DCIT Vs Kundan Jewellers Pvt Ltd (ITAT Mumbai)
ITAT Mumbai held that addition under section 68 of the Income Tax Act towards unexplained cash credit unsustainable as cash proceeds already reflected in Profit & Loss account, hence addition u/s 68 will amount to double taxation.
Facts- The assessee company is engaged in the business of wholesale and retail trade of all kind of gold, diamond jewellary, silver articles and other precious stones. On perusal of the financial statements, AO found that during the demonetization period there are cash deposits in the bank accounts aggregating to Rs. 13,29,50,000/-. Based on the submission, AO observed that, the month wise cash sales and cash deposits on comparing to F.Y 2015-16 has significantly increased, especially during the month of October 2016 to November 2016 and the assessee was issued show cause notice as to why the cash deposited during the demonetization period should not be treated as unexplained cash receipts u/s 68 of the Act.
AO was not satisfied with the explanations and observed that the assessee has neither furnished the details of parties / customers with names, address, party wise cash sales and the AO is of the opinion to treat the cash deposits as unexplained cash credits u/s 68 of the Act. Further the assessee has furnished the form -1 form of declaration u/s 199C of the Finance Act, 2016 in respect of taxation and investment regime for Pradhan Mantri Garib Kalyan yojana Rules, 2016 and on record no other facts were filed regarding the disclosure of income under the scheme and finally assessed the total income of Rs. 17,18,37,993/- and computed the book profit u/s 115JB of the Act of Rs. 3,78,90,828/- and passed the order u/s 143(3) of the Act on 23.12.2019.
Conclusion- Since the cash sales proceeds/receipts received from the customers are reflected in the Audited Profit & Loss account as income and if the cash deposits are added under section 68 of the Act that will amount to double taxation once as sales and again as unexplained cash credit which is against the principles of taxation.
The AO has not pointed out any specific adversity but made a generalize addition without considering the factual aspects and primary evidences. The A.O has failed to make further enquiries on the information filed and the assessee has discharged the initial burden placed by submitting the information and details.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The revenue has filed the appeal against the order of the National Faceless Appeal Centre (NFAC)/CIT(A), Delhi passed u/s 143(3) and 250 of the Act. The revenue has raised the following grounds of appeal:
1. “Whether on the facts and circumstances of the case and law the Ld. CIT(A) has erred in deleting the addition of Rs. 13,29,50,000/- made on account of cash deposits during the demonetization period in SBNs without appreciating the fact that the assessee could not substantiate the source being the cash sales with necessary corroborative evidences?”
ii) “Whether on the facts and circumstances of the case and the law the Ld. CIT(A) has erred in considering the ratio of total cash sales vis-a-vis the total turnover of the F. Ys.2015-16 and 2016- 17 without appreciating the fact that the ratio of such cash sales is very abnormal when compared to similar sales claimed to have been made during the period of October 2015 to November 2015 to October 2016 to 8h November 2016 (being the date of announcement of demonetization)?”
iii “Whether on the facts and circumstances of the case and the law the Ld.CIT(A) has erred in considering the assessee’s submission that no KYC is required for sales below the limit of Rs.2 lakhs by referring the Rule 114B r.w.s.139A(5)(c) of the Act without appreciating the fact that the said rule is relating to quoting of PAN for carrying out specified transaction and not maintaining basic details i.e., name, address, contact details etc.?”
2. The brief facts of the case are that the assessee company is engaged in the business of wholesale and retail trade of all kind of gold, diamond jewellary, silver articles and other precious stones. The assessee has filed the return of income for the A.Y 2017-18 on 01.011.2017 disclosing a total income of Rs.3,88,87,990/- under normal provisions of the Act and book profits u/s 115JB of the Act of Rs.3,78,90,828/- and the return of income was processed u/s 143(1) of the Act. Subsequently the case was selected for scrutiny under CASS and notice u/s 143(2) and 142(1) of the Act along with questionnaire was issued. In compliance to the notice, the assessee has furnished information online from time to time and explained the nature of business and income. On perusal of the financial statements, the Assessing Officer (AO) found that during the demonetization period there are cash deposits in the bank accounts and therefore in order to verify these facts the AO has issued notice u/s 142(1) of the Act to explain the sources. Whereas the assessee has filed the submissions along with the bank statements and reconciliation of cash deposits made during the demonetization period.
3. The AO on perusal of the information found that the assessee has made cash deposits in the bank accounts held with Saraswt Coop Bank Ldt., Canara Bank, State Bank of India and Bank of Maharashtra all aggregating to Rs.13,29,50,000/-.The assessee was called to explain the nexus of cash sales and cash deposits by notice dated 09.11.2019. The assessee has filed the detailed submissions on 18.12.2019 and also submitted the details of month wise cash sales and cash deposits.Whereas the AO observed that, the month wise cash sales and cash deposits on comparing to F.Y 2015-16 has significantly increased, especially during the month of October 2016 to November 2016 and the assessee was issued show cause notice as to why the cash deposited during the demonetization period should not be treated as unexplained cash receipts u/s 68 of the Act. Whereas the assessee has filed the detailed explanations on 20.12.2019 referred at Para 5.5 of the order as under:
5.5 In response, the assessee vide letter dtd.20.12.2019 submitted its content, the gist of the same is as under:
1. Turnover of sales during F.Y. 2016-17 of the first three month was decreased due to strike by jewelers association to protest against levy of excise duty on jewellery.
2. The company had also celebrated its 78 years of establishment and on this occasion the company had given free gifts
3. Demonetization period immediately preceded by diwali sales on 30th October 2016 which is the main season of sales for all kinds of jewellery
4. The Hon.Prime Minister of India announced on 8th November 2016 at 8.00 PM that the currency having denomination of Rs.500 and Rs.1000/- would cease to be legal tender after 12.00 pm due to which the customers have turned out in large.
The AO was not satisfied with the explanations and observed that the assessee has neither furnished the details of parties / customers with names, address, party wise cash sales and the A.O. is of the opinion to treat the cash deposits as unexplained cash credits u/s 68 of the Act. Further the assessee has furnished the form -1 form of declaration u/s 199C of the Finance Act, 2016 in respect of taxation and investment regime for Pradhan Mantri Garib Kalyan yojana Rules, 2016 and on record no other facts were filed regarding the disclosure of income under the scheme and finally assessed the total income of Rs. 17,18,37,993/- and computed the book profit u/s 115JB of the Act of Rs. 3,78,90,828/- and passed the order u/s 143(3) of the Act on 23.12.2019.
4. Aggrieved by the order, the assessee has filed the appeal with the CIT(A). The CIT(A) considered the grounds of appeal submissions of the assessee, in the appellate proceedings and the assessee has filed the details substantiating the claim referred at page 2 Para 4.0 of the order as under:
4. Appellants submissions: During these appeal proceedings, a written submission was uploaded on 18.11.2021. Later, before conclusion of these appeal proceedings, another written submission dated 28.01.2022 was uploaded. The second submission was exactly the same as was the earlier one. The same is being reproduced as under, for ready reference:
“Ground of Appeal 1
1. On the facts and under the circumstances of the case and in law the learned AO erred in making addition of Rs, 13,29,50,000/- u/s 68 by treating it as Cash credits which is bad in law.
2. On the facts and under the circumstances of the case and in law the learned AO erred in making addition of Rs.13,29,50,000/- u/s 68 without appreciating the fact that the appellant had submitted all the documentary evidences such as sale register, cash sale memos, Stock statement, audited cashbook and bank statement Indicating the source of Cash Deposited. Hence all the condition relating to section 68 was satisfied.
3. On the facts and under the circumstances of the case and in law the learned AO erred in making addition of Rs. 13,29,50,000/- u/s 68 without appreciating the fact that the appellant had offered the said deposit as its business income, thereby such addition u/s 68 results in Double addition. Hence it is not a case of unexplained cash deposit.
4. On the facts and under the circumstances of the case and in law the learned AO erred in making addition of Rs. 13,29,50,000/- u/s 68 without appreciating the fact that the appellant had accounted the deposits in its books of accounts and had also paid Value Added Tax on the same.
Background:
The company is wholesaler as well as retail trader of all kind of Gold Jewellery, Diamond Jewellery, Silver Articles and other precious stones.
The company has three outlets in Andheri area of Mumbai, from where the sales take place and all the three showrooms altogether are having 45 sales counter and well trained staff.
Appellant being a company having turnover in crores and maintaining regular books of accounts such as ledger, stock register, bank book, cash book etc. are maintained and audited by the statutory auditor of the company.
Appellant received notice u/s 143(2) dated 09.08.2018 for scrutiny assessment under CASS category for cash deposit during the Demonetisation Period and subsequently notices were received u/s 142(1) wherein appellant has made the required submissions on timely basis.
Most important fact is that immediately on deposit of cash after demonetization, the email/notice was received from the income tax department and source was asked to which the appellant had replied that same is arising out of the cash sales and list of sales alongwith details of parties were given.
Further during the course of assessment proceeding appellant had submitted the following documents:
Appellant had uploaded following documents on 20,12,2019:
1. Cash Summary for FY 2015-16
2 Cash Summary for FY 2016-17
3 Branchwise Cashbook
4 VAT Tax Return
5 Pamplet of Promotion Scheme
6 Reply in response to Notice u/s 131
7 Reply in response to Notice u/s 133(6)
8 Quantity details of Stock
9 Bank account Statements
10 Form 1 (Pradhan MantriGaribKalyan Yojana), 2016
We are re-submitting the same in paper book format for your ready reference.
In the above mentioned cash summary and cash book appellant had submitted the Month-wise details. In respect of opening cash, cash received, cash deposited in bank and cash utilised for purchases and expenses and closing balance for FY 2015-16 and 2016- 17 along with Month wise details of purchases, Cash and credit sales and other relevant details as called by the AO.
In addition to above the sales being subject to Value Added Tax has also been offered to Tax and shown in the VAT retums of the year under consideration and also the Sales and Labour Charges have been credited to Profit & Loss Account and correspondingly expenses have been claimed. Hence appellant had offered the said deposit as its business income.
Assessment order u/s 143(3) was passed against the appellant dated 23.12.2019 wherein addition was made of Rs. 13,29,50,000/- u/s 68 of the IT Act read with section 11 5BBE of the Income Tax Act, 1961.
The AO just made two observation while passing the order:
1. Assessee has neither furnished the details of the parties, name and address
2. Assessee has not carried out any cash sales and the assessee was in possession of unexplained cash credits and since the demonetisation of notes were brought in, assessee has deposited the same in bank account.
Assessing officer just compared the cash deposit of October and November 2016 with the previous year and completed the assessment.
We wish to explain the summary from the Cash Book as follows:
(Detailed Branch wise summary attached for your ready reference)
