DCIT Vs Bawa Jewellers Pvt Ltd (ITAT Delhi)
ITAT Delhi held that provisions of section 68 of the Income Tax Act cannot be applied in relation to the cash sales receipt shown by the assessee in its books of accounts.
Facts- During the assessment proceedings, AO noticed that the assessee company has deposited cash of Rs.21,69,98,000/- from 09.11.2016 to 31.12.2016 during demonetization period and the assessee was asked to produce relevant documents in support of its cash deposits.
The assessee furnished month wise cash sales, cash deposits, purchases, opening cash in hand, advances from debtors, closing cash balances in hand. Assessee also submitted that generally the showroom will be closed around 8.30 pm but after Prime Minister’s Speech that 1000 and 500 currency notes would no longer be a legal tender after 12:00 midnight of 08.11.2016 there was a huge rush of customers pouring in the showroom to purchase which the assessee had never seen before. It was also submitted that the customers did not bother to look for the design of the jewellery and they were just ready to pick the products which were below Rs.2 lakhs as no one wanted to share the PAN details, contact details etc. The assessee submitted that the cash generated from out of cash sales was deposited in parts in its banks namely Kotak Mahindra Bank and Federal Bank Ltd.
The assessee also submitted that cash sales is a common phenomena in the business of the assessee company which is into manufacture of gold and diamond jewellery and the company is regularly depositing cash into bank account.
AO made addition u/s 68 at Rs.9,99,51,075/- after considering deposits of Rs.10,45,46,925/-and Rs.1,25,00,000/- as explained out of cash deposits of Rs.21,69,98,000/-. This was treated as unexplained and brought to tax u/s 68 of the Act. On appeal the Ld.CIT(Appeals) deleted the addition made u/s 68 of the Act, against which order the Revenue is in appeal before us.
Conclusion- Held that the provisions of section 68 cannot be applied in relation to the sales receipt shown by the assessee in its books of accounts. It is because the sales receipt has already been shown in the books of accounts as income at the time of sale only. There was no iota of evidence having any adverse remark on the purchase shown by the assessee in the books of account. Once the purchases have been accepted, then the corresponding sales cannot be disturbed without giving any conclusive evidence/finding.
Affirming the order of the Ld. CIT(A), we hold that the AO has made addition u/s 68 erroneously. The ground raised by the Revenue is rejected.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the Revenue against the order of the Ld. Commissioner of Income Tax(Appeals)-2, New Delhi dated 09.09.2020 for the AY 2017-18 in deleting the addition made u/s 68 of the Act in respect of cash deposits made by the assessee into its bank accounts during demonetization period.
2. Brief facts are the assessee company which is engaged in the business of manufacture of gold and diamond jewellery filed its return of income on 29.09.2017 declaring income of Rs.1,21,28,780/-. The case was selected for scrutiny through CASS as the assessee made large cash deposits during the demonetization period.
3. During the assessment proceedings, the Assessing Officer noticed that the assessee company has deposited cash of Rs.21,69,98,000/- from 09.11.2016 to 31.12.2016 during demonetization period and the assessee was asked to produce relevant documents in support of its cash deposits. The assessee furnished month wise cash sales, cash deposits, purchases, opening cash in hand, advances from debtors, closing cash balances in hand. Assessee also submitted that generally the showroom will be closed around 8.30 pm but after Prime Minister’s Speech on 08.11.2011 that 1000 and 500 currency notes would no longer be a legal tender after 12:00 midnight of 08.11.2016 there was a huge rush of customers pouring in the showroom to purchase which the assessee had never seen before. It was also submitted that the customers did not bother to look for the design of the jewellery and they were just ready to pick the products which were below Rs.2 lakhs as no one wanted to share the PAN details, contact details etc. The assessee submitted that the cash generated from out of cash sales was deposited in parts in its banks namely Kotak Mahindra Bank and Federal Bank Ltd. The assessee also furnished comparison chart showing cash sales, cash deposits, turnover and closing stock for the FYs 2015-16, 2016-17 and 2017-18 and submitted that there is no unprecedented trend in the financial transactions of the assessee company and there was a marginal increase in the cash sales.
4. The assessee submitted that for the FY 2015-16 the cash sales were Rs.31,85,57,163/- out of total turnover of Rs.44,98,39,568/-and the ratio of cash sales to turnover was 70.82%. Similarly the cash sales for FY 2016-17 were Rs.42,84,00,142/- out of total turnover of Rs.58,09,41,333/- and the ratio of cash sales to turnover was 73.74%. Therefore, the assessee submitted that there was a marginal increase in cash sales for the FY 2016-17. The assessee also submitted that cash sales is a common phenomena in the business of the assessee company which is into manufacture of gold and diamond jewellery and the company is regularly depositing cash into bank account.
