ACIT Vs Himachal Fibres Limited (ITAT Delhi)
In a recent case between ACIT (Assistant Commissioner of Income Tax) and Himachal Fibres Limited, the issue at hand was whether cash deposits made in bank accounts during the demonetization period could be treated as unexplained income. The crux of the matter revolved around the fact that the taxpayer had a history of cash sales and whether the Assessing Officer (AO) had valid grounds to question these deposits.
Detailed Analysis
The taxpayer, Himachal Fibres Limited, filed its income tax return for the assessment year 2017-18, reporting a loss of Rs. 66,41,640/-. However, during the scrutiny assessment, the AO noticed substantial cash deposits made during the demonetization period. The AO compared these deposits with those from the preceding year and concluded that there was an increase of 643%, adding the excess cash deposits amounting to Rs. 3,41,86,500/- to the taxpayer’s income under Section 68 of the Income Tax Act.
The taxpayer, in response, contended that the source of these cash deposits was the cash sales it had conducted. The taxpayer provided details of its sales, receipts, and justifications for the cash generated and deposited during those years. Additionally, the taxpayer submitted comparative data for purchases, sales, and stock positions. Copies of VAT returns were also furnished. Importantly, the AO did not reject the books of accounts or find discrepancies in them.
The crucial point in dispute was whether these cash deposits constituted unexplained income. The AO was not satisfied with the taxpayer’s explanations and proceeded to make the addition under Section 68. However, the AO failed to provide concrete evidence to demonstrate why the taxpayer’s submissions were unsatisfactory.
The CIT(A) took a different stance and deleted the addition. The CIT(A) emphasized that the burden of proof lay with the AO to demonstrate why the taxpayer’s submissions were unsatisfactory. In this case, the AO had not provided substantial evidence or concrete findings to refute the taxpayer’s claims. Furthermore, the AO had not rejected the books of accounts, and the taxpayer’s sales had been accepted by the VAT authorities. The CIT(A) concluded that the AO’s case was based on conjectures and surmises and that the AO had not met the onus of proving the taxpayer’s explanation unsatisfactory.
Conclusion
The case of ACIT vs. Himachal Fibres Limited highlights an essential principle in taxation: the burden of proof rests with the tax authority to demonstrate that cash deposits constitute unexplained income. In this instance, the taxpayer’s history of cash sales, the absence of discrepancies in the books of accounts, and the acceptance of sales by VAT authorities played crucial roles in the case’s outcome. As a result, the cash deposits made during the demonetization period were not treated as unexplained income.
This case reaffirms the importance of maintaining proper books of account, providing justifications for cash transactions, and challenging tax authorities when their conclusions lack concrete evidence. Taxpayers with legitimate sources of income, even if involving cash, can successfully defend their positions when they can substantiate their claims and maintain the integrity of their financial records.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by Revenue is preferred against the order dated 02.02.2023 by NFAC, Delhi, pertaining to AY 2017-18.
2. The solitary grievance of the Revenue is that, the CIT(A) has erred in deleting the addition of Rs. 3,41,86,500/- made by the AO on account of cash deposits during demonetization period.
3. Representatives of both the parties were heard at length. The case records carefully perused and the relevant documentary evidences brought on record duly consider in the light of the Rule 18(6) of the ITAT Rules, 1962.
4. Briefly stated the facts of the case are that the assessee filed its return of income on 06.11.2017 electronically declaring loss of Rs. 66,41,640/-. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee.
4.1 During the course of scrutiny assessment proceedings, the AO noticed that there were cash deposits during the demonetization period. After analyzing the cash deposits during the demonetization period vis-à-vis during the same period in the immediately preceding year, the AO came to his own conclusion that there was an increase of 643% and came to the conclusion that the excess amount of cash deposit during the demonetization period totaling to Rs. 3,41,86,500/- is the income of the assessee U/s 68 of the Act and added the same to the returned income / loss of the assessee.
5. The assessee challenged the assessment before the CIT(A). It was contended by the assessee that it has furnished complete details of sales / receipts and justification of cash generated and deposited during the relevant years with comparative details of purchases, sales and stock position. The assessee also submitted a copy of VAT returns. After considering the facts and the submissions, the CIT(A) deleted the impugned additions. The relevant finding reads as under:
7.2 The appellant is engaged in the business of trading and manufacturing of different types of fibers and yarns. The case of the appellant was selected for scrutiny based on cash deposits made during the demonetization period. The Assessing Officer did not accept the submission made by the appellant that the source of cash deposits is from the cash sales of the appellant. The appellant has submitted the details of sales/ receipts and purchase/ payments for the year under consideration as also the comparison and justification of cash generated and deposited during the relevant years. The appellant has also submitted the comparative details of purchases, sales, and stock position during the relevant period. The appellant had also submitted copies of VAT returns along with the reconciliation of turnover. However, the Assessing Officer was not satisfied with the details submitted by the appellant and has made the addition of Rs. 3,41,86,500/- u/s 68 of the IT Act, 1961. The provisions of Section 68 can be applicable where any sum is found credited in the books of the assessee and the assessee offers no explanation about the nature and source of the same or the explanation offered by the assessee is not satisfactory in the opinion of the Assessing Officer. In the instant case, the Assessing Officer did not believe in the explanation filed by the assessee in respect of the Cash Deposits made by the assessee. But the Assessing Officer has not discharged the onus of proving how the submission made by the assessee is not satisfactory. The case of the Assessing Officer is on a very weak footing and is based on conjectures and surmises. If the Assessing Officer is not satisfied with the submission made by the assessee then the burden lies on him to point out evidence to support his decision. The Assessing Officer has not discharged the onus/ The AO has not made out a I case based on any concrete findings. Moreover, the AO has not even rejected the books o f accounts of the assessee. The appellant has also relied on various case laws which are squarely applicable in the case of the assessee. Respectfully following the same, Grounds 1 to 3 of the appeal are, therefore Allowed. ”
5.1 Before us, the DR strongly supported the finding of the AO and read the operative part of the assessment order.
5.2 Per contra, the counsel for the assessee reiterated what has been stated before the lower authorities.
6. We have given a thoughtful consideration to the orders of the authorities below. It would be pertinent to understand the cash deposited by the assessee during the FYs 2015-16 and 2016-17 and the same can be understood from the following:
(v) A chart detailing the cash sales executed as well as cash deposited by the Appellant during the financial year 2015-16 vis-à-vis 2016-17 is provided hereunder:
