PIYUSH OVERSEAS PVT. LTD.,LUDHIANA vs. DCIT, CC-2, LUDHIANA

That the Id. Commissioner of Income Tax (Appeals) erred in confirming the additions to the extent of Rs. 55,10,000/- out of Rs. 55,60,000/- made by the Assessing Officer vide order dated 31/03/2016 u/s 143(3) of the Income Tax Act, 1961 for the A.Y. 2014-15 which was illegal, arbitrary and contrary to the law and facts on records.

That the Id. Commissioner of Income Tax (Appeals) erred in restricting the additions to Rs. 55,10,000/- out of total addition for Rs. 55,60,000/- made by the AO by invoking the provisions of Sec. 69 of the Act in respect of payments made by the assessee during the F.Y. 2013-14 against purchase of property.

That the Id. Commissioner of Income Tax (Appeals) erred in law in confirming the action of the Assessing Officer by invoking the provisions of Sec. 69 of the Act and considering the sum of Rs. 55,10,000/- as undisclosed investments even though it was duly recorded in the books of account.

That Commissioner of Income-tax (Appeals) has erred in confirming the action of the assessing officer to (reject the audited books of account by invoking the provisions of Sec. 145(3) of the Income Tax Act, 1961. 5. The appellate may be allowed to add, amend, alter or raise additional grounds of appeal before the appeal is finally heard or disposed of.”

Briefly the facts of the case are that the assessee company was engaged in the business of manufacturing of hosiery goods and trading in cloth & yarn during the year under consideration. On 29.04.2013, one Sh. Iqbal Singh and his wife Smt. Baldev Kaur were intercepted by the Police Naka at Village Dhandara Near Flower Chowk, Ludhiana and the said persons were found carrying cash of Rs. 75,00,000/-, the source of which was stated to be sale proceeds of Kothi No. 272, Sukhmani Enclave, Ludhiana. On 30.04.2013, Sh. Iqbal Singh appeared in the O/o DDIT (Inv.), Ludhiana along with Sh. Kamal Parkash Goyal and stated that Sh. Kamal Parkash Goyal is the purchaser of the said property from whom the cash was received. The statement of Sh. Kamal Parkash Goyal was recorded and he admitted that the said property was being purchased by M/s. Piyush Overseas Pvt. Ltd. in which the Sh. Kamal Parkash Goyal is a Director. Regarding the source of cash, it was stated that the cash was paid to Sh. Iqbal Singh out of 'cash-in-hand' in the books of M/s. Piyush Overseas Pvt. Ltd. However as per the AO, neither copy of sale agreement nor books of account of M/s. Piyush Overseas Pvt. Ltd. were brought in support of source of cash payments made to Sh. Iqbal Singh. A survey u/s 133A was thereafter conducted at the office premises of M/s. Piyush Overseas Pvt. Ltd. on 30.04.2013 itself.

During the course of assessment proceedings, the assessee was asked to explain the source of Rs. 75,00,000/- and the reply submitted by the assessee on 09.03.2016 is reproduced by the AO in the assessment order. The AO further mentioned that the details of cash available was submitted vide letter dated 16.03.2016 as withdrawal from various banks and the chart showing availability

During the appellate proceedings, the assessment records relating to the case were called by the ld CIT(A) and the ld CIT(A) stated that a perusal of the same shows that the assessee during the assessment proceedings filed the cash book along with the bank account statement for the month of April, 2013 showing the withdrawal of cash from the bank. The bank account statement of Axis Bank Account No. 910020039577272 shows that the cheque no. 256979

The ld CIT(A) stated that on analysis of the documents, it is found that there are no 'self-withdrawals' through cheque or 'cash withdrawal' from the bank accounts of the assessee during the period 18.04.2013 to 27.04.2013, rather there are cash deposits of Rs. 25,90,000/-. Hence, the claim of availability of cash-in-hand out of withdrawals from the bank is not found supported by the documents. Therefore, the benefit of Rs. 9,90,000/- and Rs. 9,50,000/- given by the AO as withdrawn on 25.04.2013 and 26.04.2013, respectively has not been found proper, since it was granted without examining the fact that there was neither 'direct cash withdrawal' nor 'cash withdrawal through self cheque' from the bank accounts of the assessee.

