INCOME TAX OFFICER, LUDHIANA vs. AAKRITI JAIN, LUDHIANA

Out of five Grounds of appeal taken by the Department, the only issue that the Department is agitating is regarding the huge sales made by the Assessee from a comparatively smaller station like Parwanoo in comparison to the big station Ludhiana. The sales have also been made in cash and even without any bank account or a strong room in Parwanoo. The Assessee has been bringing cash to Ludhiana. Against all these human probabilities, the Department has filed appeal before the Tribunal.

Brief facts of the case are that the Assessee is engaged in the business of trading of all types of jewellery and bullion. This business is being carried in two units, i.e., one from the headquarters office at Ludhiana and other from the Branch office at Parwanoo, District Solan, Himachal Pradesh (H.P.). The Assessee is an individual, Proprietor of Shree Rama Krishna Jewellers. During the year under consideration, apart from business and profession, the Assessee has derived income from other sources also. Return for A.Y. 2017-18 was filed on 27.10.2017 declaring total income of Rs. 33,22,130/-. In the assessment order, the Assessing Officer had observed that from the records it is found that the Assessee does not maintain any bank account in Parwanoo and it has bank account only in Ludhiana. The assessment was completed u/s 143(3) of the 481-Chd-2023- Aakriti Jain, Ludhiana 4 Act making disallowance u/s 68 of the Act amounting to Rs. 13,49,76,182/- and addition on account of interest paid of Rs. 94,40,163/-.

In the assessment order, the Assessing Officer has given his finding that during the year under consideration, the Assessee had made cash deposits of Rs. 18,56,50,000/- in its bank account in Indusind Bank, Ludhiana and HDFC Bank, Ludhiana. The Assessing Officer further brought it on record that the Assessee made total cash deposit of Rs. 18,56,50,000/- in the bank account on various dates during demonetization period. When asked about such deposits, the Assessee submitted before the Assessing Officer that this cash deposits were out of regular cash sales both at Ludhiana and Parwanoo. The Assessing Officer challenged the existence / working of Parwanoo Branch office and stated that the same had been utilized by the Assessee to evade the taxes. The Assessing Officer has further stated that an Inspector from the Department was deputed to make enquiry about the premises and shop at Parwanoo and the Inspector submitted the report stating that no business of any jewellery was being carried out by the Assessee on the said branch at Parwanoo. Before the CIT(A), the Assessee contended that Inspector’s report was never confronted by the Department to the 481-Chd-2023- Aakriti Jain, Ludhiana 5 Assessee and no opportunity was given to the Assessee to cross- examine the persons from whom the Inspector had gathered the information at Parwanoo. Further, the Assessee submitted rent agreement and deeds of different dates of the premises at Parwanoo, VAT registration proof of Parwanoo, VAT returns of Parwanoo, toll receipts of Parwanoo, ID proof of employees at Parwanoo Branch and ID proof of even some customers who made purchases at Parwanoo, Audited balance sheets and profit and loss accounts of Pareanoo Branch, copy of sale and purchase ledgers at Parwanoo Branch etc., both before the Assessing Officer and the CIT(A). The Assessee also submitted complete set of books of account before the Assessing Officer of Parwanoo Branch and stand alone audited balance sheets and profit and loss accounts of Parwanoo Branch. The Assessing Officer did not doubt the purchases at Parwanoo branch but cash sales at Parwanoo was rejected by the Assessing Officer.

