Recorded Sales Cannot Be Taxed Again Under Section 69A: ITAT Chandigarh

Smt Charu Aggarwal Vs DCIT (ITAT Chandigarh)

The Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, adjudicated two appeals (ITA No. 311/Chd/2021 & connected appeal) filed by Smt. Charu Aggarwal against separate orders dated September 30, 2021, passed by the Commissioner of Income Tax (Appeals)-5, Ludhiana [CIT(A)] for Assessment Year 2017–18.

Material Facts & Procedural History

• The assessee is a partner in M/s Kalaneedhi Jewellers LLP, a firm engaged in the retail business of gold, diamond, and kundan jewellery.
• On April 12, 2017, a search and seizure operation under Section 132 of the Income Tax Act, 1961 was conducted in the Kalaneedhi group of cases.
• Following a notice under Section 153A dated October 30, 2017, the assessee filed a return of income on November 29, 2017, declaring an income of ₹22,52,980.
• During assessment, the Assessing Officer (AO) observed that the assessee deposited ₹2,90,20,000 in cash into its CC account during the post-demonetisation period.
• Digital data impounded during the search revealed two sets of books of account (one in the accountant’s computer and another in a pen drive). Comparison of October 2016 sales data showed that cash sales were inflated after demonetisation (November 8, 2016) using un-serialised/back-dated bills (Serial Nos. 15 to 147) totaling ₹2,19,85,395 to generate cash-in-hand.
• The part-time accountant, Sh. Naveen Goyal, confirmed in his statement under Section 131 that sales figures were modified after demonetisation to inflate cash-in-hand.
• The AO rejected the books of account under Section 145(3), completed the assessment under Section 144, and made an addition of ₹2,19,85,395 as unexplained money under Section 69A read with Section 115BBE.
• The AO also referred the valuation of the assessee’s showroom construction to the Departmental Valuation Officer (DVO) and made an unrecorded construction investment addition of ₹7,96,905.
• On first appeal, the CIT(A) observed that treating the entire cash sales of ₹2,19,85,395 as unexplained money under Section 69A led to double addition, as sales were already part of the audited total sales declared in the return. The CIT(A) estimated net profit at 1.57% on such sales, thereby reducing the net addition to ₹2,04,85,395 (giving a partial ad-hoc relief of ₹15,00,000). The CIT(A) also confirmed the valuation addition of ₹7,96,905.

Legal Issues & Statutory Provisions

• Section 69A & Section 115BBE: Validity of treating cash deposits arising out of recorded sales as unexplained money.
• Section 145(3) & Section 144: Rejection of books of account based on digital data discrepancies, out-of-series bill books, and statements of third parties/accountant.
• Section 143(3) / 153A: Scope of assessment following search operations.

Parties’ Submissions

• Assessee’s Submissions:
  • Cash deposits were made out of regular accounted sales recorded in books of account and supported by stock registers/quantitative tallies.
  • No defect was found in quantitative details or day-to-day stock registers during the search.
  • The statement of the part-time accountant lacked evidentiary value as no cross-examination was granted.
  • Once the CIT(A) accepted that adding the full cash sales led to a “double addition” (because sales were already credited in the audited trading account), the entire amount of ₹2,19,85,395 should have been deleted, rather than granting merely an ad-hoc net profit/gross profit adjustment of ₹15,00,000.
• Revenue’s Submissions:
  • Comparative sales data proved that October 2016 sales were abnormally inflated (32% of annual sales compared to 11.23% in prior years).
  • Out-of-series bills were inserted after demonetisation to cover unaccounted cash deposits, as admitted by the accountant. Rejection of books under Section 145(3) was justified.

Tribunal Observations & Findings

• The Tribunal evaluated the findings regarding the two sets of books, the out-of-series bill books, and the accountant’s admission.
• The Tribunal noted that while the AO had established that sales figures were manipulated post-demonetisation to create cash-in-hand, the CIT(A) correctly recognised that the gross sales had already passed through the audited profit and loss account.
• Merely allowing a minor ad-hoc net profit reduction of ₹15,00,000 while sustaining an addition of ₹2,04,85,395 under Section 69A failed to appropriately cure the double taxation/addition mechanism where sales were already offered to tax as revenue receipts.

Directions & Final Decision

• The ITAT allowed partial relief to the assessee by modifying the CIT(A)’s order regarding the demonetisation cash deposit addition under Section 69A and addressing the grounds raised against the assessment.

FULL TEXT OF THE ORDER OF ITAT CHANDIGARH