Section 69A not invocable when cash is sourced out of recorded sales: ITAT Chennai

Mahasakthi Mills Limited Vs ACIT (ITAT Chennai)

ITAT Chennai held that provisions of section 69A of the Income Tax Act could not be invoked when cash is sourced out of recorded sales. Accordingly, appeal allowed and addition u/s. 69A is liable to be deleted.

Facts- The assessee being resident corporate assessee is stated to be running a textile mill. It is manufacturing cotton / synthetic yarn and clothes. It transpired that the assessee deposited cash of Rs.800.05 Lacs during demonetization period. The assessee also made cash advances of Rs.1267.55 Lacs to its sister concerns viz. M/s Imperial Spirits Ltd., M/s Overseas Beverages Ltd. and M/s Arumuga Cottspin Ltd.

Rejecting assessee’s submissions, the cash deposits of Rs.800.05 Lacs as well as advances for Rs.1267.55 Lacs was added on substantive basis u/s 69A in the hands of the assessee.

CIT(A) confirmed the addition. Being aggrieved, the present appeal is filed.

Conclusion- Held that the sales turnover has duly been recorded in the books of accounts. The books are subjected to audit under extant regulations and no defect has been pointed out by any of the lower authorities in the books of accounts in their respective orders. The assessee has maintained and furnished day-wise stock position of cloth and yarn. The Ld. AO has accepted the stock position, production figures etc. which are reflected in the books of accounts. Having accepted the purchase and sales, the cash generated out of sales proceeds could not be taxed separately. No discrepancy has been pointed out by survey team in the stock position though the survey is primarily aimed at verifying cash and stock position. The sales have already been offered by the assessee to tax and taxing the same again as income from other sources u/s 69A would amount to double taxation which is impermissible.

Held that the provisions of Sec.69A could be invoked only where the assessee is found to be the owner of any money or bullion etc. which is not recorded in the books of accounts. The same is not the case here. The assessee has made cash sales which have duly been credited in the cash book. There is no unexplained money within the meaning of Sec.69A. When the cash is sourced out of recorded sales, the provisions of Sec.69A could not be invoked.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

1. Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 arises out of the order of learned Commissioner of Income Tax (Appeals), Chennai-20, [CIT(A)] dated 23-02-2024 in the matter of an assessment framed by the Ld. AO u/s 143(3) of the Act on 20-12-2019. The assessee has raised the following grounds: –

1. That the Learned Commissioner of Income Tax (Appeals) – 20, Chennai [“Ld.CIT(A)”] is not justified in confirming the addition of Rs.20,67,60,000/- made by the Assessing Officer u/s.69A of the Income-tax Act, 1961 [“Act”] treating cash deposits in the bank account of Rs.8,00,05,000/- and advances to sister concerns of Rs.12,67,55,000/-, made out of cash sales and realization from the Sundry Debtors in respect of sales already offered to tax, as unexplained money.

2. That the Ld.CIT(A) erred in not appreciating that the provisions of section 69A of the Act are not applicable to the facts and circumstances of the case of the appellant and consequently not justified in not deleting the addition made by the Assessing Officer u/s.69A of the Act.

3. That the Ld. CIT(A) is not justified in confirming the action of the Assessing Officer in holding that the appellant could not establish the cash realization from the Sundry Debtors, Cash Sales and Cash Balance in hand.

4. That the Ld.CIT(A) is not justified in sustaining the disallowance of Knitting Charges of Rs.42,70,000/- made by the Assessing Officer u/s.40A(3) of the Act.

As is evident from grounds of appeal, two issues fall for our consideration viz. (i) addition of cash deposits; (ii) Disallowance of knitting charges u/s 40A(3).

2. The Ld. AR advanced arguments and relied on the earlier decision of Tribunal in assessee’s own case for AY 2015-16 in ITA No.692/Chny/2023 dated 29-11-2023. The copy of the same has been placed on record along with various submissions. The Ld. CIT-DR also advanced arguments supporting the additions made by lower authorities. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.

