DCIT Vs Rai Bahadur Narain Singh Sugar Mills Ltd. (ITAT Delhi)
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) decided the Revenue’s appeal against the order of the National Faceless Appeal Centre (NFAC) for Assessment Year 2017-18 concerning an addition of ₹91.77 lakh made under Section 68 of the Income-tax Act, 1961 on account of cash deposits during the demonetisation period. The assessee, engaged in the manufacture of white crystal sugar from sugarcane and the production of ethanol, liquor and CO2 gas, had filed its return declaring income under the normal provisions and book profits under Section 115JB. During scrutiny assessment under Section 143(3), the Assessing Officer treated cash deposits made during the demonetisation period as unexplained cash credits and made an addition of ₹91.77 lakh under Section 68.
The Revenue challenged the order of the CIT(A), who had deleted the addition. According to the Revenue, the Assessing Officer had observed a sudden spike in cash sales during the relevant financial year and had issued notices under Section 133(6) to eight buyers. Except for one, none of the parties responded. The sole respondent confirmed cash purchases of only ₹750, whereas the assessee had claimed sales of ₹11.58 lakh to that buyer. On this basis, the Revenue contended that the CIT(A) erred in deleting the addition.
The assessee submitted that the Assessing Officer failed to consider a Government directive dated 08.09.2016 requiring sugar mills to liquidate sugar stock, which was applicable only during Financial Year 2016-17. Therefore, comparing cash sales of Financial Year 2016-17 with those of the preceding year was stated to be incorrect. The assessee further contended that the CIT(A) had recorded that the VAT returns reconciled with the financial statements. It was also submitted that the cash deposits originated from earlier bank withdrawals as well as cash sales made pursuant to the Government’s stock liquidation directive. According to the assessee, these circumstances had been accepted by the CIT(A) and had not been disputed by the Assessing Officer. The assessee maintained that Section 68 was inapplicable because the source and legitimacy of the cash deposits had been fully explained.
The assessee further argued that the Assessing Officer made the addition solely because the buyers failed to respond to notices issued under Section 133(6), without conducting any independent enquiry. It was submitted that the Assessing Officer had not disputed the sales from existing stock, the stock records, the tax audit report or the reconciliation of the Performa-PII submitted to the Government with the stock records. The assessee also stated that the cash sales constituted only a very small percentage of total sales and that, since the sales had already been accounted for and offered to tax, making an addition under Section 68 would amount to double taxation.
After considering the rival submissions, the Tribunal observed that the assessee had attempted to explain the cash deposits as arising from earlier bank withdrawals and cash sales resulting from the Government directive requiring sugar mills to liquidate stock by 31.10.2016. The Tribunal found that the assessee had, prima facie, discharged its burden of explaining the source of the deposits. However, it also observed that the explanation could not be accepted in its entirety because the notices issued under Section 133(6) to the cash purchasers largely remained unanswered, and the only responding purchaser confirmed a substantially lower amount of cash purchases than claimed by the assessee. At the same time, the Tribunal held that the Revenue could not entirely reject the assessee’s explanation merely by comparing cash deposits with those of the previous year. Considering the factual matrix, the Tribunal observed that some unexplained element in the cash deposits could not be ruled out. In the interest of justice, it sustained only a lump-sum addition of ₹5 lakh, expressly stating that the decision should not be treated as a precedent. Accordingly, the Revenue’s grounds were partly allowed.
Regarding the levy of tax at the higher rate under Section 115BBE, the Tribunal referred to the decision of the Madras High Court in S.M.I.L.E. Microfinance Ltd. Vs. ACIT, W.P. (MD) No. 2078 of 2020 & 1742 of 2020 dated 19.11.2024, which held that the relevant statutory provision would apply only to transactions undertaken on or after 01.04.2017. Following that decision, the Tribunal directed the Assessing Officer to tax the sustained addition under the normal provisions and not under Section 115BBE. Consequently, the Revenue’s appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the Revenue is directed against the order of the NFAC, Delhi dated 09.10.2023 for A.Y 2017-18.
2. The Revenue has raised the following grounds of appeal:
“1. Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 91,77,000/-on account of cash deposit during demonetization period.?
2. Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) was right in deleting the additions of Rs. 91,77,000/-without appreciating that the parties to whom cash sale was made had not filed any response in pursuance to notices u/s 133(6) of the Act during Assessment proceedings?
