ITO, WARD 8(1), NEW DELHI vs. ENHANCE HOSPITALITY P.LTD, NEW DELHI

This appeal by the Revenue is preferred against the order dated 01.05.2023 by the NFAC, Delhi pertaining to Assessment Year 2017-18.

The grievances of the Revenue read as under:

Briefly stated the facts of the case are that the assessee filed its return of income on 29.10.2017 electronically declaring loss of Rs. 89,562/-. Return was selected for complete scrutiny through CASS for abnormal increase in cash deposits during demonetization period.

The assessee was asked to explain the deposits of cash during the demonetization period.

The assessee filed a detailed which was dismissed by the Assessing Officer who was of the opinion that cash deposits in the bank in the immediately preceding F.Y. 2015-16 were NIL. Cash deposited during pre demonetization period was also NIL. But during the demonetization period, the assessee made cash deposit of Rs. 88.54 lakhs.

Explanation of the assessee that cash deposited during the demonetization period were from cash sales was also dismissed by the Assessing Officer. The Assessing Officer further examined the purchases and found purchases from 4 parties bogus and finally concluded by making addition of Rs. 82.54 lakhs as unexplained cash deposit in the SBN u/s 69A of the Income-tax Act, 1961 [the Act, for short].

Addition was challenged before the ld. CIT(A) and the explanations were reiterated.

After considering the facts and submissions, the ld. CIT(A) found contradiction in the findings of the Assessing Officer. The ld. CIT(A) observed that on one hand the Assessing Officer has stated that sales could not be verified for want of evidence and on the other hand, the Assessing Officer has observed that the assessee has show cash sales only to justify the huge amount of cash deposit during the demonetization period. The ld. CIT(A) found that sales are properly recorded in the books of account and evidences are available with the assessee.

It was further noted that the total sales of Rs. 1.23 crores which have been made in cash has not been doubted by the Assessing Officer but he has only questioned the source of 82.54 lakhs. Contradicting himself, the Assessing Officer has accepted the cash deposited during the demonetization period of Rs. 88.54 lakhs.

The ld. CIT(A) was not inclined to accept the pick and choose formula adopted byhte Assessing Officer. While accepting the contentions of the assessee, the ld. CIT(A) observed that sales made by the assessee has been duly recorded in the books and no fault has been found in the books of account maintained by the assessee.

The ld. CIT(A) further found that though th Assessing Officer has doubted the purchases from 4 parties, but has accepted the payments made to them through banking channel.

The ld. CIT(A) concluded as under:

Addition was deleted.

Before us, the ld. DR strongly supported the findings of the Assessing Officer and read the operative part.

Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities.

We have carefully perused the orders of the authorities below.

Cash deposit post demonetization period is as under:

From the above chart, it can be seen that during the demonetization period, the assessee has also deposited cash in currency denomination of Rs. 100/- and Rs. 50/- also. The allegation that the assessee has deposited cash during the demonetization period only does not make any logical sense because once the specified currency of denomination Rs. 1000/- & 500/- has been declared to be illegal tender, then no prudent person would keep the currency at home. Therefore, these SBN were deposited in the bank account as directed by the Government.

All that has to be seen is whether cash has been generated from legal sources and in the case in hand cash has been generated through sales made by the assessee, duly recorded in its regular books of account, which has been accepted by the Assessing Officer. No fault has been pointed out. The allegation that the purchases from 4 parties are bogus also do not stand, in as much as, payments have been made through banking channel and payments have been accepted by the Assessing Officer.

A careful perusal of the assessment order shows that the Assessing Officer has been carried away with cash deposit ignoring the fact that a business man was left with no choice but to deposit SBN in the bank account as the same has been demonetized and declared illegal tender.

In the result, the appeal of the Revenue in is dismissed.