Legal sale of gold using prohibited currency/ SBNs not permissible

POONAM GANDHI 11 Jan 2023 2,094 Views 0 comment Print Income Tax | Judiciary

Case Law Details

Case Name : Vaishnavi Bullion Private Limited Vs ACIT (ITAT Hyderabad)

Appeal Number : ITA No. 561/Hyd/2020

Date of Judgement/Order : 28/11/2022

Related Assessment Year : 2017-18

Courts : All ITAT ITAT Hyderabad

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Vaishnavi Bullion Private Limited Vs ACIT (ITAT Hyderabad)

ITAT Hyderabad held that no legal sale of gold can be made with the use of either prohibited currency or prohibited Specified Bank Notes (SBNs)

Facts- Assessee is a Private Limited Company engaged in the business of trading in gold, diamond jewellery and bullion. In this case, a search and survey action u/s 133A of the Act was carried out in the business premises of the assessee on 01.12.2016 by the Investigating Wing. During the survey, it was noticed that assessee had deposited Rs.39,64,98,000/- in its Axis Bank account and Rs.50,00,000/- in Bank of Baroda, Hyderabad and thus, the total deposit after demonetization made by the assessee company was Rs.40,14,98,000/-. Later, the MD of the assessee filed a declaration of Rs.40 crore under Pradhana Mantri Garib Kalyan Yojana, 2016 (PMGKY) on 30.12.2016 and paid tax of Rs.1 crore on 13.01.2017. Thereafter, the M.D. filed an affidavit withdrawing the declaration on 16.01.2017 filed under PMGKY.

The assessee submitted that the assessee had agreed to cover under the Pradhana Mantri Garib Kalyan Yojana, 2016 as the assessee was given the assurance, no criminal prosecution / PMLA inquiry / investigation would not be done.

Later on ED started investigation and the income tax department made an addition against the assessee based on the confession made by the Director of the assessee before the ED.

Conclusion- In our opinion, the conduct of the assessee was incomprehensible and abnormal and it had caused immense harm to well intention notification and the Act. The withdrawal of legal tender character was one of the significant steps in weeding out the fake currency and to curb the black money in the country. The persons like assessee have given a setback to well-intended and well-thought policy of Government of India and they have used this as an opportunity to convert their or others’ ill-gotten money into bullions. In the present case the bank account. The above said act of the assessee is not only against the law but also against the interests of the nation. In the present case, the bank account with the AXIS Bank was only opened on 10.11.2016. As per the notification, the assessee cannot deposit more than the amount of Rs.50,000/- in its account till KYC is completed. It is not the case of the assessee that the KYC had been completed on the date of opening of its account.

It is not understandable how the bank permitted the deposit of huge amounts in the newly opened account, on the date of its opening itself. The concerned agency must look into the role of the bank employees in this regard. When the assessee itself cannot deposit more than Rs.50,000/- as per notification, then how a third party can be authorized to deposit more than the specified limits in the bank account of the assessee. The disability of the assessee would entail the disability of its delegate / agent.

Thus, it is clear that SBNs were subsequently received by the assessee and were wrongfully deposited with the bank and thus, the assessee had mischievously and unscrupulously brought the SBNs into the network. In our view, the stand of the Assessing Officer is correct, as he had rightly concluded that no legal sale of gold could have made with use of prohibited currency /SBNs.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

These are the cross appeals filed by the assessees mentioned above and Revenue feeling aggrieved by the order of ld. Commissioner of Income Tax (Appeals) – 11, Hyderabad, (hereinafter referred as “ld. CIT(A)”) passed on 07.09.2020 for A.Y. 2017-18.

2. The grounds raised by the assessee in ITA No.561/Hyd/2020 reads as under :

“1. The ld.CIT(A) erred in confirming the addition of Rs.11,74,50,000/- which is not sustainable on facts and in law.

2. The ld.CIT(A) erred in not considering the fact that the cash deposited in the bank account of the appellant reflected the business turnover of the appellant and the appellant has offered net profit earned on such turnover in his return of income and paid taxes.

3. The ld.CIT(A) erred in not considering the evidence that the cash deposited in the bank account of the appellant was utilized for purchase of gold bullion by the appellant in the normal course of his business.

4. The ld.CIT(A) erred on facts and in law in granting partial relief of Rs.28,37,00,000 out of cash deposit of Rs.40,11,50,000 and confirming the addition of Rs.11,74,50,000/- although the entire cash deposits are of the same genre of business.

5. The ld.CIT(A) erred in law in confirming the AOs findings that the provisions of section 68 are attracted in respect of cash deposits made in the appellant’s bank account.

6. The ld.CIT(A) erred in law in confirming the AOs findings that the provisions of section 68 are attracted in respect of cash deposits made in the appellant’s bank account despite the fact that the AO did not make any inquiries to satisfy himself about the explanation offered by the appellant although making of such inquiries is a condition prerequisite for invoking the provisions of section 68.

7. The ld.CIT(A) erred on facts and in law in ignoring the various judicial pronouncements of High Courts and Supreme Courts submitted by the appellant which showed that the AO could not have invoked the provisions of section 68 considering the facts of the appellant’s case.

8. The ld.CIT(A)’s finding that the AO, in the statement recorded from the appellant u/s 131 on 20.11.2019 discussed the issues raised by the appellant is contrary to the facts on record.

9. The ld.CIT(A)’s finding that the AO, in the statement recorded from the appellant u/s 131 on 20.11.2019 discussed at length the explanation regarding sources of cash as submitted by the appellant in his letter dt.01.11.2017 is not a fact and is based on the wrong appreciation of the contents of the assessment order.

10. The finding of the ld.CIT(A)’s that the requirements of section 68 are met by AO is not based on correct appreciation of the provisions of section 68 of the Act in as much as that the ld.CIT(A) erred in law in concluding that recording of statement u/s 131 from the appellant amounts to conduct of due inquiries contemplated under section 68 of the Act.”

3. The grounds raised by the Revenue in ITA No.58/Hyd/2021 reads as under :

“1. The ld.CIT(A) erred both in law and on facts of the case in allowing relief to the assessee.

2. The ld.CIT(A) erred in granting relief of Rs.28,37,00,000/- in respect of the addition made u/s 68 on the ground that the deposits received from Mr. Neel Sundar stood explained.

3. The Ld.CIT(Appeal) erred in disregarding the fact that acceptance of cash in SBNs and purchase of bullion with such ‘ceased legal tender’ cannot be treated as a legal business transaction in view of the special circumstances prevalent after announcement of demonetization.

4. The Ld.CIT(Appeal) erred in treating a portion of the credits as explained when the assessee was prevented by RBI norms in accepting cash in SBNs either directly or indirectly after 08.11.2016.

5. The Ld.CIT(Appeal) erred in ignoring the trite principle that a later special law though not so consistent with earlier general law; will prevail over the earlier general law- when the Reserve Bank of India issued Special Law by way of Notifications after demonetization barring SBNs as legal tender after 08.11.2016 – the sale advances received not in legal tender cannot be treated as per general law of Income Tax Act.

6. The Ld.CIT(Appeal) erred in ignoring the findings of Central Forensic Science Laboratory that the computer systems claimed to have been used by the assessee for making advance credit entries on 08.11.2016 were not at all opened/used on that date and consequently the credit entries in the books of account are antedated to escape the consequences of accepting SBNs after demonetization.

7. The ld.CIT(Appeal) erred in taking into cognizance the letter dated 01.11.2017 claimed to have been filed by the assessee before the assessing officer without calling for a remand report as no such letter had been filed before the assessing officer.

8. The ld.CIT(Appeal) erred in granting relief solely on the basis of the statements given by Mr.Neel Sundar before Investigative agencies which was retracted in his subsequent statement given before the DDIT(Inv) on 09.02.2017, wherein he categorically stated in reply to Q.No.13 that ?the cash does not belong to me or my family or my concern M/s. Ashta Lakshmi Gold nor does it belong to any of my friends from the market.”

9. The Ld.CIT(Appeal) erred in not taking into cognizance of the fact that the retraction before DDIT(Inv) was given on 09.02.2017 i.e, much after the statement given before police on 11.01.2017 and 21.01.2017.

10. The Ld.CIT(Appeal) erred in deleting the addition made stating that no enquiries were conducted. The ld.CIT(A) who has coterminous powers to conduct further enquiries before coming to his conclusions instead of deleting the addition for lack of enquiry.

11. The Ld.CIT(Appeal) erred in holding that the assessing officer simply ignored the material produced before him by the assessee and made his own conclusions without bringing any material evidences to show that Sri Neel Sundar had contributed Rs.28.37 crores, except for referring to the Bank CCTV footage and Cell phone recordings, which were never produced before Income tax authorities at any point of time.

12. The Id.CIT(Appeal) erred in of restricting credits which his view were to shown the sources as sales of and the credits received ignoring in SBNs the and nature can therefore be assesses only u/s.68 of the Act.”

4. The grounds raised by the assessee in ITA No.560/Hyd/2020 reads as under :

“1. The ld.CIT(A) erred in confirming the addition of Rs.20,74,01,000/- which is not sustainable on facts and in law.

4. The ld.CIT(A) erred on facts and in law in granting operational relief of Rs.37,11,34,000 out of cash deposit of Rs.57,85,35,000 and confirming the addition of Rs.20,74,01,000 although the entire cash deposits are of the same genre of business.

5. The ld.CIT(A) erred in law in confirming the AOs findings that the provisions of section 68 are attracted in respect of cash deposits made in the appellant’s bank account.

8. The ld.CIT(A)’s finding that the AO, in the statement recorded from the appellant u/s 131 on 20.11.2019 discussed the issues raised by the appellant is contrary to the facts on record.

5. The grounds raised by the Revenue in ITA No.59/Hyd/2021 reads as under :

“1. The ld.CIT(A) erred both in law and on facts of the case in allowing relief to the assessee.

2. The ld.CIT(A) erred in granting relief of Rs.37,11,34,000/- in respect of the addition made u/s 68 on the ground that the deposits received from Mr. Neel Sundar stood explained.

4. The Ld.CIT(Appeal) erred in treating a portion of the credits as explained when the assessee was prevented by RBI norms in accepting cash in SBNs either directly or indirectly after 08.11.2016.

8. The ld.CIT(Appeal) erred in granting relief solely on the basis of the statements given by Mr. Pawan Agarwal before Investigative agencies without appreciating the fact that no material evidence was furnished in support of the claim.

9. The ld.CIT(A) erred in relying on the confession statement given by Mr. Pavan Kumar Agarwal before the police authorities even though such statement is not admissible as evidence.

10. The ld.CIT(A) erred in relying on the statement of Sri Pavan Kumar Agarwal given before Police Authorities on 17.02.2017 that he contributed 37.11 crores out of total cash deposits made in the bank accounts of the assessee, without considering the fact that this averment was different from the statement recorded before the Income Tax authorities.

11. The Ld.CIT(Appeal) erred in deleting the addition made stating that no enquiries were conducted. The ld.CIT(A) who has coterminous powers to conduct further enquiries before coming to his conclusions instead of deleting the addition for lack of enquiry.

12 The Ld.CIT(Appeal) erred in holding that the assessing officer simply ignored the material produced before him by the assessee and made his own conclusions without bringing any material evidences to show that Sri Pavan Agarwal had contributed Rs.37.11 crores, except for referring to the Bank CCTV footage and Cell phone recordings, which were never produced before Income tax authorities at any point of time.

13. The Id.CIT(Appeal) erred in of restricting credits which his view were to shown the sources as sales of and the credits received ignoring in SBNs the and nature can therefore be assesses only u/s.68 of the Act.”

6. Although a number of grounds have been raised in these cross appeals, however, these relate to the part relief granted by the ld.CIT(A) out of the addition made by the Assessing Officer of cash deposited in the bank during the demonetization period.

6.1. At the time of arguments, both the parties have submitted that the facts and issues raised in both the sets of appeals are identical, except the amounts and names involved and hence, appeals in the case of Vaishnavi Bullion Pvt. Ltd bearing Nos. ITA 561/Hyd/2020 and the appeal of Revenue in ITA 58/Hyd/2021 may be taken as lead cases for the sake of convenience.

ITA 561/Hyd/2020 & ITA 58/Hyd/2021

7. The brief facts of the case are that assessee is a Private Limited Company engaged in the business of trading in gold, diamond jewellery and bullion. In this case, a search and survey action u/s 133A of the Act was carried out in the business premises of the assessee on 01.12.2016 by the Investigating Wing, Hyderabad. During the survey, it was noticed that assessee had deposited Rs.39,64,98,000/- in its Axis Bank account and Rs.50,00,000/- in Bank of Baroda, Hyderabad and thus, the total deposit after demonetization made by the assessee company was Rs.40,14,98,000/-. During the course of survey, a statement was recorded from Shri Nitin Gupta, MD of the assessee wherein he stated that the said amount was received from 2153 customers on 08.11.2016 as advances after the announcement of demonetization and each customer had paid advance below Rs.2 lakhs for purchase of bullion. On 07.12.2016, he reconfirmed the above statements. Later, the MD of the assessee filed a declaration of Rs.40 crore under PMGKY on 30.12.2016 and paid tax of Rs.1 crore on 13.01.2017. Thereafter, the M.D. filed an affidavit withdrawing the declaration on 16.01.2017 filed under PMGKY.

For the A.Y. 2017-18, assessee filed its return of income admitting an income of Rs.1,42,71,390/- after adjustment of brought forward losses of Rs.8,60,150/-. The case was selected for scrutiny and a notice u/s 143(2) of the Act was issued on 14.08.2018. Later, notice u/s 142(1) of the Act were issued from time to time calling for certain information and after considering the information filed, assessment was completed by the AO u/s.143(3) of the Act on 31.12.2019 assessing the total income at Rs.41,57,69,390/- by making an addition of Rs.40,11,50,000/-u/s 68 of the Act.

8. The relevant portion of Assessing Officer’s discussion and finding reads as under :

“3.5.1 Apparent inconsistency even in the second version of cash advance from one customer:

The first issue for consideration is the deviation of the assessee in replacing single customer in place of their earlier stance of 2153 customers, who purportedly lent advance of Rs.40.11 crores. In para 15 of the above submissions, the assessee now brings in the concept of ‘human possibility’ of receiving cash of below Rs.2 lakhs from 2100 persons within three and half hours in their business premises. In fact, the claim of the assessee of receiving cash of Rs.40.11 crores and the probability of entering the details of 2153 customers (5200 customers including the customers of M/s MGJPL), printing cash receipt vouchers within three hours from 09.00 PM to 12.00 midnight on 08.11.2016 was questioned in the statement recorded u/s 131 on 01.12.2016 vide Q.No.70. To this, the Director of the assessee company replied as under:

“… It is correct that around 5200 customers had visited this premises on 08.11.2016 from. 09.00 PM onwards for depositing cash advance in Musaddilal Gems and Jewels P Ltd and Vaishnavi-bullion P Ltd. I don’t know how we had managed, but it was done”.

Though the assessee claimed that the statement given on 08.11.2016 was under duress and the statements given on 20.11.2019 is true, no evidence to substantiate that the assessee / their Director is in receipt of cash from one person was provided with cogent evidences, except referring to the bank footage or some confessional statements of others. When a credit entry is made in the books of an assessee, the burden is on the assessee to prove the sources of such credit to the satisfaction of the Assessing Officer with cogent evidences. In the case on hand, the assessee takes the liberty of changing their stance before the Income Tax authorities as well as before other investigating agencies (will be discussed in the ensuing paragraph 3.5.3) to suit their convenience and when it comes to others, insist on a statement given before other investigating agencies and outside bank CCTV footage as evidences, to prove their innocence. Such double standards cannot come to the rescue of the assessee in discharging the primary obligation cast on them in proving the sources of credit appearing in their books of account.

3.5.2 Acceptance of proposal for cash advances — Legal position — Allied Acts —Special Circumstances after demonetization:

The second submission of the assessee is that there is time gap between ‘acceptance of proposal’ and ‘acceptance of cash’. As per the submissions of the assessee, the proposal of taking cash advance from One customer for sale of gold was accepted by him on 08.11.2016 and the cash was directly deposited by the said Sri Neel Sundar Tharad on 10.11.2016 in the assessee’s bank account, and therefore, they acted prudently for legitimate profit on the (ill)advice of their Chartered Accountant.

This claim of the assessee has two components. The first component is that their acceptance of proposal for cash advance against sale of gold was, entered in their books on the night of 08.11.2016 itself, (and not after 09.11.2016 against the intention of demonetization announcement): This claim of the assessee has two pronged flaws. As per assessee’s own’ ad-Mission, the list of 2153 customers was provided by Sri Neel Sundar Tharad and accordingly they entered the advance cash receipts in their books against 2153 customers. Having accepted (even other-wise proved later by the Investigation Wing that the list of customers is a fabricated one) that the list is a bogus one,, the assessee cannot ‘Claim that cash advances were entered in their books on the night of-08.11.29164sell and only physical cash was directly deposited by the purported lone customer on 10.11.2016. ‘The second flaw is also factual and was proved by the CFSL report that no entries whatsoever were made in the systems impounded from the business premises of the assessee on 08.11.2016. A separate discussion on this-issue of entry of cash advances is made in the ensuing paras (3.5.5).

Now coming to the second component of this claim, that the cash was directly deposited in their bank account by Sri Tharad on 10.11.2016 and therefore the same does not belong to them. It is against this claim of Director, Sri Nitin Gupta, the other Director of M/s MGJPL, Sri Mallesh in his statement recorded u/s 131 (pl. refer to para 2.6 above) averred that he got a call from Sri Nitin Gupta to rush to the bank on 10.11.2016 and oversee the work of depositing the cash in their bank account. Even thereafter, the cash deposited in the bank account was utilized by the assessee company for purchase of bullion through RTGS transfer.

