mentioned that the assessee has failed to substantiate the sources of cash deposit of Rs.48,70,000/- appearing in the bank account held by the appellant. Accordingly, the AO added the cash deposit of Rs. Rs. 48,70,000/- treating the same as business income of the asssessee. 6.3. During the course of assessment proceedings the assessee was asked to justify the cash deposits made for which the appellant has stated that the cash deposits were out of cash sales. The appellant was further asked to furnish the details of comparison of cash deposits during the same period in the last year as there was tremendous difference between the cash deposits made during the demonetisation period and the corresponding previous year. The AO has further noticed that the cash sales have decreased in the pre monetization period in comparison to last year by 38%. The observation of the AO is tabulated below:

Period Cash sales 01-04-2015 to 08-11-2015 83,22,221/- 01-04-2016 to 08-11-2016 51,80,331/- Period Amount deposited FY 2015-16 1,67,81,000/- FY 2016-17 60,30,000/- Period Amount deposited 08-11-2015 to 30-12-2015 40,82,000 09-11-2016 to 30-12-216 48,70,00 From the above, the AO observed that there is increase in the cash 6.4. deposits during the demonetization period even though the cash sales in the pre- demonetisation period has decreased. Further, the AO has observed that the total cash deposited in the FY 2016-17 also decreased as compared to FY 2015-16 whereas the cash deposits during the demonetization period increased as compared to corresponding period in FY 2015-16. Hence, the AO has a point in making the said addition as the appellant has failed to establish that the cash deposits is out of cash sales. Except for stating that the cash deposits were out of cash sales, the appellant has not confronted with the apt reply for the queries raised by the AO. The reason for high cash deposits in spite of low sales is not answered by the appellant. Simply stating that cash deposits is out of cash sales is not in itself an evidence. The same should be proven beyond doubt. During the course of appellate proceedings, the appellant has not 6.5. adduced any corroborative evidences in support of his grounds of appeal even after according ample opportunities. In absence of the same, np relief can be granted to the appellant as the material available on record is not enough. It is responsibility of the appellant to explain the facts related to its own business regarding

(i) maintenance of regular books of account, (ii) auditing of the said books of a/c, (iii) producing the relevant documents such as availability of stock, details of cash sales etc to demonstrate that the sales made were genuine sales and available cash balance is out of the relevant sales. (iv) the appellant must also demonstrate that there was a direct co-relation of cash outflow from the books of accounts with cash deposit in the bank accounts. It is important to note that without proper explanation and response to the notices issued, mere filing of appeal is not sufficient. If there is no response / proof from any corner it is difficult for the appellate authority to grant relief. The action of the AO stands correct and confirmed because deposit of cash in bank account of the appellant is an established fact.

6.6. In Form 35, grounds of appeal

, the appellant has stated that "cash was deposited out of cash balance held as per books of accounts and same was out of cash sales until such date". No other explanation or proof was submitted. When appeal is filed, it is the duty of the appellant to respond to the notices issued and submit (i) corroborative evidences and the trail of entire transactions related to cash deposits made (ii) explain how there is huge cash deposits in spite of decreased sales which was pointed out by the AO (iii) why there was no response to the notices issued. However, except for filing appeal on 10-01-2020, no compliance was made to the notices issued. 6.7 In the case of Narinder Mohan Jain Vs DCIT, Central Circle-5, in wherein the Hon'ble Delhi Bench of ITAT held that the assessee merely gives an explanation without any supporting evidences, the assessee has failed to explain the sources for the cash. Again in case of Smt. P. Anasuya Vs ITO, in ITA No. 1750/HYD/2014, Honble Hyderabad Bench of ITAT held that when the surrounging circumstances do not lend support to the assesssee's plea, the addition towards cash deposits will be upheld. In the case of C K Ramakrishna Vs ITO Ward 14(4), in ITA No. 550/Bang/2011, Hon'ble Bangalore Bench of ITAT held that "as rightly pointed out by the learned Departmental Representative, the assessee at no stage could categorically prove with material evidence the claims put forth". Hon'ble Bench, upheld Assessing Officer's order maintaining that earlier withdrawals from bank accounts do not explain the cash deposits when the assessee could not produce the evidences in support of the claimed reasons for withdrawal. In the present case also, the appellant has not furnished any documentary evidences in support of his claim. 6.8 In view of the facts and circumstances as discussed above and respectfully following the decisions as cited above, the appellant's grounds of appeal are DISMISSED.

