ACIT Vs Rajendra Shinde (ITAT Panaji Bench)
Unaccounted Sales Are Not 100% Profit—But 1% Was Too Shiny: ITAT Estimates 8% & Keeps Business Income Outside Section 115BBE
₹1.09 crore cash intercepted on the road
On 16.06.2020, Kagwad Police intercepted three persons carrying cash of ₹1,08,54,150. They stated that the cash belonged to the assessee, a gold-bullion trader, & was being transported for purchasing bullion.
In his statement u/s 131(1A), the assessee initially explained that ₹60 lakh represented business-sale proceeds, while approximately ₹50 lakh was borrowed from two friends.
As no supporting evidence for the alleged loans was produced, the assessee stated that the cash could be treated as his unaccounted income.
During enquiries at the assessee’s business premises, diaries marked RBS/1 to RBS/5 were impounded. They contained details of cash purchases, sales, expenses & profits relating to bullion transactions undertaken during the COVID-19 lockdown.
AO taxes almost everything that moves
Based upon the diaries, the AO worked out aggregate unaccounted sales of ₹45,31,54,319. Instead of bringing only the embedded profit to tax, he treated the entire turnover as business income.
The AO also made a separate disallowance of ₹17,59,34,820 u/s 40A(3) for alleged cash purchases & expenses.
Further additions included:
- ₹1,08,54,150 u/s 69A for the seized cash; &
- ₹1,04,01,710 u/s 68 for alleged unexplained bank credits.
The assessee maintained that the seized cash represented circulation of unaccounted business-sale proceeds & that he earned only about 1% commission or margin from the bullion transactions.
CIT(A) accepts cash as business proceeds
The CIT(A) noted that the AO himself had accepted the existence of substantial unaccounted bullion sales recorded in the impounded diaries.
Once such cash sales were found, the cash seized could reasonably represent realisation of those very sales. The same business turnover could not first be taxed as unaccounted sales & its realisation again taxed separately u/s 69A.
The CIT(A) therefore deleted the entire addition of ₹1.08 crore relating to seized cash.
However, the ITAT found that the assessee’s explanation had changed. While the business source of ₹60 lakh was supported by the impounded diaries, the balance was initially claimed as loans from two friends. No confirmation or evidence supporting those loans was produced.
Accordingly, the ITAT accepted ₹60 lakh as arising from unaccounted business sales but sustained the balance ₹48,54,150 as unexplained money u/s 69A, taxable u/s 115BBE.
Turnover is not income
The ITAT relied upon CIT v. President Industries [258 ITR 654 (Guj.)] & CIT v. Balchand Ajit Kumar [263 ITR 610 (MP)].
Where suppressed sales are detected, the entire sale proceeds cannot ordinarily represent income. Only the profit embedded in those sales can be brought to tax unless the Revenue establishes a separate unexplained investment in purchases.
Therefore, the AO was unjustified in treating the whole unaccounted turnover of ₹45.31 crore as taxable income.
But 1% margin did not pass the purity test
The CIT(A) had estimated profit at 1%, resulting in an addition of ₹45,31,543. The ITAT considered this too low.
The diaries showed both purchases & sales. Although the assessee described himself as a commission agent, the records referred to “profit” rather than commission. There were no proper details of buyers, suppliers, purchases or cash expenses. The alleged cash expenditure itself was approximately ₹17.59 crore.
Considering the magnitude of unrecorded turnover, unaccounted purchases, cash expenditure & absence of reliable accounts, the Tribunal estimated net profit at 8% of ₹45,31,54,319, resulting in taxable business income of ₹3,62,52,344.
This estimation was intended to cover both the profit from unaccounted sales & the implications of cash expenditure.
Section 40A(3) gets absorbed into estimated profit
The CIT(A) had deleted the separate disallowance of ₹17.59 crore u/s 40A(3), observing that the impugned expenditure was not debited to the Profit & Loss Account. When neither the unaccounted sales nor corresponding purchases were recorded in the regular books, there was no claimed deduction to disallow.
The ITAT adopted a practical composite approach. Instead of separately restoring the enormous disallowance u/s 40A(3), it increased the profit estimation from 1% to 8%. The enhanced net-profit rate was held sufficient to cover the business profit as well as the alleged cash-payment violation.
Thus, there would be no separate addition u/s 40A(3) beyond the 8% estimated profit.
Business profit is not unexplained money
The CIT(A) had directed that the estimated profit be taxed u/s 69A r/w section 115BBE.
The ITAT disagreed. The diaries were seized from the assessee’s business premises & clearly recorded unaccounted purchases & sales in bullion. The Revenue found no other activity capable of generating the income.
Therefore, the estimated profit of ₹3.63 crore retained its character as business income u/s 28. It could not be converted into unexplained money merely because the business transactions were unrecorded.
Consequently, the estimated profit was held outside the rigours of section 115BBE.
In contrast, the unexplained portion of seized cash of ₹48.54 lakh, for which no acceptable source was established, remained taxable u/s 69A r/w section 115BBE.
Bank-credit relief remanded for Rule 46A compliance
The CIT(A) deleted the addition of ₹1.04 crore after considering the sale register & evidence that the bank account was disclosed in the balance sheet.
However, this additional evidence was apparently accepted without calling for the AO’s remand report. The issue was therefore restored to the CIT(A) for verification after obtaining a remand report & providing adequate opportunity to the assessee.
Decision
The ITAT sustained ₹48,54,150 u/s 69A r/w section 115BBE, estimated business profit at 8% amounting to ₹3,62,52,344, deleted any separate disallowance u/s 40A(3) & held that the estimated business profit was not taxable u/s 115BBE.
The bank-credit issue of ₹1.04 crore was remanded to the CIT(A). The Revenue’s appeal was partly allowed for statistical purposes & the assessee’s appeal was partly allowed.
Cases Discussed
- CIT v. President Industries — 258 ITR 654 (Guj.)
- CIT v. Balchand Ajit Kumar — 263 ITR 610 (MP)
- K.R.Ganesh Kumar v. ACIT — 283 ITR 165 (Mad) — as cited in the assessee’s submissions
- K.R. Ganesh Kumar v. ACIT — 383 ITR 165 (Mad)
- Pr.CIT v. Prosperous Buildcon (P.) Ltd. — 463 ITR 132 (Del)
- DCIT v. Sarthi Construction — 157 taxmann.com 250 (Agra)
- Vikrant Happy Homes (P.) Ltd. v. DCIT — 138 taxmann.com 559 (Pune)
- CIT v. Krishna Kumar Varma — 161 taxmann.com 44 (M.P.)
- Pramod Singla v. ACIT — 154 taxmann.com 347 (Chandigarh)
- Hirala Vijawat v. ACIT/DCIT — 178 taxmann.com 640 (Jaipur)
- Akshdeep Cloth Store v. Pr.CIT — 180 taxmann.com 323 (Pune)
- Radhasoami Satsang v. CIT — 193 ITR 321 (SC)
- Shri Nikhil Garg, Jaipur v. Income Tax Officer, Ajmer — order dated 14.02.2022
- K.R. v. ACIT — 383 ITR / ITA Nos. 628 and 165 (Mad) (2017), as reproduced in the CIT(A)’s order
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, PANAJI BENCH
The captioned cross appeals at the instance of Assessee as well as Revenue pertaining to A.Y. 2021-22 are directed against the order framed by ld.CIT(A), Panaji-2 arising out of Assessment Order dated 29.03.2022 passed u/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
2. We will first take up IT(SS) A.No.02/PAN/2025 filed by the Revenue. Revenue has raised following grounds of appeal :
“1. Whether, on the facts and in the circumstances of the case, the CIT(A) right in Law in deleting the addition made on account of unexplained seized cash Rs.1,08,54,150/- accepting the contention of the assessee that the statement given 131(1A) of the Income Tax Act, 1961 during the course of search was under pressure.
2. Whether, on the facts and in the circumstances of the case, the CIT(A) right in Law in estimating the profit @ 1% of unaccounted sales of Rs.45,31,543/- found during the course of search alongwith documentary evidence which were recorded in the books of account, without any basis or rational for such estimation.
