TMI Blog2023 (7) TMI 494X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the sales as revenue receipt, there is no case for making the addition u/s 68 or tax the same u/s 115BBE again. Thus we hold that the AO has made addition u/s 68 erroneously. The ground raised by the Revenue is rejected. - I.T.A No.352/Del/2021 - - - Dated:- 9-6-2023 - SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER For the Appellant : Sh. Kanv Bali, Sr. DR For the Respondent : Sh. Hiren Mehta, CA and Sh. Nirbhay Mehta, CA ORDER PER C.N. PRASAD, J.M. This appeal is filed by the Revenue against the order of the Ld. Commissioner of Income Tax(Appeals)-2, New Delhi dated 09.09.2020 for the AY 2017-18 in deleting the addition made u/s 68 of the Act in respect of cash deposits made by the assessee into its bank accounts during demonetization period. 2. Brief facts are the assessee company which is engaged in the business of manufacture of gold and diamond jewellery filed its return of income on 29.09.2017 declaring income of Rs. 1,21,28,780/-. The case was selected for scrutiny through CASS as the assessee made large cash deposits during the demonetization period. 3. During the assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- when turnover was 58,09,41,333/- and the ratio of cash deposits to turnover was 82.22%. Therefore it was submitted that in cash deposits also there was consistency and regularity. The assessee also contended that the closing stock for the FY 2015-16 and 2016-17 was Rs. 19,42,54,866/- and 19,33,74,529/- respectively and the company generally keeps good stock holding always various kinds of designs, patterns in various weight and sizes. It was submitted that assessee has been maintaining stocks from past few years which can be seen from the audited balance sheet from the last 4-5 years. 6. However, the AO on analyzing cash deposits during demonetization period for the FY 2016-17 in comparison to FY 2015- 16 he came to the conclusion that it is not in line of the normal business and observing that there is increase in cash deposit at 168% and cash sales at 111% he concluded that cash deposits amounting to Rs. 21,69,98,000/- during demonetization period i.e. from 01.04.2016 to 08.11.2016 is not justified. However, the AO has allowed credit for the cash deposits in accordance with turnover over ratio growth. AO has arrived at ratio growth in respect of the turnover for the FY 2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this growth rate in cash sales for corresponding demonetization year. The AO further observed that during demonetization period there was a jump of 168% in total cash deposits and the cash sales jumped to 111% during the period 01.04.16 to 08.11.16 than that of previous financial year i.e. 2015-16. Finding of the AO is tabulated below: - 4.1 a) Total cash deposit in bank FY 2015-16 Rs. 37,21,51,000/- b) Total cash deposit in bank from 01.04.2015 to 08.11.2015 Rs. 22,15,79,000/- c) Total cash deposit in bank from 09.11.2015 to 31.12.2015 Rs. 8,09,50,000/- 4.2 a) Total cash deposit in bank in FY 2016-17 Rs. 47,76,87,500/- b) Total cash deposit in bank from 01.04.2016 to 08.11.2016 Rs. 19,12,59,500/- 4.3 a) Percentage increase between 4.2(a) and 4.1(b) 28% b) Percentage increase between 4.2(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn amounting to Rs. 54,53,36,094/-. it may be noted that the appellant revised the VAT return and filed the same on 28.10.2016 for first quarter of F. Y 2016-17. This was before demonetization. Hence, the same has no adverse implications for the facts of the present case. As against this, in the return of income under the provisions of Income-Tax Act, total turnover was shown at Rs. 54,53,36,094/-. Further, during the course of the assessment proceedings, appellant filed voluminous details with respect to:- a) Copies of bank statements and source of deposit therein, which was squarely attributed to cash sales effected ; b) Details of cash deposited for the FY 2015-16, 2016-17 and 2017-18; c) Details of purchases, gross sales and cash deposit; d) Cash book and quantitative details. 4.12 Therefore, from the above, it is noted that neither the A.O pointed out any shortage in the closing stock vis-a- vis the sales effected, nor any discrepancy in the information submitted before the income tax and the VAT authorities. 4.13 During the course of the appellate proceedings, the appellant was asked to furnish a comparative chart regarding cash-sales. The same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gross Profit 3,80,49,895 4,46,08,482 3,04,83,358 2,71,43,369 GP ratio 8.44 7.68 6.78 6.74 Net Profit 45,11,764 39,42,612 18,06,067 18,53,211 NP Ratio 1.00 0. 