Assessment Proceedings

3.1 The assessee being resident corporate assessee is stated to be running a textile mill. It is manufacturing cotton / synthetic yarn and clothes. For this year, the assessee declared loss of Rs.174.55 Lacs. A survey was conducted u/s 133A at the business premises of the assessee group on 23-03-2017. It transpired that the assessee deposited cash of Rs.800.05 Lacs during demonetization period. The assessee also made cash advances of Rs.1267.55 Lacs to its sister concerns viz. M/s Imperial Spirits Ltd., M/s Overseas Beverages Ltd. and M/s Arumuga Cottspin Ltd. In recorded statement, Shri G. Ganesh, Assistant General Manager, explained that the source of cash deposits and the said advances was out of cash sales of yarn and clothes.

3.2 Shri T. Rajkumar was one of the directors of assessee-company and he was subjected to search on same date. He stated that the cash was sourced from cash sale of cloth manufactured and yarn produced by the mill. On 23-08-2017, another statement was recorded from him wherein he furnished the cash flows. To verify the same, summons was issued to the three buyers who denied having any business connection with the assessee. The assessee furnished a list of 418 parties to whom cash sales were purportedly made. Out of the same, sample of 25 cases with cash sales exceeding Rs.2 Lacs was selected and letters were issued u/s 133(6) to confirm the transactions. One party confirmed the purchases which were also held to be not reliable. The Ld. AO also noted that the assessee revised VAT returns for the month of July to October, 2016 increasing its sales turnover. Shri T. Rajkumar stated that VAT returns were filed only for yarn sales and to include the cloth sales, VAT returns were revised. Finally, Ld. AO held that cash sales as stated by the assessee were not acceptable though the cash deposits of Rs.800.05 Lacs were utilized by the assessee to settle early borrowings as taken from related concerns.

3.3 The assessee advanced Rs.1267.55 Lacs to sister concerns which was stated to be sourced out of realization of debtors for Rs.1099.61 Lacs as shown in the books of account. However, the assessee could not file the requisite verifiable details. Finally, rejecting assessee’s submissions, the cash deposits of Rs.800.05 Lacs as well as advances for Rs.1267.55 Lacs was added on substantive basis u/s 69A in the hands of the assessee. The same was added protectively in the hand of Shri T. Rajkumar. The assessee advanced sum to its sister concerns which was deposited by them in their bank accounts and therefore, these advances were also added protectively in their respective hands.

3.4 Another disallowance was of knitting charges. It was noted that the assessee gave job work to M/s Knit Tex Fabs and paid knitting charges for Rs.42.70 Lacs. Since no tax was deducted against the same, 30% thereof was disallowed u/s 40(a)(ia). The assessee allegedly made payment in cash and therefore, the amount of Rs.42.70 Lacs was separately added u/s 40A(3). Finally, the assessment was framed determining business loss of Rs.119.04 Lacs. The income from other sources was assessed u/s 69A at Rs.2067.60 Lacs. Aggrieved, the assessee assailed the same before first appellate authority.

