TMI Blog2024 (1) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... issuing sale bills, then, said trade advance cannot be examined in light of provisions of Sec.68 of the Act, because, trade advances have been subsequently converted into sales and sales has been accounted in the books of accounts of the assessee. Therefore, in our considered view, the AO has committed a fundamental mistake in examining the cash receipts claimed to have been received by the assessee towards sale of jewellery in light of provisions of Sec.68 of the Act. Assessee has furnished name and address of the customers from whom it has received cash for sale of jewellery. The assessee need not obtain confirmation and submit to the AO, because, the law does not mandate colleting PAN details of the persons, if sale value of jewellery does not exceed Rs. 2 lakhs as per Rule 114B of Income Tax Rules, 1962. In so far as compliance of KYC norms, it is mandatory under Prevention of Money Laundering Act, 2002, w.e.f. 04.05.2023 onwards and not applicable for the impugned assessment year. Therefore, in our considered view, when the assessee has furnished name and address of the persons from whom it has received trade advances for sale of jewellery, the assessee has satisfactorily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been clearly evident that there are sufficient cash withdrawals, in our considered view, there is no reason for the AO to reject explanation of the assessee that cash deposits are out of cash withdrawals from very same bank account. AO is erred in making additions towards cash receipts received for sale of jewellery, which has been subsequently converted into sales, for the impugned assessment year as unexplained cash credits taxable u/s. 68 - Decided in favour of assessee. - Shri Mahavir Singh, Hon ble Vice President And Shri Manjunatha.G, Hon ble Accountant Member For the Department : Shri R. Clement Ramesh Kumar, CIT For the Assessee : Shri S.Sridhar, Adv. ORDER PER MANJUNATHA.G, AM: This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals), Income Tax Department, National Faceless Appeal Centre (NFAC), Delhi, dated 05.10.2022, and pertains to assessment year 2017-18. 2. The Revenue has raised the following grounds of appeal: 1. The order of Ld. CIT(A) is against the facts and circumstances of the case. 2. The Ld. CIT(A) failed to appreciate the fact that the assessee has failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and its application were not furnished even before the Ld. CIT(A), it seems. 10. The Ld. CIT(A) failed to appreciate the fact that out of the 50 creditors to whom summons were issued by the AO, 46 tapals were returned by the Postal Authorities with remarks viz. Addressee left, Addressee not available, No such Addressee etc. Only three have responded. Out of these, 2 creditors denied of having any transaction with the assessee. Only one creditor though admitted about having transaction with the assessee, but did not furnish any supporting evidence. 11 .For these and any other grounds that may be adduced at the time of hearing, the order of the CIT(A) may be quashed and that of the AO restored. 3. The brief facts of the case are that the assessee, M/s.Sahana Jewellery Exports Pvt. Ltd., is engaged in the business of trading in gold and jewellery. The assessee has filed its return of income for AY 2017-18 on 07.11.2017 admitting total income of Rs. 15,36,890/-. The case was selected for scrutiny under CASS in order to verify cash deposits during demonetization period. During the course of assessment proceedings, the AO called for information from various banks by issui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has received advances from various persons for sale of gold jewellery and the same has been accounted as sales for relevant period. 4. The AO after considering relevant submissions of the assessee and also taken note of various facts, analyzed the claim of the assessee towards source for cash deposits in light of total sales and cash sales for the impugned assessment year and corresponding total sales and cash sales for earlier Financial Year and observed that the assessee claims to have collected deposits from more persons during the impugned assessment year when compared to earlier assessment year to cover up source for cash deposits during the demonetization period. The AO further observed that although, the assessee claims to have furnished books of accounts, including cashbook, but, no evidence has been produced. The AO has discussed the issue at length in light of various evidences filed by the assessee and observed that the assessee has designed a modus operandi to create source for cash deposits in to bank accounts during the demonetization period and introduced cash receipts as scheme payment from parties. The huge disproportion in the number of parties and collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the amount of sales declared for the month of November, 2016, and also explained reasons for high volatility in sales month on month and according to the assessee, the demand for gold and jewellery is high during festival seasons and if you compare months, in which, the assessee has declared higher sales which falls under various festivals whereby customers buy more and more gold and jewellery. The assessee had also took support from certain judicial precedents including the decision of the Hon ble Delhi High Court in the case of CIT v. Agson Global (P) Ltd reported in 441 ITR 550 (Del) and also the decision of the Hon ble Supreme Court in the case of Lalchand Bhagat Ambica Ram v. CIT reported in [1959] 37 ITR 288 (SC). 