68 0.40 0.46 Stock in Trade 24,25,37,182 19,33,74,529 19,42,54,866 14,64,12,576 Stock in Trade/Turnover Ratio 53.78 33.29 43.18 36.34 4.16 From the analysis of the cash deposit ratio and also the GP ratio, nothing adverse is inferred. In fact, it is also not in dispute that the A.O also has accepted sales figures and the extrapolation by AO is based on the sales recorded by the appellant in its books. What has been estimated is the quantum of cash transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while making the addition under Section 68 or 69C is contradictory to his stand taken while accepting the business income which is not permissible in law. The Hon ble ITAT has held that on one hand, the AO has accepted the sales as genuine by accepting the trading result disclosed by the assessee, and on the other hand, has held the high-sea sales to be not genuine . The Hon ble ITAT has held that there is an inherent contradiction in the same. The order of the A.O in the present case also suffers from the stated contradictions, as stated hereinabove. (ii) The second issue is with respect to the whether Section 68 will be made applicable to the facts of the present case. It is not in dispute that the sales have been duly recorded in the books of account. The same was also reflected in the audited report, ITR and also in the VAT return. The VAT return filed have not been revised. The A.O has not questioned the quantum of sales reflected by the appellant. The A.O has resorted to an estimation, based on comparative figures between cash sales and total turnover by resorting comparative percentage analysis. Hon'ble ITAT in Singhal Exim Pvt. Ltd. vs. ITO (supra) have made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has furnished details debtors and also entries made in the books of account, the invocation of Section 68 was held to be not applicable to trade recovery made by the assessee during the year. In the present case, the cash deposited in the bank is nothing but in the nature of trade-receipts only. (v) The A.O in the present case has based her estimation on the sales effected. The cash proceeds of the business, recorded in the books, deposited in the bank was offered to tax addition of the receipts of business, u/s 68 has resulted in double addition. The Hon'ble ITAT, Ahmadabad in the case of Shree Sanand Textile Ltd. ITA No. 995/Ahm./2014, the Hon ble ITAT noted that the provision of Section 68 of the Act can be attracted where there is a credit found in the books of accounts and the assessee failed to offer any explanation or the offer made by the assessee is not satisfactory in the opinion of the assessing officer. The assessee has explained to the authorities below that the impugned amount represents the sale which has not been doubted by the authorities below. Thus, in the considered view of the Hon ble ITAT, the impugned amount cannot be treated as unexplained c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h cases, it could not be treated as undisclosed income and no addition could be made once again in respect of the same. In the present case, the AO has not pointed out any defects. Books of account have been accepted. No defects have been pointed out. In the absence of the same, resorting to an estimation, based on statistical extrapolation cannot be accepted. (vii) The Hon'ble ITAT, Delhi in the case of Agson Global Pvt. Ltd. vs. ACIT [ITA No. 3741 to 3746/Del/2019] and [ITA No. 5264 to 5269/Del/2019], in its order dated 31.10.2019 have allowed the appeal of the appellant, which was based on an issue emerging out of demonetization event. The principles laid down also have a bearing on the facts of the present case. The assessee (Agson Global) was engaged in the trading of dry fruits and kirana items. The cash received against sales is subsequently deposited into banks from time to time. Cash sales and corresponding cash deposits into the bank accounts of the assessee have been a regular feature of the assessee's business. The nature and source of cash deposited between 09.11.2016 to 30.12.2016 was matter of investigation, subsequent to search and seizure operatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and it should not enlarge the ambit of section 68 of the Act to create a deeming fiction to tax any sum already credited/offered to tax as income. Section 68 of the Act traditionally applies to unexplained 'cash credit1 like loans, deposits, advances, share capital, etc. and not to sums already offered to tax as income by the assessee in its return of income at the highest slab rate. Such recourse is unwarranted keeping in mind the objective to introduce section 115BBE of the Act was only to curb the practice of laundering of unaccounted money by taking advantage of the basic exemption limit. The reason and purpose of the provision was explained by the explanatory memorandum to the Finance Bill 2012 as under:- 1) Under the existing provisions of the Income-tax Act, certain unexplained amounts are deemed as income under section 68, section 69, section 69A, section 69B, section 69C and section 69D of the Act and are subject to tax as per the tax rate applicable to the assessee. In case of individuals, HUF, etc., no tax is levied up to the basic exemption limit. Therefore, in these cases, no tax can be levied on these deemed income if the amount of such deemed income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the CIT (A)) u/s 68 on account of cash deposited in banks during the demonetization period may kindly be deleted. 