3. Whether, on the facts and in the circumstances of the case, the CIT(A) right in Law in deleting the addition of Rs. 17,59,34,820/- made u/s 40A(3) of the Act, 1961 towards expenditure incurred in cash, without rejecting the books account either by the Assessing Officer or by the CIT(A).
4. Whether, on the facts and in the circumstances of the case, the CIT(A), right in Law in deleting the addition of Rs. 1,04,01,710/- made towards unexplained bank credits, taking into account the additional evidence without allowing Assessing Officer a reasonable opportunity to examine the evidence or document to produce any evidence or document in rebuttal of the additional evidence produced by the appellant as mandated by Rule 46A of I.T. Rules, 1962.”
3. Facts in brief are that the assessee is an individual and income tax return for A.Y. 2021-22 filed on 18.02.2022 declaring income of Rs.22,72,580/-. Prior to filing of return during financial year on 16.06.2020, Kagwad police station informed about the three persons namely Mr.Abhaysinh U. Gaikwad, Mr.Akshay Desai and Mr.Ashitosh Khilari being intercepted with the cash amount of Rs.1,08,54,150/-. In the statement recorded u/s.131(1A) of the Act, none of these persons were able to explain the source and stated that the cash belong to Mr. Rajendra Shinde, a Gold Bullion Trader and they were just delivering the cash for purchase of Gold Bullion as per the instructions of the assessee. Thereafter, statement of assessee was recorded on 16.06.2020 u/s.131(1A) of the Act wherein the assessee confirmed that the cash belong to him and for the source he stated that Rs.60.00 lakh was from his business sales and Rs.50.00 lakh taken as cash loan from two friends namely Mr.Akshay More and Mr. Sashi Lendwe. However, the assessee could not produce any documentary evidence to explain the source of cash and admitted the same as income for A.Y. 2021-22 and in reply to question No.31 the assessee stated that “I confirm that I don’t’ have any documentary evidence in support of the cash of Rs.1,08,54,150/- and the same may be considered as my unaccounted income for FY 2020-21. I am willing to admit the aforesaid cash as my income and ready to pay taxes on it.” Further, during the course of enquiry u/s.131(1A) of the Act at RS Bullion at Shop No.110, Bhoj Galli, Belagavi on 16.06.2020, Red Colour Note book marked as RBS/1 containing pages from 01 to 09 were found. This diary contains transactions of cash purchases, cash sales and the profit earned thereon. Assessee confirmed that the cash sales of Rs.9,74,25,362/- were made during the month of June, 2020 on several dates till 14.06.2020 and has earned commission income @1%. Further the unaccounted sales reflected in impounded material marked as RBS/2 contains cash sales transactions to the tune of Rs.13,99,81,658/-. Impounded material marked as RBS/4 revealed unaccounted sales at Rs.5,31,25,573 and RBS/5 revealed cash expenses of Rs.7,95,89,820/-. Also there were certain credits appearing in the bank statement at Rs.1,04,01,710/- which could not be explained by the assessee and it was merely submitted that these credits were made by the customers and are from the business sales and the sales are not recorded in the regular books of account. Ld. Assessing Officer after taking into consideration the submissions of the assessee as well as the seized documents, concluded the assessment observing as follows :
“8.1 Unexplained cash seized:
8.1.1 The cash amounting to Rs. 1,08,54,150/- intercepted by the Kagwad Police Station on 16/06/2020 was admitted by the assessee as belonging to him and it was stated that the said cash was to be delivered for purchase of Gold Bullion from a vendor in Pune, for his business. The source for the cash was stated to be, Rs. 60 Lakh from his business sales and Rs. 50 Lakh from his two friends namely Shri Akshay More, Village-Dhignaji, Sangli, Maharashtra and Shri Sashi Lendwe. However, subsequently the assessee could not furnish any explanation for the cash and admitted the same as his undisclosed income and offered the same to tax. The issue is discussed in detail in paragraph 4 above.
8.1.2 However, in the submission made the assessee states that he had carried out business of purchase and sale of gold, bullion, ornaments on commission basis to retailers outside the business premises to meet the urgent requirement of various customers as well as other jewelers. The said cash which was seized amounting to Rs. 1,08,54,150/- was stated to be out of the sale proceeds of Rs. 9,74,25,362/- which was offered as the unaccounted sales and he was offering the commission earned on the said proceeds to tax. He submitted that the average sale is in the range of Rs. 1 Crore every day and the cash found is out of the sale proceeds which was being utilized to purchase the gold bullion.
8.1.3 On going through the submission of the assessee, it is found that the assessee fails to explain the source of the cash with any satisfactory documentary evidence. On the one hand, the assessee claims to have carried out this business owing to the Covid pandemic and the said sale of gold bullion etc is carried out on commission basis. The assessee fails to explain the source for the said cash found and seized of Rs.1,08,54,150/- with any documentary evidence except for stating that it is out of the sales made. Initially during the enquiries made, the assessee came up with an explanation that Rs. 60,00,000/- is out of his business and the balance taken from his two agriculturists friends. However, the assessee could not substantiate the said explanation with any documentary evidence and agreed to offer the same to tax. Now, at this juncture, the assessee comes forward with the explanation that it is out of the sales but, fails to convince the source for the initial purchase as he claims to do this business on commission basis in which case the income component would obviously be very meager. In view of these facts, it is evident that the assessee has no explanation to offer which has the support of any documentary evidence and therefore, the cash of Rs. 1,08,54,150/- requisitioned is treated as the unexplained money u/s 69A of the Act and brought to tax u/s 115BBE of the Act. Penalty proceedings u/s 271AAC of the Act are initiated separately.
8.2 Unaccounted sales:
8.2.1 During the post requisition verification, the detailed analysis of material marked A/RBS/1, 2,3,4 & 5 impounded u/s 131(1A) of the Act on 16/06/2020 from the business premises of the assessee at Shop No. 110, Bhoj Galli, Shahapur, Belagavi out by the ADIT (Inv.), Unit-2, Belagavi and the findings of the same are detailed in the paragraph 5 above. From the analysis of the impounded material, it is evident that the assessee has recorded the transactions of the unaccounted sales made by him, the cash expenses in violation of the provisions of the Section 40A(3) of the Act. The summary of the findings is as under:
| Impounded Folder | Unaccounted Sales Detected (in Rs.) | Amount of Cash Expenses |
|---|---|---|
| RBS/01 | 9,74,25,362 | 9,63,45,000 |
| RBS/02 | 13,99,81,658 | |
| RBS/03 | 5,31,25,573 | |
| RBS/04 | 14,91,99,556 | 7,95,89,820 |
| RBS/05 | 1,34,22,170 | |
| Total | 45,31,54,319 |
8.2.2 During the course of the verification, the assessee admitted that he has made unaccounted sales of Rs.9,74,25,362/ and offered the same to tax. However, the assessee failed to admit the same in the return of income filed.
8.2.3 On seeking explanation during the course of the assessment proceedings, the assessee in the submission stated that the cash sales recorded in the impounded material RBS/01 aggregating to Rs. 9,74,25,362/- was not accounted in the books of account but the same is not in the nature of undisclosed business. As the businesses were closed because of the lockdown during the Covid pandemic and the banks were allowing only limited transactions, he had recorded all such sales in the diary so as to arrive at the commission and later on record the transactions in the books for taxation purposes. The assessee also submitted that the entire activity was conducted during the lockdown on the basis of the enquiries from retailers and customers for gold as the price of gold was going up and also there was a shortage of gold. Therefore, with an intention to make some profit in the form of commission by utilizing his contacts he carried out the said transactions for a short period which is evident from the impounded material referred in the statements recorded. The estimated commission was stated to be in the range of one person and for which he appointed agents to collects orders and cash from sales on his behalf and purchase the same from persons who are ready to sell the same. The agents used to collect cash and get the gold and give it to the person from whom the cash was collected. The business was carried out by him only during the period 01.06.2020 to 16.06.2020 purely on commission basis and the transactions were not recorded in the books as it was done in a short period,
8.2.4 The assessee admitted that the total sales for the period 01.06.2020 to 15.06.2020 is Rs. 9,74,25,362/ which is evident from the transactions recorded in the impounded material marked RBS/01. The cash sales recorded in RBS/02 are only enquiries from customers as to the rate and quantity required. This was done because of the variation in gold rates and to avoid confusion about the rate and quantity of gold enquired. Therefore, the sale of Rs. 13,99,81,658/ recorded in RBS/02 is not cash sales and only enquiry of the rate and quantity required.
