Charu Aggarwal Vs DCIT (ITAT Chandigarh)
Held that cash sales made by the assessee which was deposited in the bank post demonetization is sufficient source of cash deposited. Addition of the same unsustainable.
Facts- A notice u/s 153A was issued to the assessee post search operation. Thereafter, the assessee filed its ROI declaring an income of Rs. 22,52,980/-. During the course of assessment proceedings, AO noticed that the assessee had deposited Rs. 2,90,20,000/-during post demonetization in its CC Account. The A.O. further observed that on examination of digital data it was noticed that there were two sets of books of accounts i.e. one in the computer of Accountant and another in the Pen Drive of the Accountant. On comparison of both the accounts it was found that there was difference in the sales figures for the month of October, 2016 as cash sales were increased in one set of books of accounts. AO observed that the books of accounts of the assessee were not correct and complete and did not depict the real statement of affairs. Accordingly, AO issued a notice asking as to why the books of accounts may not be rejected u/s 145(3) of the Act and the assessment may not be completed in the manner provided u/s 144.
Further, AO also made addition of Rs. 2,19,85,395/- as unexplained money u/s 69A and charged tax u/s. 115BBE. Also, initiated penalty proceedings u/s 271AAB.
Conclusion- Held that in the instant case the opening stock, purchases and the closing stock has not been doubted, no inflated purchases were found or suppressed sales were noticed during the course of search which was conducted just after the closing year relevant to the assessment year under consideration. It is also not a case that the assessee was not selling the stock/jewellery through exhibition.
Further also observed that the cash sales in the month of October 2016 i.e., period under consideration was 92% while in the preceding year it was 95% in April 2014, 93% in May 2015, 94% in June 2015, 93% in July 2015, 92% in July 2016. So it is not a case that in the month of October 2016 only the cash sales were more.
With regard to GP rate it is also noticed that the GP rate shown by the assessee for the year under consideration was 12.21% which was comparable with the preceding year 2016-17 at 12.72% which shows that there was a small decline in the GP rate for the year under consideration in comparison to the earlier year, however in the assessment year 2014-15 and 2015-16 the G.P. rate was at 16.62% and 13.47% respectively which shows that there was a consistent declining trend in the G.P. rate which occurred due to increase in the sales which were at ₹ 3.04 crores, ₹ 9.46 crores, ₹ 10.68 crores and ₹ 12.83 crores for the A.Y. 2014-15, 2015-16, 2016-17 and 2017-18 respectively which also shows that due to increase in turnover the G.P rate declined, so, it cannot be said that the cash sales made by the assessee during the pre demonetization period i.e., October 2016 resulted in extraordinary fall in the G.P. rate.
In the instant case the assessee maintained the proper books of account in regular course of business which were duly audited by the independent Chartered Accountant under section 44AB of the Act, all the sales & purchases and stocks were recorded in the books of account which had not been doubted by the AO.
Held that sales made by the assessee to cover the cash deposited in the bank post demonetization, was sufficient source of the cash deposited i.e; the sales from the existing stock available with the assessee and was well explained, therefore, the addition made by the AO and sustained by the Ld. CIT(A) was not justified.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
These two appeals by the different assessees are directed against the separate orders each dt. 30/09/2021 of the Ld. CIT(A)-5, Ludhiana.
2. Since the appeals were heard together and one of the issues is common in both these appeals therefore these are being disposed of by this consolidated order for the sake of convenience and brevity.
3. At the first instance we will deal with the appeal in ITA No. 311/Chd/2021 wherein following grounds have been raised :
1. That the Ld. Commissioner of Income Tax (Appeals)-5, Ludhiana has erred in confirming the addition of Rs. 2,04,85,395/- against the addition of Rs. 2,19,85,395/- on account of alleged unexplained cash deposits in the regular bank account of the assessee, during demonization period, which was on account of accounted for sales of the assessee, duly recorded in the regular books of accounts of the assessee.
2. That the Ld. CIT(A) has failed to appreciate that all the purchases and sales are fully vouched and no defects in the quantitative details or in the day to day stock register, maintained by the assessee have either been found and, therefore, the confirmation of addition of Rs. 2,04,85,395/- is against the facts and circumstances of the case.
3. That the Ld. CIT(A) has failed to appreciate that there was no difference in the stock of jewellery as noticed by departmental officials during the course of search, conduced in the premises of assessee in April 2017 and, therefore, it is not a case of ‘unexplained money’ as being alleged by the CIT(A) but the accounted for sale proceeds of the jewellery, which have been deposited in the regular bank account of the assessee.