All these enquiries by the Investigation Wing and, the CFSL findings prove, that the assessee had made entries of cash advances of Rs.40.11 crores in their books of account well after 08.11.2016 and also collected cash after 08.11.2016 in demonetized notes (SBNs) directly or indirectly against the prevailing norms after demonetization and deposited the cash in their bank account. These findings give rise to a piquant situation, not from the angle of Income-Tax Act, but from the angle of prevailing norms after demonetization on 08.11.2016 and also from other Allied Acts. The allied Acts which come in to picture in this context are the Indian Sale of Goods Act 1930, the Indian Contracts Act 1872, and the Reserve Bank of India Act 1934. The sale of goods was earlier dealt under the Indian Contracts Act itself, but, for the sake of convenience, it was separated, and Sale of goods Act was brought about. The relevant provisions are as under:

Section 4 of the Sale of Goods Act :

4. Sale and agreement to sell.—

(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another. (emphasis supplied)

(2) A contract of sale may be absolute or conditional.

(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to (4)An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred

Section 2 of the Sale of Goods Act :

2.Definitions.—In this Act, unless there is anything repugnant in the subject or context,

(1). …………………

(10)”price” means the money consideration for a sale of goods; .(emphasis supplied)

Section 23 of Indian Contracts Act 1872 :

23. What considerations and objects are lawful, and what not. —

The consideration or object of an agreement is lawful, unless— it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent ; or involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void. (emphasis supplied)

Section 26 of the Reserve Bank of India Act 1934 :

26. Legal tender character of notes.—

(1) Subject to the provisions of sub-section (2), every bank note shall be legal tender at any place in India in payment, or on account for the amount expressed therein, and shall be guaranteed by the Central Government.

(2) On recommendation of the Central Board the Central Government may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification any series of bank notes of any ease to be legal tender save at such office or agency of the Bank and to such extent ‘as may be specified in the notification.. (emphasis supplied).

To sum up, the above provisions in relation to the discussion made above in the case of the assessee, every Sale transaction carried on by a trader is a contract of sale governed by the sale of Goods Act, 1930. As per Sec.4(1) of the said Act, the contract of sale was defined to mean ‘a contract whereby the seller transfers-or agrees to transfer the property in goods to a buyer; for a price. As can be seen from the said definition, a contract’ of sale requires a seller, a buyer, transfer of property in the goods, and a price. ‘Price’ was further defined under section 2(10) of the Sale of Goods Act to mean ‘money consideration for a sale of-goods’. Thus, in a contract of sale, payment of price in money is an essential part. The word ‘money’ has not been defined under the said Act, but the most common definition of ‘money’ as found from dictionaries is that money means an authorized medium of exchange especially coins or paper currency issued as legal tender by a Government. Hence, in a concluded and valid contract of sale, the ‘price’ for which the goods have been sold to the buyer has to be understood as money in legal tender only. In India such ‘legal tender’ status to the paper currency is given by the Central Government in terms of the provisions of Sec.26 of the RBI Act. Under the same section, the Central Government is also empowered to withdraw the ‘legal tender’ status of the currency notes. Thus, the currency -notes are a mere piece of paper unless the same are recognized by the Government of India as ‘legal tender’ in terms of Section 26 of the RBI Act.

On the night of 08-11-201.6, the Hon’ble Prime Minister of India while addressing the Nation has announced the decision of the Central. Government to withdraw the legal tender status to the existing series of bank notes of the value of Rs.500 and Rs.1000 w.e.f. 09-11-2016.

Accordingly, a Notification in S.O.No.3407(E) dt. 08-11-2016 was also issued withdrawing the, legal tender status to the bank notes of the value of Rs.500 and Rs.1000 (referred to as specified bank notes or SBNs). However, in the said Notification a facility was granted to the holders of SBNs for the deposit of such SBNs in their account maintained with any bank on or before 30-12-2016 so that the equivalent value of SBNs will be credited to such accounts. The Government has further announced that the SBNs will continue to be legal tender during demonetization period for the limited purpose of making payments at places like petrol bunks, gas agencies, etc. Thus, except where the SBNs were deposited in a bank, or exchanged for goods / services at designated places like petrol bunks etc., in all other cases such SBNs are no longer legal tender w.e.f. 09-11-2016.

Coming to the present issue on hand, as discussed in para 5.3.2, it was proved that the assessee has carried on their trading operations, made cash sales during the demonetization period, paid sales tax (VAT) wherever required, and also reported such sales to the VAT Authorities. As already discussed above, in a concluded and valid Contract of Sale, price for the goods sold shall only be the receipt of money in legal tender. Once the assessee says that he has carried out sales, even during demonetization period, it ha ‘to be understood thit he has received the money not in legal tender, because from 09-11-2016 onwards, the SBNs are no longer money but a mere piece of paper as between the seller and the buyer, and do not constitute money in legal tender. Thus, a valid contract of sale during demonetization period and SBNs are mutually exclusive, and the assessee cannot be permitted to club both of them.

The issue can also be tested from another angle. Since the sale of goods is also a contract, the relevant provisions of Indian Contract Act will also apply to such sale. As per the provisions of Sec.23 of the Contract Act, every contract, of which the consideration is ‘unlawful’, is void. The said section also enumerates various circumstances under which the consideration of a contract is said to be ‘unlawful’. Two such circumstances are, (i) the consideration of a contract is of such nature that, if permitted, it would defeat the provisions of any law, or (ii) the Court regards it as immoral or opposed to public policy. Hence, if any one says that he has received price in SBNs as a part of contract of sale, such contract itself is void and non-est in the eyes of law, because the claim of receipt of such price in SBNs as a part of contract of sale, if accepted, would defeat the provisions of Sec.26(2) of RBI Act, 1934 and the Notification in S.O.No.3407(E) dt. 08-11-2016 issued there under, through which the Central Government has withdrawn the legal tender status of SBNs from 09-11-2016 onwards.

As per the said Notification, the only way-out given to the persons holding SBNs as on 09-11-2016 to realize the equivalent value of such SBNs is to deposit the same into his bank account (please see Para 2(iii) and 2(iv) of the Notification). If the SBNs are claimed to have been dealt by the persons who held the SBNs as on 09-11-2016, in a manner other than what was prescribed in the statutory Notification, like exchanging the same with unauthorized persons other than banks, and if such a claim is accepted, it would bring the said statutory Notification, which was issued as a measure to tackle black money, to ridicule and renders nugatory. Also, since the ‘public policy’ behind the withdrawal of legal tender status to the SBNs from 09-11¬2016 onwards was explained by the Central Government to be a measure to tackle the black money in the economy, to lower cash circulation which is directly linked to corruption, fake currency etc., any claim of acceptance of SBNs as a part of-contract of sale is opposed to the said ‘public policy’ as announced by the Central Government and vitiates the whole exercise of demonetization. Hence, for these reasons, the contract of sale if it involves receipt of SBNs as price’, is ab-initio void as per the provisions of Sec.23of the Contracts Act, 1872 and thus non-est in the eyes of law. Hence, such SBNs cannot be treated as having arisen out of a contract for sale.

The above discussion takes care of the additional submissions made by the assessee on 24.12.2019 that entire credits in the books are nothing but advance against sales which; were ultimately ‘credited to the profit & loss account and that since the character of such sale has already been offered to tax, the question of treating the said credits as unexplained u/s 68 of the Interne Tax Act, 1961 does not arise at all.

In the case on hand, the assessee is claiming that the cash deposits made on 10.11.2016 by others directly in their bank account do not belong to them. Acceptance of this version as such does not help the case of the assessee in view of the discussion made as above on SBNs and other allied Acts. The assessee after receipt of cash deposits purportedly made by others in their bank account on 1-01172-CYI acted on such deposits and made bullion trading. As this trading is not recognized. in the eyes of law, the transaction of sale is ab-initio void. Once the trading transaction carried on by the assessee is treated is void, the immediate fall on the credits in the books of assessee with regard to such void transaction carried out against public policy are to be treated as not relating toles but as mere credits unexplained.

3.5.3 In para 11 of their submissions, the assessee claims that from 09.12.2016 onwards; the assessee has been trying to approach the Income Tax Department to give his factual statement/retract/make,, corrections to his earlier statements recorded on 01st and 7th December, 2016, since those statements are given under undue influence, mental pressure and ill health condition. However, such averments are far from true as discussed in pare 3.5.1. In this connection, reference to the confessional statement of Sri Nitin- Gupta made before CCS, Hyderabad on 17.01.2017 is in place.

“Further. I would like to inform that all three firms, (i) Musaddilal Gems & Jewels Pvt. Ltd., (2) Vaishnavi Bullion (P) Ltd., and (3) Musaddilal Jewellers Pvt Ltd, are independent of each other doing business separately.

On 08.11.2016 at around 7 PM I was at my office of M/s Musaddilal Gems & Jewels (Pvt) Ltd and M/s Vaishnavi Bullion (Pvt) Ltd, during that time some people called me for purchase of gold& then I have informed them to come to my office and they said that they want to purchase gold from me at that time. I did not have much stock of gold due to which I told that customers to place order by giving advance amount, accordingly those people have place booking by paying the amount and giving the names on which they wanted me to. raise the advance cash receipts. The advance cash receipts were prepared as per the list of names given by them by accepting advance amount. I have received nearly about 40 Crores for Mr Neel Sunder Tharad who is owner of M/s Astha Laxmi Gold and nearly 3537 Crores from Mr Pavan Agarwal who is the owner of M/s Balaji Gold, nearly 3-3.5 crores received from Tarun Jain who is a private Individual; nearly about 1.5-2 crores received from Mr Manish Gupta who is owner of Musaddilal & Sons Jewellers, Basheer Bagh, Hyderabad, nearly about 6-7 crores from Mr Sanjay Sarda who is partner of M/s Sanjay & Sunil Associates situated at Secunderabad & some amount received from other customers the names of the customers I don’t remember.

I have done the above transactions purely as a business transaction and without any intention of any illegal gain from this transaction since my both firms were having Secured and un-secured loans. I thought by doing these legal business transactions I will earn some profit and clear my loans. I requested the customers who have deposited the cash with me on 8-112016 to help me to assist us in depositing the cash in bank by carrying their own cash from our office to our respective banks. Accordingly they came to my office and helped me for depositing the cash in my bank from 10-112016 onwards since 9-11-2016 was bank holiday.

As per the order received from the customers, we have placed the order of gold to various bullion dealers eg:- M/s Asthalaxmi Gold, M/s Sri Balaji Gold, M/s S.K.Impex, M/s Nav-Durga Bullion Co-op.

We transferred all the amount to the bullion dealer by way of RTGS and cheques. Subsequently we have received the gold on various days and accordingly we have given the delivery of gold to the customers by raising the sales invoices against the oath receipts generated. Further, I would like to inform that the total business transactions has been reflected in our books of accounts and we have shown the profit earned and paid the necessary advance tax to the Income tax department and VAT, the Commercial tax department. All the amount collected during the business transaction has been deposited in bank transferred to the necessary bullion dealers for purchase of gold and from the remaining amount the secured loan of about 1 crore of SBI and un-secured loans of about 3 crores have been paid and the necessary taxes of income tax department and commercial tax department has already been paid.

Therefore I have lastly decided that ‘to give my confessional statement in writing and submit at your office and your good-self.

From the above it can be seen that’ thought the assessee is claiming that the statements given u/s 131,before the Income Tax authorities on 1st /2nd & 7th December, 2017 are under influence of others, he continued to stick to his version of accepting cash advances ‘from customers on 08th December, 2016 (though the number of customers are not specifically mentioned), asked them to assist in depositing the cash into their bank account from their office, etc. Against this confessional statement given on 17.01.2017 before the CCS, Hyderabad the assessee claims that he had decided to retract from the statements given on 1st December 2017 before the IT authorities and make corrections to his earlier statements.

3.5.4 Date of Entry of cash advance receipts in computers and CFSL findings

On the date of survey, as brought out earlier, a statement u/s 131 was recorded from the Director of the assessee-company, Sri Nitin Gupta on 01st / 2nd December, 2016. Of the many issues covered in this statement, the date of entry of cash advance receipts by the assessee in the systems is one of the issue. The relevant questions and replies of the Director on this aspect are reproduced hereunder:

Q 67. Please state in which computer system in this premises the receipt vouchers have been entered and state which employee has entered these details in the computer.

Ans. The receipt vouchers for both these companies were entered in the five computers installed in this premises. I don’t remember the name of the employee who entered the details in the tally accounting package installed in these computers.

The-same version was reiterated by the assessee in a recent statement recorded u/s 131 on 20.11.2019, the relevant portion of which is as under:

“20. To SLIM up, you are confirming that you have received cash advances of Rs.57,75,35,000/- from six customers (against 3100 customers stated in the statement recorded on 01.12.2016) ion the case of MGJPL on 08.11.2016 after 09.00 PM, entered the cash advances in your books on the same day, generated cash receipts on the same day from the systems available in your premises in tally software and issued to all the customers.

Likewise, in the case of M/s VBPL, you have received Rs. 40,11,50,000/- as cash advances from one customer (2100 customers earlier) and followed the Ohm piticedure.as was done in the case of M/s MGJPL?

Ans. Yes. I confirm that in M/s MGJPL, I have received approximately Rs.57 crores from sis customers and Rs.40 crores from one customer in M/s VBPL. Entered the details of cash advances bifurcating all below Rs.2 lakhs in the names of various persons (as provided by six and one customer respectively), started generating cash deposits on 8th No. 2016 to 09th Nov.2016 from the systems available in our premises in Tally software and handed over the receipts to the respective seven customers”.

Against this admission, when the findings of CFSL were put before him, the Director the assessee company gave a vague and evasive reply with respect to entry of cash receipt vouchers in the systems. The respective questions and replies are reproduced hereunder:

“21. As you are aware, as per page -3 of the impounding order, the five systems available (one Compaq CPU — SG 34401L, one assembled PU — Intex, One Lenovo CPU S.No.L9CH015, One Lenovo CPU S.No.L9C3LC60 (belonging to MGJPL) and Lenovo CPU S.No.ES097220256 (belonging to M/s VBPL) in your premises on the date of survey in which you have claimed to have entered the cash advances were impounded by the Department vide impounding order u/s 133A(3)(la) on 02.12.2016. Please confirm.

Ans I exactly do not remember the number and models of the systems. However, certain systems were impounded from our premises when the survey was conducted as per the above impounding order.

22. The above impounded CPUs were sent to Central Forensic Science Laboratory and a report was obtained. I am showing you the findings of CFSL, dated 01.05.2017, starting from pages 1 to 9 along with covering letter dated 01.05.2017. Please offer your comments?

Ans. From the said report, I have understood that the timings of operation of our systems, which were impounded from our premises, four systems were not operated on 08.11:2016 and one system was operated and closed at 18:45:34 on 08.1.1.2016. In this regard, I would submit that the office of the above said two companies is in the B-Block of the compound. Our residence is in the A-Block of the compound. As you know, today is computer is necessity of life to us and to our children and we are having Systems even in our residence and during that time, lot of shuffling of systems had happened. I may not be aware of the timing of opening and closing of a system.

23. Please refer to Q.12 & 13 above and the replies, wherein you have stated that generation of the’ cash receipts Started on night ‘of 08th Nov. 2016 and concluded on 09.14.2016. Also refer to Q.20 above and your reply, wherein you have stated that this work of generation of cash receipts was done in the systems available in your premises on the-date-of servey. How-could you deviate from the replies already given-above in reply to Q.22 above?

Ans. I am not a technical expert in operating computer systems. Whatever Was conveyed to me by my staff, I in turn conveyed to the IT authorities on the date of survey. I cannot comment too much on the technicalities involved in computer systems.

24. We are not interested in involving you too much into technicalities of computer systems. The question is when on the date of survey, all the systems shown by you were impounded from the business premises, purportedly used for entering cash receipts received on 08th November, 2016. Against this, the- CFSL report suggests that these systems used for entering the cash receipts were not at all opened (four systems) and one was closed by 06.45 PM. Therefore, the findings of CFSL clearly indicate that the cash receipts were generated much after 09th November, 2016. Please comment.

Ans. On the inputs given by my staff, I stated <that all -the cash receipts generated on 08th Nov.2016 were in the systems available in the premises on the date of survey, i.e., 01.12.2016. I cannot actually differentiate computers on my own.

25. I am showing you again the statement recorded n 01.12.2016. Your attention is invited to reply to question No.67, wherein you have stated that the receipt invoices were entered in the five computers installed in this premises …………….

Please offer your comments.

Ans. I do not exactly remember on which computer the cash receipts were entered. However, what was suggested to me by my staff, the same thing was conveyed in reply to question No.67 above.

As could be seen from the above, all the way from 01.12.2016, i.e., the date of survey to 20.11.2019 the assessee is consistently claiming that cash receipt vouchers were entered in Tally software in the systems available in their business premises on 08.11.2016 itself, and when this claim was countered with clinching and scientific evidence (CFSL report), the assessee suddenly gives evasive and vague replies that some other systems are available at his residence, without any basis.