8.2.5 As regards, the sales mentioned in the impounded material RBS/04 are the same as recorded RBS/01 and RBS/04 is the party wise sale recorded whereas, RBS/01 contains the day wise sale recorded and the same can be verified from both the impounded material. The impounded marked as RBS/05 was stated to contain sales made during F.Ys 2017-18 to 2020-21 and the same can be compared with the sales register which is duly recorded.
8.2.6 I have gone through the submissions of the assessee in detail and fail to agree with the same as it lacks any substantiation with documentary evidences, is very vague and devoid of facts. The assessee fails to corroborate the recordings of the sales transactions in the impounded material marked as A/RBS/01 to 05 with any evidences but for admitting that he had entered into this venture of sale of gold bullion, jewllery only during the Covid Pandemic, considering that there was a lock down. The assessee admits that he has made total sales transactions of Rs. 9,74,25,362/during the period from 01.06.2020 to 15.06.2020 and the same are recorded in the impounded material marked A/RBS/01. Even these sales transactions are claimed by the assessee to be carried out on commission basis wherein the purchases are made from Unregistered Dealers and the sale are to customers or traders. For all this activity, he alleges to have hired agents who carry out the entire activity and report to him. The assessee fails to convincingly explain and prove the same when the evidence recorded in the impounded materials prove the contrary. For example, the assessee has incurred huge expenses in cash and the recordings of these transactions clearly prove that the assessee has purchased gold bullion from registered dealers in cash and has not accounted for the same. In fact even during the enquiries made during the seizure of the cash by the police authorities at Kagwad, the assessee has admitted on oath that the cash was being taken to Pune to make purchases of gold. Considering the quantum the cash in the possession of the assessee at the time of its interception by the police authorities, it is clear that no purchases of such quantum can be made from Unregistered Dealers. In fact, during the post requisition enquiries, it has been established that the assessee has transactions with Shri Praveen Chopra who deals in gold. Therefore, the entire explanation of the assessee is not satisfactory and acceptable that he carried out this activity on commission basis only during the pandemic.
8.2.7 The assessee in his submission states that the transactions recorded in the impounded material marked as RBS/02 is merely the enquiries of rate and quantity required. If the explanation of the assessee is to be believed, one fails to understand why the assessee has recorded multiple entries for rate and quantity on a single day. If this explanation were true, then there would have been a single rate for each date and no mention of the quantity would be necessary as the rates of gold do not keep fluctuating on a single day and are not different for different quantities. The assessee has made a very vague attempt to try and explain that the transactions recorded in the impounded material marked as RBS/02 relate to the rates and quantity for the enquiries that he receives. The explanation of the assessee is rejected and the entire transactions recorded in the impounded material marked as RBS/02 is considered as the unaccounted sales of the assessee which needs to be brought to tax.
8.2.8 Further, the assessee in the submissions states that the sales mentioned in the impounded material marked RBS/04 is the party wise sales recorded whereas, the sales recorded in impounded material marked RBS/01 is the day wise sales and therefore, the sales in both the impounded material are one and the same. The assessee in making this submission fails to corroborate and correlate both this impounded material marked RBS/01 & RBS/04 and show that the transactions recorded are common and mere duplication. In fact, on going through the transactions in detail, it is evident that the total sales as per the impounded material marked RBS/01 is Rs. 9,74,25,362/-whereas the transactions recorded in the impounded material marked RBS/04 is Rs. 5,31,25,573/ and therefore, it is clear that the unaccounted sales in both the impounded material are independent of each other and cannot be said to be the same. In view of these facts, the explanation of the assessee is rejected and the unaccounted sales recorded in both the impounded material marked RBS/01 & RBS/04 are brought to tax independently of each other.
8.2.9 In respect of the transactions recorded in impounded material marked RBS/05, the assessee submitted in his explanation that this impounded material contain the sales recorded during the F.Y. 2017-18 to 2020-21 and the same are duly recorded in the regular books of account. However, the assessee has not submitted any evidences to substantiate the claim that he has recorded the sales mentioned in the impounded material marked RBS/05 in the regular books of account. The total unaccounted cash sales as recorded in the impounded material RBS/05 is Rs.16,26,21,726/- and the assessee has failed to correlate this with this sales recorded in the books of account by explaining each such transaction with the entry in the sales register in the regular books of account. Furthermore, it is pertinent to mention that in the statement recorded during the course of the requisition proceedings, the assessee has contended that he has done this business of purchase of gold etc. from Unregistered Dealers and had made sales to his customers or traders only owing to the Covid pandemic as there was a lockdown. He has also stated that the business was carried out on cash basis i.e. purchases and sales entirely in cash as the banks were operating for limited purposes. If this contention of the assessee were to be considered as true, then the assessee fails to explain how can there be transactions recorded in the impounded material RBS/05 pertaining to the period F.Y. 2017-18 to 2020-21 which is for 4 financial years. Also, the assessee fails to explain as to how the transactions in the impounded material RBS/05 which are entirely in cash (purchase and sales) are accounted for in the regular books of account. In the circumstances it is clear that the assessee has merely attempted to create some evidences to try and establish the veracity of the transactions recorded in the impounded material RBS/05. However, the same is found short of evidences and documentary support as the assessee himself has not provided any substantiation for the transactions recorded with the regular books of account and has merely made this contention in his submission. Therefore, the explanation of the assessee is not acceptable.
8.2.10 In view of the detailed discussion on the issue in the preceding paragraphs, it is evident that the explanation provided by the assessee is unsubstantiated by any documentary evidence and is devoid of facts. In fact, the assessee has only admitted Rs. 9,74,25,362/ which is recorded in the impounded material A/RBS/01 as the unaccounted sales done by him on commission basis. In consideration of the submission of the assessee, the findings of the Investigation Wing during the course of the requisition proceedings and the submissions of the assessee during the assessment proceedings, it is proved beyond doubt that the unaccounted sales transactions recorded in the impounded material marked as A/RBS/01, A/RBS/02, A/RBS/03 & A/RBS/05 are independent of each other and together represent the total unaccounted sales aggregating to Rs. 45,31,54,319/- represents the undisclosed income of the assessee and the same is brought to tax for the A.Y. in question. Penalty proceedings u/s 270A of the Act are initiated separately as the assessee has underreported the income in consequent of misreporting of income.
8.3 Disallowance of Cash expenses u/s 40A(3) of the Act:
8.3.1 On verification of the impounded marked A/RBS/01 and A/RBS/05, it is found that the assessee has made payments in cash which are in violation of the provisions of section 40A(3) of the Act and this issue has been discussed in detail in paragraphs 5 earlier in this order. During the course of the assessment proceedings, the assessee was issued notices u/s. 142(1) of the Act to furnish the explanation on the cash expenses recorded in the impounded material A/RBS/01 and A/RBS/05. As the assessee failed to respond to the notice issued and furnish any explanation, further the assessee was issued a show cause notice on 10.03.2022 calling for explanation as to why the cash expenses of Rs. 9,63,45,000/- as recorded in the impounded material A/RBS/01 and Rs. 7,95,89,820/ recorded in the impounded material A/RBS/05 should not be disallowed as per the provisions of section 40A(3) of the Act and brought to tax. In the submission made in response to the notice u/s 142(1) of the Act, the assessee has not furnished any explanation and remained silent on the issue. Therefore, it is evident that the assessee has no explanation to offer and the cash expenses of Rs. 9,63,45,000/- as recorded in the impounded material A/RBS/01 and Rs. 7,95,89,820/ recorded in the impounded material A/RBS/05, totaling to Rs.17,59,34,820/- which are in violation of the provisions of section 40A(3) of the Act is added back to the total income of the assessee. Penalty proceedings u/s 270A of the Act are initiated separately as the assessee has underreported the income in consequent of misreporting of income.
