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2011 (10) TMI 730

S.K.Mittal O R D E R PER SUSHMA CHOWLA, J.M, : The appeal filed by the assessee is against the order of the Commissioner of Income-tax(Appeals), dated 3.12.2010 relating to assessment year 2007-08 against the order passed under section 143(3) of the I.T. Act, 1961. 2. The assessee has raised the following grounds of appeal:- 1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in upholding the addition of ₹ 3,12,00,000/- made on account of cash sales made under Section 68 of the Act on which deduction claimed u/s 80IC has been denied which is arbitrary and unjustified. 2. That the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding the invocation of Section 68 which in fact is not attracted in the instant case as cash sales have been wrongly treated as cash credits in utter disregard of the explanations rendered both during the appellate and assessment proceedings which is arbitrary & unjustified. 3. That the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding the addition of ₹ 46,120/- made u/s 40A(3) of the Act which is arbitrary & unjustified. 4. That the Ld. Commissioner of Income T .....

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assessment order. The Assessing Officer put the assessee to notice that the cash sales of ₹ 3.12 crores were made during the month of September 2006 to different parties, whose addresses were found to be incomplete and they could not be traced on the addresses furnished by the assessee. The assessee was requisitioned to give the complete and correct addresses of the parties, their telephone numbers, etc. The assessee was also show caused as in the absence of complete details why cash sales of ₹ 3.12 crores be not treated as bogus sales and be treated as money introduced from undisclosed source in the garb of cash sales. The assessee in response vide letter dated 24.11.2009 submitted that the goods manufactured by it had tremendous reputation for purity and quality. The assessee claimed to have enjoyed monopolistic status in the trade circle of essential oil and perfumery compounds. The assessee admitted that as a policy it did not encourage or entertain over the counter sale due to difficulties involved in collecting the cash. However, due to extreme demand and to cater to various traders/end users, smaller retail quantity not exceeding 50 kgs. for sale were made across .....

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₹ 3.12 crores under the provisions of section 68 of the Act. 7. The CIT (Appeals) held as under : The facts as well as the pleas of both the appellant as well as the A.O. have been considered by the undersigned. Cases cited are distinguishable on facts. The appellant has shown cash sales of ₹ 3,12,00,000/- including VAT of ₹ 12,00,000/-. The cash sales have been affected by the appellant in the month of Sept.,2006 only. The addresses of the purchasers given by the appellant were not found to be correct. On enquiry the purchasers could not be traced due to incomplete addresses. Therefore, the genuineness of cash sales has been rightly doubted by the Ld. A.O. since sales bills are in round figures of ₹ 6 lacs and 3 lacs each in most cases. Mere payment of 4% vat does not prove genuineness of sales. Stock record does not provide quantitative tally of raw material vis-vis production. It is a clear case of introduction of cash by the firm in the form of cash sales and credit to its books of account and transfer to the accounts of partners as cash withdrawals. The appellant has failed to discharge the ONUS to prove genuineness of cash sales amounting to ₹ 3. .....

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list of parties to whom cash sales have been made placed at pages 86 and 87 of the paper book, reveals that it is not clear as to whom the said cash sales had been made and even addresses were incomplete. The learned D.R. for the Revenue stressed that the surrounding circumstances were to be seen to adjudicate the issue and reference was made to the additional income offered by the assessee, on which the reduction u/s 80IC of the Act was made by the Assessing Officer. As per the learned D.R. for the Revenue, the total exercise carried out by the assessee was for creating the evidence of declaring the cash sales and thereafter the money being transferred to the partners of the assessee firm. Further reliance was placed on the undermentioned case laws : i) Sumati Dayal Vs. CIT, 214 ITR 801 (SC) ii) CIT Vs. Durga Prasad More, 82 ITR 540 (SC) iii) Prabhu Dayal Lallu Ram Vs. CIT, 277 ITR 537 (P&H) 10. In rejoinder, the learned A.R. for the assessee pointed out that the additional income was offered in order to buy piece of mind. Strong objection was raised to the plea of the learned D.R. for the Revenue and it was pointed out that no evidence had been created by the assessee. Our a .....

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stopped the counter sales for administrative reasons of collecting, counting, safe keeping of cash and for security reasons considering the fact that the factory is located in a isolated area, the assessee did not wish to compound administrative inconveniences by selling finished goods across the counter. Hence the assessee discontinued the counter sale on cash basis. 13. The assessee has annexed the details of raw material used in the manufacturing of PAN SHAMAMA at page 60 of the Paper Book under which it has tabulated item-wise details of the raw material purchased i.e. the quantity and date of purchase. Out of the said quantity purchased, the assessee claims to have issued the smaller quantity than purchased of the raw material for the purpose of consumption in the manufacturing process. However, no quantitative details in respect of the raw material consumed and production thereof have been produced before us. The assessee has maintained stock register of the raw material purchased and copy of the same are placed alongwith photocopies of the purchase bills of the different items at pages 61 to 81 of the Paper Book. The first such account of raw material Comp J.M./B.2 in which .....

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machal Pradesh including Manali, Kullu, Baddi, Shimla, Nalagarh, etc.. The said sales are made by the assessee on various dates as enumerated page 86 and 87 of the Paper Book and from the perusal of the sale bills maintained by the assessee, we find majority of the sale bills are for ₹ 6,24,000/- and some of the sales are for ₹ 3,12,000/-. The assessee has filed to extract of the cash book for the month of September, 2006 at pages 153 to 163 of the Paper Book. The perusal of the said cash book reveals that the cash collected by the assessee firm was distributed in cash to its partners, S/Shri J.M.Joshi and Sachin Joshi. The copy of the capital accounts of both the partners reflect that except for withdrawing the cash in the month of September. 2006 the total withdrawals by the respective persons have been made by way of cheques. 15. The assessee before us claims to have manufactured synthetic product known as PAN SHAMAMA. The total quantity of 2.5 tons of items for packing of 50 kg. were sold by way of sale over the counter to buyers against cash. The unit of the assessee is established in isolated area of Himachal Pradesh i.e. in Una. The assessee himself had admitted .....

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hens the case of the authorities below i.e. the total cash collected from the above said sales was withdrawn by the partners in cash. No part of the cash sales were deposited in the bank account and the total amount of ₹ 3.12 crores in cash was withdrawn by the partners in the month of September, 2006 itself. Though the perusal of the capital account of the partners reveals that rest of the entries in their respective capital accounts both on account of credit or debits even to the extent of the amount of ₹ 10,000/- or more were by way of cheque. The assessee having failed to discharge its onus to prove the genuineness of the cash sales of ₹ 3.12 crores, we uphold the order of the CIT (Appeals). The assessee is not entitled to the deduction u/s 80IC of the Act on the aforesaid addition of ₹ 3.12 crores. Ground Nos.1 and 2 raised by the assessee are dismissed. 16. The issue in ground No.3 raised by the assessee is against the disallowance made u/s 40A(3) of the Act. The Assessing Officer had on examination of the books of account found that the payments totaling ₹ 2,30,600/- were made in cash exceeding ₹ 20,000/-. In view of the provisions of sect .....

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