3.5.5 Reliance on Provisions of 68 of the IT Act:

Finally, the reliance placed by the assessee is on the provisions of section 68 and judicial precedents available in the form of case laws. Referring to the tests applicable for treating a credit u/s 68 as unexplained, The assessee submits that the identity, creditworthiness and genuineness of the transaction of receiving cash from lone customer was proved and therefore the cash credits =in their books cannot be treated as unexplained: .Further, the assessee claims that .proper enquiries should be made by the Department in respect of Sri Neel Sundar Tharad, who purportedly gave cash advance to them; Sri Tharad should be cross-examined before arriving at any conclusion against them; and once they discharged their onus by furnishing necessary evidence against Sri Tharad obviously in the form of confessional statements made before CCS / ED, no addition can be made in their case u/s 68.

The submissions of the assessee and other case laws relied upon can be considered as such, once it is initially proved that the assessee had discharged their onus of proving the three tests applicable for not invoking the provisions of section 68— genuineness of the transaction, identity of the creditor and their creditworthiness. In this context, it is the claim of the assessee that they have given the identity of the creditor by furnishing their address, their creditworthiness / credentials in the field of bullion trading are verifiable and the transaction of receiving cash from them as advance towards sale of gold is genuine.

However, it is also equally the case of the said Sri Tharad that he traded in bullion with the assessee on receipt of RTGS and no further. In this context, it is seen that on one hand, the assessee company submits to accept the averments made by their Directors, who constantly went on changing their versions from time to time before various investigating agencies to suit their convenience and feigned to ignorance on occasions when clinching evidences and circumstantial evidences were put beforethem-173inst the submissions made; and on the other hand claims that Sri Tharad confessed before CCS and ED owning up the money in question and therefore, their responsibility of proving the genuineness of the transaction is discharged.

In this process; the assessee company resorted to (i) forgery of documents by furnishing false information in respect of 12 identified customers, (ii) falsification of their accounts by claiming that they entered all the cash receipts in their cash on the night of 08th November, 2016, which was proved otherwise. At the same time, the assessee company accepts that their Directors succumbed to the inducement of other persons and accepted the proposal of cash advances on the ill-advice of their Consultant, the list of customers against whose names the cash receipts were to be generated was to be provided by the alleged lone person, they accepted all the unaccounted cash from Sri Tharad for the purpose of handsome commission offered in the process, etc. Once an entry of credit is made in the books of account, the assessee cannot throw the burden of proof, of proving the sources of such credit on the Assessing Officer or on some other person, referring to some distant statements, and ask for further verification and to conduct enquiries. In this context, the provisions of section 292C are clear and cast the onus of proving the genuineness or otherwise of the books on the assessee only. The provisions of the section read as under :

“Where any books ‘of account,- other: documents, money …. is found in the possession or control of any person in the course of survey u/s 133A, it may, in any proceedings under this Act, be presumed — …. (it) that the contents of such books of account and other documents are true.

To apply any case law rendered by Hon’ble Courts to any one’s particular case, it is of common knowledge, that the facts in the case relied upon should be identical to the facts of their particular case. Mere reliance on the case laws is of no help. Once the primary burden of proving the genuineness of a credit transaction in the books of account of an assessee is not proved and is shrouded by many conjunctions / juxtapositions and surmises / assumptions, the other two conditions though considered as proved should, not come to the rescue of the assessee in treating the said credit as explained. In this connection, the following case laws, which underline that the three ingredients of section 68 should be satisfied together and further cast the initial burden of proving the credits in their books on the assessee are relied upon:

The Apex Court in the landmark case of Kalekhan Mohd Haneef Vs CIT (1963) 50 ITR 01 (SC) and Roshan Di Hatti Vs CIT (1977) (107 ITR (SC) laid down that the onus of proving the source of sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction and creditworthiness, then the AO must conduct an enquiry, and call for more details before invoking sec.68 of the Act. If the assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the revenue to hold that it is the income of the assessee, and there would no further burden on the revenue to show that the income is from any particular source.

With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence that the investment made in the share capital (or any cash credit u/s 68) are genuine borrowings, since the facts are exclusively within the assessee’s knowledge”.

Similarly in the case of CIT Vs Mohankala (291 ITR 278) (SC), the Apex Court held that:

“A bare reading of the sec.68 of the Income Tax Act, 1961 suggests that (i) there has to be credit of amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the Previous year, and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer is not satisfactory. It is only then the sum so credited may be’ charged to income tax as the income of the assessee of that previous year. The expression “the assessee offers no explanation” means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in, the books maintained by the assessee. The burden is on the assessee’.-to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as receipt of income nature.”

Further, in the case of CIT Vs C.P. Adam (1976) (105 ITR 465) (Ker.) while dealing with the issue of addition u/s 68, it was held that:

“It is well established that the onus of proving the source of any money received by the assessee is upon him. If liability to pay tax is disputed, it is the responsibility of the assessee to show that the receipt was either not income or income exempted from payment of tax. As pointed out by the Supreme Court in Commissioner of Income Tax Vs Devi Prasad Vishwanath Prasad, (1969) (72 I7R 194), 197(SC):

“Where there is an unexplained cash credit, it is open to the Income Tax Officer to hold that it is the income of the assessee and no further burden lies on the Income Tax Officer to show that income is from any particular source.

“4. What is Stake – Loss to the Exchequer :

Before concluding the assessment, it is pertinent to refer to the quantum of stake involved in the whole exercise carried out by the assessee in bringing cash advances into their books on 08.11.2016. The undoubted fact involved in this whole exercise of the assessee is bringing in unaccounted cash in the form cash advances into their books of account, whether such cash belongs to the assessee or to others. By bringing in, such unaccounted money into books the assessee tried to give the transaction a colour of trading in gold, and caused loss to the exchequer to the extent of taxes on such unaccounted cash.

5. Conclusion:

To sum up, though the assessee made out two versions of sources for the credit of Rs.40.11 crores in their books of account on 08.11.2016, one as received from 2153 persons and the other as received from single person, the assessee failed miserably to prove that the same belong to either the said 2153 persons or one person with cogent evidences. The assessee has indulged in mis-representation/suppression of facts. Therefore, for the reasons discussed above and particularly in para 3.5.1 to 3.5.5 & 4,111e – credits appearing in the books of account of the assessee in the form of cash advances against gold sales on 08.11.2016 aggregating to Rs. 40,11,50,000/- are treated as unexplained credits in the hands of the assessee u/s 68 and assessed-as such, @ 60% tax irate as prescribed under provisions of section 115BBE of the IT Act.”

In view of the detailed discussion above and the provisions of section 270A(9), I am satisfied that the assessee has indulged in under-reporting of income in consequence of mis-reporting of income, and accordingly, Penalty proceedings u/s 270A are initiated for mis-reporting of income u/s 270A(9).”

9. Feeling aggrieved with the order of Assessing Officer, assessee carried the matter before ld.CIT(A), who partly allowed the appeal of the assessee. The relevant portion of the discussion and finding of the ld.CIT(A) are as under :

“5.1) On receipt of credible information that the appellant received cash of Rs.40,11,50,000/-on 08.11.2016 and deposited cash of 39.64 crores in Axis Bank Jubilee Hills Branch in A/c No.916020066093266 which was opened on 10.11.2016 and also deposited an amount of Rs.SO lakhs in Bank of Baroda, PBB Branch, Road No.10, Banjara Hills, Hyderabad, during the period of Demonetization in November, 2016, between the period 10.11.2016 to 30.11.2016, the Investigation Wing of Hyderabad carried out Survey operation u/s 133A of the Act in the business premises of the appellant on 01.12.2016. On verification of books of account as on the date of survey it was seen that there was no opening cash balance as on 01.04.2016 and the cash balance as on 07.11.2016 was Rs.5,73,481/-.

5.2) When enquired about the deposits of Rs.40.11 crores, Sri Nitin Gupta Director of the appellant company in course of sworn deposition recorded u/s 131 on the date of survey i.e. 01.12.2016, stated as under:

1. That the assessee was in receipt of cash advances of Rs. Rs.40,11,50,000/- (all in SBNs of Rs.500/- and Rs.1,000/-) from around 2153 customers after 8.30 pm to midnight of 08,11. 20 16, all done with the help of 10 staff members apart from another Director Sri Seera Mallesh and Sri Jeelan Basha, cashier.

2. Entered the cash advances in their books maintained in tally software in the systems available at their business premises, issued advance receipts till midnight of 08.11.2016.

3. Deposited the cash in their bank account after 11.11.2016.

4. Purchased bullion and diamonds by making payments through RTGS and received bullion

5. Effected sales from 11.11.2016 and continued till 19.11.2016 against the total advances of Rs.40 .11 crores received on 08.11.2016.

When questioned about the details of such 2153 customers who gave advances on 08.11.2016, the appellant furnished names and addresses of 65 customers. On verification it was found that the customers were from faraway places like Mumbai, Vizag, Krishna District, Trivandrum and Odisha. When enquired in about 12 customers, it had come to light that none of them out of these 12 customers visited the business premises of the appellant and that no such cash advances were given by them for purchase of gold/bullion on 08.11.2016.

5.3) Sri Gupta also claimed that around 2153 customers attended their office in the night of 08.11.2016 after announcement of demonetization and gave advances ranging from Rs.1,89,000/- to 1,72,000/- and that they entered these advances in their systems and generated receipts to all the 2153 customers and this work continued till midnight. When questioned as to how he handled 2153 customers by way of collecting cash on one side, generating receipts and discussing the weightage etc.. Sri Nitin Gupta said that he managed the things with the help of another Director of Musaddilai Gems & Jewels Pvt Ltd, Sri Mallesh and cashier Sri Jeelan Basha. In course of survey, it was found that another sister-concern M/s Musaddilal Gems and Jewels Pvt Ltd also carried business from the same premises and the above findings were Quite similar and since the assessee is making seemingly incomprehensible and dubious claims with regard to the receipt of advances, fabricated KYC forms/declarations, a police complaint was lodged with the Jubilee Hills police Station. Accordingly, an FJR was registered vide No.7552016, dated 07.12.2016 against the Directors of the assessee company. Based on the above F1R registered with Jubilee Hills, Hyderabad, 1nvestigations were carried out further by the police Department and an F1R was registered by the central Crime Station with No.263/2016.

5.4) 1nformation was also gathered in the case of the assessee and others and the same was shared with Enforcement Directorate and the ED registered a case under PMLA-2000 against the assessee and others.

Further, the computers/CPUs and other hard disks impounded during the course of survey wherein the assessee claimed to have entered the cash receipts for over 2153 customers on the night of 08.11. 2016 were forwarded to central Forensic Scientific Laboratory (CFSL) for analysis by the Investigation Wing.

5.5) Pending 1nvestigation by various agencies, the assessee field an application under Pradhan Mantri Garib Kalyan Yojana 2016 on 30.12.2016 offering Rs. 40.00 crores under the said scheme stating that the above deposit of Rs40.00 crores as their income earned between 10.11.2016 to 18.11.2016 and accordingly filed an affidavit on 30.12.2016 and paid Rs.1 crore on 13.01.2017. However, the appellant filed another later dated 16.01.2017 retracting from the above affidavit which is reproduced, as under:

By our affidavit, we have informed you that we are going to get covered under the “Prime Minister Garib Kalyan Yojana [PMGKY] since we were given strong assurance that such a course of action will protect us from criminal prosecution and PMLA enquiry investigation

Sincerely believing the same, we have submitted that the affidavit to get covered under the scheme and in that context we have started that the money belong to us.

Even after nearly one month, we are subjected to enquiry and interrogation by the police and Enforcement Department authorities.

We have disclosed the benefit in our books of accounts and we have paid the self assessment tax thereon.

It is only under pressure and misrepresentation by police / ED / IT we have submitted to get covered under the scheme.

All our directors are under threat of arrest and their petition for Anticipatory Bail are pending.

Hence, we hereby withdraw our affidavit dated 30.12.2016 and hence our request for getting covered under the scheme is hereby withdrawn / rescinded”

5.6. Against the police FIR, the appellant along with other companies approached the Hon’ble High Court of Telangana seeking anticipatory ball in relation to Crime No.263/2016. The Hon’ble High court vide their common order in CRLP Nos.124, 125, 132, 155 and 157 of 2017, dated 30.01.2017 dismissed tile anticipatory bail. Subsequently, the appellant was arrested on 31.01.2017 along with Sri Kailash Chand gupta father of Sri Nikhil Gupta, brother of the appellant.

………………..

“7.3 Coming to the amounts mobilized by Sri Neel Sunder Tharad, Proprietor of M/s Ashtalakshmi Jewellers, he had in fact confessed in his statement dated 21.01.2017 before the ACP that he mobilized Rs.28 crores from the following persons.

SI. No.	Name of the party from whom amounts mobilized by Neel Sunder Tharad	Amount in INR
1	P. Satyanarayana & Sons, Rep by Prakash Agarwal, •	2,50,00,000.
2	PSS Jewellers, Old City, Rep. by Jithin Agarwal	2,25,00,000
3	Tibarumal Jewelers, Jubilee Hills, Rep. by Praveen Agarwal,	2,25,00,000
4	Sri Kalpatharu Jewelers, Pot Market, Rep. by Himanshu Bapna,	2,25,00,000
5	Premraj Shantilal Jewelers, Pot Market, Rep. by Ashok Kumar Jain,	1,50,00,000
6	Saibaba Jewelers, Pot Market, Sec’bad, rep by Susheel Jain @ Ramu Jain	1,50,00,000
7	Ashoka Jewelers, Ameerpet, Rep. by Amit Kumar Jain,	1,75,00,000
8	Kamya Jewelers, Ameerpet, Rep. by Arun Kumar Jain,	1,50,00,000
9	Venus Jewelers, Chikkadpally, Rep. T. Ram Praveen,	1,00,00,000
10	Tirumala Jewelers, Abids, Hyderabad, Rep. Amit Agarwal,	1,00,00;000
11	Balaji Jewelers, Abids, Hyderabad	2,00,00,000
12	A.P.Furnitures, Nampally, Hyderabad	3,00,00,000
13	Own Funds of Neel Sunder Tharad	5,50,00,000
		28,00,00,000
	Others (Names not provided by Neel Sunder)	12,00,00,000
.	Total	40,00,00,000

In the same statement i.e. 21.01.2017 Sri Neel Sunder has admitted that balance amount of Rs.12 crores was contributed by Sri Nitin Gupta. This gives credence because as could be seen from the above table, when Sri Neel Sunder can recognize Rs.28 crores, how could he forget the names who have contributed Rs.12 crores, as mentioned in the above table? This clearly goes to show that the appellant himself has mobilized Rs.12 crores and that is the reason Sri Neel Sunder has not mentioned the names who contributed Rs.12 crores.

7.4) Further, in his confessional statement recorded by the Assistant Director, Enforcement Directorate on 26.12.2016, Sri Neel Sunder in page 2 of his statement confirmed that Sri Nitin Gupta has transferred an amount of Rs.28.37 crores to M/s Ashtalakshmi Gold from 11.11.2016 to 19.11.2016.

Transfers to the account of M/s Ashtalakshmi Gold as appearing the Bank Statement of Vaishnavi Bullion Pvt Ltd with AXIS Bank Account No:916020066093266
Date	Cheque No	Amount
11-11-2016	140852	4,72,95,000
11-11-2016	140851	4,73,40,000
12-11-2016	140855	6,15,60,000
12-11-2016	140853	3,15,30,000
15-11-2016	140860	1,54,25,000
17-11-2016	140862	3,00,00,000
18-11-2016	140866	3,09,70,000
18-11-2016	140865	1,54,25,000
19-11-2016	140867	42,25,000
	TOTAL	28,37,70,000

“7.5 On consideration of the explanation of the appellant, material placed before me and the assessment order, the following points emerge:

(a) The appellant gave a statement on 01.12.2016 during the course of survey that the amount to the extent of Rs.40,14,98,000/-crores was received from 2153 customers.

(b) The appellant filed application under PMGKY Scheme on 30.12.2016 along with affidavit disclosing Rs:40.00 crores as his income and paid Rs.1 crore on 13.01.2017.

(c) Subsequently, the affidavit under PMGKY was withdrawn on 16.01.2017.

(d) appellant filed explanation as to sources of cash on 01.11.2017 retracting from the earlier statement.

(d) The above sequence of events clearly show that the appellant has not been truthful and inconsistent with his statements and conduct during the survey and also during the assessment proceedings. Accordingly, much reliance cannot be placed on the same.

(e) In view of the above, the conclusion have to be drawn from the material available on record and also the corroborative material on record / gathered during the course of search.

(f) The statements given by Sri Neel Sunder before the Police Authorities arid ED have not been contradicted by the AO. The Assessing Officer simply ignored the same.

(g) The AO has not conducted any enquiry with the parties whose details have been given by Sri.Neel Sunder.

(h) The facts relating to the Authorization given by the appellant to Sri Neel Sunder and his concerns to deposit the amount in the bank account of the appellant were not examined nor contradicted.

(i) The deposits of cash in the appellant’s bank account by third parties as authorized under RBI guidelines has not been disputed/contradicted by the AO.

(e) The Assessing Officer simply ignored the material produced by him by the appellant and made his own conclusions contrary to claims of the appellant without bringing any material on record basing mainly on probabilities ‘and earlier statements of Sri Nitin Gupta, Managing Director of the appellant company which were already retracted.

(j) In view of the factual position as brought out above, it is held that deposits in the bank account to the extent of Rs.28.37 crores, as received from Sri Neel Sunder stands explained and the addition to this extent is deleted.”

10. Feeling aggrieved with the order of ld.CIT(A), the assessee as well as Revenue are in appeal before us. Firstly, we will take the appeal of Revenue i.e. ITA 58/Hyd/202 1 as the ld.CIT(A) has granted part relief to the assessee, against which the Revenue is now before us.