8.4 The Unexplained Deposits in bank account held by the assessee: analysis of the bank accounts held by the assessee and his family members, the proprietorship concern of the assessee showed that the credits to the accounts did not match with the credits in the sales register and the books of account. In the bank account bearing number 510331001263500 in the name of RS Bullion with Corporation Bank, it was found that the credits amounting to Rs. 1,04,01,710/- for the period from 12/06/2020 to 31/08/2020 were not recorded in the regular books of account (Sale register). The assessee failed to furnish any explanation for this lapse and stated that. these credits were made by customers for the sales done by the assessee. Therefore, in the absence of the above sales amounting to Rs. 1,04,01,710/ being unaccounted in the books of account was considered to be held as unexplained credits u/s 68 of the Act. During the course of the assessment proceedings, the assessee vide notices u/s 142(1) of the Act was requested to furnish the explanation on the credits amounting to Rs. 1,04,01,710/- in the bank account bearing number 510331001263500 in the name of RS Bullion with Corporation Bank. As the assessee failed to respond to the notice issued and furnish any explanation, further the assessee was issued a show cause notice on 10.03.2022 calling for explanation as to why the credits amounting to Rs. 1,04,01,710/- in the bank account bearing number 510331001263500 in the name of RS Bullion with Corporation Bank should not be treated as unexplained credits u/s 68 of the Act and brought to tax as per the provisions of section 115BBE of the Act. In the submission made in response to the notice u/s 142(1) of the Act, the assessee has not furnished any explanation and remained silent on the issue. Therefore, it is evident that the assessee has no explanation to offer and the credits amounting to Rs. 1,04,01,710/- in the bank account bearing number 510331001263500 in the name of RS Bullion with Corporation Bank are treated as unexplained credits u/s 68 of the Act and brought to tax as per the provisions of section 115BBE of the Act. Penalty proceedings u/s 271AAC of the Act are initiated separately.”
4. Aggrieved assessee preferred appeal before ld.CIT(A) and partly succeeded. Now the Revenue is in appeal against the addition deleted by ld.CIT(A) whereas the assessee has filed cross appeal raising a ground that ld.CIT(A) erred in confirming the action of the Assessing Officer invoking section 115BBE of the Act without considering the fact that unaccounted income is part of the business income and should be taxed at the normal tax rates.
5. Ld. DR vehemently argued supporting the order of ld.AO and stated that assessee has not provided any detail of the supplier and the buyer nor the assessee has provided details for the cash expenses. Major amount of the transactions found in the impounded material are not recorded and therefore the action of the Assessing Officer deserves to be confirmed. He also submitted that the assessee has himself accepted that the cash of Rs.1,08,54,150/- seized from the police authorities is the assessee’s unaccounted income and regarding the addition for unexplained bank credits at Rs.1,04,01,710/-, ld.CIT(A) has entertained the additional evidences without allowing any opportunity to the Assessing Officer.
6. On the other hand, ld. Counsel for the assessee so far as merits of the case are concerned vehemently argued referring to the finding of ld.CIT(A) and also referred to the following submissions which read as under :3
| Gr. No. | Issue | Asst. Order u/s.143(3) | CIT(A) order | Remarks |
|---|---|---|---|---|
| 1 | Deletion of addition made based on statement u/s. 131(1A) on account of unexplained cash seized of Rs.1,08,54,150/- | Para 8.1 to 8.3 on pages 29 and 30 | Para 4.1 to 4.10 on pages 3 to 8 | 1. Statement given during inquiry u/s 131(1A) is retracted as to source and source was stated to be out of business of bullion trading carried out in cash for a limited period during COVID during 02.06.2020 to 13.06.2020.
2. Details of such sales made are as per answer to Q.No.5 of statement recorded on page 7 of the Assessment order. 3. Commission income of Rs. 9,74,253/- at 1% on such sales of Rs.9,74,25,362/- during above limited period is offered in the ROI filed on 18.02.2022 (pages 37 and 38 of the paper book). The same is also stated in Tax Audit Report on page 15 of the paper book. 4. Case seized is out of sale proceeds available with the assessee. In answer to Q.No.7 the assessee has stated that cash received from customers was used for making business purchase for the next sale. 5. The normal profit in bullion trading is 1% or less. The Tax Audit enclosed for this year and previous year in paper book on pages 33, 57 of the paper book also evidence this. No addition is made in previous A.Y’s; 2020-21, 2019-20 in assessment made u/s 143(3) r.w.s 153A of the Act. (pages 62-66,67-69 of the paper book). 6. CIT(A) in para 4.9 on page 9 of his order has given a finding that, “The major source of income is from jewellery/ bullion business as no material is either found in impounding material or brought on record by A.O to indicate that the cash found is not out of business. Further the A.O was not able to submit any evidence to show that the seized cash is not connected with the sale proceeds available with the appellant from his jewellery business or accumulated from non-business sources.” |
| 2 | Addition confirmed by CIT(A) based on profit at 1% of unaccounted sales of Rs.45,31,54,319/- | Para 8.2 on pages 31 to 35 | Para 5.4 to 5.9 on pages 11 to 13 | 1. Amount of sales by itself can not represent income of the assessee who has not disclosed sales. Reliance is placed on Hon’ble Gujarat High Court decision in the case of CIT v President Industries 258 ITR 654 (Guj.) and CIT v Balchand Ajit Kumar 263 ITR 610 (M.P).
2. The normal profit in bullion trading is 1% or less. The Tax Audit enclosed for this year and previous year in paper book on pages 33, 57 of the paper book also evidences this. No addition is made in previous A.Y’s; 2020-21, 2019-20 in assessment made u/s 143(3) r.w.s 153A of the Act. (pages 62-66,67-69 of the paper book) |
| 3 | Deletion of addition of Rs.17,59,34,820/- u/s.40A(3) of the Act | Para 8.3 on pages 35 and 36 | Para 7.1 to 7.7 on pages 14 to 16 | The assessee has not claimed expenditure in relation to expenses in seized material and provisions of section 40A(3) are not applicable.Reliance is placed on K.Rangsh Kumar v ACIT 283 ITR 165 (Mad), Pr.CIT v Prosperous Buildcon (P.) Ltd 463 ITR 132 (Del), DCIT v Darshi Construction 157 taxmann.com 250 (Agra), Vikrant Happy Homes (P.) Ltd v DCIT 138 taxmann.com 559 (Pune).2. In Tax Audit Report on page 20 of the paper book disallowance / deemed income u/s 40A (3) is stated as NIL. |
| 4 | Deletion of addition of Rs.1,04,01,710/- towards unexplained bank credits by CIT(A) holding that there is no additional evidence | Para 8.4 on pages 36 and 37 | Para 8.1 to 8.3 on page 16 | 1. Corporation bank account bearing number 5103301001263500 merged with Union Bank of India is duly reflected in books of account. The audit report of previous year also reflect the said bank account. Page 44 of the paper book.
2. Entries are duly recorded in the relevant Sales Register for the period 12.05.2020 to 31.08.2020 forming a part of audited accounts which is on record of A.O and CIT (A). 3. In the statement recorded on 24.09.2020 in reply to Question No.34 on page 113 of the paper book the details were provided. |
Issue – Applicability of normal rate of tax as against provisions of section 115BBE
Business of dealing in gold and bullion is the only business of the assessee. The actual commission receipts of Rs. 9,74,25,362/-are accounted in audited books of account. CIT(A) in para 4.9 on page 9 of his order has given a finding that,” The major source of income is from jewellery/bullion business as no material is either found in impounding material or brought on record by A.O to indicate that the cash found is not out of business. Further the A.O was not able to submit any evidence to show that the seized cash is not connected with the sale proceeds available with the appellant from his jewellery business or accumulated from non-business sources. Also on page 13 it is stated that,” However, the AO had not brought on record any evidence or material to establish that the appellant has generated income outside its reported business activity and made investments there from in purchases.