4. That the Ld.CIT (A) has failed to appreciate that the Assessing Officer having not found any fault in the regular books of accounts during the course of assessment proceedings and, therefore, no such addition was liable to be made.
5. That the Ld. CIT(A) has failed to appreciate that the sales of jewellery as per books of accounts having been accepted and the cash realized on account of such sales of jewellery having been deposited in the regular bank account of the assessee and the stock of jewellery reduced from the stock register of the assessee and, then sustaining of addition of Rs. 2,04,85,395/- is uncalled for.
6. That the Worthy CIT(A) having accepted that it is a case of ‘double addition’ and then only giving relief of net profit @ 1.57% on sales of Rs. 2,19,85,395/- is not proper since the total sales of Rs. 2,19,85,695/-having already been included in the sales already declared in the audited accounts, the entire amount of Rs. 2,19,85,395/- was liable to be reduced not the net profit/gross profit or a sum of Rs. 15 lacs on adhoc basis as allowed by the CIT(A).
7. That the CIT(A) has failed to appreciate the past history of the case, where under the similar circumstances, the cash sales have been accepted in the order passed u/s 143(3) and even the assessment of the assessee for Asstt. Year 2018-19 having been framed u/s 143(3) and, thus, the confirmation of addition by the CIT(A) is against the facts and circumstances of the case and the detailed submissions as filed on number of occasions, during the course of ‘appellate proceedings’ have not been considered properly.
8. That the Ld. CIT(A) has failed to appreciate that merely on the basis of oral statement of part time Accountant, the confirmation of addition by the Ld. CIT(A), specially, when no cross examination of the Accountant have been afforded to the assessee, is uncalled for.
9. That the Ld. CIT(A) has erred in confirming the addition of Rs.7,96,905/-on account of unexplained investment on the construction of show room, which is against the facts and circumstances of the case.
10. That notwithstanding the above said ground of appeal, the CIT(A) has erred in confirming the action of the Assessing Officer for reference to the Valuation Cell of the construction of shop and has not followed the various judgments as filed before him.
11. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.
4. Vide Ground No. 1, to 8 the grievance of the assessee relates to the sustenance of addition of Rs. 2,04,85,395/- on account of alleged unexplained cash deposits in the regular bank account.
5. The facts related to this issue in brief are that a search operation under section 132 of the Income Tax Act, 1961 (hereinafter referred to Act) was conducted in Kalaneedhi group of cases on 12/04/2017. Thereafter a notice under section 153A of the Act was issued to the assessee on 30/10/2017. In response to the said notice the assessee filed its return of income on 29/11/2017 declaring an income of Rs. 22,52,980/-. During the course of assessment proceedings the A.O. noticed that the assessee had deposited Rs. 2,90,20,000/-during post demonetization in its CC Account and that during the course of search, books of accounts and sale bills books relating to demonetization period and pre demonetization period were verified which revealed that the assessee was maintaining its books of account in the computer of its Accountant. The A.O. further observed that on examination of digital data it was noticed that there were two sets of books of accounts i.e. one in the computer of Accountant and another in the Pen Drive of the Accountant. On comparison of both the accounts it was found that there was difference in the sales figures for the month of October, 2016 as cash sales were increased in one set of books of accounts. The statement of Accountant was recorded during the course of search wherein it was admitted that he had changed the sale figures of October, 2016 by increasing cash sales after demonetization to generate cash in hands in books of accounts. The A.O. vide questionnaire dt. 21/12/2018 asked the assessee to furnish documentary evidence regarding source of cash deposit in its bank accounts. The assessee filed reply on 04/03/2019 which had been discussed by A.O. at page 2 to 4 of the assessment order dt. 27/03/2019 and is reproduced verbatim as under:
i) The first reason cited by the assessee is that the increase in sales in the month of October due to exhibition by the assessee for marketing of Gold and Kundan jewellery. The assesee also filed a pamphlet to support his submission. However, during search no such pamphlet was found. Further, the main partner of the assessee Sh. Kamal Aggarwal in his statement recorded during the course of search/survey had no where mentioned about any such exhibition or sale. The relevant question by the authorized officer and answer by Sh. Kamal Aggarwal is reproduced as under ;
“Q.23 Perusal of the balance sheet of the previous year reveals that cash in hand as on 31.03.2016 is Rs. 33,639/- and as per the cash book for the period 01.04.2016 till 31.03.2017. Also reveals the similar picture upto October, 2016. Please explain the high cash in hand from 03.10.2016 upto 08.11.2016. Is it normal practice to have such s high cash in hand in excess of Rs. 2 crore when you are also having ODI limit with the bank. Please also clarify where this cash was kept?