11. Before us, at the outset, the ld. DR for the Revenue had submitted that the order passed by the ld.CIT(A) deleting the addition of Rs.28.37 crores was without application of mind and the ld. DR had drawn our attention to the facts mentioned in the order of ld.CIT(A) in paragraph 5.1 to 5.6 reproduced hereinabove at Para 9.

12. It was the contention of the ld. DR that at the time of survey, the statement of the Shri Nitin Gupta was recorded on 01.02.2016 wherein the said Shri Nitin Gupta had made the following admission : i) That the assessee had received the advances from 2153 customers to the extent of Rs. 40 crores. ii) On the intervening night of 08.11.2016 to 09.11.2016, Shri Nithin Gupta had admitted that the receipt of advances were issued to these persons. iii) The cash of Rs.40 crores were deposited in various branches in Axis Bank, Banjara Hills, Hyderabad after opening the account on 10.11.2016 with the said bank. iv) The bullions were purchased from M/s Astha Laxmi Gold and Impex Gold and thereafter, it was given to the holder of the receipt.

13. Ld. DR further submitted that the assessee had made the declaration under Pradhan Mantri Garib Kalyan Yojana and voluntarily declared the amount of Rs.40 crores of its income by filing an affidavit under the said scheme. In the said scheme, it was admitted by the assessee that the assessee owned the entire amount of Rs. 40 crores.

14. The Revenue had reported the matter about the wrong and illegal activity of the assessee with the Enforcement Directorate under the PML Act and also with the local police. The local police had registered the F.I.R on 07.12.2016. The same was challenged by the assessee before the Hon’ble High Court and the stay of arrest was granted to the assessee. In the meanwhile, the confessional statement of Mr. Neel Sunder was recorded by the Revenue on 07.12.2016 and thereafter, his statement was also recorded by Enforce Department on 26.12.2016. The Revenue had also recorded the statement of Mr. Nitin Gupta on 02.12.2016 and 07.12.2016. The statement of Mr. Nitin Gupta was also recorded by Enforcement Department on 20.12.2016. Even after recording of the statement by the ED, the assessee had filed the affidavit and sought to avail the scheme under the PMGKY. The documents seized along with the computer and CCTV footage were handed over to the ED by the Income tax Department on 13.12.2016. The neighbour’s statement was recorded by the revenue on 12.01.2017, whereby it was confirmed that CCTV footage of the neighbouring premises showing the assessee’s premises were removed by the relatives of the assessee and thereafter, storage drive was replaced with new one. The computer hard disk recovered from the premises of the assessee were sent for CFSL report received by the E.D/Revenue. The report of the CFSL was received by the Revenue on 10.03.2017, and the Forensic Analysis of the Computers and the Software installed therein clearly shows that no events between 27.10.2016 to 09.11.2016 had occurred (Page 142 of the paper book.). The CFSL Report further shows that the system was shut down on 08.11.2016 at 18:45:34 and it was again logged on 09.11.2016 at 09:20:32. Thus, it was clear that no receipts were issued by the assessee either on 08.11.2016 or on 09.11.2016. The above said information was confronted to the assessee during the assessment proceedings by Assessing Officer, however, the assessee had tried to shift his liability to Mr. Neel Sunder during the course of assessment. The AO after examining the record had concluded that undoubtedly, 2153 customers, who paid the advances were duly reflected in the books of the assessee as on 08.11.2016 which fact has not been disputed by the assessee. It was also not disputed that the amount of Rs. 40 crores were deposited in the bank account of the assessee. It was the contention of the ld. DR that merely because the money was deposited with the help of wife of Neel Sunder or by Neel Sunder, the assessee was not discharged from proving the entries under section 68 of the Act. Further, it was the contention of the ld. DR that the assessee had utilized the said amount of Rs. 40 crores for purchasing the Gold from Ashtalaxmi Gold and Impex Gold. It was submitted that the reliance of the ld.CIT(A) on the statement of Mr. Neel Sunder recorded by the police during the course of investigation cannot override the admission made by the assessee during the course of survey, which is further supported by the assessee’s own books of accounts and / or will nor relieve the assessee from the onus casted on it u/s 68 of the Act. It was further submitted by the ld. DR that the revenue had also recorded the statement of Neel Sunder on 07.12.2016 whereby said Neel Sunder had confirmed the original statement of the M.D. of the assessee. It was submitted by the ld.DR that the statement recorded by the police u/s. 161 Cr.P.C can not be used for any other purpose except to confront the witness during the course of trial u/s 162 Cr.P.C. However, the confession statement recorded by the police u/s 26 of the Evidence Act while Mr. Neel Sunder was in police custody has no binding effect in the eyes of law. The ld.DR had submitted that there is an admission of liability by the assessee and further, there is no retraction of the statement recorded on 01.12.2016 / 07.12.2016 in the eyes of law. It was also submitted that the assessee, for the first time on 01.11.2017 had submitted a letter along with the confessional statements of Mr. Nitin Gupta, Pavan Agarwal and Mr. Neel Sunder in the office of the Assessing Officer. However, he had not disclosed who had delivered the said letter in the office of the Assessing Officer.

15. The ld. DR had submitted that in the subsequent statement of assessee recorded on 19.11.2019 after two years, the assessee has not given any reasons for making the contrary statements on 02.12.2016. It was submitted that different reasons were given for making the different statement than that of the previous statement and also different reasons were given for withdrawing the affidavit filed under PMGKY Scheme. The ld. DR had submitted that the deletion was made by the ld.CIT(A) is non-est in the eye of law. In fact, during the course of argument, the advocate of Mr.Neel Sunder had also insisted for including him as a party to the proceeding u/s 148 has been initiated against the said Neel Sunder for an amount of Rs.28 crores. Vide our separate order, we have disposed of the application filed by Mr. Neel Sunder for impleading him as a party to the present proceedings.

16. Ld. DR for the Revenue had drawn our attention to the order of the Assessing Officer wherein the Assessing Officer had dealt with the contention of the assessee in his order, reproduced in the preceding paragraphs.

17. Further, the ld. DR had submitted that the ld.CIT(A) had confirmed the part of addition made by the Assessing Officer and the observation of the ld.CIT(A) vide para 8.1 to 10 and 10.1 read as under :

8.1) However, Sri Neel Sunder had submitted before the Police on 21.01.2017 that only Rs.28.37 crores was contributed by him and the balance amount of Rs.11.63 crores was contributed by Nitin Gupta himself. The basis for Neel Sunder’s statement was that Sri Vaishnavi Bullion has carried out RTGS transfers of Rs.28.37 crores to its concern Ashtalakshmi Gold, wherein, he is a partner. After receipt of the amount through RTGS, it placed orders for gold bullion from the following parties:

1) DP Gold Pvt. Ltd.

2) SK Impex

3) Capsgold Pvt Ltd

4) SMC Comtrade Ltd

5) Bhagyalaxmi Gems & Jewellers Ltd

6) Sri Durga Jewellers

It was submitted by Sri Neel Sunder that SK Impex and SMC Comtrade Ltd delivered the gold through M/s Brinks Arya Agency and that he personally visited the remaining firms, collected gold and handed over major part of the gold. to Nitin Gupta and the remaining gold to Sri Seeram Mallesh and other persons, as instructed by Nitin Gupta. The same fact was also proved by way of ledger account balances in the books of the appellant.

8.2. On the other hand, Nitin Gupta in his confessional Statement dated 20.12.2017 argued that that it had no role in procuring the gold from the above concerns by Sri Neel Sunder. Moreover, Sri Nitin Gupta ‘had denied of receiving back the gold bullion from Neel Sunder for handing over the same to any of the customers. The appellant submitted that it had placed orders amounting to Rs.6,21,40,000/- from SK Impex and on receipt of the gold, the same was handed’ over to Neel Sunder. Thus, both the parties are at loggerheads in accepting the total deposit of Rs.40 crores so also the delivery of gold to each other. The appellant further submitted that in the process of deposits in entire transactions, there are corroborative evidences to show that the amounts were brought to the bank by the concerned parties and the employees of the Appellant assisted them in depositing into the account. In view of the above, the circumstantial evidence forms the basis to arrive at the conclusion about the contribution of the above parties.

9.0 I have gone through the facts of. the case and the submissions of the appellant, along with the paper book submissions submitted in course of appellate proceedings. I have also gone through the confessional statements given by the appellant before various investigative agencies and after considering the same, the issue is decided as under :

(a) The appellant’s claim regarding mobilization of amount other than Sri Neel Sunder is not backed by any evidence. No evidence is produced by the appellant to support its claim.

(b) No confirmation from any of the parties is field by the appellant. The onus in respect of the claim is clearly on the appellant, which has not been discharged.

(c) Mere claims not backed by any evidence has no value in the eyes of law.

(d) The statement of Sri Neel Sunder is clear that balance money is given to him by the appellant for depositing in the bank account.

In view of the factual and legal position as above, the addition to the extent of Rs.11.63 crores in the hands of the appellant is confirmed. The grounds raised are disposed off with above direction.

10.0) The appellant raised contention against the application of provisions of Section 68 for making addition by the AO. The appellant contends that the AO without satisfying the requirements of Section 68, made the addition. The appellant contends that the explanation as to source of cash deposits given by the appellant was not even considered by the AO before making the addition. The appellant’s detailed contentions in this regard are as under:

………………

“10.1. I have considered the assessment order, submissions of the appellant and the material placed before me. The contention of the appellant is that the explanation as to sources for cash deposits in the bank account submitted vide letter dated 01.11.2017 has not been considered by the AO. It is seen that the AO discussed at length the statement recorded from the appellant u/s 131 on 20.11.2019, wherein, the appellant was examined at length on the very same issues. The explanation of the appellant dated 01.11.2017 forms part of the replies given during the statement recorded on 20.11.2019. The explanation given is on similar lines which has been considered by the AO. The AO discussed the statement and the explanation given at length in his assessment order. In view of the above, it cannot be said that requirements of Section 68 are not met. The explanation basically containing the reliance on statements given by Neel Sunder of M/s Ashtalakshmi Jewellers before the Police Authorities, Enforcement Directorate Authorities have been dealt with in the assessment order by the AO. In view of the factual position as above, the contention of appellant that explanation is not considered by the AO is not correct and the argument is liable to be rejected. Accordingly, the ground raised is rejected.”

18. Per contra, the ld. AR for the assessee had submitted that Mr.Neel Sunder had admitted in his statement given before the police on 21.01.2017 to have deposited an amount of Rs.28 crores in the bank account and had also admitted to have supplied the Gold of Rs. 28 crores, therefore, the action on the part of ld.CIT(A) was in accordance with law.

19. Besides the above, the assessee has raised the following submissions :

That the assessee made the statement on 01.12.2016 and 07.12.2016 thereby admitting to having deposited the amount of Rs.40 crore with the bank after having advanced from 2153 customers have retracted the statement and for the purpose of retraction, the ld. AR had drawn our attention to the letter dt.01.11.2016 addressed to the officer of the CCS and copy of which was delivered in the office of the Assessing Officer. In the said confessional statement, it was submitted that the admission was made by the Assessing Officer on 01.12.2016 and 07.12.2016 on account of pressure from these persons. It was submitted that only eight persons had given the list of customers, including Mr. Neel Sunder and Pavan Kumar, and the said persons have also acknowledged in their statements recorded before the police that they have given the amount to the assessee and they have also given the list of the persons to the assessee. It was submitted that the statement of these persons was recorded by the police as well as E.D. and therefore, the action on the part of the ld.CIT(A) was correct in deleting the addition of Rs.28 crore as the said amount does not belong to the assessee, instead, it belongs to Mr. Neel Sunder. Secondly, it was submitted by the ld. AR for the assessee that the entire sale of Rs.40 crore was disclosed in the profit and loss account of the assessee and the Revenue has accepted the profit declared by the assessee. Once the Revenue had accepted the profit, then Revenue cannot make the addition on account of advance given by these 2153 persons. It was submitted that the assessee had proved the ingredients of section 68 of the Act and therefore, no addition can be made in the hands of the assessee. It was the contention of the assessee that the Assessing Officer was duty bound to examine Shri Neel Sunder for the purpose of coming to the conclusion whether he had deposited Rs.28 crore in the bank or not since the above said aspect has been examined by the ld.CIT(A) therefore, the action on the part of the ld.CIT(A) in deleting the addition was in accordance with the law.

20. We have heard the rival submissions and perused the material on record. Before we deal with the individual submissions, the summary of facts of the present case is as under:-

I. The assessee had allegedly taken advances from 2135 persons on 8/11/2016.

II. As per the statement dated 2/12/2016, the receipts of advance cash received from 2135 customers were prepared and issued on 89/11/2016 from 5 computers of the assessee.

III. The copy of receipt of invoices of 2135 were found during the course survey from the premises of assessee

IV. Assessee gave the details of 65 customers.

V. Out of 65 customers , 9 were found. The statements of these 9 persons were recorded by IT department as well as police and in the statements all 9 persons have denied to have purchased the gold from the assessee .

VI. Bank account was opened on 10/11/2016

VII. Money was deposited in the bank account in seven tranches for Rs 39.64 crore starting from 10/11/2016 to 30/11/2016

VIII. The gold purchased by the assessee from Ashtlaxmi and Impex Gold.

IX. Assessee allegedly taken the advance without having the gold in their stock

X. The receipt of advances from 2135 customers on 8/11/2016 were not supported by any evidences. Even the staff of assessee had left the premises before 8 pm. The security recorded in the system of Assessee did not show presence of crowd at the premises of assessee. Even the hard disk of neighbors security cameras were removed and taken by the family members of the assessee .

XI. CFSL report of computers proves, no receipt/ advance receipts were issued from 5 computers impounded on the date of survey om 89/11/2016.

XII. Assessee’s statement was recorded on 18/11/2019 by the Assessing Officer, wherein he had changed his earlier version and of receiving cash from one person, instead thereof , he had stated the cash was received from Neel Sunder.

XIII. He had also submitted that he had given the confession statement before the police on 17/1/2017, copy of which was also delivered through the employee after 11 months. No proof of such delivery of confessional statement was provided by the assessee.

Retraction by the Director of the assessee :

21. In the present case, (1) the assessee had given statement on 02.12.2016 and 07.12.2016, (2) affidavit before the Assessing Officer admitting the income of Rs.40 crore in Pradhan Manthri Garib Kalyan Yojana Scheme on 30.12.2016 (3) Withdrawal of affidavit on 13.01.2017. In the affidavit dt.13.01.2017 whereby the assessee has sought to withdraw the declaration made under PMGKY – 2016. The assessee has submitted that

… By our affidavit we have informed you that we are going to get covered under the “Prime Minister Garth Kalyan Yojana” (PMGKY),since we were given strong assurance that such a course of action will protect us from criminal prosecution and PMLA enquiry / investigation.

Sincerely, believing the same, we have submitted that the affidavit to get covered under the scheme, and in that context we have stated that the money belong to us.

Even after nearly one month, we are subjected to enquiry and interrogation by the Police and Enforcement Department authorities.

We have disclosed the benefit in our books of accounts and we have paid the self assessment tax thereon.

It is only under pressure and misrepresentation by Police / ED/ IT we have submitted to get covered under the scheme……….

All our directors are under threat of arrest and their petition for Anticipatory Bail are pending. Hence we hereby withdraw our affidavit dated 30.12.2016 and hence our request for getting covered under the scheme is-hereby withdrawn / rescinded”

22. However, in the letter dt.17.01.2017 addressed to the Deputy Commissioner of Police, CCS, Hyderabad at Page 93 of the paper book, the Managing Director of the assessee had made a confession. The copy of the said confession of the Managing Director Mr. Nitin Gupta was given to the Assessing Officer on 01.11.2017. In the said confession statement dt.17.01.2017 Mr. Nitin Gupta submitted as under :

“Further, I would like to inform that all three firms, (i) Musaddilal Gems & Jewels Pvt. Ltd., (2) Vaishnavi Bullion (P) Ltd., and (3) Musaddilal Jewellers Pvt Ltd, are independent of each other doing business separately.

As per the order received from the customers, we have placed the order of gold to various bullion dealers eg:- M/s Asthalaxmi Gold, M/s Sri Balaji Gold, M/s S.K.Impex, M/s Nav-Durga Bullion Co-op.

……………….

Therefore, I have lastly decided that ‘to give my confessional statement in writing and submit at your office and your good self.”

23. Similarly, in the statement recorded u/s 131 of the Act on 20.11.2019, the assessee had changed his version and in reply to questions 4 to 6 and 15 had submitted as under :

“4. I am showing you the statements given by you and recorded u/s 131 in the case of M/s Musaddilal Gems & Jewels Pvt Ltd., on 01.12.2016 (concluded on 02.12.2016) and 07.12.2016. Please go through them and offer your comments?

Ans Yes. I have gone through the statements. The same are recorded as per my version and the facts stated therein are NOT true to the best of my knowledge and belief

5. Could you please explain the reason in mentioning that the facts stated therein are not true to your best of knowledge?

Ans. The reason for that is that I have given the statements on 02.12.2016 and 07.12.2016 under the pressure of people who have actually given me the money, as they have given me a confirmation that they will take care of the matter, when the time comes. Further, on 09.12.2016 and various dates going forward, I have requested the Department to please give me the copy of the statements which I have given on the above dates, which were not given to me. Then, in the Police Department, ED and later on to the IT Department I have submitted my true statement, attested copy of the same shall be there on the records. If needed, I shall submit the same.