In view of the above income of Rs.45,31,543/-is liable to be taxed at normal rates instead of tax rate under section 115BBE
Reliance is placed on CIT v Krishna Kumar Varma 161 taxmann.com 44 (M.P), Pramod Singla v ACIT 154 taxmann.com 347 (Chandigarh), Hirala Vijawat v ACIT/DCIT 178 taxmann.com 640(Jaipur), Akshdeep Cloth Store v Pr.CIT 180 taxmann.com 323 (Pune).”
7. As regards the contention that section 115BBE should not have been invoked for business income he referred to the following judicial precedents :
1. Radhasoami Satsang v CIT 193 ITR 321 (SC)
2. Pr.CIT v Prosperous Buildcon (P.) Ltd 463 ITR 132 (Del)
3. K.R. Ganesh Kumar v ACIT 383 ITR 165 (Mad)
4. ACIT v Sarthi Construction 157 taxmann.com 250 (Agra)
8. We have heard the rival submissions and perused the record placed before us. The Revenue is aggrieved with the following finding of ld.CIT(A) deleting the addition for unexplained seized cash of Rs.1,08,54,150/-, estimation of profit @1% of the unaccounted sales at Rs.45.31 crore, deleting the disallowance u/s.40A(3) of the Act at Rs.17.59 crore and deleting the addition for unexplained bank credits at Rs.1,04,01,170/- :
“Ground :4
4.1 I have carefully considered the submissions of the appellant and also gone through the assessment order and extract of seized diaries which is basis for the assessment making additions as discussed above. In this case, cash of Rs. 1,08,54,150 was seized in a car during interception by the Police from Sri Abhay Singha, Sri Akshay Desai and Sri Ashutosh Khilari. They deposed before the Police that the said cash was belonged to the appellant and the appellant has also admitted the ownership of the said cash before the ADIT(Inv), Unit-2 Belagavi as well as during the course of assessment proceedings. Thus, there is no dispute that the money seized belonged to the appellant. In the statement recorded on 16.06.2020, during inquiry under section 131(1A) of the I.T. Act, 1961, from appellant as well as Sri Akshay Balasaheb Desaid and Sri Abhaysinh U Gaikwad, they have admitted that the said money was carrying by them to purchase of bullion from one Sri Praveen Chopra who is working with Aarti Traders, Pune. It was also contended during the course of assessment as well as appellate proceedings that the decision to purchase or not, will depend upon various business factors which can be finalized after visiting the supplier premise and as such, the appellant contended that there were no documentary evidences to indicate that the money was carrying out for purchase of bullion from Praveen Chopra. As such, the appellant vehemently contended that there is no merits on the observation of the AO that no details of traders at Pune were furnished and also no documentary evidence for the proposed transaction at Pune was furnished by the appellant.
4.2 The moot question in the present appeal was not regarding furnishing of details of trader(s) or evidence for proposed transaction of purchase of bullion or gold, but what is important is nature and source of cash found in possession of the persons which was seized by the Police. As per provisions of section 69A, where in any financial year immediately preceding the assessment year the assessee is found to be the owner of any money, bullion, etc, and such money etc, is not recorded in the books of account maintained by him, if any, for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money etc, or the explanation offered by him is not, in the opinion of the AO, satisfactory, the money etc may be deemed to be the income of the assessee for such financial year. Thus, addition under section 69A of the I.T. Act, 1961 can be made only if the appellant failed to explain the nature and source of money found in his possession.
4.3 In the instant case, the appellant in his statement recorded under section 131(A) of the I.T. Act, 1961 has stated that the said money is out of his business income and loans from friends. However, subsequently, the appellant contended that the entire money is out of business proceeds as under pressure and fear, the appellant during interception by Police, had stated that the money was taken from friends. From the beginning of the seized proceedings, the appellant has stated that during the month of June, 2020, he started selling gold bullion when the Country was facing lockdown due to Covid-19 situation. submission reproduced above, dated 1.7.2024, the appellant has explained the facts leading to his business on commission basis to garb the opportunity of shortage of gold during Covid-19 period due to marriages in summer vacation. The same is reproduced for the sake of convenience, below:-
“Facts of the case: The facts leading to survey under section 133A and additions made by
the AO, are that during the last week of March 2020 when the lockdown was announced, appellant’s shop was closed and therefore no sales were recorded. However in the last week of May 2020, the appellant started getting enquiries from retailers and customers gold as the price of gold was going up and also there was shortage of gold due to large marriages in summer vacation. Since there was shortage of gold and also demand for the same, the appellant intended to earn some profit in the form of commission by encashing/utilising his contacts and as such, he carried out said transactions for a short period which is evident from the seized/impounded material referred to in the statement recorded by the search Officer.
In view of the above facts and circumstances, the appellant commenced the business on commission basis for a short period, wherein he used to take orders from customers and book the same amount of gold with the sellers and charge commission on the same. The estimated commission would be in the range of 1%. For this purpose, the appellant also appointed agents (persons) who collected orders on behalf of the appellant and also the money (cash) and purchase the same from persons who were ready to sell the same. This transactions were done in cash as due to COVID restrictions all the businesses were closed, banks were operating with limited exposure and banking facilities were at the minimum. Therefore his agents used to collect cash and get the gold and give it to the persons from whom cash was collected. This business has been done by the appellant from 01.06.2020 to 16.06.2020. This been purely business on commission basis, it was not recorded in his books of account as it was done only for a short period, under the peculiar circumstances explained above.
The evidence of above short period business can also be cross-verified from my statement recorded as well as from impounded material marked as RBS/02 wherein I have stated that the details of RBS/02 contains the cash sales made through agents.
Further it is bring to the kind notice of the Hon’ble CIT(Appeals) that the total sales from 01.06.2020 to 15.6.2020 is Rs.9,74,25,362.00 which is also evident from the details mentioned in inventory marked as “RBS/01″ and admitted by the AO.”
4.4 The above submissions of the appellant were carefully examined with reference to impounded documents in the form of Diaries. In this case, there was no survey action as mentioned in the submission by the appellant, but only inquiry under section 131(1A) of the I.T. Act, 1961, was carried out by the ADIT(Inv), Unit-2 Belagavi consequent to cash seizure. The documents referred in the assessment orders are impounded under section 131(1A) of the I.T. Act, 1961. From the impounded documents it is observed that the notebook marked as RBS/1, containing pages serially from 01 to 09 is a day book of the appellant. In this regard, the appellant in his statement dated 16.06.2020, answer to question No.5, reproduced in asst order on page 7, the appellant has given the details of such sales made by him during 02.06.2020 to 13.06.2020 amounting to Rs.1,19,87,500. He also explains entries contained in the said diary. The appellant has also claimed that the entries found in the above impounded document pertains to purchase and sales of gold bullion during June, 2020. Thus, the AO has admitted in Para- 8.2.2 and 8.2.3 on page-31 & 32 of asst order that the appellant has made unaccounted sales of Rs.9,74,25,362 which was not disclosed in the return of income filed. It is also observed from the record that the appellant has offered commission of Rs.9,74,253 @ 1% on the sales made during the above period of Rs.9,74,25,362 which was ignored by the AO. It is further observed that the appellant had included the above commission in his return of income filed declaring total income of Rs.22,72,580.
4.5 From the above discussion, it is observed that the AO has not brought on record any material to indicate that the appellant has not done any sales during the above period wherein, the details of cash sales, ledger accounts, day sale note book were found and impounded by the AO. In other words, the AO has not accepted the explanation given by the appellant as satisfactory within the meaning of section 69A of the I.T. Act, 1961 as no documentary evidences were furnished to suggest that he has carried out sales and also made purchases, mentioned above.
In this regard, it is noticed that the transactions of sales have been reflected in the impounded note books viz RBS/01, RBS/02, RBS/02, RBS/04 and RBS/05 and the AO has also accepted the same as details of unaccounted sales but source of cash seized not accepted for want of documentary evidences viz purchase and sale bills etc.
