ITAT Amritsar Quashes Section 68 Addition on Demonetization Cash Deposits

Raj Kumar (M/s Radhika Sales Corp) Dhab Wasti Ram Vs ITO (ITAT Amritsar)

The appeal was filed by Raj Kumar, proprietor of M/s Radhika Sales Corporation, Dhab Wasti Ram, Amritsar, against the order of the Commissioner of Income Tax (Appeals), NFAC, Delhi, for Assessment Year 2017-18. The dispute arose from an assessment made by the Income Tax Officer, Ward 3(3), Amritsar, in which an addition of Rs. 2,74,00,000/- was made under Section 68 in respect of cash deposits during the demonetization period. The assessee had deposited Rs. 4,09,50,000/- and maintained that the deposits arose from recorded business receipts, including cash sales, cash withdrawals and amounts realised from debtors. The assessee was engaged in wholesale/retail trading of sugar, refined oil, ghee and allied karyana items and had declared turnover of Rs. 10,38,81,637/- for the relevant year.

The assessee contended that its books were audited and supported by quantitative records, VAT returns, purchase bills, transport bills, stock statements, cash book, sale and purchase registers, bank statements and debtor/creditor details. It was submitted that the assessee had maintained stock records from the inception of the business and that no defect in the quantitative tally, purchases, opening stock or closing stock had been identified. The assessee also relied upon the fact that it had started dealing in additional commodities during the year and that sales ordinarily increased around Diwali. It was further pointed out that purchases of Rs. 3,09,69,406/- had been made in October 2016, before demonetization, and that VAT had been paid on the declared transactions.

The Assessing Officer, as recorded in the supplied order, accepted part of the cash deposit and treated Rs. 2,74,00,000/- as unexplained. For October 2016, the AO treated Rs. 28,06,536/- as the allowable sale/profit component against declared sales of Rs. 1,58,06,636/- and treated the balance Rs. 1,30,00,000/- as unexplained. For the first eight days of November 2016, the AO treated Rs. 9,63,687/- as allowable against declared sales of Rs. 1,53,63,687/- and treated the balance Rs. 1,44,00,000/- as unexplained. The AO invoked Section 68 and taxed the addition under Section 115BBE. The assessee’s first appeal was dismissed by the CIT(A) ex parte.

Before the Tribunal, the assessee challenged, among other matters, the rejection of books under Section 145(3), the alleged estimation of sales, the treatment of cash deposits as unexplained credits, and the disposal of the first appeal without considering the assessee’s adjournment request and materials. The assessee relied on several judicial precedents, including Smt. Charu Aggarwal Vs. Deputy Commissioner of Income-tax, and decisions concerning rejection of books, cash sales, burden of proof and demonetization-period deposits.

The Tribunal heard the rival submissions and examined the documents available on record. It recorded that the AO had not disputed the purchases, quantitative stock and sales for the entire period except October and November 2016. The Tribunal noted that the assessee had submitted books of account, sale and purchase registers, confirmations, bank statements, expenses and details of the parties from whom purchases were made and to whom sales were made. It further noted that the AO’s computation of substantially reduced October and November sales ignored the purchase of Rs. 3,09,69,406/- made in October 2016, which preceded the announcement of demonetization.

The Tribunal held that the AO’s exercise of estimating sales was based on assumption, presumption, surmises and conjectures. It found the basis for rejection of the books unacceptable and respectfully relied on the decision in Ludhiana Steel Rolling Mills Ltd, as referred to in the supplied order. The Tribunal also held that, once adequate evidence had been produced to prima facie discharge the assessee’s burden, the burden shifted to the Revenue, and that the Revenue had not discharged that burden in the circumstances recorded by the Tribunal.

The Tribunal further reasoned that the bank deposits represented sale proceeds of stock-in-trade which had been disclosed in the trading account, while the purchases and opening and closing stock had not been doubted. It observed that the stock had depleted through the disclosed sales and that the cash had come in respect of that stock. It therefore found that the source of the cash was explained and that the addition had been made only on the basis of surmises without establishing a motive for undisclosed activity or disturbing the closing stock.