6. Could you please state in brief what was the crux of the true statement stated as above?

Ans. The money after demonetization announcement was received from seven people, namely Mr.Pavan Agarwal from M/s Balaji Gold, Mr Neel Sunder Tharid of M/s Asta Lakshmi Gold, Mr. Sanjay Sarda private individual, Mr. Tharun Jain a private individual, Mr. Maneesh Gupta of M/s Musaddilal & Sons Jewellers, Basheerbagh, Mr. Prakash Agarwal of M/s P. Satyanarayana Jewellers and Mr. Aditya Sarogi a private individual.

15. What prevented you from stating the above version on the dates of giving statement to IT authorities, i.e., on the date of survey, i.e., 01.12.2016 and 07.12.2016 ?

Ans : The pressure from the above seven people to me and my family has prevented me from giving true statement on the date of survey and before.

24. The statement of Mr. Neel Sunder Tharad was also recorded by the DDIT, Hyderabad on 07.12.2016 and in the said statement, Mr. Neel Sunder in reply to questions 13 to 16 had stated as under :

Q.13 Please state what is the total amount of sales (including Quantity) made by you on 08.11.2016 and 09.11.2016 ?

Ans: The total sales of gold and silver made on 08.11.2016 and 09.11.2016 is Rs.5.82 crore and the details of the same are as under :

S.No.	Description of the metal	Quantity	Amount (Rs. In crores)
1	Pure Gold	18.8 Kgs	Rs.5.79 Cr
2	Silver
3	Gold Ornaments	96 grams	Rs.0.03 Cr
4	Silver articles
	Total		Rs.5.82 Cr.

Q.14 Please state what is the total amount of sales (including Quantity) made by you from 10.11.2016 to 03.12.2016 ?

Ans: The total sales of gold and silver made during the period from 10.11.2016 to 03.12.2016 is Rs.47.98 Cr and the details of the same are as under :

S.No.	Description of the metal	Quantity	Amount (Rs. In crores)
1	Pure Gold	152.5 Kgs	Rs.46.91 Cr
2	Silver	52.3 Kgs	Rs.0.22 Cr.
3	Gold Ornaments	2.93 Kgs	Rs.0.85 Cr
4	Silver articles
	Total		Rs.47.98 Cr.

Q.15 Please state what is the total amount of sales made by you to M/s. Vaishnavi Bullion Pvt. Ltd. during the period from 01.04.2016 to 07.11.2016 and from 08.11.2016 to till date and also produce copies of sales invoices and ledger account copy of M/s. Vaishnavi Bullion Pvt. Ltd ?

Ans. During the period 01.04.2016 to 07.11.2016 no sales were made by us to M/s. Vaishnavi Bullion Pvt. Ltd during the period from 08.11.2016 to till date, the total sales made to M/s. Vaishnavi Bullion Pvt. Ltd is at Rs.28.37 Cr. (Quantity of pure gold : 91.131 Kgs). I submit herewith the ledger account of the party along with copies of sales invoices.

Q.16. Please state how did you deliver the metal to M/s. Vaishnavi Bullion Pvt. Ltd and also state the names of the persons to whom you have delivered the metal ?

Ans: I delivered the metal to M/s. Vaishnavi Bullion Pvt. Ltd at the office of BRINKS VAULT, SEQUEL and M/s DP Bullion (Vendor), after taking delivery from them. On two occasions i.e. on 11.11.2016 and 15.11.2016, I delivered the metal to Sri S. Mallesh, employee of M/s. M/s. Vaishnavi Bullion Pvt. Ltd. On other dates i.e. 12.11.2016, 14.11.2016, 17.11.2016, 18.11.2016 and 22.11.2016, I delivered the metal to the employees of M/s. Vaishnavi Bullion Pvt. Ltd, but I do not remember their names at the time of delivery. I take only confirmation from Sri Nitin Gupta, Director of M/s. Vaishnavi Bullion Pvt. Ltd over phone for delivering the metal to their employees.

25. From the conjoint reading of the statements of Mr. Nitin Gupta (M.D. of the assessee) recorded on 02.12.2016, 07.12.2016 and the affidavit filed on 30.12.2016, it is abundantly clear that the assessee had admitted that the assessee had shown the bogus entry in the books of accounts mentioning to have received the advances of less than Rs.2 lakhs from 2153 customers amounting to Rs.40 crore. Moreover, the assessee had accepted Rs.40 crore as its income and agreed to deposit taxes as per the Scheme Pradhana Mantri Garib Kalyan Yojana, 2016”.

26. It is the case of the assessee before us that the initial statements dt.01.12.2016 and 07.12.2016 were recorded under pressure. In the first affidavit filed on 13.01.2017, the assessee had submitted that the assessee had agreed to cover under the Pradhana Mantri Garib Kalyan Yojana, 2016 as the assessee was given the assurance, no criminal prosecution / PMLA inquiry / investigation would not be done. Further, it was the case of the assessee in the said affidavit that the assessee had disclosed under the said Scheme “under the pressure and misrepresentation by Police / E.D. / I.T.”

27. From the reading of the above said affidavit, it is clear that the contents thereof are untrue, as the FIR was registered against the assessee on 07.12.2016 with the local police as well as the Enforcement Directorate. The assessee had filed a Writ Petition bearing No.43777 / 2016 challenging the registration of FIR before the Hon’ble High Court. The said writ petition was disposed of on 21.12.2016 with a direction to the assessee to appear and cooperate with the police authorities. Immediately prior to the disposal of the Writ Petition, the statement of assessee Mr. Nitin Gupta was recorded by the Enforce Department on 20.12.2016. After the dismissal of the said Writ Petiton, assessee had filed an application for anticipatory bail before the Hon’ble High Court. Meanwhile, police had recorded the confession of Mr. Neel Sunder on 21.01.2017. The Hon’ble High Court had dismissed the bail application of Mr. Nitin Gupta was arrested on 31.01.2017.

28. Thus, it is clear that before filing the affidavit of owning the income of Rs.40 crore, the FIR was already registered on 07.12.2016 and the statement of the assessee was also recorded on 20.12.2016. by the Enforcement Department. Knowing fully well about the registration of F.I.R. and proceedings before the E.D., the assessee had chosen to avail the benefit of the PMGKY Scheme voluntarily – 2016 and had filed an affidavit on 30.12.2016 declaring the income of Rs.40 crore in PMGKY, 2016 Scheme. Thus, the allegation of the assessee that the assessee had made the disclosure in PMGKY, 2016 Scheme under the pressure of E.D / I.T. / Police had no legs to stand.

29. We may further mention that in the statement of Mr. Nitin Gupta, M.D. of the assessee, recorded on 20.11.2019 (supra), the assessee in reply to questions had submitted that “the same are recorded as per my version and the facts stated therein are NOT true to the best of my knowledge and belief” and similarly, it was submitted by him in reply to question No.5 that “the reason for that is that I have given the statements on 02.12.2016 and 07.12.2016 under the pressure of people who have actually given me the money, as they have given me a confirmation that they will take care of the matter, when the time comes………. ”

30. Thus, it is abundantly clear that the assessee had not denied the earlier statement given by him on 02.12.2016 as well as on 07.12.2016. However, in the subsequent statement recorded on 20.11.2019, the assessee had submitted a different version. Further, he had changed his stand by stating that he had given the earlier statement under the pressure of the people who gave him the money as they had confirmed that they will take care of the matter. The above said statement of the assessee recorded on 20.11.2019 if juxtaposed with the affidavit submitted on 13.01.2017 whereby the assessee had submitted that it had given the affidavit and opted for the PMGKY Scheme on the pressure and misrepresentation of police / E.D. / I.T. then it is clear that both the statements were contrary to each other. The above said aspect of contradiction of statements had duly been addressed by the Assessing Officer in his order. Thus, in our view, the assessee has failed to establish any plausible reason for taking a contrary stand, while giving the statement on 20.11.2019. In our view, the statement initially recorded on 01.12.2016 coupled with the statement dt. 07.12.2016 and affidavit dt.30.12.2016 clearly shows that the assessee had admitted the income of Rs.40 crore and further agreed to pay the tax on the said amount. Needless to say that the assessee in furtherance of the affidavit dt.30.12.2016 had also deposited an amount of Rs.1 crore with the Revenue in the main case of assessee and Rs 4 crore in the Musaddilal in ITA No.560/Hyd/2020.

31. Thus, the assessee had admitted to have the entries had in the books of account, receipts and cash deposits in its bank account. Law is fairly settled with respect to the admissions made in the I.T. proceedings. Section 17 of the Indian Evidence Act also speaks about the evidentiary value of statements, both oral and documentary, in court proceedings. Admissions play a very important role in the income-tax proceedings, as admissions bound the maker. In the absence of any denial or explanation thereof, an admission is almost conclusive regarding the facts contained therein. They generally dispense with the requirement of adducing further evidence or proof to support a fact. Though section 31 of the Indian Evidence Act, 1872 states that admissions are not conclusive proof of the matters admitted, yet admissions in the absence of rebuttal may conclude an issue.

Effect of Letter dt.17.01.2017.

32. In the present case, there is no retraction of the statements given on 2/12/2016 and 7/12/2016. Further, during the survey, incriminating invoices / receipts, KYC documents, computers were also impounded by the investigating team. It is also admitted position that the assessee had opted for PMJKY, 2016 Scheme and deposited Rs.1 crore towards its part of tax liability thereby admitted Rs.40 crore as its income. However, it is the case of the assessee in the statement given on 20/11/2019 that it had retracted from its earlier statement and confession was submitted to the ACP Police on 17/1/2017, copy of such retraction / confession was given by the employee of the assessee after a period of 11 months in the office of Revenue on 17.01.2017. (no proof of such letter was summitted before the lower authority). The AO had elaborately referred the said retraction given to the police and had concluded as under :-

As per the order received from the customers, we have placed the order of gold to various bullion dealers eg:- M/s Asthalaxmi Gold, M/s Sri Balaji Gold, M/s S.K.Impex, M/s Nav-Durga Bullion Co-op.

……………..

Therefore I have lastly decided that ‘to give my confessional statement in writing and submit at your office and your good-self.

33. Ld CIT(A) in his order had dealt with the retraction as under :-

“4.2. However, later vide letter dated’ 01-11-2017(Annexure-7), ,Sri Nitin Gupta retracted the statement given and submitted the true facts to the Assessing Officer. The same, in brief, are as under:

f) After the demonetization was announced, the Appellant saw a business opportunity. His CA also assured him that there is nothing illegal in generating cash receipts below Rs.2 lakhs, i.e. below the threshold limit requiring KYC of the customers.

g) The fact was Sri Neel Sunder Tharad, Proprietor of Ashtalakshmi Gold contacted the Appellant after the announcement of demonetization and put forth the idea of sale of bullion,. He is the person who provided with names for generating the cash receipts. This fact is confirmed by way of corroborative evidence in the form of the statement given by Pawan Agarwal, Managing Partner of M/s Balaji Gold Jewellers before the police authorities (Annexure-8), at para 2 of page 3 of the statement, which is reproduced as under.

“Accordingly, Mr. Nitin Gupta along with his younger brother Nikhil Seeram Mallesh with the assistance of their staff and others tasted generating fake and fabricated advance cash payment receipts on names of fictitious persons. Myself and Neel Sunder and some others al ed them by furnishing the names and details of some fictitious persons and assisted them in preparing the fake receipts. During the next 5-6 days, we have generated about 5200 such fake receipts amounting to Rs.100 cr. All the receipts were prepared for the amount less than 2 lakhs to avoid Income Tax, KYC and other future complications.”

4.3 Part of the cash of Rs.40 Cr was deposited by Sri Neel Sunder Tharad and his wife Smt. Nisha Gupta, directly and part was deposited with the help of the staff of the Appellant. ‘The initial statement given to the Investigation Wing was given under intense pressure from Sri Neel Sunder to protect his interests (Incidentally he is related to him as well). However, when the investigations were taken up. by the Police and Enforcement Directorate, the appellant was advised to come out clean and state the facts before the authorities. Accordingly, the MD of the Appellant furnished the facts to the AO and retracted the statements given on 01¬12-2016 and 07-12-2016, which in ‘any case was not accepted by the Department as true and correct.”

34. In our view the letter given to the Assessing Officer on 01.11.2017, along with the confessional statement of assessee dt.17.01.2017 and the statements of Mr. Neel Sunder and Pawan Agarwal cannot be considered to be retraction in the eyes of law.

i. Said letter dt.17.01.2017 was not addressed either to the assessing officer or to the Investigation wing of the revenue.

ii. No retraction was made by the assessee from the earlier statements given to Revenue.

iii. In the statement /confession given to police it was admitted that “ I have received nearly about 40 Crores for Mr Neel Sunder Tharad, who is owner of M/s Astha Laxmi Gold”.

iv. It is not the case of the assessee that he had not received Rs.40 crore in old currency notes. Assessee changed his version whereas in earlier statements and documents, it was admitted that he had received Rs.40 crore from 2153 customers, wherein in letter dt.17.01.2017, he alleged that it was given by Mr. Neel Sunder.

v. The assessee had admitted to have prepared the cash receipt advances after receiving the amount.

vi. No reasons were assigned by the assessee to retract the earlier statements after one year from the original statements.

vii. Mr. Neel sunder was arrested by the police on 11.01.2017 and his confessional statement was also recorded by the police on 17.01.2017 without getting his statement recorded under section 164 of Cr.PC.

viii. The assessee had not filled any receipts issued by it in favour of seven persons as alleged by him in subsequent statement dated 20/11/2019.

ix. It is not the case of the assessee that at the time of recording of statement during survey, seven person including Neel sunder were present and had pressurized the assessee to admit the income/ transactions.

35. In view of the above and considering the Judgment of hon’ble High Court in the case of Y. Ramachandra Reddy reported in [2015] 57 taxmann.com 43 (Andhra Pradesh and Telangana), we are of the considered opinion that the subsequent retraction will not come for rescue of the assessee, as neither the retraction dt.17.01.2017 was made before the Assessing Officer / Investigating Wing nor it was made within reasonable time and nor any reasons for retraction of the earlier statements were given. In our view, the letter dt.17.01.2017 was after thought, motivated and against earlier conduct of assessee whereby he had accepted the income of Rs.40 Crore in the earlier statements, affidavit in PMGKY – 2016 and subsequent deposit of part of tax amount of Rs. 1 crore. Further it is not the stand alone statement of the assessee admitting the income at the time of survey rather in the present case the revenue is having other incriminating evidence in the form of 2135 invoices, CFSL evidence of computers, statements of neighbour, statements of other persons denying the purchase of bullion and recovery of KYC documents of 65 customers. In light of the above, the Assessing Officer was right in rejecting the reliance placed by assessee on letter dt.17.01.2017.

Whether the ld.CIT(A) was right in deleting the addition of Rs.28 crore on the basis of statement of Mr. Neel Sunder Tharad recorded by Enforcement Directorate dt.26.12.2016?

36. The ld.CIT(A) in Para 7.5 of his order has mentioned various points which are reproduced hereinabove (at para 9 supra) for deleting the addition of Rs.28 crore in the hands of the assessee.

37. The first reason given by the ld.CIT(A) was that the statement of Neel Sunder given before police / E.D. was not contradicted by the Assessing Officer. Secondly, Assessing Officer has not made any inquiry from the parties whose details have been given by Neel Sunder. Thirdly, Mr. Neel Sunder was authorized to deposit in the bank account of the appellant was not contradicted. Fourthly, the deposit of cash by the third party in the account of the assessee has not been disputed by the Assessing Officer.

38. As mentioned hereinabove, the case of the Assessing Officer was that the director of the assessee in the sworn statement dt. 02.12.2016 had admitted that there was no sales made by the assessee from 01.04.2016 to 07.11.2016. Further, the assessee had admitted no sales were made either on 08.11.2016 or on 09.11.2016 (Question No.6). However, the cash advances of Rs.40.11 crore were received from 2153 customers on 08.11.2016. It was also the case of the Assessing Officer that the purchases were made between 09.11.2016 to 30.11.2016 for an amount of Rs.37.39 crore. Out of the said amount, Rs.28.97 crore valuing gold (91 kg bullion) was purchased from Asthalakshmi Gold of Neel Sunder. It is an admitted case of Assessing Officer as well as the assessee that the sale invoices below Rs.2 lakhs were made on 08.11.2016 and 09.11.2016 from the Computer installed in the premises of the assessee. Admittedly, the computer of the assessee from the business premises were seized and sent to CFSL for verification and report of the CFSL was received wherein it was categorically mentioned that no cash receipts / bills were generated on 08.11.2016 and 09.11.2016 or thereafter.

39. The Director of the assessee had given the statements on 02.12.2016 and 07.12.2016 to the Revenue, and admitted to have shown the details of 2153 customers as advances in assessee’s books of accounts. Though, it is the case of the assessee that the details of these customers were provided by Neel Sunder or other persons in their letter dt.17.01.2017, however, the assessee had failed to explain that if the details of the persons were provided by Neel Sunder on 08.11.2016 what was the reason for the assessee to make the entries with the names of these persons in their books of accounts as advances. In fact, it is the case of the assessee that during the course of survey, the KYC documents were taken from 65 customers only. However, as recorded by the Assessing Officer in para 2.5 of his order, the verification was done in respect of 65 persons and out of them only 12 persons were identified and they have denied having transacted with the assessee. In further response to question nos.60 and 61, the director of the assessee on 02.12.2016 has mentioned as under :

“Q.60 Please provide the mobile number, address proof, identity proof and KYC documents of 5200 customers at the time of receipt of advance and at the point of sale.

Ans: We have collected the declarations / letters from around 65 customers, which is submitted. The KYC documents etc were not collected from the customers.