Appellate Proceedings

4.1 The assessee assailed the impugned additions by way of elaborate written submissions which have been extracted in the impugned order. The assessee, inter-alia, stated that the cash were deposited out of sale proceeds which were duly reflected in VAT returns. The revision of VAT returns was within the ambit of law. The provisions of Sec.69A could be invoked only where the assessee is found to be the owner of money, bullion etc. which is not recorded in the books of accounts. This is the primary condition for invoking the provisions of Sec.69A. When cash was sourced out of recorded sales, these provisions could not be applied. The assessee submitted that no such findings have been rendered by Ld. AO. The assessee has maintained regular books of accounts which are duly audited as required under the Companies Act. The assessee further submitted that during the course of survey proceedings, summons u/s 131(1A) were issued to one Shri Senthil Kumar. In the recorded statement, he clearly explained his role as a broker for sale of yarn as well as cloth to various customers. The mode of carrying out the business was also stated. At the time of survey, box files containing copies of sales invoices were found which was duly verified by the survey team. It was business practice to carry out trade through broker who played a vital role in collection from the customers also. All these facts were not appreciated by Ld. AO. The broker would ensure collections from debtors and the assessee may not have direct link with the debtors. Further, Ld. AO has accepted the stock position, production and expenses etc. Having accepted the purchases as well as sales, the cash generated out of sales proceeds could not be taxed separately. The assessee, during the course of assessment proceedings, duly submitted the purchase and sales invoices which were duly verified. The books of accounts were also produced during the course of assessment proceedings. The assessee also furnished stock details of cloth and yarn. The stock abstract as furnished by the assessee contain day-wise stock of the yarn and cloth which were duly verified by Ld. AO during the course of assessment proceedings. During survey, the survey team did not find any discrepancy in the stock maintained by the assessee. The survey team as well AO had not raised any doubt over the purchases, production and sales. The sales are already offered to income in the Profit & Loss Account and taxing the realization proceeds would lead to double taxation which is against the principles of taxation. Reference was made to various judicial decisions to support its case.

4.2 On the issue to advances to sister concerns, the assessee submitted that such advances were sourced out of opening cash balance and collection from debtors as outstanding in the books of accounts.

These debtors arose on account of sales in earlier years which are already offered to tax. The debtors forms part of books of accounts well as return of income submitted for earlier years. The assessee also submitted that all the stock figures are available in the return of income and financials attached with Tax Audit Reports. The turnover in earlier years was stated to be substantial and quite similar to sales of this year. The sales turnover for this year was Rs.22.73 Crores. Pertinently, the returns of income for AYs 2015-16, 2016-17 and 2018-19 were scrutinized u/s 143(3) and the closing stock, year-end debtors’ balances for all the years were accepted by the department. The copies of the assessment orders were also attached in support of its claim. The closing stock as on 31-03-2016 was Rs.13.91 Crores. It was also stated that the sales tax returns for July, 2016 to September, 2016 were revised during February, 2017 which was much before the date of survey on 23­03-2017. As per extant VAT rules, the assessee was allowed to revise the returns to rectify omissions and errors within stipulated period of six months. It was duly explained by the director that cloth sales turnover was omitted to be included in the VAT returns. The assessee also submitted that the cash deposits of Rs.800 Lacs were utilized by the assessee for settling long-Term borrowings. The omission to include cloth sale happened due to the fact that the assessee was engaged in the business of spinning yarn and manufacturing of fabric was additional allied activity. The sales turnover of this segment was inadvertently omitted to be included in the regular VAT return of the company which was noticed subsequently and rectified accordingly.

4.3 Regarding denial of transaction by the three parties, the assessee pointed out that the sales were mainly affected through brokers and the customers would generally be unaware of the key persons of the assessee. The brokers would affect sales and purchase and also collect cash from the customers and hand over the same to the assessee company.

4.4 The assessee also submitted that books of accounts were duly furnished during the course of assessment proceedings. The cash deposits were duly reflected in the cash book and the source of the same was sale of goods. The entire sales proceeds were credited to Profit and Loss account and offered for tax. The conclusion that the bank deposits were not out of the sale proceeds was against the facts of the case and the evidences impounded and verified during the course of assessment proceedings. If the bank deposits are not represented by the cash sales as presumed by Ld. AO then the onus would be on Ld. AO to prove in which form the money received on account of cash sales and the money received from Debtors are represented.

4.5 On disallowance of Knitting Charges, the assessee submitted that the total disallowance of Rs.55.51 Lacs was much more than the payments made / expenses claimed by the assessee. The assessee also submitted that due TDS was deducted against the same. The assessee also submitted that the payments were within the limits laid down u/s 40A(3). The Ld. CIT(A) concurred that disallowance of same expenditure could not be made under two different sections and disallowance could not exceed actual expenditure itself. The Ld. CIT(A) confirmed full disallowance u/s 40A(3) and directed Ld. AO to deleted the disallowance made u/s 40(a)(ia).