Further, to examine the issue regarding the source of balance Rs. 19,90,000/- claimed by the AR to be out of cash-in-hand generated as a result of cash sales in the month of April, 2013, the AR was asked to produce the books of account of the assessee during the appellate proceedings. The same were got examined through the Inspector of Income Tax and a report has been submitted showing monthly comparison of cash sales during the three years. A comparative statement of year-wise monthly sales have been prepared which is reproduced below:-

The ld CIT(A) stated that a perusal of the above data shows that during the month of April, 2013 the assessee has shown an increase sale of 310% as compared to last year which however decreased by 40% in April, 2014. Similarly, the increase in May, 2013 has been shown at 2909% as compared to last year, which dipped to (-) 67% in May, 2014. However, in June, July and August, 2013 the assessee has shown a decrease of 85%, 76% and 47% as compared to last year. Also, no 'cash sales' have been shown by the assessee during the months

The ld CIT(A) further stated that a critical analysis of the data shows that the assessee has artificially inflated its sale in the month of April and May, 2013 to show availability of cash in hand. This is further substantiated by the fact that during the course of survey, no bills pertaining to these cash sales were found and all the sales were shown of knitted cloth on which no VAT was chargeable. Therefore, the contention of the assessee that the sales have been authenticated by VAT department is not relevant since the sales shown were of a 'VAT free' item. The abnormal increase of sales in absolute numbers from Rs. 19,36,974/- in April, 2012 to Rs. 79,36,355/- in April, 2013, giving a difference of Rs. 59,99,381/-, also indicate to the falsification & manipulation of sales to show manipulated cash in hand for explaining the cash payments to Sh. Iqbal Singh and Smt. Baldev Kaur. The difference in the cash sales of April, 2013 as compared to cash sales of April, 2012 indicate artificial inflation of 'VAT free' sales to explain the payments of cash given as advance for purchase of Kothi No. 272, Sukhmani Enclave, Ludhiana. It is however relevant to note that during

The ld CIT(A) accordingly held that out of the total cash payments of Rs. 75 lacs, a sum of Rs. 19,90,000/- is considered explained out of cash sales in the month of April, 2013 and no benefit is allowable to the assessee in respect of Rs. 55,10,000/-claimed as cash withdrawals from the bank accounts which is not found acceptable on the basis of the bank account statements, where no cash withdrawal or withdrawal through self cheque is recorded and all the withdrawals are shown in the name of Ram Manohar, Surinder Chopra or cheque paid. Accordingly, the addition to the extent of Rs. 55,10,000/- (Rs. 75,00,000 - Rs. 19,90,000) is sustained and the appellant gets relief of the balance amount.

Against the addition sustained by the ld CIT(A) and the findings and directions of the Ld. CIT(A), the assessee is in appeal before us.

During the course of hearing, the Ld. AR submitted that the assessee paid Rs. 75,00,000/- as advance in cash to Smt. Baldev Kaur on 29/0472013 for part- payment out of total consideration settled at Rs. 2.95 crores for some property to be purchased by the assessee at 272, Sukhmani Enclave, Ludhiana. The said Smt. Baldev Kaur along with her husband namely Sh. Iqbal Singh were travelling in a vehicle on 29/04/2013 along with said cash of Rs. 75,00,000/- and they were intercepted by the Police Personnel; the cash was taken into custody by the Police and subsequently confiscated by the Income Tax Department. On 30/04/2013, Mr. Kamal Parkash Goyal, Director of the Assessee Company visited the Office of Dy. Director of Income Tax (Investigation), Ludhiana and recorded his Statement. In his Statement, Kamal Parkash Goyal admitted that the property is being purchased by M/s Piyush Overseas Pvt. Ltd. and a total amount of Rs. 1,65,00,000/- (One crore sixty-five lakh) has already been paid to Smt. Baldev Kaur from time to time by the assessee including the confiscated cash of Rs. 75 Lakhs and further stated that all the transactions for payments to Smt. Baldev Kaur have been recorded in the books of accounts of the assessee company in the normal course of business and the cash was paid out of available cash balance with the assessee. Sh. Kamal Parkash Goyal was asked to produce cash book before the Dy. Director of Income Tax (Inv.) at 3:00 p.m. on that day itself i.e. 30/04/2013. Simultaneously, survey u/s 133A of the I.T. Act, 1961 was conducted at the business premises of the assessee on the same day i.e. 30/04/2013, even before the assessee could produce cash book before the officials of the Investigation Wing of the Department. During the survey, all the cash entries related to payment made to Smt. Baldev Kaur were found duly recorded in the books of the assessee.