7. In the result, the appeal of the appellant is DISMISSED.

1. That the learned CIT(Appeals)(NFAC) has erred in law and facts and passing an ex-party order without any service of notice of being heard. (Tax effect=Rs.51,20,531/-) 2. That the learned CIT(Appeals)(NFAC) has erred in law and facts in confirming the order of Assessing Officer in treating the cash deposits of Rs.48,70,000/- as additional business income of assessee. (same as above)

3. That the learned CIT(Appeals)(NFAC) has erred in law and facts in not adjudicating Ground No.2 raised in appeal before CITA, whereby it was contested that learned AO has erred in making addition on account of interest paid to bank amounting Rs. 52,248/-for housing loan. (same as above) 4. That the learned CIT(Appeals)(NFAC) has erred in law and facts in not adjudicating Ground No.3 raised in appeal before CITA, whereby it was contested that learned AO has erred in making double addition on account of interest paid to bank amounting Rs. 52,248/- for housing loan. (same as above) 5. That the learned CIT(Appeals)(NFAC) has erred in law and facts in not adjudicating Ground No.4 raised in appeal before CITA, whereby it was contested that learned AO has erred in applying the provision of section 115BBE while calculating tax despite of Rs. 48,70,000/- added as business income. (same as above) 6. That the learned CIT(Appeals)(NFAC) has erred in law and facts in not adjudicating Ground No.5 raised in appeal before CITA, whereby it was contested that for calculating tax u/s 115BBE on dis allowance of Rs. 52,248/- on account of interest on housing loan. (same as above)

7. That the learned CIT(Appeals)(NFAC) has erred in law and facts in not adjudicating Ground No.6 raised before CITA, whereby it was contested the AO has erred in applying an effective tax rate of 77.5 percent (60 percent tax plus 25 percent surcharge plus 3 percent education cess) on the addition of Rs. 49,74,496/- by retrospective applying rate of tax introduced through Taxation Law (2nd Amendment Act 2016) dated 15.12.2016. (same as above)

8. That the learned CIT(Appeals)(NFAC) has erred in law and facts in not adjudicating Ground No.7 raised in appeal before CITA, whereby learned it was contested that learned AO has erred in law and on facts in completing the assessment on the basis of estimation, probabilities and suspicions ignoring the facts of the case.

(same as above)

9. That the learned CIT(Appeals)(NFAC) has erred in law and facts in not adjudicating Ground No.8 raised in appeal before CITA, whereby it was contested that learned AO has violated the principal of natural justice as not giving the chance of video conferencing to the assesse. (same as above)

either before or at the time of hearing of case. Record of Hearing

17. The hearing before us took place on 24/06/2024 when both the parties appeared before us and were heard for some time. The Ld. AR gave up the ground of principle of natural justice and exparte nature of the impugned order of CIT(A). The Ld. AR proceeded on merits of the case his argument was books of accounts are not rejected by the Ld. AO as well as by Ld. CIT(A) and on this limited ground the impugned order of Ld. CIT(A) should be set aside. The Ld. AR then contended that assessee is in the business of trading in sugar, edible oil and food grains. The assessee is sole proprietor of M/s GM Trading Company. Cash deposit during demonetization period is nothing but proceeds of sales which are all accounted for in the books of account and duly audited. The evidentiary value of books of accounts cannot be ignored at all and perse they are sufficient explanation for cash deposit during the period of demonetization since books of accounts are not rejected the order of Ld. CIT(A) who has since sustained the finding of Ld. AO should be set aside. The amount of Rs. 48,70,000/- was cash in hand on 08/11/2016 i.e; “accumulated sales” i.e; Name of parties, their PAN number, etc are not disclosed to the Department. Material particulars of sales to the extent of Rs. 2,72,77,474/- are not disclosed at all.

18. Per contra the Ld. DR has supported the order of Ld. AO and Ld. CIT(A). The Ld. DR emphatically contended that books of account is just one of the factor in the entire gamut of facts and circumstances of the case. The Department had credible information and they have acted on it. No explanation save and except that these are sales proceeds of business / trades and duly accounted so also further audited is not sufficient in law. The assesse is under a legal obligation to describe the source of income in addition to mere entry in account statement that these are proceeds of sales made in cash. He finally prayed for dismissal of appeal of the assessee as accounts are prepared on the basis of papers and entries which are fictitious. Sources are all bogus. In house papers basis which accounts are prepared are all bogus and fictitious. Findings and Conclusions