4.6 The cash deposits were claimed to be sourced out of opening cash of Rs.254 Lacs, cash sales for Rs.713 Lacs and debtors realization for Rs.1100 Lacs. The Ld. AO, upon enquiries, disbelieved the same and also doubted the realization from debtors. The assessee contended that the cash sales were primarily made out of opening stock as available with the assessee which was supported by invoices. The submissions were subjected to remand proceedings. In the remand report, it was stated by Ld. AO that a survey action u/s 133A was conducted at the business premises of the assessee on 23-03-2017. It was found that the assessee made cash deposits of Rs.800 Lacs and also advanced cash to its sister concerns for Rs.1267.55 Lacs. The same were stated to be sourced out of sales proceeds and debtors realization. A search operation was carried out in the case of the Chairman of assessee-company on 23-03-2017 and his statement was recorded. He stated that the amount was out of sales proceeds of cloth. He also stated that VAT returns were filed in the month February 2017 for the period from July 2016 to October 2016. However, in subsequent statement recorded u/s 131(IA), it was stated that deposits were sourced out of opening cash balance for Rs.128 Lacs, cash sales for Rs.713 Lacs and debtors’ realization for Rs.1100 Lacs. The survey team did not value the stock at the time of survey and did not endorse the stock position vis-à-vis the books of accounts. Even the stock register was not provided to the survey team to verify the balance with that of the books. Merely because the closing stock and trade receivables were available in the books at the end of the earlier previous year, it could not be blindly claimed by the assessee that all the sales reported are to be accepted by AO. The Ld. AO observed that though stock was more than 10 crores in all the earlier years from AYs 2013-14 to 2016-17, however, in this year the stock was drastically reduced to Rs.18.70 Lacs which was an abnormal trend. The invoices as impounded during survey proceedings were also examined and discrepancies were noted in the same. The same did not bear the particulars and signatures of buyers. The Ld. AO also tabulated that the cash deposits in AY 2016-17 were Rs.584.33 Lacs. In AY 2018-19, cash deposits were for Rs.74.50 Lacs whereas in this year, cash deposits were Rs.1118.57 Lacs which was abnormal trend. After analysis of cash sales and cash deposits data, Ld. AO concluded that the assessee claimed cash sales only during four months before demonetization period and there were no cash sales before and after that. Finally, Ld. AO stated that assessee introduced unaccounted money in the form of demonetized currency. Shri Senthil Kumar (broker) did not confirm the cash sales and realization from debtors. Accordingly, Ld. AO pleaded for confirmation of impugned additions. However, the assessee submitted detailed point wise reply to each of the observation of Ld. AO in support of its claim.

4.7 The Ld. CIT(A) noted that though one of the sources was debtors realization, however, the assessee failed to file complete details thereof. The opening debtors were shown at Rs.940.17 Lacs and the collection from debtors during the period 01-04-2016 to 07-11-2016 was Rs.1093.88 Lacs. The assessee filed running account of debtors without providing party-wise break-up thereof. Similarly, for cash sales, the assessee did not file evidences to prove the genuineness of the same. The assessee relied on the order of Tribunal for AY 2015-16 in its own case which was held to be distinguishable on the ground that in that year, the assessee was able to identify the debtors from whom the amount was recovered. However, in this year, the assessee did not provide separate list of debtors, ledger accounts of debtors and addresses of debtors. On the issue of case sales also, Ld. CIT(A) upheld the conclusion of Ld. AO that the assessee tried to create source for cash by introducing fictious cash sales of cloth in its books. The assessee failed to file confirmation letters from the buyers but merely relied on invoices and VAT returns to prove genuineness of cash sales. The arguments that the sales were conducted through broker and therefore, the buyers were not familiar with the assessee or its directors, could not be accepted. No expenditure towards brokerage was debited to Profit & Loss Account. It was the assessee who had dispatched the goods to the buyers and it was the assessee who fixed payments terms. Further, sales invoices lacked essential ingredients. The AO clearly stated in the remand report that stock was not verified during course of survey and stock register was not provided to survey team. The existence of opening stock would not prove cash sales unless sufficient evidence is placed in support of the same. The assessee failed to do so. The assessee tried to build up cash in its books by recording cash sales. Finally, Ld. CIT(A) concurred with the findings of Ld. AO and confirmed the impugned additions against which the assessee is in further appeal before us.