Aggrieved with this order, the Assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) in his order has given finding that discrepancies were explained by the Assessee and the discrepancies pointed out by the Assessing Officer were without bringing any adverse material on record by the Assessing Officer. The ld. CIT(A) further gave his finding that report of the Inspector may not be 481-Chd-2023- Aakriti Jain, Ludhiana 6 correct as the inquiry was conducted in the late month of 2019, i.e,, approximately two years after the end of the relevant assessment year and whereas, the shop was closed in June 2017. The ld. CIT(A) has further stated that no statement of the shopkeepers or persons form whom inquiries were made were formally recorded. Even the identity of such shop keepers and other persons were not disclosed to the Assessee nor mentioned in the any part of the assessment order. No cross-examination was allowed nor any formal statements were recorded. The ld. CIT(A) further stated in his order that cash sales made by the Assessee at Ludhiana branch in the similar months has been accepted by the Assessing Officer without considering the fact that the nature and modus operandi of the business of Ludhiana branch is same as that of Parwanoo branch. Further, that books of account of both the branches of the Assessee have been accepted by the Assessing Officer and no defect has either been detected or brought on record by the Assessing Officer. The CIT(A) has given his finding that the Assessee had a history of cash deposits and that the Assessee had deposited Rs. 22,34,40,000/- in October, 2016, just before the demonetization was announced. The Stock tally furnished by the Assessee in the form of month wise quantitative detail of every time of stock treaded by the Assessee was also accepted, therefore, 481-Chd-2023- Aakriti Jain, Ludhiana 7 CIT(A)’s finding that neither the purchases made by the Assessee nor the details of stock furnished have been doubted then there was no question of doubting the sale of the Assessee out of the said stock and accordingly the ld. CIT(A) deleted the addition.

Against the order of the CIT(A), the Department has preferred this appeal before us.

The ld. DR heavily relied on the finding of the Assessing Officer in the assessment order, enquiry made by the Assessing Officer and the enquiry report of the Inspector were highlighted by the ld. DR and it was argued that cash deposit in the banks during the demonization period was mainly of demonetized currency and as such cash sales at Parwnoo branch of the show room of the Assessee was also not genuine etc. The ld. Counsel of the Assessee relied heavily on the order of the ld. CIT(A), NFAC and apart from that on the paper book comprising of details of sales made at Parwanoo branch and different case laws were filed during the proceedings.

We have considered the findings of the ld. CIT(A) and the arguments put forward by the ld. DR. We have also considered the different case laws brought on record by the Counsel of the Assessee 481-Chd-2023- Aakriti Jain, Ludhiana 8 and the written submissions filed during the proceedings before us. We are of the view that the finding of the ld. CIT(A) is logical and therefore, correct to the extent that once the purchase and stock of the Assessee has been accepted, there is no reasons to deny sale out of such stock and purchase. We also find that the A.O. has not rejected the books of account of the Assessee, so, once cash purchases / sales based on vouchers had been accepted, there is no point in making addition on the deposit of such cash in the bank account, particularity on cash sales.

We have also heard the rival submissions of the parties and perused the material available on record. The ld. Counsel for the Assessee has explained the source of such cash deposits and it has also explained that such cash sales are subject to VAT where VAT has been collected and deposited with the Government treasury. In support of her explanation, the Assessee has furnished the documents of the relevant period of VAT returns, copy of trading and profit and loss accounts and balance sheets, which are duly audited. We find that the Assessing Officer has accepted the cash sales and the Assessing Officer has also accepted the VAT collected and deposited in the Government account. Even the Assessing Officer has accepted the VAT returns filed by the Assessee and accepted by the 481-Chd-2023- Aakriti Jain, Ludhiana 9 Indirect Taxes Department. Therefore, it clearly shows that the Assessing Officer has not doubted the availability of cash in the hands of the Assessee. Once availability of cash in the hands of the Assessee is accepted, then deposit of such cash in bank account cannot be rejected.

Lastly, we find that accepting the cash sale by the Assessee offered to tax, and then addition of same cash deposited in the bank, will amount of double taxation and the same is clearly unsustainable in the law and cannot be justified. Therefore, we find that the explanation offered by the Assessee is genuine, reasonable and duly supported by the documentation, books of account and audited accounts of the Assessee. Therefore, we find no reason to disturb the findings of the ld. CIT(A). Accordingly, Departmental appeal on this issue is dismissed.

In the result, Departmental appeal is dismissed.