4.6 In the light of the above facts, it is found that the AO has rejected the explanation of the appellant only for want of documentary evidences to indicate that he was involved in unaccounted business for a short period. In my considered opinion, the appellant has explained the circumstances under which he was constrained to carry on business in cash which cannot be denied as the situation during Covid-19 was worst and all the business establishments were completely closed down. As mentioned above, the reasons for not carrying out his business through books of account/banking channels, were also explained by the appellant and there is a merit in this argument as there was a difficulty in carrying on business during Covid-19 period. The banks are also doing limited business transactions during Covid-19 period and it was claimed by the appellant that the banks are not taking large cash deposit as there was limited staff who was scared to handle the cash due to Covid. It is also a fact that the cash sale transactions are reflected in the note book RBS/01 and the AO has also accepted the said fact. However, the AO has not accepted the source of cash seized from the said business.
4.7 From the assessment order, it is observed that the AO has himself admitted that the appellant has recorded the transactions of the unaccounted sales made by him amounting to Rs.45,31,54,319. Besides, the appellant has disputed the sale figure stating that he has carried out sales of Rs.9,74,25,362 only during June, 2020. In any case, there is no dispute that the appellant has carried out unaccounted business during the period mentioned above; the quantum of such unaccounted business remains again in dispute as the AO has further made addition on account of unaccounted sales found reflected in the impounded diaries.
However, it is observed that the AO has made entire unaccounted sales as appellant’s income which as pointed out by the appellant, gave absurd result as the entire unaccounted sales cannot be the income of the appellant chargeable to tax. Coming to the nature and source of cash found, it is clear that the nature of cash found is business receipts. Regarding sources of cash, it is not in dispute that the appellant was involved in unaccounted business during the course of Covid-19 period and there were no purchase bills or sale bills maintained. In my considered opinion, in respect of findings of unrecorded purchases or sales, the profit attributable on the total unrecorded purchases or sales can be subject to income tax and in respect of undisclosed sales only profit can be added when purchases are recorded but sales is undisclosed. In case of bogus purchases, it is only the profit element which has to be assessed to tax, and not the entire purchases as held by the Hon’ble Jaipur ITAT in the case of
Shri Nikhil Garg, Jaipur vs Income Tax Officer, Ajmer on 14 February, 2022.
4.8 Therefore, it is observed that the AO has made entire unaccounted sales as appellant’s income which as pointed out by the appellant, gave absurd result as the entire unaccounted sales cannot be the income of the appellant chargeable to tax. Coming to the nature and source of cash found, it is clear that the nature of cash found is business receipts. Regarding sources of cash, it is not in dispute that the appellant was involved in unaccounted business during the course of Covid-19 period and there were no purchase bills or sale bills maintained. In my considered opinion, in respect of findings of unrecorded purchases or sales, the profit attributable on the total unrecorded purchases or sales can be subject to income tax and in respect of undisclosed sales only profit can be added when purchases are recorded but sales is undisclosed. In case of bogus purchases, it is only the profit element which has to be assessed to tax, and not the entire purchases as held by the Hon’ble Jaipur ITAT in the case of Shri Nikhil Garg, Jaipur vs Income Tax Officer, Ajmer on 14 February, 2022.
4.9 Therefore, I am of the considered opinion that the source of cash seized is out of unaccounted sale proceeds received by the appellant. Since the AO has worked out unaccounted sales to the extent of Rs.45,31,54,319 based on diaries and also brought to tax under the head “income from Business”, he is not justified in not accepting the source of cash seized out of the said sale proceeds.
The major source of income is from jewellery/ bullion business as no material is either found in impounding material or brought on record by the AO to indicate that the cash found is not out of business income. Further, the AO was not able to submit any evidence to show that the seized cash is not connected with the sale proceeds available with the appellant from his jewellery business or accumulated from non-recognising sources. Hence, there is a force in the claim of the appellant that all the incomes earned by the appellant are only from the business. Moreover, it is pertinent to mention that since Ld. AO has unearthed that there is substantial sale which is suppressed by the appellant, the alleged cash is nothing but proceeds of un-accounted sale only. Once the accounted sales of business man are taxed as an individual transaction, the realization of said proceeds can not be taxed as separate transaction,
4.10 In view of the above discussion, I am of the considerate view that the explanation furnished by the appellant in terms of section 69A of the I.T. Act, 1961, in regard to source of seized cash of Rs. 1,08,54,150/-, is accepted.
Accordingly, addition of Rs. 1,08,54,150/- made under section 69A is deleted.
4.11 Accordingly Ground 4 of the appeal is allowed.
Mr. Rajendra Shinde, A.Y:2021-22
5.3 I have gone through the Seized material viz A/RBS/1, 2, 3 & 5 and also documentary evidences furnished by the appellant. The appellant has accepted sales of Rs.9,74,25,362 reflected in diary marked as A/RBS/1 wherein, sale transactions carried out by the appellant during the period 02.06.2020 to 13.06.2020 are found recorded. The appellant has also disclosed commission @ 1% on such cash sales in his return of income filed for A.Y. 2021-22. The various factors leading to cash sales during Covid-19 period have been discussed above and the same are not discussed again here. The AO has also accepted the fact that the A/RBS/01 contained unaccounted sales of Rs.9,74,25,362/-. However, he has not accepted the explanation of the appellant in regard to entries made in impounded diaries viz A/RBS/02, 04805 and treated all the transactions mentioned in the above diaries as undisclosed sales of the appellant as detailed in the above Table. Thus, the AO has brought to tax the entire amount of unaccounted sales as income from business at Rs.45,31,54,319/-.
5.4 The nature of transactions found in the impounded diaries are identical as explained by the appellant’s counsel during the course of appellate proceedings. The RBS/01 is pertained to sales effected during 1.6.2020 to 13.06.2020 which is not in dispute. The RBS/01 is in fact, day book of the appellant wherein, sale transactions are recorded. RBS/02 is stated to be details regarding inquiries etc; RBS/04 is party wise ledger extract and RBS/05 contained details of party wise sale made during F.Y. 2017-18 to 2020-21. Thus, the appellant has also brought out the instances of entries which matches with the entries made in other diaries to prove that there was no actual sale of Rs.45,31,54,319/- as worked out by the AO. The appellant’s counsel taken me to the relevant entries where details are matched and suggests that there is only one entry pertains to sale transactions. The amount, quantity etc matches with Day book (RBS/01), party wise ledger (RBS/04) and inquiry details (RBS/02). Thus, the appellant vehemently contended that the AO has taken suppressed sales which is recorded in different diaries for different purposes as appellant’s unaccounted sales.
5.5 I have perused all the documents as well as submissions of the appellant. The appellant has also disclosed profit @ 1% on unaccounted sales of Rs.9,74,25,362. On the other hand, the AO has treated the entire sale of Rs.9,74,25,362 as unaccounted and brought to tax under business income in the absence of information sought by him. It is well settled preposition of law that in the situation as in appellant’s case, when the appellant has offered profit embedded in this sales as his income, which is also as per the AO, not recorded in the books of account, separate treatment cannot be given to the sales which is found not recorded in the books of account whether it is suppressed sales or cash sales. It is pertinent to note that the AO has taken entries from the impounded diaries being the entries showing sales at actual price reflected against which the assessee has shown part receipt of Rs.9,74,25,362 as his sales on which he offered commission @ 1%. As regards appellant’s contention that the entries found in other diaries (other than RBS/01), are not sale entries but pertained to inquiry details and ledger of the parties etc, it is observed that all the entries found in RBS/01 are not matched with the Party wise Ledger and therefore, the appellant’s explanation cannot be acceptable in to.
5.6 Even ignoring the above contention of the appellant, if we look at the merits of the case, there is force in the argument of the appellant that the entire sales cannot be taxed; more so, when the AO himself has accepted these transactions as sales though treated as unaccounted. The evidences/ incriminating material found and impounded during the course of inquiry under section 131(1A), been discussed in the assessment order and they point out that the appellant had involved in unaccounted business activities in gold bullion. In either case, the unaccounted stock detected were part of the business activity and are intrinsically linked. Treating such unaccounted stock which was subsequently sold requires some investigation or finding on the part of the AO to prove that there is no direct nexus nor connection between the investment made and the source of such investment i.e., the business activity of the appellant or distinguish the excess stock from the accounted stock of the business.