3. The appellant craves leave to add, alter, amend, append or delete any of the above grounds of appeal.”
3. Briefly stated, the facts of the case are that the assessee is engaged in the manufacture of white crystal sugar of molasses from sugarcane and production of ethanol, liquor, and CO2 gas. The assessee filed its return for A.Y 2017-18 declaring a total income of Rs. 17.81 crores under normal provisions and Rs.62.59 crores as book profits under Section 115JB of the Income-tax Act, 1961 [the Act, for short]. The case was selected for scrutiny and assessment was completed u/s 143(3) of the Act after making an addition of Rs. 91.77 lakhs u/s 68 of the Act unexplained cash credits during the demonetization period.
4. Aggrieved, the assessee went in appeal before the Id. CIT(A) who allowed the appeal of the assessee. Now the Revenue is aggrieved and has come in appeal before us.
5. Before us, the Id. DR vehemently supported the order of the Assessing Officer. The Id AR stated that the Assessing Officer added a sum of Rs.91.77 Lakhs to the income of the assessee as there was a sudden spike in cash sales and disproportionate cash deposited in FY 2016-17 vis a vis the previous year. The AO issued notices u/s 133(6) to 8 buyer parties which remained uncompiled with except one which confirmed the purchase from the assessee at Rs 750/- in cash as against Rs 11.58 lakh claimed by the assessee.
6. Per contra, the counsel for the assessee vehemently stated that the AO did not consider the directive of the Government dated 08.09.2016 for sugar stock liquidation and the same was only applicable in FY 2016-17 and not in FY 2015-16. Hence, the comparison of cash sales of FY 2016-17 with FY 2015-16 is fundamentally flawed and incorrect.
7. The Id. counsel for the assessee continued by saying that the Id. CIT(A) categorically noted that VAT returns reconciled with financials. The Id. counsel for the assessee contended that the Assessing Officer overlooked that the cash deposit stemmed from earlier bank withdrawals as well as out of cash sales made pursuant to the Government’s directive dated 08.09.2016 for sugar stock liquidation, a distress sale accepted by the CIT(A) and never disputed by the Assessing Officer. It is the say of the Id AR that section 68 is not applicable in the present case as the assessee had duly explained in detail the source and legitimacy of the cash deposits made during the demonetization period.
8. The Id. counsel for the assessee further submitted that the Assessing Officer without conducting any independent inquiry, proceeded to make an addition u/s 68 of the Act solely on the basis that the parties did not respond to the notice issued u/s 133(6) of the Act. However, at the same time, while not disputing the sale of stock, the Assessing Officer questioned the genuineness of the cash deposits despite there being no discrepancies in the stock records and no qualification in the tax audit report, as rightly noted by Ld. CIT(A) also. Moreover, the Performa-PII submitted to the government also duly reconciles with stock records of the Company. Thus, the legitimacy of the transaction has been duly substantiated by the company.
9. The Id. counsel for the assessee continued by saying that the percentage of such cash sale was miniscule in comparison to the total sale. It was further submitted that the Assessing Officer has not disputed the fact that the cash sales were out of existing stock. Since the said sales have been duly accounted for and offered to tax, and have been accepted, any addition of the same amount u/s 68 of the Act would result in double taxation of the same income.
10. We have heard the rival submissions and have perused the relevant material on record. In the instant case, we find that the assessee has attempted to prove the entire source of cash deposit during demonetization as cash withdrawals from bank as well as sales due to a government directive requiring sugar mills to liquidate stock by 31.10.2016. Although the assessee, prima facie, appears to have discharged its onus of explaining source of cash deposit, it’s contentions to prove the source, hardly deserves to be accepted in entirety especially when the AO’s notice u/s 133(6) to the Buyers who purchased sugar in cash, all but one, did not respond. One buyer Mr Saksham Agarwal who responded, as per the assessee had purchased 11,58,000/- worth of sugar in cash, but he confirmed having purchased sugar in cash worth only Rs 750/-. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention that cash deposits have been made out of cash withdrawals from bank as well as sales due to a government directive, cannot be fully justified on the basis of comparative cash deposits of previous year. In this factual matrix, there is some element of failure to explain some of the cash deposit, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of T 5 lakh only would be just and proper with a rider that the same shall not be treated as a precedent, so as to cover all loopholes. The ground of appeal no 1 to 2 are partly allowed.
11. In so far as assessee’s levy of tax at a higher rate under section 115BBE of the Act is concerned, we find that the Madras High Court in the Writ petition in the case of S.M.I.L.E. Microfinance Ltd. Vs. ACIT, W.P. (MD) No.2078 of 2020 a 1742 of 2020, dated 19.11.2024 (Madras) has held that the impugned statutory provision would come into effect on the transaction done on or after 01.04.2017 only. Accordingly, we direct the AO to tax the addition under normal provisions of tax and not under the provisions of 115BEIE.
12. In the result, appeal of Revenue in ITA No. 3027/DEL/2024 is partly allowed.
Order pronounced in open court on 28.05.2025.