Our findings and Adjudication

5. From the facts, it emerges that the assessee is engaged in manufacturing of cotton yarn and clothes. The assessee was subjected to survey proceedings u/s 133A at its business premises on 23-03-2017. It transpired that the assessee deposited cash in its bank account during demonetization period and also made cash advances to its siter concerns. In the recorded statements, it was stated by Shri G. Ganesh that the sources of the same was cash sales of yarn and clothes. This statement was confirmed by Shri T. Rajkumar, Director who was subjected to search action on the same date. Subsequently, the cash flows were furnished on 23-08-2017 in support of cash deposits and advances. The assessee also furnished list of 418 parties to whom cash sales were made during the year. However, Ld. AO chose small sample base of 25 parties and issued summons to them. On the basis of the outcome of the same, Ld. AO rejected the claim of the assessee and doubted the genuineness of cash sales made by the assessee. As against this, the assessee had reflected the sales made by it in the revised VAT returns which were filed much before the date of survey. The sales proceeds were deposited in the bank account and the funds were utilized to settle the borrowings of the assessee. The sales proceeds were duly credited to the Profit & Loss Account and offered to tax. The assessee also made advances to its sister concerns which were stated to be sourced out of realization of sundry debtors as standing in the books of accounts against sales made by the assessee in earlier years. The Ld. AO has rejected the aforesaid claims of the assessee and added the cash deposits as well as advances so made by the assessee as unexplained money u/s 69A.

6. The Ld. AR has explained that aggregate addition as made by Ld. AO for Rs.2067.60 Lacs has been sourced as under: –

In support, Ld. AR has drawn out attention to various documents as placed in the paper-book. The same include financial statements (Page Nos.1 to 4), cash book (Page Nos.5 to 78), sales ledger (Page Nos. 79 to 90), purchase ledger (Page Nos. 139 to 143) and Stock statements (Page Nos. 144 to 179) for whole of the year. The details of cash sales as made by the assessee have been placed on Page Nos. 91 to 101. Similarly, the ledger accounts of sundry debtors from whom cash have been received during this year has been placed on Page Nos.102 to 138 of the paper-book. The complete details of parties including their respective addresses to whom cash sales has been made during the year has also been furnished. The cursory perusal of debtors ledgers would show that most of the debtors are running accounts. Most of the debtors have opening balances, more sales have been made to them during the year and the amounts have been realized from them from time-to-time on various dates. The perusal of all these documents would show that the assessee had furnished various documentary evidences to substantiate its claim which could not be brushed aside lightly. After going through the same, it could be said that the assessee had discharged the initial onus of establishing the source of cash deposit and the onus was on revenue to controvert the same. However, this onus, in our considered opinion, has remained to be discharged by the revenue by bringing on record adverse evidences to disprove the claim of the assessee.

7. We find that so far as the cash sales are concerned, the assessee had sufficient stock with it to make the impugned sales. On the date of survey, copies of invoices were found from the premises of the assessee and therefore, the same could not be termed as mere after-thought on the part of the assessee unless contrary was shown. The revision of VAT return is within the ambit of law and the regulations permit for revision of the return in case of mistake or omissions. Nothing has been brought on record that VAT authorities have rejected the sales claim made by the assessee in its VAT return. The Hon’ble High Court of Madras in the case of CIT vs. Anandha Metal Corp. (152 Taxman 300) held that return accepted by commercial tax department is binding on Income Tax Authorities. The Hon’ble Court held as under: –

4. A closer reading of these three substantial questions of law boils down to the contention whether the finding arrived at by the Commercial Tax Department, which got concluded under the relevant Act is binding on the respondent/Revenue Department, and/or, notwithstanding the return submitted before the Commercial Tax Department as closing stock to the value of Rs.7,51,186 the appellant/Revenue would still take the difference of Rs.2,49,173 between the two books of account seized from the premises of the assessee for taxation.