Q.61. It is seen from the declarations / letters submitted by you that there is no mention to whom it was addressed. How do you claim that these declarations / letters were given to you.

Ans: On many of the declarations, the sale invoice number is mentioned in pencil, which can be verified.”

40. Further, The statement of one Mohd. Azam, who was one out of the said 12 persons whose KYC documents were given to the Revenue by the assessee. The statement of said Mohd. Azam was recorded u/s 131 on 27.12.2016 who had denied having indulged into the purchase of bullion etc. Thus, it is clear that the assessee had not only made the entries in the books of accounts but had also collected the KYC documents of some of the customers. Though, subsequently, on verification, it was found by the officers of the Revenue / Police that the invoices issued by the assessee were bogus and even 12 customers whose documents were given by the assessee to prove their identity, had denied to have given their advances for purchase of gold from the assessee.

40.1. For the purpose of Section 68 of the Act, it is the onus of the assessee to explain the entries made in the books of accounts. In the present case, assessee being a company, as per proviso to section 68, any unexplained amount credited in the books of the assessee shall be deemed to be the assessee was not satisfactory and was against the preponderance of probability and evidence on record, hence, the Assessing Officer had rightly made the assessment in the hands of assessee on the basis of the credit entries made in the books of accounts which were duly supported by the deposit of SBNs in the bank account.

41. The assessee has not been able to explain the entries made in the books of accounts. On the contrary, the assessee in subsequent statement dt. 20.11.2019 had even admitted that the invoices issued by the assessee were issued in the name of various persons details of which were provided by these 7 persons. The Director of the assessee in reply to question 20 is as under :

“Q.20 To sum up, you are confirming that you have received cash advances of Rs.57,75,35,000/- from six customers (against 3100 customers stated earlier in the statement recorded on 01.12.2016) in the case of M/s. MGJPL on 08.11.2016 after 09.00 pm, entered the cash advances in your books on the same day, generated cash receipts on the same day from the systems available in your premises in tally software and issued to all the customers.

Likewise, in the case of M/s. VBPL, you have received Rs.40,11,50,000/- as cash advances from one customer (2100 customers earlier) and followed the same procedure as was done in the case of M/s MGJPL ?

Ans : Yes. I confirm that M.s, MGJPL, I have received approximately Rs.57 crores from six customers and Rs.40 crores from the one customer in M/s VBPL entered the details of cash advances bifurcating all below Rs.2 lakhs in the name of various persons (as provided by six and one customer respectively), started generating cash receipts on 08.11.2016 to 09.11.2016 from the systems available in our premises in Tally software and handed over the receipts to the respective seven customers.”

42. From the perusal of various statements of the Managing Director of the assessee i.e., Mr. Nitin Gupta, it is crystal clear that the assessee had not disputed the book entries with respect to 2153 customers of rupees more than 40 Crore. Though, the assessee orally sought to explain the transaction by saying that instead of receiving cash advances from 2153 customers the said amount was provided by one Mr. Neel Sunder on 08.11.2016 and invoices were issued in the names supplied by Mr. Nitin Gupta. Thus, the assessee sought to contradict the books of accounts with the oral statement. In our view, the entries in the books of accounts maintained by the assessee during the course of his business are required to be accepted as per section 34 of the Evidence Act. For the ready reference, we are reproducing below section 34 of the Indian Evidence Act which provides as under :

“34. 1[Entries in books of account including those maintained in an electronic form] when relevant.—1[Entries in books of accounts including those maintained in an electronic form], regularly kept in the course of business, are relevant whenever they refer to a matter into which the Court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability.”

43. Similarly, Section 292C of the Income Tax Act provides as under :

“1)] Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 13216[or survey under section 133A], it may, in any proceeding under this Act, be presumed—

(i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;

(ii) that the contents of such books of account and other documents are true; and

(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.]

17[(2) Where any books of account, other documents or assets have been delivered to the requisitioning officer in accordance with the provisions of section 132A, then, the provisions of sub-section (1) shall apply as if such books of account, other documents or assets which had been taken into custody from the person referred to in clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1) of section 132A, had been found in the possession or control of that person in the course of a search under section 132.]”

44. Similarly, Section 92 of the Indian Evidence Act provides as under :

“92. Exclusion of evidence of oral agreement.—When the terms of any such contract, grant or other disposition of property, or any matter required by law to be reduced to the form of a document, have been proved according to the last section, no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representatives in interest, for the purpose of contradicting, varying, adding to, or subtracting from, its terms: Proviso

(1) .—Any fact may be proved which would invalidate any document, or which would entitle any person to any decree or order relating thereto; such as fraud, intimidation, illegality, want of due execution, want of capacity in any contracting party, 1[want or failure] of consideration, or mistake in fact or law: (1).—Any fact may be proved which would invalidate any document, or which would entitle any person to any decree or order relating thereto; such as fraud, intimidation, illegality, want of due execution, want of capacity in any contracting party, 3[want or failure] of consideration, or mistake in fact or law\:” Proviso (2).—The existence of any separate oral agreement as to any matter on which a document is silent, and which is not inconsistent with its terms, may be proved. In considering whether or not this proviso applies, the Court shall have regard to the degree of formality of the document: Proviso (3).—The existence of any separate oral agreement, constituting a condition precedent to the attaching of any obligation under any such contract, grant or disposition of property, may be proved: Proviso (4).—The existence of any distinct subsequent oral agreement to rescind or modify any such contract, grant or disposition of property, may be proved, except in cases in which such contract, grant or disposition of property is by law required to be in writing, or has been registered according to the law in force for the time being as to the registration of documents: Proviso (5).—Any usage or custom by which incidents not expressly mentioned in any contract are usually annexed to contracts of that description, may be proved: Provided that the annexing of such incident would not be repugnant to, or inconsistent with, the express terms of the contract: Proviso (6).—Any fact may be proved which shows in what manner the language of a document is related to existing facts.”

45. From the reading of the above said provisions, it is abundantly clear that the entries made in the books of accounts, if not disputed would be sufficient to charge the assessee with the liability. In the present case, the assessee has not disputed the maintenance of the books of accounts and had also not disputed the entries made therein showing the advance receipts of 2153 customers for an amount of rupees more than 40 crore. Therefore, the entries made in the books of accounts are admissible and are required to be satisfactorily explained by the assessee.

46. Though, the assessee had tried to explain that these entries were made on the suggestion / advice / inducement by seven persons, but the assessee has miserably failed to substantiate the same with any cogent, reliable and independent evidence. Further, as mentioned elsewhere, during the course of survey, the assessee had provided the documents pertaining to 65 customers which were seized from his premises at the time of survey, however, only 12 customers were traceable and they have denied to have transacted with the assessee either on 08.11.2016 or 09.11.2016 or thereafter. No explanation had been given by the assessee with respect to providing the documents pertaining to 65 customers at the time of survey. In our view, the law is fairly settled where any books of accounts were found in possession of assessee during the course of survey / search, then such books of accounts were duly executed and maintained by the assessee. In the present case, the entries of 2153 customers were found in the books of accounts along with the corresponding invoices along with pencil remarks were found. Besides that the assessee had provided the KYC documents of 65 customers. The above said events clearly show that the assessee had failed to explain the entries in the books of accounts and no explanation was given for possessing the invoices of 2153 customers and their KYC documents.

47. There is yet another reason that the entries in the books of accounts are required to be accepted. As per law, oral statements cannot be accepted in contradiction to written documents. In our view, once the Revenue had examined the assessee during the course of survey and thereafter, during the course of assessment proceedings after recording the statements u/s 131 of the Act and the said statements of assessee were duly corroborated with the entries in the books of accounts and subsequent conduct of availing the PMGKY Scheme, 2016 and deposit of the initial amount, then the question of examining the said Neel Sunder after recording the statement by the police / E.D. does not arise. In fact, as mentioned hereinabove, the Revenue had also examined said Neel Sunder on 07.12.2016, who had duly supported the initial version of the assessee made on 02.12.2016. In view of the above, we are of the opinion that the ld.CIT(A) had wrongly concluded that the statement of Neel Sunder was not contradicted by the Assessing Officer. In our view, there was no occasion for contradicting the statement given by the third party before the police / E.D. for the purpose of contradicting the evidence already collected by the Revenue during the course of survey. The statement of the assessee’s director was duly corroborated by the other clinching evidence in the form of books of accounts, invoices, KYC documents, CFSL Report and therefore, no further corroboration or contradiction were required.

48. The second reason given by the ld.CIT(A) to delete the addition was that the officer had not made any inquiries whose details had been given by Mr. Neel Sunder. In fact, the statement of Mr. Neel Sunder was recorded u/s 50(2) and (3) of PMLA Act, 2002. In the said statement, Mr. Neel Sunder had stated as under :

“To your specific enquiries about Mr. Nitin Gupta and Nikhil Gupta, I state that they are the cousins of my wife Nisha Gupta. They are running business in the name and style of M/s. Musaddilal Jewellers Private Limited. I am doing Gold business with M/s. Musaddilal Jewellers Private Limited since May, 2016.

To your enquiries about the cash deposits made by me and my wife in the bank account of M/s. Vaishnavi Bullion Private Limited at Axis Bank, Jubliee Hills, Hyderabad on 10.11.2016 onwards, I state that after the announcement of demonetization of old currency notes of Rs.500/- and Rs.1000/- by the Government of India on 08.11.2016, Mr. Nitin Gupta called me and requested to deposit cash in their company’s account as they are facing employee shortage and promised that I will be given Gold bullion business. Mr. Nitin Gupta told that he will handover authorized letter on behalf of M/s. Vaishnavi Bullion Private Limited authorizing my wife Smt. Nisha Gupta to deposit cash in their bank accounts. On 10.11.2016 Mr. Nitin Gupta called me and asked to come to his office located at Shanti Kiran, Road No.2, Banjara Hills, Hyderabad. My wife and I went there and n has given some cash and told that authority letter and some more cash will be sent directly to the bank. We took the cash and went to Axis Bank, Jubilee Hills, Hyderabad. Later, Shri Seera Mallesh of M/s. Vaishnavi Bullion Private Limited came with some more cash and authorization letter to deposit cash. Some more persons belonging to M/s. Vaishnavi Bullion Private Limited or Mr. Nitin Gupta came with cash to the bank and handed over the same to us. We have deposited the cash in the bank account of M/s. Vaishnavi Bullion Private Limited as instructed by Mr. Nitin Gupta. Either my wife or myself has made cash deposits till 17.11.2016. Of these cash deposits made by me or my wife in the bank account of M/s. Vaishnavi Bullion Private Limited, Mr. Nitin Gupta transferred an amount of Rs.28.37 crore to M/s. Ashtalakshmi Gold from 11.11.2016 to 19.11.2016. For this cash transfers, I have made a sale of 91 Kg of Gold Bullion to M/s. Vaishnavi Bullion Private Limited during 11.11.2016 to 22.11.2016.

To your specific enquiries about the delivery of Gold Bullion to M/s. Vaishnavi Bullion Private Limited, I state that Mr. Nitin Gupta, after purchase of gold bullion asked me to give the names of intended buyers of gold bullion as gold bullion is having a much demand of after demonitisation as I am involved …………………………………… for showing the buyers. Later, the persons of Mr. Nitin Gupta contacted intended buyers and sold the gold. However, the persons concerned of intended buyers along with Shri Seera Mallesh used to take delivery of gold bullion outside the premises of M/s. Brinks India Private Limited, from where I took gold delivery. I also took gold delivery form M/s. DP Gold Private Limited and also from the premises of M/s. Sequel Logistics, Basheerbagh, Hyderabad. However, the gold is delivered to the persons of Mr. Nitin Gupta and persons concerned of intended buyers outside the premises of M/s. Brinks India Private Limited.

To your enquiries about the buyers to whom I have handed over the Gold Bullion on behalf of M/s. Vaishnavi Bullion Private Limited or Shri Nitin Gupta, I state that as required by Shri Nitin Gupta, I have given the details of intended buyers whom I know from my past business experience. Shri Nitin Gupta or his persons contacted them directly. I have not interfered with their business. I have delivered the Gold bullion to the persons who were sent by Shri Nitin Gupta through his employee Shri Seera Mallesh and others and Shri Nitin Gupta used to confirm over the phone about the delivery. To your specific enquiries about the details of intended buyers which are provided by me to Shri Nitin Gupta, I state that I remember some of the names which I have provided to Shri Nitin Gupta and they are M/s. Sree Kalpataru Jewellers Private Limited, Pot Market, Secunderabad, M/s. Tibarmal Ranivas Gems, Jewels and Pearls, Jublihills, Hyderabad, M/s. Premraj Shantilal Jain Jewelers, Pot Market, Secunderabad, M/s. Sai Baba Jewellers, Pot Market, Secunderabad, M/s. N. Nemichand Jewellers, Pot Market, Secunderabad, M/s. Kamya Vaniya Private Limited, Lal Bangla, Ameerpet.”

49. From the perusal of the above reproduced statement given before the E.D. u/s 50 of PMLA Act, it is clear that Mr. Neel Sunder had only given the name of five persons without admitting that he has received any amount from them. He had merely stated that he had given the details of intended buyers to Mr. Nitin Gupta. However, the money was collected by Mr. Nitin Gupta / his employers and the gold was also delivered directly to them.

50. In contradiction to the statement recorded before the E.D., ld.CIT(A) had wrongly relied upon the alleged confession statement dt.21.01.2017 made before the police while Mr. Neel Sunder had allegedly admitted to have mobilized the funds from 12 persons. The ld.CIT(A) in para 7.3 of his order mentioned as under :

SI. No.	Name of the party from whom amounts mobilized by Neel Sunder Tharad	Amount in INR
1	P. Satyanarayana & Sons, Rep by Prakash Agarwal,	2,50,00,000.
2	PSS Jewellers, Old City, Rep. by Jithin Agarwal	2,25,00,000
3	Tibarumal Jewelers, Jubilee Hills, Rep. by Praveen Agarwal,	2,25,00,000
4	Sri Kalpatharu Jewelers, Pot Market, Rep. by Himanshu Bapna,	2,25,00,000
5	Premraj Shantilal Jewelers, Pot Market, Rep. by Ashok Kumar Jain,	1,50,00,000
6	Saibaba Jewelers, Pot Market, Sec’bad, rep by Susheel Jain @ Ramu Jain	1,50,00,000
7	Ashoka Jewelers, Ameerpet, Rep. by Amit Kumar Jain,	1,75,00,000
8	Kamya Jewelers, Ameerpet, Rep. by Arun Kumar Jain,	1,50,00,000
9	Venus Jewelers, Chikkadpally, Rep. T. Ram Praveen,	1,00,00,000
10	Tirumala Jewelers, Abids, Hyderabad, Rep. Amit Agarwal,	1,00,00;000
11	Balaji Jewelers, Abids, Hyderabad	2,00,00,000
12	A.P.Furnitures, Nampally, Hyderabad	3,00,00,000
13	Own Funds of Neel Sunder Tharad	5,50,00,000
		28,00,00,000
	Others (Names not provided by Neel Sunder)	12,00,00,000
.	Total	40,00,00,000

51. From the comparison of statement recorded before the Enforcement Directorate u/s 50(2) and (3) of PMLA Act and confession recorded u/s 24 of the Indian Evidence Act by the police make it abundantly clear that in the statement u/s 50(2) and (3) of PMLA Act dt.26.12.2016 which is in the nature of evidence, Mr. Neel Sunder has only provided the names of 5 persons whereas in the statement recorded u/s 24 of Indian Evidence Act by Mr. Neel Sunder while he was in custody after being arrested on 11.01.2017, there is a mention of names of 12 persons with the amounts. The above said crucial aspect has not been examined by the ld.CIT(A) while deleting the addition.

52. In our view, the ld.CIT(A) has swayed away by the confession extracted from Mr. Neel Sunder while he was in police custody, however, the conclusion of ld.CIT(A) is without any basis, merit and against the settled principle of law. For the above said proposition, we may fruitfully rely upon section 26 of Indian Evidence Act, which provides as under :

“26. Confession by accused while in custody of police not to be proved against him.—No confession made by any person whilst he is in the custody of a police officer, unless it be made in the immediate presence of a Magistrate1, shall be proved as against such person.—No confession made by any person whilst he is in the custody of a police officer, unless it be made in the immediate presence of a Magistrate2, shall be proved as against such person.” 2[Explanation.—In this section “Magistrate” does not include the head of a village discharging magisterial functions in the Presidency of Fort St. George 3[***] or elsewhere, unless such headman is a Magistrate exercising the powers of a Magistrate under the Code of Criminal Procedure, 1882 (10 of 1882)4].”

53. In view of section 26 of Indian Evidence Act, we are of the opinion that the statement / confession of Mr. Neel Sunder recorded by the police while he was in custody is not admissible in the eye of law. Therefore, the conclusion of ld.CIT(A) that the statement has not been confronted by the Assessing Officer is without any basis.

54. The third reason given by the ld.CIT(A) for deleting the addition of Rs.28 crore was “the facts relating to the Authorization given by the appellant to Sri Neel Sunder and his concerns to deposit the amount in the bank account of the appellant were not examined nor contradicted.”

55. The finding of the ld.CIT(A) is not based on correct appreciation of facts. The Assessing Officer had elaborately dealt with the above said issue of cash deposits in his order in the following manner :

“Now coming to the second component of this claim, that the cash was directly deposited in their bank account by Sri Tharad on 10.11.2016 and therefore the same does not belong to them. It is against this claim of Director, Sri Nitin Gupta, the other Director of M/s MGJPL, Sri Mallesh in his statement recorded u/s 131 (pl. refer to para 2.6 above) averred that he got a call from Sri Nitin Gupta to rush to the bank on 10.11.2016 and oversee the work of depositing the cash in their bank account. Even thereafter, the cash deposited in the bank account was utilized by the assessee company for purchase of bullion through RTGS transfer.