6. The Ld.CIT (A) after considering relevant submissions of the assessee and also by considering the ratios of various judicial precedents, including the decision of the Hon ble Supreme Court in the case of Lalchand Bhagat Ambica Ram v. CIT(Supra) opined that the assessee is able to explain source for cash deposits during the demonetization period out of cash in hand available before the date of demonetization as per cash book maintained for the impugned asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Supreme Court held that when the assessee maintained the books of accounts and there was sufficient cash balance in its books and the books of accounts of the assessee were not challenged by the AO, then, the entries in the books of accounts, needs to be considered as genuineness. This principle is supported by the decision of the Hon ble Patna High Court in the case of Lakshmi Rice Mills v. CIT reported in [1974] 97 ITR 258 (Patna). Therefore, the Ld.CIT(A) opined that the AO is erred in making additions towards cash receipts u/s. 68 r.w.s.115BBE of the Act, and thus, directed the AO to delete addition made towards cash deposits u/s. 68 of the Act. Being aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before us. 7. The Ld.DR, Shri R. Clement Ramesh Kumar, CIT, submitted that the Ld.CIT(A) failed to appreciate the fact that the assessee has failed to prove the identity of the creditors, creditworthiness of the creditors and genuineness of the transactions which is pre-requisite for accepting the entries made in the books of accounts. The Ld. DR further submitted that the Ld.CIT(A) failed to appreciate the fact that the assessee has not furnished the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demonetization period. Although, the AO has brought out clear facts to the effect that the so-called trade advances received from various parties is unexplained cash credits, which comes under the provisions of Sec.68 of the Act, but the Ld.CIT(A) simply accepted the explanation of the assessee and directed the AO to delete the addition and therefore, the Ld. DR submitted that the order of the Ld.CIT(A) should be set aside and additions made by the AO should be upheld. 9. The Ld. Counsel for the assessee, Shri S. Sridhar, Advocate, supporting the order of the Ld.CIT(A) submitted that there is no dispute with regard to the fact that the assessee has maintained books of accounts and as per cash book, the cash balance available as on the date of demonetization was much higher than the amount of cash deposit made during demonetization period. The Ld. Counsel for the assessee further submitted that the sole basis for the AO to treat cash receipts recorded in the books of accounts of the assessee as unexplained cash credits and taxable u/s. 68 of the Act, is the fundamental mistake committed by the AO in understanding difference between trade advances and cash credits. It is a well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has furnished books of accounts, including purchase bills and sales bills and also stock registers maintained for the relevant period. The AO has not pointed out any discrepancy in books of accounts maintained by the assessee nor was it the case of the AO that any adverse findings from the GST authorities on purchase and sales declared for the relevant period. In fact, the AO has not rejected books of accounts and also not pointed out any discrepancy in books of accounts. In absence of any findings with regard to incorrectness in books of accounts, the AO cannot make additions towards trade advances which has been subsequently converted into sales as unexplained cash credits and brought to tax u/s. 68 of the Act r.w.s.115BBE of the Act. The Ld.CIT(A) after considering relevant facts has rightly deleted the additions made by the AO and their orders should be upheld. 11. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We have also carefully considered relevant reasons given by the AO to make additions towards cash receipts amounting to Rs. 51,39,39,100/- u/s. 68 of the Act. The AO has made additions t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation from all the parties and also called upon the assessee to show cause as to why the credits should not be considered as unexplained cash credit u/s. 68 of the Act. In response, the assessee submitted that as per law, it is not required to collect complete address and PAN from the persons to whom it has sold jewellery. Further, as per Rules 114 B of the Income Tax Rules 1962, if sale value of jewellery is in excess of Rs. 2 lakhs to a single person, then, it is required to collect PAN. Since, there is no requirement of collecting PAN, the assessee does not having details of PAN and correct postal address of the persons from whom it has received trade advances for sale of jewellery. Therefore, assessee submitted that the question of filing confirmation letter from the parties, from whom, it has collected advance for sale of jewellery does not arise, and consequently, cash receipts cannot be assessed u/s. 68 of the Act. The assessee had also explained the AO that it has sufficient cash balance as on 08.11.2016 as per books of accounts maintained for that assessment year and argued that the total cash deposits into bank account is explained out of cash in hand. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, because, trade advances have been subsequently converted into sales and sales has been accounted in the books of accounts of the assessee. Therefore, in our considered view, the AO has committed a fundamental mistake in examining the cash receipts claimed to have been received by the assessee towards sale of jewellery in light of provisions of Sec.68 of the Act. 14. Be that as it may. The fact remains that, the assessee has furnished name and address of the customers from whom it has received cash for sale of jewellery. The assessee need not obtain confirmation and submit to the AO, because, the law does not mandate colleting PAN details of the persons, if sale value of jewellery does not exceed Rs. 2 lakhs as per Rule 114 B of Income Tax Rules, 1962. In so far as compliance of KYC norms, it is mandatory under Prevention of Money Laundering Act, 2002, w.e.f. 04.05.2023 onwards and not applicable for the impugned assessment year. Therefore, in our considered view, when the assessee has furnished name and address of the persons from whom it has received trade advances for sale of jewellery, the assessee has satisfactorily discharged onus cast upon to furnish name and add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, in our considered view, the explanation of the assessee that it has received cash from various customers towards sale of jewellery and subsequently the advances have been converted into sales, appears to be bona fide and reasonable. 