5. It is trite law that the Assessing Officer, while computing the income-tax has only the power of examining whether the books of account are certified by the competent authority. In Apollo Tyres Ltd. CIT [2002] 255 ITR 273¹ (SC) where a question came up for consideration to what extent the accounts scrutinized and certified by the authorities under the Companies Act with reference to the books of profit as well as net profit, particularly net profit in the profit and loss account prepared in accordance with Parts II and III of Schedule VI to the Companies Act is binding on the Assessing Officer under the Income-tax Act, the Apex Court held that the Assessing Officer has only the power of examining whether the books of account are certified by the authority under the Companies Act as having been properly maintained in accordance with the Companies Act.

6. That apart, any falsification in the books of account submitted before the authorities under the Companies Act would have penal consequences, and the position of law, in our considered opinion, is the same under the Tamil Nadu General Sales Tax Act (hereinafter referred to as ‘the TNGST Act’) in view of section 45(7) of the TNGST Act, which reads as follows :

“Any person, who is in any way knowingly concerned in any fraudulent evasion or attempt at evasion or abetment of evasion on any tax, payable in respect of the sale or purchase of any goods under this Act, shall, on conviction, be liable to simple imprisonment, which may extend to six months or a fine which may extend to Rs. 2,000 or both.”

7. If that be so, unless and until the competent authority under the Sales Tax Act differs or varies with the closing stock of the assessee, the return accepted by the Commercial Tax Department under the TNGST Act, is, in our opinion, binding on the income-tax authorities and the Assessing Officer, therefore, has no power to scrutinise the return submitted by the respondent/assessee to the Commercial Tax Department under the provisions of the TNGST Act and as accepted by the said authorities, unless otherwise it is varied or modified by the authorities under the TNGST Act. Therefore, the Assessing Officer does not have any jurisdiction to go beyond the value of the closing stock declared by the respondent-assessee and accepted by the Commercial Tax Department.

8. In that view of the matter, we are not inclined to appreciate any of the substantial question of law raised and the appeal is devoid of merit and legal contentions and the same is dismissed.

Similar view has been expressed by Hon’ble Court in its subsequent decision titled as CIT vs. Smt. Shakuntala Devi Khetan (33 Taxmann.com 98). We find that the sales turnover has duly been recorded in the books of accounts. The books are subjected to audit under extant regulations and no defect has been pointed out by any of the lower authorities in the books of accounts in their respective orders. The assessee has maintained and furnished day-wise stock position of cloth and yarn. The Ld. AO has accepted the stock position, production figures etc. which are reflected in the books of accounts. Having accepted the purchase and sales, the cash generated out of sales proceeds could not be taxed separately. No discrepancy has been pointed out by survey team in the stock position though the survey is primarily aimed at verifying cash and stock position. The sales have already been offered by the assessee to tax and taxing the same again as income from other sources u/s 69A would amount to double taxation which is impermissible.

8. As far as the advances to sister concerns are concerned, we find that the same has been sourced out of opening cash balance as well as collection from sundry debtors during the year. These debtors have arisen to the assessee on account of sales made in earlier years which is already offered to tax. The sundry debtors forms part of books of accounts as well as return of income as furnished by the assessee in earlier years. Therefore, the receipt therefrom could not be rejected merely on the outcome of summons issued by Ld. AO on sample basis.

9. It could also be seen that the returns of income for AYs 2015-16, 2016-17 and 2018-19 were scrutinized by revenue u/s 143(3) and closing stock, year-end sundry debtors balances etc. for all the years have been accepted by the revenue. The copies of assessment orders were already furnished by the assessee before lower authorities. Therefore, no doubt could be raised on these balances.

10. The Ld. AO has rejected the claim on the basis of outcome of summons issued to the parties on sample basis. However, during the course of survey proceedings, summons was issued to Shri Senthil Kumar who acted as broker for the assessee. As per his statement, he sold clothes and yarn on behalf of the assessee to various customers. The business model of the assessee was such that it was carrying out its business through broker who played vital role in collection from customers. The broker would ensure collection from the customer and the assessee may not have direct link with the debtors. The same would explain non-confirmation by few debtors. Therefore, merely on the basis of outcome of summons, no adverse view could be formed against the assessee particularly when the assessee had furnished all the requisite details and documentary evidences before lower authorities.

11. We are also of the opinion that the provisions of Sec.69A could be invoked only where the assessee is found to be the owner of any money or bullion etc. which is not recorded in the books of accounts. The same is not the case here. The assessee has made cash sales which have duly been credited in the cash book. There is no unexplained money within the meaning of Sec.69A. When the cash is sourced out of recorded sales, the provisions of Sec.69A could not be invoked.

12. We further find that similar issue has been decided by co-ordinate bench of this Tribunal in assessee’s own case for AY 2015-16, ITA No.692/Chny/2023 as under: –

6. From the facts, it emerges that the parties from whom cash has been collected by the assessee against sale are sundry debtors of the assessee. The list of all these debtors (55 in nos.) and their respective ledgers extract have been placed on page nos. 119 to 178 of the paper book. Upon perusal of the same, it could be seen that all these are running accounts. The assessee has made sales to these parties and realized the payment through banking channels as well as through cash. In few cases, opening balances have been realized during this year. Many of the parties are having opening and closing ledger balances. In such a case, merely on the basis of outcome of confirmatory letters, the said receipts could not be treated as the income of the assessee. The sales or quantitative details of stock are not in doubt since no additions have been made by Ld. AO on these issues. We find that all the ledgers are running ledgers which are duly reflected in the audited financial statements. The realization from the debtors has duly been recorded in the cash book which is placed on page nos. 25 to 118 of the paper-book. The cash balance available with the assessee has been deposited in 5 various bank accounts held by the assessee. No defect in books of accounts has been alleged by Ld. AO. The assessee has realized cash collection for Rs.559.50 Lacs from debtors out of which only a part of the collection has been doubted by Ld. AO without any logic or basis. The outcome of the confirmatory letter was to be understood in the background of the business model of the assessee. Undisputedly, assessee’s business was being conducted through the brokers who play vital role in concluding sales and ensuring realization from the debtors. The same would explain the fact the few of the debtors would not have direct dealing with the assessee. Therefore, we are of the considered opinion that impugned addition is not sustainable in law. The cited case law of Tribunal in on same set of facts and duly supports the case of the assessee wherein the bench has deleted the additions on identical facts and on same reasoning. Therefore, we delete the impugned addition and allow the appeal of the assessee.

We find that similar facts exist during this year and aforesaid findings would apply to this year also. Therefore, considering the entirety of facts and circumstances of the case, the impugned addition of cash deposits and realization of sunder debtors is liable to be deleted. We order so. The corresponding grounds as raised by the assessee stand allowed.

13. On the issue of disallowance u/s 40(a)(ia), it has been submitted by Ld. AR that due TDS has duly been deducted by the assessee against these payments. It has also been submitted that the payments so made, on each occasions, fall within the prescribed limit of Sec. 40A(3). In support, the copy of ledger extract has been placed on Page Nos.190 to 192 of the paper-book. The Ld. CIT(A) has already deleted disallowance u/s 40(a)(ia) but confirmed the disallowance as made u/s 40A(3). We concur that disallowance u/s 40(a)(ia) would not be sustainable. However, the actual cash payment to this party during the year is Rs.14,61,993/- only. The remaining payment is debit through journal voucher. Therefore, we direct Ld. AO to restrict the impugned addition u/s 40A(3) to the extent of Rs.14,61,993/- since the assessee could not establish with documentary evidences that the payment on each occasion was less than the prescribed limit of Sec.40A(3). The corresponding grounds stand partly allowed. No other ground has been urged in the appeal.

14. The appeal stands partly allowed in terms of our above order.

Order pronounced on 10^th December, 2024