4.17 From the above discussion, with respect to the facts on record and judicial pronouncements on the subject, the following can be concluded: i) The AO did not question the sales figure and accepted books of account. In the absence of any adverse finding with respect to the acceptability/veracity of books of account, the action of AO cannot be sustained. Making an addition u/s 68 of an amount, which is already accounted for as sales would be tantamount to double addition; ii) The appellant has filed VAT return, which is matches with turnover shown in Income Tax Return and the appellant has established existence of adequate stock to effect sales. In the absence of any adverse findings by the AO, addition made, purely based on the principle of estimation cannot be approved of; iii) The action of the AO in arriving at the conclusion that the appellant failed to discharge the onus of proving the genuineness of the cash deposited in the bank account amounting to Rs. 9,99,51,075/- u/s 68 of the Act is erroneous; iv) The AO is method of arrivin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n suspicious features were noticed by the AO as well as the DDIT (Inv.), both the authorities did not find any defects in the books of accounts and trading account, P L account and the financial statements and failed to disprove the condition of the assessee. Suspicion however strong it may be, it should not be decided against the assessee without disproving the sales with tangible evidence, (para 7 ) In the instant case the assessee has established the sales with the bills and representing outgo of stocks. The sales were duly accounted for in the books of accounts and there were no abnormal profits. In spite of conducting the survey the AO did not find any defects in sales and the stock. Therefore we do not find any reason to suspect the sales merely because of some routine observation of suspicious nature such as making sales of270 bills in the span of 4 hours, non availability of KYC documents for sales, non writing of tag of the jewellery to the sale bills, non- availability of CCTV footage for huge rush of public etc. The contention of the assessee that due to demonetization, the public became panic and the cash available with them in old denomination notes becomes illegal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sudden spurt in the sale only in the month of October 2016 as the chart furnished by the assessee before the Ld. CIT(A) clearly revealed that the cash sales were on higher side in another months of different preceding years. The AO made the addition on the basis of difference in the cash sales from 01-10-2016 to 29-10-2016, only on this basis that the said difference was there in the computer and the pen-drive found from the residential premises of the part time accountant of the assessee but no opportunity to cross examine the said accountant was given to the assessee and moreover, no specific defect was pointed out in the proper books of account maintained by the assessee in the regular course of business and nothing is brought on record to substantiate that the sales from 01-10-2016 to 29-10-2016 were not made, out of the existing stock available with the assessee. In the present case the assessee explained that the exhibitions were held in every year and the sales were normally higher in certain month and that in the month of October 2016 the cash sales was on the higher side as lots of festivals like Diwali, Dhanteras, Bhaiya Duj and Karwa Chauth etc. fell in that period. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gures of the stock at the time of search on 12/04/2017, therefore, the sales made by the assessee out of the existing stock were sufficient to explain the deposit of cash (obtained from realization of the sales) in the bank account and cannot be treated as undisclosed income of the assessee. 10.13 In the present case also the cash deposited post demonetization by the assessee was out of the cash sales which had been accepted by the Sales Tax/VAT Department and not doubted by the AO, there was sufficient stock available with the assessee to make cash sales and there was festive season in the month of October 2016 prior to the making of the cash deposit in the bank account out of the sales. So, respectfully following the aforesaid referred to orders by the various Hon'ble High Courts and the Coordinate Benches of the ITAT, we are of the view that the impugned addition made by the AO and sustained by the Ld. CIT(A) was not justified, accordingly the same is deleted. 13. In the case of Anantpur Kalpana vs. ITO (130 taxmann.com 141) the Bangalore Bench of the Tribunal held as under: - 9. I have carefully considered the rival submissions. Both the AO and CIT(A) accepted the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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