However, the AO had not brought on record any evidence or material to establish that the appellant had generated income outside its reported business activity and made investments there from in purchases. The appellant was having closing cash balance and it was contended that he carried out cash business during Covid period to earn commission @ 1% taking advantage of lockdown and marriage season. Thus, in the facts and circumstances of the appellant’s case, the entire sales cannot be taxed as unaccounted sales or purchases.
5.7 In the above background, in my considered opinion, the AO was not justified in taxing the entire unaccounted sales amounting to Rs.45,31,54,319/- as income of the appellant. The appellant has not recorded sales in his books of account but directly taken profit @ 1% on the said unaccounted sales of Rs.9,74,25,362 and contended that he has earned commission @ 1% on the said unaccounted sales. Taking into consideration the facts of the case, profit ratio of 1% which is not disputed by the AO, and in order to meet the ends of justice, it is proper to treat the profit earned by the appellant @ 1% on entire unaccounted sales amounting to Rs 45,31,54,319/- as unexplained cash credit as against profit of Rs.9,74,253 disclosed by the appellant. Accordingly, unexplained sales is treated as unexplained money within the meaning of section 69A of the I.T. Act, 1961. The such unexplained money worked out to Rs.45,31,543/- which is treated as unexplained money within the meaning of section 69A read with section 115BBE of the I.T. Act, 1961. Thus, addition to the extent of Rs.45,31,543/- is sustained and the appellant gets relief of Rs.44,86,33,776/-.
5.8 The AO is directed to considered addition of Rs.45,31,543/- under section 69A read with section 115BBE of the I.T. Act, 1961.
5.9 Accordingly Ground 1 of the appeal is partly Allowed.
with principle of natural justice.
7.0 Ground 3
7.1 The next issue is in regard to disallowance of Rs. 17,59,34,820/- on account of cash expenses in violation of provisions of section 40A(3) of the I.T. Act, 1961. The facts leading to the said disallowance have been discussed by the AO in Para-8.2 and 8.3 in his assessment order. It is observed that the AO has treated cash sales of Rs.9,74,25,362/- as cash expenditure after deducting profit disclosed by the appellant. The appellant in his submission has contended that the appellant has not carried out any business nor he has debited any expenditure so as to apply provisions of section 40A(3) of the I.T. Act 1961. The appellant has disclosed only commission from the said sales and therefore, it was contended that the disallowance made by the appellant is unwarranted.
7.2 I have gone through the assessment order and it was observed that the AO has made disallowance under section 40A(3) of Rs.9,63,45,000/- stating that the appellant has incurred expenditure to the tune of Rs.9,63,45,000/- towards purchases. Similarly, he has worked out cash expenditure of Rs.7,95,89,820/- from RBS/05 diary impounded during the course of inquiry under section 131(1A) of the I.T. Act, 1961. The appellant contested that the alleged amount of expenses are nothing but the purchases made by the appellant in due course of business. Its is other side of same coin.
7.3 It is also observed that the appellant has accounted only commission earned from such business and no expenditure is debited to P&L Account so as to invoke provisions of section 40A(3) of the I.T. Act, 1961.
In other words, it is not in dispute that the appellant has not recorded the entire cash sale in the books of account nor has be recorded the cash expenses relating to this unaccounted sales. This means, neither the cash income that was received nor the cash expenses that have been incurred, have been incorporated in the books of account.
7.4 In view of the above, in my considered opinion, disallowance under section 40A(3) has to be made only when expenses are reflected in the books of account and debited to P&L A/c. Further, there needs to be evidence on record to show that the cash expenditure was incurred on a particular day in excess of the specified amount in order to invoke section 40A(3) of the I.T. Act, 1961. It is seen that there is no evidence brought on record by the AO that expenses in cash were incurred above the specified amount as a single payment or aggregate of payments to a single party on a specific date or several dates. The appellant in his statement while answering question 10, has clearly mentioned that he had purchased goods from 40 to 50 vendors but there is nothing being brought on record that said payments are being made in contravention of Section 40A(3). Moreover, when any revenue is taxed being unaccounted, the statutory non-compliance pertaining to expenses corresponding to said sale are also taken care of. There cannot be event that sales are taxed at one side and purchases are also taxed on other side.
7.5 Reliance is placed on the decision of Hon’ble Madras High Court in the case of K.R. v. ACIT (383 ITR ITA Nos.628 and 165 (Mad) (2017) wherein, the Hon’ble High Court has held that though section 40A(3) applies to the block assessments in general but would apply only where expenditure in question has been incurred and claimed in the computation of income.
7.6 It is also a fact that in the instant case, the profit from unaccounted sales has been estimated by the undersigned, the question of considering disallowance under section 40A(3) will not arise.
7.7 In view of the above, the disallowance made by the AO of Rs.17,59,34,820/- is deleted.
7.8 Accordingly Ground 3 of the appeal is allowed.
8.0 Ground 5
8.1 The next issue is regarding addition under section 68 amounting to Rs. 1,04,01,710/-on account of credits found in the bank account bearing No.510331001263500 with Corporation Bank (Now merged with Union bank of India) made by the AO. The facts leading to the said addition are that the AO observed from the analysis of bank accounts held by the appellant that the credits found in the above bank account for the period from 12.06.2020 to 31.08.2020 were not recorded in the regular books of account i.e. Sale Register. The appellant failed to furnish any explanation or reconciliation and accordingly, the AO treated the entire credits found in bank account as unexplained cash credits under section 68 of the I.T. Act, 1961.
8.2 The appellant on the contrary, has contended that the said bank account is a Current Account operated by the appellant under trade name of RS Bullion and duly reflected in the books of account. The appellant has stated that the audit report for previous years also reflect the said bank account. There was confusion with the AO as the bank name has been changed and as such, the AO observed that there is no entries in the sale register. The appellant has also furnished relevant sale register for the period 12.05.2020 to 31.08.2020 to prove that the credits found in the bank account are duly reflected in audited sale register
8.3 On perusal of the details furnished by the appellant, it is seen that the appellant has effected sales of Rs.1,99,89,567/- for the period 12.6.2020 to 31.08.2020 whereas, money deposited into bank account at Rs.2,03,11,564/-; the balance credits of Rs.3,21,997/-is stated to be out of debtors paid during this period.
Thus, the credits amounting to Rs. 1,04,01,710/- found credited during period 12.06.2020 to 31.08.2020 with Union Bank of India are duly recorded in the Sale Register. Further, the said bank account is duly reflected in Balance-sheet. In view of the above, the addition of Rs. 1,04,01,710/- is deleted.
8.4 Accordingly Ground 5 of the appeal is allowed.
9.0 In the result, the appeal is partly allowed.
9. On going through the finding of ld.CIT(A) along with the submissions of the assessee as well as the statement recorded on oath u/s.131(1A) of the Act during the course of assessment proceedings, so far as Ground No.1 is concerned, it relates to unexplained seized cash of Rs.1,08,54,150/-. We find that alleged sum was seized by Kagwad Police station from three persons namely Mr.Abhaysinh U. Gaikwad, Mr.Akshay Desai and Mr.Ashitosh Khilari. All these three persons had no explanation for the source of the said cash and stated that the cash belong to the assessee who is a Gold Bullion Trader. When the assessee was called for to give the statement he primary made a statement that Rs.60.00 lakh was from his business sales and Rs.50.00 lakh taken as loan from two friends namely Mr. Akshay More and Mr. Sashi Lendwe. However, during the course of assessment proceedings, assessee could not produce any evidence to explain the loan taken from his two friends rather he has accepted that Rs.1,08,54,150/- is his unaccounted inform for F.Y. 2020-21. At a later stage when the documents were found regarding the unaccounted sales he submitted that the source of cash found from the police authorities at Rs.1,08,54,150/- is from the unaccounted sales. We however find that the assessee has changed the statement one after the other and has categorically accepted the seized cash as his unaccounted income for F.Y. 2020-21. Ld.CIT(A) has given relief treated the source from the unaccounted sales. We are of the considered view that so far as source stated that Rs.60.00 lakh from his business sales is concerned the same is accepted because there were certain documents including the diaries which were showing unaccounted sales but for the amount of Rs.50.00 lakh the same is stated to have been taken as loan from two friends and the assessee has miserably failed to furnish any evidence in support. Therefore, it is to be treated as unaccounted income of the assessee and accordingly the finding of ld.CIT(A) on this issue is partly sustained and out of addition of Rs.1,08,54,150/- after giving relief of Rs.60.00 lakh for cash sales, we hereby sustain the addition for remaining cash seized at Rs.48,54,150/- and partly allow Ground No.1 raised by the Revenue.