56. In the statement dt.02.12.2016, Mr. Nitin Gupta had answered to questions nos.18 to 20, 47, 58, 59 in the following manner :

Q.18. It is observed that the cash received on 08.11.2016 is deposited into the new account which is opened on 10.11.2016 in the Axis Bank, Jubilee Hills Branch. Please state the reason why a new account was opened for depositing the cash.

Ans: We were having an account in Bank of Baroda, PBB Hyderabad Branch. We have opened new account in Axis Bank, Jubilee Hills Branch as Bank of Baroda did not accept the cash deposit about Rs.40 Crores. Axis Bank also did not accept the cash deposit at once. Hence, we have made the cash deposits in a staggered manner between 10.11.2016 to 17.11.2016.

Q.19. It is observed from the statement of Axis Bank account of M/s. Vaishnavi Bullion Pvt. Ltd., there is a credit entry of Rs.1.98 Cr from M/s. Musaddilal Gems and Jewellers Pvt. Ltd on 16.11.2016 and on the same day Rs.2 Crore was transferred to M/s. Musaddilal Jewellers Pvt. Ltd. Please explain the nature of transactions.

Ans: The amount received of Rs.1.98 Cr was out of the trade receivables from M/s. Musaddilal Gems & Jewellers Pvt. Ltd and the amount paid of Rs.2 crore to M/s. Musaddilal Jewellers Pvt. Ltd was towards the trade payables.

Q.20 A perusal of the letters of customers submitted by you shows that it mentions the name, address of the customers. However, the amount of advance received from them is left blank. Please offer your comments as to why the amount is left blank.

Ans: Most of these letters contain the sale invoice numbers on it. Since the item has finally been delivered to all the customers and the cash receipts have been issued, therefore, the amount was not mentioned in the letters.

Q.47. Please refer the answer to question No.22 wherein you have stated that there are only 3 employees in this company. Please go through all the advance receipt vouchers spiral bounded and confirm whether you have signed any of the vouchers or not.

Ans: There are not only 3 employees, there are were around 10 total employees on the day of 08.11.2016. However, I don’t remember their names. As far as I remember, I have not accepted any cash on that day and therefore, I remember that I have not signed any voucher.

Q.58. Where did you keep Rs.90 Crore on 08.11.2016 night. Ans. In this office premises.

Q.59. When did you deposit this Rs.90 crore in the bank.

Ans: After 09.11.2016 for a period of 4-5 days I have deposited this amount in the bank.

57. The statement of Mr. Nitin Gupta was recorded by the officials of Enforcement Directorate on 13.01.2017 and in the said statement, it was specifically stated by Mr. Nitin Gupta as under :

“To your specific enquiries, I state that Mr. Neel Sunder Tharad and his family members visited Axis Bank Limited, Film Nagar along with my office staff of Shri S. Mallesh etc. for depositing of money in the account of M/s. Vaishnavi Bullion Pvt. Ltd during the period between 10.01.2016 and 30.11.2016. I state that the said account was opened on 10.11.2016. M/s. Vaishnavi Bullion Pvt. Ltd already have one more bank account at Bank of Baroda, Banjara Hills, Hyderabad and in the said account also we have deposited an amount of Rs.50 lakhs on 10.11.2016 and they did not agree to take more cash deposits. Further, Shri Pavan Agarwal of M/s. Sri Balaji Gold or his persons along with my persons visited in SBI, IFB, Punjagutta, Hyderabad during the period from 10.11.2016 to 21.11.2016 for depositing cash in the account of M/s. Musaddilal Gems and Jewels Pvt. Ltd. Similarly, the other persons who gave advances also visited SBI, IFB, Punjagutta, Hyderabad, at the time of depositing the amounts as we have not counted the full currency at the time of taking from them and requested them to present at the time of deposit of amounts at banks. Accordingly, persons concerned of who gave advances appeared at banks and attended to the job banking formalities of depositing cash.

To your specific enquiries about deposits of amount by Smt. Nisha Tharad, W/o. Mr. Neel Sunder, I state that Smt. Nisha is my first cousin and she deposited amount in Axis Bank account of M/s. Vaishnavi Bullion Pvt. Ltd based on the authorization letter given by us to deposit the same in our bank account.”

58. Beside these two persons’ statements, if we look into the statement of other persons, namely, Seera Mallesh and Pavan Agarwal recoded u/s 131, from the perusal of the statements, it is abundantly clear that the cash was made available by the assessee, its directors and employees, which was later on deposited in the bank of assessee by Mr. Neel Sundar with the help of Director and employees of the assessee. Further, the said cash deposited in the assessee bank was utilized by the assessee for buying the gold after sending the money through RTGS. If the money was of Mr. Neel Sunder, then the assessee were having no right either to deposit in its bank account or use it to buy the bullion. Undoubtedly, it is not the case of the assessee that efforts were made by the assessee to return the amount to the Mr. Neel Sunder. Apart from the admissibility or otherwise of the confession of Mr. Neel Sunder, another fact that stares at the face of the assessee is that, as per version of the assessee, Mr. Neel Sunder has arranged the customers, money and bullion and made delivery to the customers. This version of the ass is incongruous and against human preponderance, as why Mr. Neel Sunder will approach the assessee to route his clients’ transaction through the assessee. In that way Mr. Neel Sunder could have completed the entire transaction right from procuring to selling the gold to customers and retained the profit himself. It is also not the case of the assessee that Mr. Neel Sunder did not have the bank account in the same Axis Bank where the money was allegedly deposited by him in the account of the assessee. There is no explanation for the redundant routing of the transactions with the assessee if we have to believe Mr. Neel Sunder. This shows that the statement of Mr. Neel Sunder’s statement attributes redundancy to the role of the assessee, which we find difficult to believe.

59. In our opinion, conduct of the assessee was incomprehensible and abnormal. The assessee either deposited its undisclosed amount or otherwise helped undisclosed, unanimous and unidentifiable persons to convert their undisclosed prohibited currency into bullion after notification of demonetization. In both circumstances, the action of the assessee was not permissible in the eyes of the law. Therefore, the order of Assessing Officer was in accordance with law, and other of ld.CIT(A) deleting the addition of Rs. 28 crore was without any merit.

60. Now, we will deal with other argument of the assessee that the sale was duly reflected in the ITR filled by the assessee after paying the necessary GST charges, on which assessee declared the profit.

61. The Assessing Officer had held that the sale by the assessee were contrary to law. Hence, he had added the entire receipt to the income of the assessee. The finding given by the Assessing Officer is reproduced hereinabove in Para 8 (supra) as under:

62. Before the Ld.CIT(A), assessee had averred as under :-

“6.4. At pages 37-41 of the assessment order, the AO is of the view that accepting cash after 08-11-2016 in SBNs violates other allied acts. He specifically discusses the provisions of Sale of Goods Act and Indian Contracts Act. According to the AO, the Appellant claims to have received the amount for sale of goods, (bullion) is not correct and the same are unexplained credits in the books of appellant.

a) The AO states that for a valid contract of sale, there should be a price for the goods and price means money and the money received in SBNs is not a legal tender after 08-11-2016 and therefore receiving SBNs after 08-112016 is illegal transaction.

b) He then refers to the provisions of Indian Contracts Act and states that where the object or consideration is unlawful, the agreement is void.

c) The sum and substance of the arguments put forth by the AO, in view the above quoted discussion, is that the sale of bullion is void and hence the Appellant cannot claim that the amount deposited is advance received for sale of bullion and therefore, by implication, the cash deposited belongs to the Appellant.

6.5. It is submitted that there cannot be a more illogical and preposterous reasoning and conclusion than the above. Without going into a serious discussion about the various provisions of Sale of Goods Act or Indian Contracts Act, suffice to emphasis two points on this issue.

a) Firstly, when an agreement is considered void or voidable because of reasons mentioned in the Indian Contract Act, it only means that the parties to the agreement cannot resort to legal action to enforce -such an agreement. It essentially means, that the right to repudiate an agreement rests with the parties to the agreement alone. If in this process, there has been any violation of law, then the concerned agency which administers that particular law will have to step in and take appropriate action. In the instant case, Income Tax Department is not the Government Agency to declare the sale as void. Hence, the entire argument of the AO on this ground has no legs to stand.

b) Secondly, the taxability or otherwise must be decided as per the provisions of Income Tax Act. It is totally irrational on the’ part of the AO to conclude that because the sale is rendered void, the advance amounts received should be taxed in the hands of the seller as unexplained credits. It may not be out of place to mention here that under the Income-tax Act, even incomes earned illegally are subjected to tax.

6.6. At page 40 (last para) of the assessment order, the AO referring to the notification relating to demonetization states:

“As per the said Notification, the only way-out given to the persons holding SBNs as on 09-11-2016 to realize the equivalent value of such SBNs is to deposit the same into his bank account (please see para 2(iii) and 2(iv) of the Notification). If the SBNs are claimed to have been dealt by the persons who held the SBNs as on 09-11-2016, in a manner other than what was prescribed in the statutory Notification, like exchanging the same with unauthorized persons other than banks, and if such a claim is accepted, it would bring the said statutory Notification, which was issued as a measure to tackle black money,-to ridicule and renders it nugatory.”

By quoting from the Notification, the AO concludes that by accepting SBNs after 9-11-2016, the assessee company has violated the provisions of the Notification and therefore, the sale transaction is void. He further states than entry in the books of account relating to a void transaction is not valid and therefore, the amounts credited in the bank account will be treated as unexplained.

6.7. The above conclusions drawn by the AO are absurd. It is a fact that with effect from 09-11-2016, the SBNs were not legal tender. It means that SBNs shall not be accepted in cash (except in the cases mentioned in the Notification) and the same needs to be deposited in banks. The AO while quoting from the Notification, failed to appreciate the contents of para 2(v) of the same Notification (Gazette Notification No.S.0.3407 (E)-RBI) (Annexure-10) which reads as under:

(y) the equivalent value of specified bank notes tendered may be credited to a third party account, provided specific authorization therefor accorded _by the third party is presented to the bank, following standard banking procedure and on production of valid proof of identity of the person actually-tendering”

6.8. The above para of the Notification makes it abundantly clear that there is no ban on a person depositing SBNs in a third-party account after following due procedure prescribed by the banks. Specific Authorisation (Annexure-11) by VBPL was given to. Nisha Gupta to deposit the cash. In the instant case, deposit of cash by a third party viz., Sri Neil Sunder Tharad and Smt. Nisha Gupta in the Appellant’s bank account was as per the above para of the Notification and there is absolutely no illegality, involved. It is for the Income-tax Department to conduct inquiries and determine whether the SBNs represent accounted or unaccounted income and who are the true owners of such SBNs, merely stating that the SBNs were received beyond 09-11-2016 therefore the cash is unexplained,’ doesn’t prove anything, which is not disputed by the Appellant that the cash was deposited beyond 09-11-2016 only. In fact, the deposit of SBNs into the bank accounts was permitted from 10-11-2016 only. In this case, the entire thrust of the argument of the AO was that transactions in SBNs after demonetization notification is illegal and be has not taken cognizance of the evidence i.e. bank transfers to bullion traders. It is submitted that there was nothing illegal in the deposit of SBNs by third parties in the bank account as already discussed in para 6.7 above. Even assuming that, though legally not correct, the transactions are illegal, as opined by the AO, the income needs to be taxed, as the Income tax Act does not differentiate between legal and illegal incomes. Kind attention of the CIT(A) is invited to the following judgments which support this contention.

63. The ld.CIT(A) has not dealt with the above-said issue and had granted part relief to the assessee without considering the case of the Assessing Officer. Before we deal with the legal submissions of the assessee, some admitted facts are required to be understood which read as under :

I. The assessee had no / negligible “stock-in-trade” of gold / diamonds as on 08.11.2016.

II. No orders were placed on 8/11/2016 for purchasing the gold

III. Cash advance receipts were issued in the name of 2135 persons on 08.11.2016 and 09.11.2016 after the announcement of demonetization .

IV. Cash was deposited by the assessee / his employees / authorized persons in the bank account in seven branches for Rs.39.64 crore between 10.11.2016 to 30.11.2016.

V. There was no authorization in favour of Mr. Neel Sunder/ Ashtalaxmi to deposit the cash in the bank account .

VI. Gold was purchased by the assessee from seller after sending the money through banking channel.(RTGS/Cheques).

VII. Bullion was delivered by the assessee to its customers.

64. Thus, it is clear that at the time of alleged receipt of advance on 8/11/2016 and 9/11/2016, no gold stock was available with the assessee and the assessee had only placed order for purchase of gold after depositing the amount in its bank account between 10.11.2016 to 30.11.2016. Further, in the absence of availability of gold with the assessee, it is difficult to infer that there is a sale agreement between the assessee and the anonymous buyers. The essential terms of agreement of sale are missing like the quantity of gold, rate, time of delivery etc. Hence, in the absence of requisite details, it is difficult to conclude a valid subsisting agreement of the sale of gold came into existence on or before 08.11.2016 between assessee and the anonymous buyers.

65. Now, the sequel to the above conclusion is that whether the cash received in specified notes allegedly on 08.11.2016 and 09.11.2016 and deposited thereafter in the bank account on or after 10.11.2016 for the purposes of purchasing the gold is permissible in the eyes of law.

66. No finding was given by the Ld.CIT(A) on this crucial and important aspect. In this regard, AO had relied upon various provisions of Sale of Goods Act, Contract Act and Notification in S.O.No.3407(E) dt. 08-11-2016. Ld.A.R. for the assessee on the other hand had submitted that

a. Firstly, when an agreement is considered void or voidable because of reasons mentioned in the Indian Contract Act, it only means that the parties to the agreement cannot resort to legal action to enforce such an agreement.

b. The taxability or otherwise must be decided as per the provisions of Income Tax Act. It is totally irrational on the part of the AO to conclude that because the sale is rendered void, the advance amounts received should be taxed in the hands of the seller as unexplained credits.

c. The AO while quoting from the Notification, failed to appreciate the contents of para 2(v) of the same Notification (Gazette Notification No.S.0.3407 (E)-RBI) (Annexure-10) which reads as under:

“the equivalent value of specified bank notes tendered may be credited the equivalent value of specified bank notes tendered may be credited ,to a third party account, provided specific authorization therefor accorded by the third party is presented to the bank, following standard banking procedure and on production of valid proof of identity of the person actually-tendering”.

d. Even assuming that though legally not correct, the transactions are illegal, as opined by the AO, the income needs to be taxed, as the Income tax Act does not differentiate between legal and illegal incomes. Kind attention of the CIT(A) is invited to the following judgments which support this contention.

67. In our view, the submissions of the assessee are without merit. In the present case, crucial question is whether any sale agreement was entered on or before 8/11/2016 or not.

As mentioned hereinabove, agreement of sale requires the meeting of mind and also requires an offer and acceptance by two parties. Once neither sale quantities were unidentifiable / traceable, then it is difficult to assume that any agreements came in existence. In the absence of any agreement, then question of void or voidable agreement did not arise. Hence, we hold that no sale of gold was effected on 08.11.2016.

68. After we had decided no sale of gold was happened prior to 8/11/2016, now we have to consider whether the assessee could receive SBNs after notification of demonetization 8/11/2016 for the sale of gold on subsequent dates and declare the profit on the such transactions.

69. The answer to this lies in the NOTIFICATION NO. S.O. 3407(E) [F.NO.10/03/2016-CY.I], DATED 8-11-2016, and THE SPECIFIED BANK NOTES (CESSATION OF LIABILITIES) ACT, 2017. Notification dated 8-11-2016 provides as under:-

Now, therefore, in exercise of the powers conferred by sub-section (2) of section 26 of the Reserve Bank of India Act, 1934 (2 of 1934) (hereinafter referred to as the said Act), the Central Government hereby declares that the specified bank notes shall cease to be legal tender with effect from the 9th November, 2016 to the extent specified below, namely:—

1. (1) Every banking company, 1[Co-operative Banks (only Urban Co-operative Banks and State Co-operative Banks)], corresponding new bank, subsidiary bank, regional rural bank and the State Bank of India as defined under the Banking Regulation Act, 1949 (10 of 1949) (hereinafter referred to as ‘banking company’ or ‘bank’) and every Government Treasury shall complete and forward a return showing the details of specified bank notes held by it at the close of business as on the 8th November, 2016, not later than 13:00 hours on the 10th November, 2016 to the designated Regional Office of the Reserve Bank of India (hereinafter referred to as the Reserve Bank) in the format specified by it.

(2) Immediately after forwarding the return referred to in sub-paragraph (1), the specified bank notes shall be remitted to the linked or nearest currency chest, or the branch or office of the Reserve Bank, for credit to their accounts.