19. We now examine the legality validity and proprietary of the impugned order of Ld. CIT(A) dt. 31/10/2023.

20. We hold that in the original proceedings before the Ld. AO the sales bills of the assessee ought to have been verified and cross checked. The true nature of the business activities of the assessee ought to have been verified and cross checked by field formations. The volume of sales disclosed is Rs. 2,72,77,474/- . Sales bills of this ought to have been verified and cross checked as volume is very high. Looking to the fact that since the assessee is in to the business of trading in sugar, edible oil and food grains the details of her stocks and purchases ought to have been verified. From where she has sourced these goods ought to have checked and verified. In brief a detailed enquiry ought to have been made basis books of account so produced. In demonetization cases where sales are involved the antecedent verification of the assessee is a must as Department has prima facie material in their possession about cash deposit that too from a nationalized bank. We notice from sheet called “Cash transaction 2016” Income Tax Department it is revealed that concerned bank is Punjab National Bank. Transaction- cash deposit amount Rs. 48,70,000/- etc. In Column B6 the caption is cash received from unidentifiable persons (without PAN). We notice that perse there is no dispute on this sheet. Cash indeed is received from unidentifiable persons to the extent of Rs. 48,70,000/-. The majority of deposits are of the amounts exceeding Rs. 20,000/-. This document was filed by the assessee before AO during original proceedings where there is clear narration that an amount of Rs. 48,70,000/- stands deposited by unidentifiable persons. We hold that at least assessee should know their buyers. Sale bills must have been in their names. In brief it is indeed regrettable situation for us as we have reply of assessee simplicitor (without enclosures) before Ld. AO a bare balance sheet ending 31/03/2016 showing cash in hand of Rs. 87,026/- and a bare balance sheet ending 31/03/2017 showing cash in hand of Rs. 4,47,148.23. From the reply before AO we notice that assessee is in both “whole sale and retail sale” of sugar edible oil and food grain items. This to us seems to be local whole sale business akin to a kirana shop and at maximum wholesale business. Based on this material Ld. AR wants decision on merits in the absence of any material particular about identity of persons who have deposited cash in assessee’s account. We on basis of material on record particularly para B6 of cash transaction 2016 sheet wherein it is clearly recorded that an amount of Rs. 48,70,000/- are deposited in cash as cash received from unidentifiable persons, which makes issuance of sale bills issued by assessee to persons as doubtful in nature. We therefore restrain ourself to venture out further and restrict our findings and leave it at that at this stage as we do not want to prejudice the mind of lower authorities including the assessee.

21. Be that as it may after carefully perusing the orders of the lower authority we observe that their is a failure both on the part of assessee as well as Department. The assessee did not appear before Ld. CIT(A). The assessee just filed a reply (Page 7 to 8 of paper book filed before us) which was filed before AO and Ld. AO without examining the said reply with enclosures, assessed the income. We have perused the said reply (without enclosures) we notice that there were many accompaniments with it but same were not considered, and examined while passing the assessment order.

21.1 The Ld. AO ought to have done exhaustive and deeper inquiry before arriving at finding whereby income is assessed as at Rs. 53,55,786/-. The Ld. AO has not invoked any section of Income Tax Act, 1961 i.e; 69/69A r.w.s 115BBE. Before Ld. CIT(A) and before us grounds of appeal is raised with regard to Section 115BBE even though not invoked by the Ld. AO in his assessment order. We consequently hold that order of Ld. CIT(A) lacks merits and is set aside with a direction to reexamine the case a fresh on merits and to give a detailed finding on merits. The Ld. CIT(A) would be at full liberty to seek such information and make such, further enquiry as he deems fit by utilizing the good office of Ld. AO so that case is examined on merits including finding on books of account of the assessee. Order

22. Accordingly, impugned order of CIT(A) is set aside as and by way of remand on denovo basis with a direction to pass a reasoned order on merits after taking into consideration all the submission of the assessee on merits including a finding on books of account. Sales to be examined, stocks to be seen, identities of person mentioned in sale bill etc to be verified and cross checked. In brief source of cash is required to be ascertained as voluminous sales has been done of different goods alongwith corresponding purchase documents.

23. In the result, appeal of the assessee is allowed as and by way of remand back to the file of Ld. CIT(A) on denovo basis with above directions. It is expected that Ld. CIT(A) would pass a detailed order on merits of the case after giving full and complete opportunity to the assessee. The assessee to fully cooperate with the Department for early disposal of the appeal. It is further expected that the denovo proceedings would be completed as expeditiously as possible preferably within a period of six months from the date of receipt of this order.