Ans. From 03.10.2016 onwards, difference festivals like Navratras, Dushehra and Diwali was occurred and celebrated and the cash was kept at the premise.”
ii) The other explanation of the assessee is that cash deposited was as per books of accounts and verifiable from the sale bills. This plea of the assessee is also not acceptable as the sales were found to be inflated later on by entering back dated bills.
iii) The assessee also stated that the statement of Sh. Naveen Goyal do not have evidentiary value as the same was recorded at the back of the assessee and is without corroboration. This plea of the assessee is also not convincing as the statement of Sh. Naveen Goyal was ouiy confronted with Sh. Kamal Aggarwal in his statement recorded u/s 132(4) and the relevant part of the statement is reproduced as under:
“Q 4 I am showing you the statement of Sh. Naveen Goyal S/o Sh. Tara Chand, Patiala, your part time Accountant, taken u/s 131 of the IT. Act, 19861 in the camp office at 123-C, Model Town, Patiala on 12.04.2017 wherein he has submitted that after demonetization on 08.11.2016 he had modified and change the actual books of accounts of your business concerns M/s Kalaneedhi Jewellers LLP, Bhupindra Road, Patiala by modifying the cash sales in the month of October, 2016 and November, 2016 ending 08.11,2016 by an amount of Rs. 2.90 crores (Approx.). He further submitted that the said modification was done on your directions on 10.11,2016 on the basis of sales bills provided b y you which were back dated to generate cash in hand of Aprox. 2.90 crores \on 08.11.2016-In the notes of old currency of Rs.500/1000. In this regard, you are show caused to explain why it should not be concluded that the cash in hand as on 08.11,2016 in your books is bogus and has been created to facilitate the deposit of your unaccounted cash b y camouflaging the same as cash sales of M/s Kalaneedhi Jeweilers LLP, Patiala in the month of November, 2016 ending 08.11.2016
Ans. I have read the statement of Sh. Naveen Goyat, our part time Accountant, however I do not agree with his statement in this regard.”
The above statement of Sh. Kamal Aggarwal shows that the statement of Sh. Naveen Goyal was duly confronted with him and except disagreeing he could not say anything.
iv) The other contention of the assessee that he was not aware of the books of accounts maintained by the accountant and did not have any access to the data maintained by the accountant is also not acceptable as the Accountant was maintaining books of account on the basis of vouchers and sale bills provided by the assessee. The correctness of the books of accounts is primarily the responsibility of the assessee and he cannot be absolved of this responsibility.
5.1 The A.O. did not find merit in the aforesaid reply of the assessee and observed that the books of accounts of the assessee were not correct and complete and did not depict the real statement of affairs. He asked the assessee to show cause as to why the books of accounts may not be rejected under section 145(3) of the Act and the assessment may not be completed in the manner provided under section 144 of the Act by observing in para 5 of the impugned order as under:
2. A search u/s 132 was conducted in your case and during the course of search various documents were impounded and relevant extract of computer data was taken. During the course of assessment proceedings, the following discrepancies have been noticed in the books of accounts:
i) Two sets of books of accounts have been found in the Pen Drive and Computer in possession of accountant working with your firm. On comparison of sale account for the period 01.10.2016 to 31.10.2016 there is huge difference in the cash sale:. As per one set total sales for the period 01.10.2016 to 31.10.2016 have been shown at Rs.4,08,33,912/- and as per another set of account books sales for the same period have been shown at Rs. 1,42,19,678/-. The major difference in sales is on account of sales shown as per bill book Sr. No. 1 to 50, 51 to 100 and 101 to 150. These bill books are not as per the running Serial number which is 435 onwards for this period. Further, accountant Sh. Naveen Goyal in his statement recorded during the course pf search confirmed that he has changed the sale figures by increasing cash sates after demonetization to increase the cash in hand. Copy of statement of Sh. Naveen Goyal is enclosed.
ii) During this period you have shown investment on the construction of showroom as per your books of accounts at Rs. 73,06,405/-. The issue of cost of construction was referred to Valuation Call of the Income Tax Department by the. DDIT(inv.). As per Valuation report a copy of which has already been provided to you. the total cost of construction has been worked out at Rs. 1,32,24,900/- and Investment on construction during the A.Y. 2017-18 has been estimated at Rs. 92,92,400/-whereas you have shown lesser amount in your books of accounts. On verification of seized/impounded documents during the course of search/survey, it has been noticed that the following bills of material in respect of construction of showroom has not been shown in the construction account as per your books of accounts.
