Nayagi Fireworks Limited Vs ACIT (ITAT Chennai)
Introduction: The case of Nayagi Fireworks Limited vs. ACIT for Assessment Year (AY) 2017-18 revolves around the contentious issue of confirming the addition of cash deposits amounting to Rs. 99.50 Lacs. The order was passed by the Commissioner of Income Tax (Appeals) of the National Faceless Appeal Centre (NFAC), Delhi, concerning an assessment conducted by the Assessing Officer (AO) under section 143(3) on December 18, 2019. Nayagi Fireworks Limited is a resident corporate entity involved in the manufacturing of fireworks used during festival seasons.
Detailed Analysis: During the assessment proceedings, it was revealed that the company made cash deposits of Rs. 100.50 Lacs after demonetization from November 14, 2016, to December 31, 2016. The company claimed that these deposits were sourced from the cash balance recorded in the books as of November 8, 2016. However, the AO held that the company failed to substantiate these accruals from sales collections, worker advances recovery, and other sources, and subsequently added this amount to the company’s income as unexplained cash credit under section 68.
In the appellate proceedings, the company provided a summary of its cash position, explaining the source of the cash deposits. According to this summary, a substantial amount of Rs. 96.90 Lacs was sourced from the OTS-Accumulation Account. The company argued that the source of the cash deposits was adequately explained in this manner.
However, the CIT(A) upheld the addition of Rs. 2.60 Lacs related to worker’s advances received back, stating that the company failed to provide any evidence proving the legitimacy of these advances. Regarding the OTS-Accumulation Account, the CIT(A) rejected the company’s submissions, stating that they lacked documentary evidence. The bank loan account was declared non-performing (NPA) on August 12, 2018, and a notice under the SARFESI Act was issued on August 14, 2018, for loan recovery. The CIT(A) argued that instead of repaying the interest-bearing bank loan, the company chose to accumulate cash, which was not a valid decision. The company was unable to clarify the source of this cash accumulation, and the bank’s notice did not support the company’s contention of accumulating cash for the one-time settlement (OTS). Therefore, the addition made by the AO under section 68 was confirmed.
Conclusion: In light of the facts and the principle of natural justice, the case has been set aside, providing Nayagi Fireworks Limited with another opportunity to substantiate the source of the cash deposits. The order has been restored for a de novo assessment, with the direction that the company must present supporting evidence to establish its case. This decision offers the company a chance to clarify and validate the source of the cash deposits, which is essential to resolve this dispute.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. The sole grievance of the assessee in captioned appeal for Assessment Year (AY) 2017-18 is confirmation of addition of cash deposits of Rs.99.50 Lacs. The impugned order has been passed by learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] on 21-07-2022 in the matter of an assessment framed by learned Assessing Officer (AO) u/s 143(3) on 1812-2019. The assessee being resident corporate assessee is stated to be engaged in manufacturing of fire crackers which are used during festival seasons.
2. The Ld. AR advanced arguments and submitted that the cash in hand as on 08-11-2016 was duly supported by the cash book as maintained by the assessee. The Ld. AR drew attention to the summary of cash in hand as noted in the impugned order. It was further submitted that no fault was found in the books of accounts. The Ld. Sr. DR, on the other hand, supported the orders of lower authorities and submitted that the assessee did not furnish requisite evidences to establish the source of cash deposit.
Proceedings before lower authorities
3.1 During assessment proceedings, it transpired that the assessee made cash deposits Rs.100.50 Lacs after demonetization during 14-112016 to 31-12-2016 as tabulated in para-3 of the assessment order. The assessee submitted that the cash was sourced out of cash balance standing in the books as on 08-11-2016. However, Ld. AO held that the assessee failed to substantiate the accruals from sales collection, recovery of worker advances etc. The assessee failed to file the evidences like name, PAN, address of customers, stock registers, stock movements etc. Accordingly, the Ld. AO added the same to the income of the assessee as unexplained cash credit u/s 68.
3.2 During the appellate proceedings, the assessee summarized the cash position as under: –