16. Coming back to second observation of the AO in rejecting explanation of the assessee with regard to source for cash deposits. Initially, assessee claims that source for cash deposits is out of trade advances received in cash from various persons. However, during the course of assessment proceedings itself, the assessee claimed that it was an error in making a submission that it has received trade advances from various persons before the date of demonetization, but fact remains that authorized representative who appeared and made submissions before the AO made an inadvertent error of copying submission made in another group case which is also pending for assessment. Further, immediately after noticing the above inadvertent error, the assessee has submitted details of cash book along with bank statements and explained that it has sufficient cash withdrawal aggregating to Rs. 150 Crs. from very same bank account on various dates before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s context, records a finding of fact that no unaccounted income of the assessee had been introduced in its books of account in the form of share capital. Based on this, the Tribunal concluded that there was 'no confession' made by the managing director that unaccounted income had been introduced by the assessee in the form of share capital. Therefore, according to the Tribunal, the statement made under section 132(4) did not constitute incriminating material. [Para 10.4] The Tribunal, has correctly analyzed the statement of the managing director. The statement does not allude to the fact that the assessee had introduced 'unaccounted money' in the form of share capital/share premium through investor entities. The retraction letter, as noted by the Tribunal, also did not advert to the introduction of investment of money in the assessee in the form of share capital/share premium. [Para 11.1] The trail of the money received from various entities in the form of share capital/share application money, concluded that the assessee had been able to place before the Assessing Officer sufficient documentary evidence which established that the money which the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue less than the sum for which they were sold. Therefore, as held by the Assessing Officer, in the deviation report, if the purported bogus purchases were to be disallowed then necessarily the sales shown in the assessee's regular books of account would also have to be excluded which would result in the assessee's income falling below the returned/declared income. [Para 15.1] Furthermore, the Assessing Officer had not placed on record any material to justify the disallowance of 25 per cent of the purchases on the ground that they were bogus without carrying out any inquiry or investigation. In particular, the Tribunal also flagged the issue that the purported shortage of stock was based on a reference made qua that aspect in the appraisal report of Investigation Wing which, as noted above, did not find mention in the remand report, as during the search it was found that the stock worth the aforementioned value was lying at the assessee's warehouse, something which was completely ignored. This position, was fortified by the fact that no addition in respect of any excess or shortage of stock had been made in the assessment orders of any of the years. In effect, acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r completeness. The finding of fact returned by the Tribunal is that books of account were not examined by the Commissioner (Appeals). If that be so. then, section 145(3) could not have been triggered by the Commissioner (Appeals), based on the mere statement of the managing director of the assessee. Besides this, as noted by the Tribunal, the Commissioner (Appeals) had attempted to quantify the profit by resorting to a methodology, which was incomprehensible. [Para 15.9] The average cash deposited by the assessee with its bankers before demonetization was, approximately, Rs. 42.35 crores, whereas the actual sum deposited during the demonetization period was Rs. 180.53 crores. The assessee's explanation was, broadly, that deposits were made out of cash sales and, during Diwali, cash sales increase; especially in the business in which the assessee is i.e.. dry fruits. [Para 16.2] The assessee. in support of its plea that cash deposits were made by the assessee in respect of sales which were duly accounted for, reliance was placed on the following material:- audited books of account; bank-wise summary of cash deposits; copies of bank statements; and details of month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is worthwhile to look into section 68 which reads as under: 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year; From the perusal of section 68, the sum found credited in the books of accounts for which the assessee offers no explanation, the said sum is deemed to be income of the assessee. In the instant case the assessee had explained the source as sales, produced the sale bills and admitted the same as revenue receipt. The assessee is engaged in the jewellery business and maintaining the regular stock registers. Both the DDIT (Inv.) and the AO have conducted the surveys on different dates, independently and no difference was found in the stock register or the stocks of the assessee. Purchases, sales and the Stock are interlinked and inseparable. Every purchase increases the stock and every sale decreases the stock. To disbelieve the sales either th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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