2. The specified bank notes held by a person other than a banking company referred to in sub-paragraph (1) of paragraph 1 or Government Treasury may be exchanged at any Issue Office of the Reserve Bank or any branch of bank referred to in sub-paragraph (1) of paragraph 1 for a period up to and including the 30th December, 2016, subject to the following conditions, namely:—

(i)		1a[*]
(ii)		2[*]
(iii)		there shall not be any limit on the quantity or value of the specified bank notes to be credited to the account maintained with the bank by a person, where the specified bank notes are tendered; however, where compliance with extant Know Your Customer (KYC) norms is not complete in an account, the maximum value of specified bank notes as may be deposited shall be Rs.50,000:
		2a[Provided that the deposit up to the amount of Rs.5000 shall be made directly into such account and the rest of the amount, if any, shall be subject to such conditions as the Reserve Bank of India may specify:
		Provided further that the deposit of an amount exceeding Rs.5000 shall be made only once per account until 30th December, 2016;]
2aa[(iiia)		there shall not be any limit on the quantity or value of the specified bank notes that are tendered for payment and deposit under the Taxation and Investment Regime for the Pradhan Mantri Garib Kalyan Yojana, 2016;]
(ii)		the equivalent value of specified bank notes tendered may be credited to an account maintained by the tenderer at any bank in accordance with standard banking procedure and on production of valid proof of Identity;
(v)		the equivalent value of specified bank notes tendered may be credited to a third party account, provided specific authorisation therefor accorded by the third party is presented to the bank, following standard banking procedure and on production of valid proof of identity of the person actually tendering;
3[(vi)		cash withdrawal from a bank account over the counter shall be such as may be specified by the Reserve Bank of India from time to time:
		Provided that cash withdrawal from a current account shall be such as may be specified by the Reserve Bank of India from time to time:
		Provided further that the withdrawal limit provided for current accounts shall also be applicable to the traders registered with the Agricultural Produce Market Committee (APMC) markets and mandis.]
(vii)		there shall be no restriction on the use of any non-cash method of operating the account of a person including cheques, demand drafts, credit or debit cards, mobile wallets and electronic fund transfer mechanisms or the like;
4[(viii)		cash withdrawal from an ATM shall be such as may be specified by the Reserve Bank of India from time to time.]
(ix)		any person who is unable to……………………
5[(x)		the limits for cash withdrawal by farmers…………………
(xi)		for wedding expenses a maximum of Rs. 2,50,000 …………………. ]
5a[(xii)		deposit of specified bank :
		Provided that the linked currency chest to District Cooperative Central Banks shall give the exchange value for verified specified bank notes only and subject to usual checks relating to identification of fake Indian currency notes.]

3. (1) ………………………..

(2). ………………………..

(3). ………………………..

70. From the reading of the above notification, it is abundantly clear that SB Notes may be exchanged at any issue Office of RBI and / or any branch of bank subject to the conditions laid down in the notification, as SBN ceases to be valid tender as per the powers conferred by sub-section (2) of section 26 of the Reserve Bank of India Act, 1934 (2 of 1934) (hereinafter referred to as the said Act), with effect from the 9th November, 2016. However, no sale and purchase can be made either tendering or accepting SBN notes by any person after the cut off date of 08.11.2016, save an asset, the services / product exempted from this. In any case, there was a total prohibition from the sale and purchase of gold in specified Bank Notes after 08.11.2016, as the SBNs ceases to be valid tender as per the said notification issued under the Act.

71. Further, it is the case of the assessee that the SB notes were allegedly received by it as advances for the sale of gold vide cash receipts on 08.11.2016 and 09.11.2016 and were not cash in hands of the assessee as of 08.11.2016. Admittedly, CFSL report dt.10.03.2017 had clearly concluded that no advance receipts were issued by the assessee from its computers in between 08.11.2016 and 09.11.2016. As no receipts were issued on 08.11.2016 and 09.11.2016, however the receipts were recovered from the premises of the assessee, which clearly shows that the said receipts were issued / printed after demonetization notification and more particularly, after 09.11.2016. In view of the above, the acceptance of SBNs after 08.11.2016 was contrary to the RBI notification and no sale of gold could occur on such prohibited SBNs.

72. Furthermore, the conduct of the assessee was abnormal and it had caused immense harm to well intention notification and the Act. The withdrawal of legal tender character was one of the significant steps in weeding out the fake currency and to curb the black money in the country. The persons like assessee have given a setback to well-intended and well-thought policy of Government of India and they have used this as an opportunity to convert their or others’ ill-gotten money into bullions. In the present case the bank account. The above said act of the assessee is not only against the law but also against the interests of the nation. In the present case, the bank account with the AXIS Bank was only opened on 10.11.2016. As per the notification, the assessee cannot deposit more than the amount of Rs.50,000/- in its account till KYC is completed. It is not the case of the assessee that the KYC had been completed on the date of opening of its account. It is not understandable how the bank permitted the deposit of huge amounts in the newly opened account, on the date of its opening itself. The concerned agency must look into the role of the bank employees in this regard. When the assessee itself cannot deposit more than Rs.50,000/- as per notification, then how a third party can be authorized to deposit more than the specified limits in the bank account of the assessee. The disability of the assessee would entail the disability of its delegate / agent.

73. As per clause (v) of the notification (supra), the equivalent value of specified bank notes tendered may be credited to a third party account, provided specific authorization therefor accorded by the third party is presented to the bank, after following the standard banking procedure and on production of valid proof of identity of the person actually tendering. In the present case it is not the case that the notes were lying with the third party, rather it is undisputed case that S.B. Notes were received by the assessee from the so called purchaser of the gold and thee assessee had authorized one Asha, wife of Mr. Neel Sunder to deposit the notes in the bank account. The notes were deposited in the newly opened bank account after collecting from the undisclosed customers on various dates with the help of staff of assessee or its Director or others. Mr. Nitin Gupta, M.D. of the assessee in his subsequent statement date 20/11/2019 stated as under :

“12. When did you receive the names of the parties in whose name the cash receipts have to be generate’ and when did you generate the cash receipts?

Ans: On 8th night I have received the names on which the cash receipts have to be generated. The cash receipts were generated starting from night of 08.11.2016 to 09.11.2016

13. When did the generation of cash receipts came to an end?

Ans: I could not remember the exact time of completion of generation of receipts. But I can say that the work was started on 8th night and completed on 09.1.2016. Please refer to answer 4 of your statement recorded on 07 12.2016 wherein it was replied by you that cash receipts were issued to all the customers on receipt of advances on 08.11.2016 Please confirm the same?

Ans. After generation of cash receipts on 8th and 9th of Nov.2016 simultaneously the cash receipts were issued to the respective seven customers.

20. To sum up, you are confirming that you have received cash advances of Rs.57,75,35,000/- from six customers (against 3100 customers stated earlier m the statement recorded on 01 12 2016) in the case of M/s MGJPL on 08.11.2016 after 09.00 PM, entered the cash advances. In your books on the same day, generated cash receipts on the same day from the systems available in your premises in tally software and issued to all the customers.

Likewise, in the case of M/s VBPL, you have received Rs.40,11,50,000/- as cash advances from one customer (2100 customers earlier) and followed the same procedure as was done in the case of M/s MGJPL?

Ans. Yes. I confirm that in M/s MGJPL, I have received approximately Rs. 57 crores from six customers and Rs.40 crores from one customer in M/s VBPL. Entered the details of cash advances bifurcating all below Rs.2 lakhs in the name of various persons (as provided by six and one customer respectively) started generating cash receipts on 8th Nov. 2016 to 09th Nov. 2016, from the systems available in our premises in Tally software and handed over the receipts to the respective seven customers.

20. As you are aware, as per page -3 of the impounding order, the five systems available (one Compaq CPU SG 34401L, one assembled PU – Intex, One Lenovo CPU S.No.LQCH015, One Lenovo CPU S.No.L9C3LC60 (belonging to MGJPL) and Lenovo CPU S.No.ES0Q7220256 (belonging to M/s VBPL) in your premises on the date of survey in which you have claimed to have entered the cash advances were impounded by the Department vide impounding .order We 133A(3)(ia) on 02.12.2016. Please confirm.

Ans. I exactly do not remember the number and models of the systems. However, certain systems were impounded from our premises when the survey was conducted as per the above impounding order.

21. The above impounded CPUs were sent to Central Forensic Science Laboratory and a report was obtained. I am showing you the findings of CFSL, dated 01.05.2017, starting from pages 1 to 9 along with covering letter dated 01.05.2017. Please offer your comments?

Ans. From the said report, I have understood that the timings of operation of our systems, which were impounded from our premises, four systems were not operated on 08.11.2016 and one system was operated and closed at 18:45:34 on 08.11.2016. In this regard, I would submit that the office of the above said two ‘companies is in the B-Block of the compound. Our residence is in the A-Block of the compound. As you know, today is computer is necessity of life to us and to our children and we are having systems even in our residence and during that time, lot of shuffling of systems had happened. I may not be aware of the timing of opening and closing of a system.”

74. Thus, it is clear that SBNs were subsequently received by the assessee and were wrongfully deposited with the bank and thus, the assessee had mischievously and unscrupulously brought the SBNs into the network. In our view, the stand of the Assessing Officer is correct, as he had rightly concluded that no legal sale of gold could have made with use of prohibited currency /SBNs.

75. Last argument of the assessee before us was, “Even assuming that, though legally not correct, the transactions are illegal, as opined by the AO, the income needs to be taxed, as the Income tax Act does not differentiate between legal and illegal incomes”. In this regard we may mention that much water had flown on this count. Recently Hon’ble Supreme court was faced with identical situation and had repelled the argument of the assessee in the case of Apex Laboratories (P.) Ltd. [2022] 135 taxmann.com 286 (SC) as under :-

“22. This Court is of the opinion that such a narrow interpretation of Explanation 1 to section 37(1) defeats the purpose for which it was inserted, i.e., to disallow an assessee from claiming a tax benefit for its participation in an illegal activity. Though the memorandum to the Finance Bill, 1998 elucidated the ambit of Explanation 1 to include “protection money, extortion, hafta, bribes, etc.”, yet, ipso facto, by no means is the embargo envisaged restricted to those examples. It is but logical that when acceptance of freebies is punishable by the MCI (the range of penalties and sanction extending to ban imposed on the medical practitioner), pharmaceutical companies cannot be granted the tax benefit for providing such freebies, and thereby (actively and with full knowledge) enabling the commission of the act which attracts such opprobrium.

…………………………..

24. Even if Apex’s contention were to be accepted – that it did not indulge in any illegal activity by committing an offence, as there was no corresponding penal provision in the 2002 Regulations applicable to it – there is no doubt that its actions fell within the purview of “prohibited by law” in Explanation 1 to Section 37(1).

25. Furthermore, if the statutory limitations imposed by the 2002 Regulations are kept in mind, Explanation (1) to section 37(1) of the IT Act and the insertion of section 20A of the Medical Council Act, 195611 (which serves as parent provision for the regulations), what is discernible is that the statutory regime requiring that a thing be done in a certain manner, also implies (even in the absence of any express terms), that the other forms of doing it are impermissible. ( emphasis added by us)

26………………………………..

27. It is also a settled principle of law that no court will lend its aid to a party that roots its cause of action in an immoral or illegal act (ex dolo malo non oritur action) meaning that none should be allowed to profit from any wrongdoing coupled with the fact that statutory regimes should be coherent and not self-defeating. Doctors and pharmacists being complementary and supplementary to each other in the medical profession, a comprehensive view must be adopted to regulate their conduct in view of the contemporary statutory regimes and regulations. (emphasis supplied by us). Therefore, denial of the tax benefit cannot be construed as penalizing the assessee pharmaceutical company. Only its participation in what is plainly an action prohibited by law, precludes the assessee from claiming it as a deductible expenditure.

………………………

34. Interpretation of law has two essential purposes: one is to clarify to the people governed by it, the meaning of the letter of the law; the other is to shed light and give shape to the intent of the law maker. And, in this process the courts’ responsibility lies in discerning the social purpose which the specific provision subserves. Thus, the cold letter of the law is not an abstract exercise in semantics which practitioners are wont to indulge in. So viewed the law has birthed various ideas such as implied conditions, unspelt but entirely logical and reasonable obligations, implied limitations etc. The process of continuing evolution, refinement and assimilation of these concepts into binding norms (within the body of law as is understood and enforced) injects vitality and dynamism to statutory provisions. Without this dynamism and contextualization, laws become irrelevant and stale.

35. In Biharilal Jaiswal v. CIT [1995] Supp (5) SCR 285, the issue of what is “prohibited by law” was considered by this Court, in the context of interpretation of a condition in a statutory license (for vending liquor) which prohibited transfer of the license by way of sub-letting or entering into a partnership agreement. While dealing with the recognition of such a partnership under the IT Act, this Court held that allowing the same would attract the very mischief sought to be avoided :

“This object will be defeated if the licencee is permitted to bring in strangers into the business, which would mean that instead of the licencee carrying on the business, it would be carried on by others – a situation not conducive to effective implementation of the excise law and consequently deleterious to public interest. It is for this very reason that transfer or subletting of licence is uniformly prohibited by several State Excise enactments. It, therefore, follows that any agreement whereunder the licence is transferred, sub-let or a partnership is entered into with respect to the privilege/business under the said licence, contrary to the prohibition contained in the relevant excise enactment, is an agreement prohibited by law. The object of such an agreement must be held to be of such a nature that if permitted it would defeat the provisions of the excise law within the meaning of Section 23 of the Contract Act. Such an agreement is declared by Section 23 to be unlawful and void. The question is whether such an unlawful or void partnership can be treated as a genuine partnership within the meaning of Section 185(1) and whether registration can be granted to such a partnership under the provisions of the Income-tax Act and the Rules made thereunder. We think not. When the law prohibits the entering into a particular partnership agreement, there can be in law no partnership agreement of that nature. The question of such an agreement being genuine cannot, therefore, arise.

It is also a known principle that what cannot be done directly, cannot be achieved indirectly. As was said in Fox v. Bishop of Chester [1824] 2 BFC 635 Jagir Singh v. Raubir Singh [1999] 2 SCR 282 that it is a :

“Well-known principle of law that the provisions of an Act of Parliament shall not be evaded by shift or contrivance”

And that

“To carry out effectually the object of a Statute, it must be construed as to defeat all attempts to do, or avoid doing, in an indirect or circuitous manner that which it has prohibited or enjoined”

This Court, in an appeal arising from an action for specific performance, in G.T. Girish v. Y. Subba Raju 2022 SCC Online SC 60, held that giving the relief would imply doing something prohibited by law (bar against conveyance, for a specific period) – it had the effect of defeating the provisions of the law. It was held that :

“Taking the agreement as it is, it necessarily would be in the teeth of the obligation in law of the first Respondent to put up the construction. The agreement to sell involved clearly terms which are impliedly prohibited by law in that the first Defendant was thereunder to deliver title to the site and prevented from acting upon the clear obligation under law. This is a clear case at any rate wherein enforcing the agreement unambiguously results in defeating the dictate of the law. The ‘sublime’ object of the law, the very soul of it stood sacrificed at the altar of the bargain which appears to be a real estate transaction. It would, in other words, in allowing the agreement to fructify, even at the end of ten-year period of non-alienation, be a case of an agreement, which completely defeats the law for the reasons already mentioned.

78. Going by the recital in the agreement entered into between the Plaintiff and the first Defendant, possession is handed over by the first Defendant to the Plaintiff. The original Possession Certificate is also said to be handed over to the Plaintiff. The agreement, even according to the Plaintiff, contemplated that within three months of conveyance of the site in favour of the first Defendant, the first Defendant was to convey her rights in the site to the Plaintiff. It is quite clear that the parties contemplated a state of affairs which is completely inconsistent with and in clear collision with the mandate of the law. On its term, it stands out as an affront to the mandate of the law.

79. The illegality goes to the root of the matter. It is quite clear that the Plaintiff must rely upon the illegal transaction and indeed relied upon the same in filing the suit for specific performance. The illegality is not trivial or venial. The illegality cannot be skirted nor got around. The Plaintiff is confronted with it and he must face its consequences. The matter is clear. We do not require to rely upon any parliamentary debate or search for the purpose beyond the plain meaning of the law. The object of the law is set out in unambiguous term. If every allottee chosen after a process of selection under the Rules with reference to certain objective criteria were to enter into bargains of this nature, it will undoubtedly make the law a hanging (sic laughing) stock.”

76. In light of the above discussions, it is crystal clear that the assessee has failed to prove the identity of the creditors, genuineness of the transactions and creditworthiness of the creditors. Therefore, the assessee had failed to discharge his onus under section 68 of the Act; hence, the order of the Assessing Officer is required to be restored and the order of the ld.CIT(A) is required to be set aside. We do it accordingly. In the result, we uphold the addition of Rs.40,11,50,000/- as unexplained credit in the hands of the assessee (Vaishnavi Bullion Private Limited.)

77. In the result, the appeal of the assessee in ITA No.561/Hyd/2020 is dismissed and appeal of the Revenue in ITA No.59/Hyd/2021 is allowed.

ITA No.560/Hyd/2020 and ITA 59/Hyd/2021 (Musaddilal Gems and Jewels Private Ltd)

78. Now coming to assessee’s appeal in ITA No.560/Hyd/2020 and ITA 59/Hyd/2021, we respectfully, following our decision in ITA No.561/Hyd/2020 and ITA 58/Hyd/2021 decided above, dismiss the appeal of the assessee and allow the appeal of Revenue. In the result, we uphold the addition of Rs.57,85,35,000/- as unexplained credit in the hands of the assessee (Musaddilal Gems and Jewels Pvt. Ltd.)

79. To sum up, captioned appeals of both the assessees are dismissed and the appeals of Revenue are allowed.

Order pronounced in the Open Court on 28th day of November, 2022.

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Vaishnavi Bullion Private Limited Vs ACIT (ITAT Hyderabad)

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Author Bio

Name: POONAM GANDHI

Qualification: CA in Practice

Company: N/A

Location: AHMEDABAD, Gujarat, India

Member Since: 14 Feb 2019 | Total Posts: 6491

My Published Posts

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

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