10. As regards Ground Nos. 2 and 3 raised by the Revenue are concerned, ld. DR made two fold contentions firstly that ld.CIT(A) erred in estimating profit @1% of the unaccounted sales of Rs.45.31 crore and secondly ld.CIT(A) erred in deleting the disallowance made u/s.40A(3) of the Act at Rs.17.59 crore. We note that in the seized diary namely RBS/1 contains transactions of purchases and cash sales from 02.06.2020 to 13.06.2020. In respect of transaction of purchases and sales the profit is also mentioned which in one hand assessee is claiming to be commission agent whereas on the other hand profit is mentioned and there is no mention about commission. In the submissions filed by the ld. Counsel for the assessee, it is submitted that the normal profit in bullion trading is 1% or less. This fact indicates that assessee is not a commission agent but is a Trader of Bullion and Jewellery. Now the assessee has made unaccounted sales and there are unaccounted purchases and expenses. There is no detail about the buyers as well as suppliers through whom such cash has been received or cash payments have been made. Had these transactions been part of the regular books of account then certainly section 40A(3) of the Act may have been invoked if the particular transactions exceed the limit prescribed u/s.40A(3) of the Act. Looking to the quantum of cash expenses, it can be easily inferred that the cash expenses towards purchases are in excess of the limit prescribed u/s.40A(3) of the Act.
11. It is also evident that assessee has made unaccounted sales but ld. Assessing Officer has made addition for the total sales which is not in accordance with the settled judicial principle and as held by the Hon’ble Gujarat High Court in the case of CIT Vs. President Industries 258 ITR 654 (Guj.) where the Hon’ble High Court has held that amount of sales by itself cannot represent income of the assessee who has not disclosed sales. In other words, only the profit element needs to be brought to tax. Similar view has been taken by the Hon’ble Madhya Pradesh High Court in the case of CIT Vs. Balchand Ajit Kumar 263 ITR 610 (MP). We are therefore of the considered view that so far as addition made by the ld. Assessing Officer for total unaccounted sales is concerned the same is not justified.
12. Now the next step is the estimation of the profits. The assessee on one hand is arguing that it is earning profit @1% but on the other hand there are no proper records maintained which could verify this fact except the Audit Report of the assessee. Also we have to take into consideration the huge cash expenses of Rs.17.59 crore. Had the provisions of section 40A(3) of the Act could have been invoked for such cash expenses which even though not accounted for in the books of account, certainly the assessee will get deduction of the same against the gross sales but then huge amount of disallowance would have been confirmed. In order to end the litigation and also to estimate the fair profit considering the facts and circumstances of the case and huge unrecorded cash sales, unaccounted cash purchases and cash expenses, we are of the considered view that Net Profit @8% of the total unaccounted sales of Rs.45.31 crore would be sufficient to cover up the profits earned from the unaccounted sales as well as disallowance u/s.40A(3) of the Act and accordingly Net Profit of Rs.3,62,52,344/- is estimated on the total unaccounted sales of Rs.45.31 crore as against the addition sustained by ld.CIT(A) at Rs.45,31,543/- (estimating the Net Profit @1% on accounted sales as well as deleting the disallowance u/s.40A(3) of the Act). Ground Nos. 2 and 3 raised by the Revenue are partly allowed.
13. Ground No. 4 raised by the Revenue is regarding unexplained bank credits at Rs.1,04,01,710/-. Admittedly, the assessee has filed additional evidences before ld.CIT(A) and there is no mention about the remand report having been called for by ld.CIT(A) and therefore considering the prayer of ld. DR this issue is restored to the file of ld. CIT(A) for necessary verification and decided in accordance with law after calling for the Remand Report from ld. Jurisdictional Assessing Officer and providing sufficient opportunity to the assessee. Ground No.4 raised by the Revenue is allowed for statistical purposes.
14. Now we will take up the assesses appeal ITA No.80/PAN/2025 wherein the assessee has raised following grounds of appeal :
“1. The order of the learned Commissioner of Income Tax (Appeals)- 2, Panaji, Goa is opposed to the facts of the case and law applicable to it as far as applicability of provisions of section 115BBE of the I.T. Act, 1961.
2. The learned Commissioner of Income Tax (Appeals)-2, Panaji, Goa erred in holding that, the estimated profit on sale of gold during short period as income from other sources under section 69A and tax has to be charged @ 60% as per the provisions of section 115BBE of the I.T. Act, 1961 ignoring the fact that, the assessee has discharged his onus to explain the transactions of sale recorded in the seized diaries as sale transactions profit @ 1% on the same was offered to tax in his audited books of account. As such, income estimated in order passed by the CIT(A) should have been taxed as income under the provisions of section 28 of the I.T. Act, 1961.
3. ADDITION UNDER SECTION 69A RWS 155BBE of Rs.45,31,543
2.1. The Learned AO as well as the CIT (A) erred in treating the estimated profit out of sales found in diaries as unexplained money under section 69A ignoring the fact that the assessee is a carrying on business of gold and bullion and there is no other activity found to be carried out by the assessee. As such, the application of provisions of section 115BBE by the learned CIT(Appeals) is contrary to his own judgement that the assessee was carrying on business in cash element involved.
2.2. The Learned AO/CIT(A) ought to have appreciated the fact that the assessee is a jewellery and cannot involve in unexplained activity as his entire receipts are accounted in his audited books of account and also offered commission earned by the assessee in the said books of account. As such, no addition on account of unexplained money under section 69A be made and the estimation of profit has to be taxed under business head.
4. The grounds are taken without prejudice to one another and the Appellant craves leave to add or delete or modify or revise any ground at the time of hearing before the Hon’ble ITAT.”
15. From the above grounds of appeal, we note that the sole grievance of the assessee is that Revenue authorities erred in invoking section 115BBE of the Act r.w.s.69A of the Act. Though the assessee has referred and relied on plethora of decisions, we will first take note of the provisions of section 69A of the Act and then examine the facts in light thereon. Section 69A of the Act reads as follows :
“Unexplained money, etc.
69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.”
16. From perusal of the above provision, we find that said section is invoked if the assessee is found to be the owner of any money, bullion, jewellery or other valuable article which are not recorded in the books of account and the assessee offers no explanation about the nature and source of acquisition of such money, bullion, jewellery or other valuable article, then it is treated as unexplained money.
17. In the instant case, so far as the seized cash of Rs.1,08,54,510/-, as we have discussed above that only the source of Rs.60.00 lakh is accepted from the unaccounted cash sales from Bullion/Jewellery. So far as the remaining amount of Rs.50.00 lakh claimed to have been received as cash loan from two friends no plausible explanation with evidence could be given by the assessee and the exact amount would be Rs.48,54,510/- for which assessee failed to furnish the source of the amount and accepted it as unaccounted income and willing to pay the tax thereon. Therefore, in our considered view, section 69A of the Act is clearly attracted on the said sum of Rs.48,54,510/- and it should be subjected to tax u/s.115BBE of the Act.
18. As regards the income estimated on accounted sales is concerned, we find that the diaries were seized from the business premises of the assessee and transactions clearly indicated that they relate to the unaccounted purchases and unaccounted sales and they are part of the business income. Therefore, Net Profit @8% estimated by us on the total unaccounted sales are part of business income and should not be subjected to rigours of section 115BBE of the Act. Grounds of appeal raised by the assessee are partly allowed.
19. To sum up, the appeal of the Revenue is partly allowed for statistical purposes whereas the appeal of the assessee is partly allowed as per the terms indicated herein above.
Order pronounced on this 07th day of September, 2026.