5. The assessee further submitted that cash deposits during the FY 2015-16 was Rs.37,21,51,000/- when turnover was at 44,98,39,568/- and the ratio of cash deposits to turnover was 82.73%, whereas the cash deposits of the assessee company during the FY 2016-17 was Rs.47,76,87,500/- when turnover was 58,09,41,333/- and the ratio of cash deposits to turnover was 82.22%. Therefore it was submitted that in cash deposits also there was consistency and regularity. The assessee also contended that the closing stock for the FY 2015-16 and 2016-17 was Rs.19,42,54,866/- and 19,33,74,529/- respectively and the company generally keeps good stock holding always various kinds of designs, patterns in various weight and sizes. It was submitted that assessee has been maintaining stocks from past few years which can be seen from the audited balance sheet from the last 4-5 years.
6. However, the AO on analyzing cash deposits during demonetization period for the FY 2016-17 in comparison to FY 201516 he came to the conclusion that it is not in line of the normal business and observing that there is increase in cash deposit at 168% and cash sales at 111% he concluded that cash deposits amounting to Rs.21,69,98,000/- during demonetization period i.e. from 01.04.2016 to 08.11.2016 is not justified. However, the AO has allowed credit for the cash deposits in accordance with turnover over ratio growth. AO has arrived at ratio growth in respect of the turnover for the FY 2016-17 over 2015-16 at 29.15% and since cash deposits during 09.11.2015 to 31.12.2015 was 08,09,50,000/- he has calculated the growth rate of turnover cash deposits at Rs.10,45,46,925/- for the period from 09.11.2016 to 31.12.2016. This was allowed as proven. The AO also allowed 1,25,00,000/-which was deposited under Pradhan Mantri Garib Kalyan Scheme, 2016 and arrived at the addition to be made u/s 68 at Rs.9,99,51,075/- after considering deposits of Rs.10,45,46,925/-and Rs.1,25,00,000/- as explained out of cash deposits of Rs.21,69,98,000/-. This was treated as unexplained and brought to tax u/s 68 of the Act. On appeal the Ld.CIT(Appeals) deleted the addition made u/s 68 of the Act, against which order the Revenue is in appeal before us.
7. At the time of hearing, the Ld. DR strongly supported the orders of the Assessing Officer and the Ld. Counsel for the assessee placed reliance on the orders of the Ld.CIT(Appeals). The Ld. Counsel for the assessee further submits that the Ld.CIT(A) following the decision of the Tribunal in the case of Agson Global Pvt. Ltd. vs. ACIT dated 31.10.2019 deleted the addition on identical facts and this decision of the Tribunal was also affirmed by the Delhi High Court in the case of Pr. CIT vs. Agson Global Pvt. Ltd.
(441 ITR 550). The Ld. Counsel also relied on the following decisions:
1. ACIT vs. Hirapanna Jewellers [189 ITD 608 (Visakhapatnam)]
2. Charu Aggarwal vs. DCIT [140 Taxman.com 588 (Chd.)]
3. Anantpur Kalpana vs. ITO [138 com 141 (Bangalore)]
8. Heard rival submissions, perused the orders of the authorities below and the decisions relied on. During the demonetization period the assessee company had deposited cash of Rs.21,69,98,000/- into its bank accounts maintained with Federal Bank Ltd. and Kotak Mahindra Bank Ltd. The AO has observed that the total cash deposited in the banks with respect to two consecutive financial years (with reference to the date of demonetization), total cash deposited in bank from 09.11.2015 to 31.12.2015 amounted to Rs. 8,09,50,000/- as against Rs. 21,69,98,000/- for the period 09.11.2016 to 31.12.2016. The AO observed that the total turnover for FY 2015-2016 was Rs.44,98,39,562/- and for FY 2016-2017 was Rs. 58,09,41,333/-. Thus, there was a growth rate of 29.15% in sales on year to year basis. The AO held that the assessee can be given benefit of this growth rate in cash sales for corresponding demonetization year. The AO further observed that during demonetization period there was a jump of 168% in total cash deposits and the cash sales jumped to 111% during the period 01.04.16 to 08.11.16 than that of previous financial year i.e. 2015-16. Finding of the AO is tabulated below: –