It was further submitted that during the assessment proceedings, the assessee was asked to explain the source of payment of Rs. 75,00,000/- made to Smt. Baldev Kaur. Sh. Kamal Parkash, Director of the assessee company explained that the payment of Rs. 75 lacs was made out of cash balance available with the assessee duly supported by the books of accounts. Further, in order to support the submissions, the assessee explained that it has withdrawn cash aggregating to Rs. 55,10,000/ during the period from 18/04/2013 to 26/04/2013 from banks and further, it was also making cash sales in its normal course of business and the remaining payment of Rs. 19,90,000/- (Rs. 75,00,000/- minus Rs. 55,10,000/-) was made out of the proceeds of cash sales/available

It was submitted that the copies of the Bank Statements showing above cash withdrawals are enclosed in the accompanying Paper Book. Further, during the assessment proceedings, the assessee also submitted the details of the invoices for cash sales made during 18/04/2013 to 24/04/2013 and the sum total of these invoices comes to Rs. 33,49,262/-. The fact of cash withdrawals for Rs. 55,10,000/- during the period from 18/04/2013 to 26/04/2013 as well as invoice wise detail of above cash sales for Rs. 33,49,262/-has also been noted in Para-4 & 5 of the assessment order.

It was submitted that out of the available cash with the assessee, as reflected in the books of accounts i.e. cash book, which included the above cash withdrawals for Rs. 55,10,000/- and also from cash sales etc., the assessee made cash payment of Rs. 75,00,000/- against part payment for purchase of property. However, AO in his wi om considered cash withdrawals made from bank accounts to the extent of Rs. 19,40,000/- (Rs. 9,90,000/- on 25/04/2013 and for Rs. 9,50,000/-on 26/04/2013) only as reasonable which can be said to have been utilised towards making cash payment of Rs. 75,00,000/- for purchase of property and he was of the opinion that cash withdrawals for Rs. 35,70,000/- (Rs. 55,10,000/-minus 19,40,000/-) made from bank accounts during the period from 18/04/2013 to 24/04/2013 cannot be said to be utilised towards making cash payment for purchase of property. It was submitted that the AO failed to assign any reason as to why the balance cash withdrawals made on 18/04/2013 to 24/04/2013 from banks aggregating to Rs. 35,70,000/-, (Rs. 55,10,000/- minus Rs. 19,40,000/-) are not acceptable to him although the said amount of Rs. 35,70,000/- was also withdrawn from banks within 10 days prior to making cash payment of Rs. 75 lakhs on 29/04/2013 against purchase of property. The assessing officer also doubted the genuineness of the cash sales made by the assessee and concluded that these were entered to manipulate books of accounts to route the unaccounted money in the books and to inflate the cash in hand available with the assessee. That is to say, out of the total cash payments for Rs. 75 lakhs for purchase of property made on 29/04/2013, cash payments to the extent of Rs. 19,40,000/- only (for cash withdrawals made on 25/04/2013 & 26/04/2013) were found by the Assessing Officer to be genuinely used by the assessee towards making payment for purchase of property. Accordingly, Assessing officer made additions for balance amount of Rs. 55,60,000/- (Rs. 75,00,000/- minus Rs. 19,40,000/-) to the declared income of the assessee.

