ACIT Vs Ramlal Jewellers Private Limited (ITAT Mumbai)
ITAT Mumbai held that cash sales accepted and then deposit of said cash in bank account cannot be treated as deposits made out of any undisclosed income. Accordingly, addition under section 68 unsustainable.
Facts- Assessee Company is engaged in jewellery business, selling jewellery items to its retail customers. The case was selected for scrutiny for cash deposits in bank. Based on inquiry, AO held that amount of Rs. 2,57,59,680/- is liable to be added u/s 68 due to unusual jump in cash sales immediately before the demonetization period. Notably, AO taxed the assessed income u/s 115BEE at the rate 60%. Further, penalty proceeding u/s 271AAC is also initiated.
CIT(A) deleted the addition. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Once, AO has accepted the sales and there is direct nexus with the closing stock and the sales alongwith movement of stock linked to purchases then such credit on account of sales cannot be added u/s.68. If the cash sales have been accepted, then deposit of the same cash in the bank account which is tallying with the entries in regular cash book, cannot be treated as deposits made out of any undisclosed income.
Addition u/s.68 on account of cash deposits cannot be made simply on the reason that during the demonetization period, cash deposits vis-a-vis cash sales ratio is higher.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed by the Revenue and Cross Objection by the assessee against order dated 13/03/2023 passed by NFAC, Delhi for the quantum of assessment passed u/s.143(3) for the A.Y.2017-18.
2. The Revenue in its appeal has taken following grounds:-
1.”On the facts and circumstances of the case and in law, the LA CITA) erred in deleting the addition of Rs. 2,57,59,680/- u/s 68 of the Act without appreciation that the assessee self admitted that out of cash deposited during demonetization period cash of Rs. 2,02,31,678/ was received from unidentified persons and further cash of Rs. 1,05,20,302/- was received from identifiable persons without PAN as pointed out by the AO. Therefore, the Ld. CIT(A) erred in not appreciating that much cash deposited during the said period was not proved to be received against regular sales”
2. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in not taking note of the fact that there was an extraordinary jump in regular sales immediately before demonetization period and assessee was unable to substantiate such jump in sales during this period. In such circumstances, the Ld. CIT(A) ought to have called for a remand report from AO for further verification of the reasons shown by the assessee with reference to documentary evidences.
3. “On the facts and circumstances of the case and in law, the Ld. CIT(A) ought not to have relied on sales declared in the VAT returns to conclude that cash deposited in the bank account during demonetization period corresponds to the sales since VAT returns by themselves cannot stand as evidence for genuineness of sales”
4. “On the facts and circumstances of the case and in law, the Ld. CIT(A) ought not to have deleted the addition made u/s 68 of the Act inspite of the assessee’s failure to prove the genuineness of transactions of sales and receipt of cash against these sales immediately before the demonetization period.”
5. The Appellant craves leave to add, amend and/or vary the grounds of Appeal before or during the course of hearing.
3. In cross objection assessee has raised following ground:-
1. “The Learned Commissioner Appeals failed to appreciate the AO erred in imposing tax @60% u/s.115BBE instead of 30% as the cash deposits had taken place prior to Taxation Laws (Second Amendment) Act, 2016 coming into force.”
4. The brief facts are that Assessee Company is engaged in jewellery business, selling jewellery items to its retail customers. The return of income filed was on 01/11/2017 declaring total income of Rs.80,12,140/-. The case was selected for scrutiny for cash deposits in bank and accordingly, AO required the assessee to justify the deposits of cash in the bank accounts with Dena Bank, HDFC Bank and Thane Bharat Sahakari Bank during the period of demonetization. The ld. AO issued notice u/s. 133(6) to all the three banks asking for pay-in-slip rendered by the assessee for deposit of cash during the period from 09/11/2016 to 31/12/2016. Thereafter, the ld. AO issued notices u/s. 133(6) on 13/12/2019 to various parties who have purchased jewellery from assessee to verify cash sales during the month of October and November 2016 on test check basis. In response, some of the parties have submitted their replies, the detail of which has been incorporated in the assessment order at page 2 & 3. The ld. AO also noted that some of the parties have not given the response. The ld. AO further noted that assessee has deposited total cash of Rs.7,63,10,100/- from sales during the year, out of this Rs.3,64,50,000/- has been deposited in the month of November 2016 itself. He further observed that the average monthly deposit for other 11 months was only Rs.36,23,636/-and therefore, he concluded that there was unusual and abnormal deposit in the month of November 2016. In response assessee filed detailed explanation alongwith all the books of accounts, sale and purchase vouchers, stock statement, etc. and also has given the reasons for the cash deposits alongwith cash book. The ld. AO based on the details of sales furnished by the assessee noted the cash sales made during the F.Y.2014-15, 2015-16, 2016-17 & 2017-18 which is incorporated at page 4 & 5 of the assessment order and also noted the details of cash deposited in banks for these four financial years, which were as