It was further submitted that during the appellate proceedings, the assessee submitted the details of cash sales of Knitted Cloth for the financial years 2012-13 to 2014-15 and the same is also noted in the order of the Id. CIT(A) at Para-3. 1. The Id. CIT(A) has also noted the month-wise cash sales during the above three financial years in his order. The Id. CIT(A) on the basis of higher cash sales at Rs. 79,36,355/- during the month of April 2013 as compared to the corresponding month of the earlier F.Y. 2012-13 i.e. April 2012 concluded that the assessee has artificially inflated its sale in the months of April and May 2013 to show availability of cash in hand. In this connection, the appellant contends that there is no uniform trend in month-wise sale from year to year. In this context, it will be observed from the month-wise details given in the CIT(A) Order that the assessee has made cash sales of Rs. 88,81,672/- during the month of November 2013 but there were no cash sales during the corresponding month of the earlier financial year 2012-13 i.e. November 2012. However, the Id. CIT(A) at Para-4.2 Page No. 15 of his order admitted that the assessee is entitled for the benefit of some amount of cash payments made on 29/04/2013 for purchase of property to be out of cash sales of the assessee during the month of April 2013 preceding the date of payment of cash and allowed the benefit of Rs. 19,90,000/- out of total cash payment of Rs. 75,00,000/- but he did not found the claim of the assessee for cash withdrawals of Rs. 55,10,000/- from bank accounts as acceptable for the reason that in the bank statements, no cash withdrawal or withdrawal through self cheque is recorded and all the withdrawals are shown in the name of Ram Manohar, Surinder Chopra or cheque paid. In connection with the above observation in the appellate order, the appellant state as under:

It was further submitted that the appellant contends that AO's version is correct to the extent that cash of Rs. 55,10,000/- was withdrawn from the bank but the assessee does not concur with his view that the balance cash of Rs. 35,70,000/- (Rs. 55,10,000/-minus Rs. 19,40,000/-) was not utilised for the purchase of the property. However, the Id. CIT(A) did not admit the cash withdrawals for Rs. 55,10,000/-claimed to be made by the assessee from its bank accounts for the reason that withdrawals are shown in the name of 'Rant Manohar, Surinder Chopra or cheque paid' and no cash withdrawals or withdrawal through self cheque is recorded in bank statement. In connection with this observation of the Id. CIT(A), the assessee contends that, in fact, cash withdrawals are being made through bearer cheques given in the name of authorised representatives of the assessee company including the above named persons i.e. Ram Manohar and Surinder Chopra who had withdraw the cash on behalf of the company. The bearer cheques were given in the name of the above authorised persons as the banks did not allow cash withdrawals through 'Self Cheques' in the case of 'Companies' as per their procedure. Further, the narration used by different banks for withdrawal of cash is also different. Some banks mention the name of the person to whom the cash is paid in the narration in bank statement and some banks, particularly HDFC Bank simply mention 'Cheque Paid' for cash withdrawals in the narration.

It was further submitted that the AO after verification has admitted the cash withdrawals of Rs. 55,10,000/- from banks during the period from 18/04/2013 to 26/04/2013 but he was of the opinion only the cash withdrawals made on 25/04/2013 & - 2013 for Rs. 19,40,000/- can only be accepted as reasonable for utilisation in cash payment of Rs. 75,00,000/- against purchase of property. On the other hand, the Id. CIT(A) observed that cash sales to the extent of Rs. 19,90,000/- are considered as explained out of cash sales made by the assessee during the month of April, 2013 but did not admit that cash withdrawals from banks for Rs. 55,10,000/-.

It was submitted that the appellant contends that its books of accounts are duly audited and there is no adverse comment by the auditors. The above said cash withdrawals for Rs. 55,10,000/- made from banks were duly recorded in the cash book of the assessee. Complete books of accounts including cash book, bank account statements etc. were produced before the AO during assessment proceedings and were examined by the AO, as clearly borne out from Para-2 of the assessment order and after such examination, he was satisfied with the cash withdrawals of Rs. 55,10,000/- but did not consider that whole of the cash withdrawals from banks were utilised towards payment against purchase of property. The assessee categorically stated that it has withdrawn cash aggregating to Rs. 55,10,000/- from banks from 18/04/2013 to 26/04/2013 as detailed at Para-4 of the assessment order and an affidavit in this matter by Sh. Kamal Parkash Goyal, Director of the assessee company as well as certificates obtained from HDFC Bank and Axis Bank has been placed on record.

It was submitted that no specific findings have been given by the assessing officer in the assessment order as to why he has casted doubt on the utilisation of cash withdrawals to the extent of Rs. 35,70,000/- (Rs. 55,10,000/- minus Rs. 19,40,000/-) towards making cash payment of Rs. 75,00,000/- for purchase of property, though no incriminating material was found during the course of survey proceedings. During the course of survey on 30/04/2013, cash sales were duly found recorded in the cash book by the survey party. In light of aforesaid submissions, it was submitted that the necessary relief may be provided to the assessee.

Per contra, the ld DR has relied on the order of the lower authorities.

We have heard the rival contentions and purused the material available on record. The matter relates to source of cash payment of Rs 75 lacs, being the part payment towards purchase of immoveable property by the assessee company. From the submissions and pleadings of the assessee before the lower authorities, it is noted that the assessee has explained that a sum of Rs. 55,10,000/- was paid out of cash withdrawn from the bank from 18.04.2013 to 26.04.2013 and the balance amount of Rs. 19,90,000/- was paid out of the cash available with the company as per its books of accounts. The ld CIT(A) has accepted the explanation of the assessee in so far as amount of Rs. 19,90,000/- being out of cash sales in the month of April 2013 and the source of cash payment to that extent has been found acceptable.

The limited issue that remains for our consideration thus relates to the remaining amount of Rs 55.10 lacs. In this regard, it is noted that the AO, on perusal of the bank statement showing the proximity of cash withdrawal of Rs 9.90 lacs on 25/04/2013 and Rs 9.50 lacs on 26/04/2013 to the date of payment of cash on 29/04/2013 has accepted the explanation of the assessee to the extent of Rs 19.40 lacs as reasonable being the cash payment made out of cash

Having said that, we find that the ld CIT(A), who has conterminous powers as that of the AO, has taken efforts and has examined the bank statements of the three bank accounts maintained by the assessee with Axis Bank, SBOP, and HDFC Bank and on examination of individual entries for cash withdrawals has arrived at a finding that these cash withdrawals are not self-withdrawal as withdrawals are shown and debited in the bank statements in name of Ram Manohar, Surinder Chopra or cheque paid. In this regard, the AR during the course of hearing has contended that before arriving at such a finding by the ld CIT(A), the assessee should have been confronted and asked for his explanation, however, no such opportunity was provided by the ld CIT(A) before arriving at the findings which are clearly adversial in nature and more so, not the correct appreciation of actual transactions so debited in the bank accounts maintained by the assessee and recorded in the cash book and books of accounts of the assessee. It has been explained before us that the said cash

After hearing both the parties and the considering the material on record, we believe that the ld CIT(A) before arriving at the aforesaid findings in terms of exact nature of entries of cash withdrawals and rejecting the explanation regarding the source of cash payments should have allowed an opportunity to the assessee which apparently has not happened in the instant case. In view of the same, given that the matter require necessary examination and verification as also submitted by the ld DR, we deem it appropriate to set-aside the matter to the file of the ld CIT(A) for this limited purpose of examination of the entries of cash withdrawals in the bank accounts and treatment thereof in the books of accounts of the assessee and where on examination, it is found that these are cash withdrawal(s) for the assessee’s own internal business requirements and not payment to any third party towards any existing or future liability, allow the necessary relief to the assessee by accepting the explanation regarding source of cash payment towards purchase of the property.

In the result, the appeal of the assessee is allowed for statistical purposes.

""यथ"/ The Respondent 3. आयकर आयु"/ CIT 4. आयकर आयु" (अपील)/ The CIT(A) 5. िवभागीय "ितिनिध, आयकर अपीलीय आिधकरण, च"डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड" फाईल/ Guard File