On the question of double taxation, the Tribunal held that the AO had no right to calculate sales on a hypothetical basis while ignoring VAT returns, purchase bills and quantitative details submitted during assessment proceedings. It observed that once an amount was declared as turnover, it could not be treated as concealed income and taxed again on the same amount. Relying, among others, on Jet Freight Logistics Ltd. v. Commissioner of Income-tax Appeal (NFAC), the Tribunal concluded that the Section 68 addition of Rs. 2,74,00,000/- was beyond jurisdiction in the circumstances because the turnover was already reflected in the assessee’s books.

Accordingly, the Tribunal quashed the addition of Rs. 2,74,00,000/- and allowed the assessee’s appeal in ITA No. 195/Asr/2022. The order was pronounced in the open court on 11.04.2023.

Cases Discussed

• Smt. Charu Aggarwal Vs. Deputy Commissioner of Income-tax, [2022] 140 taxmann.com 588 (Chandigarh – Trib.) — referred to for the proposition that cash sales out of existing stock, accepted by the Sales Tax/VAT Department and not otherwise disproved, could explain post-demonetization bank deposits.
• R.B. Jessaram Fatehchand (Sugar Dept.) v. Commissioner of Income-tax, [1970] 75 ITR 33 (Bombay) — relied upon regarding rejection of books where addresses of cash purchasers were not maintained.
• Commissioner of Income-tax, Ludhiana v. Ludhiana Steel Rolling Mills Ltd, [2008] 166 Taxman 20 (Punjab & Haryana) — relied upon on rejection of books and the requirement for discrepancies to be established on the evidence.
• Principal Commissioner of Income-tax v. Agson Global (P.) Ltd., [2022] 134 taxmann.com 256 (Delhi) — relied upon concerning cash deposits corresponding with cash sales and the absence of evidence of non-existing sales.
• Jet Freight Logistics Ltd. v. Commissioner of Income-tax Appeal (NFAC), [2023] 146 taxmann.com 349 (Mumbai – Trib.) — relied upon on explained cash deposits during demonetization where documentary material supported the source.
• ACIT, Central Circle – 1, Visakhapatnam v. Hirapanna Jewellers, [2021] 128 taxmann.com 291 (Visakhapatnam – Trib.) — the supplied order relied upon this decision for deleting an addition where cash deposits were explained as sales and matched with stock outgo.
• K. P. Varghese vs ITO, (1981) 7 Taxman 13 (SC) — cited in support of the proposition concerning the Revenue’s burden after adequate material is produced.
• A. S. Sivan Pillai vs. CIT, (1958) 34 ITR 328 (Madras) — cited in support of the assessee’s submission concerning the burden of proof.
• Roshan Di Hatti vs CIT, 107 ITR 938 (SC) — cited in support of the assessee’s submission concerning burden and unexplained receipts.
• CIT, Faridabad v. Laul Transport Corporation, [2009] 180 Taxman 185 (Punjab & Haryana) — cited in support of the assessee’s submission concerning the shifting burden of proof.

FULL TEXT OF THE ORDER OF ITAT AMRITSAR

The instant appeal of the assessee was filed against the order of the ld. Commissioner of Income Tax (Appeals) NFAC, Delhi,[in brevity the ‘CIT (A)’] order passed u/s 250of the Income Tax Act 1961, for A.Y. 2017-18.The impugned order was emanated from the order of the Income Tax Officer, Ward 3(3), Amritsar order dated 31.12.2019.

The assessee has taken the following grounds:

“1. The CIT(A) NFAC has erred in law and in facts in confirming the assessment order passed by the AO assessing the total income at Rs. 2,82,17,200/- as against returned income of Rs. 8,17,200.

2. That the CIT(A) NFAC has erred in deciding the appeal without considering the request for adjournment filed by the appellant on 11.08.2022.

3. That the CIT(A) NFAC has erred in deciding the appeal without calling/ downloading the replies submitted by the appellant during assessment proceedings and thus ignoring the vital documents such as, cash book, purchase bills, ledger and VAT returns and thus the order of CIT(A) NFAC is against the principles of natural justice.

4. That the CIT(A) NFAC has erred in passing a non-speaking order which is against the law even if the assessee was not represented before it.

5. That the CIT(A) NFAC has erred in confirming the action of the AO in rejecting the books of accounts by invoking the provisions of sec. 145(3) without even looking at the documents on record and without appreciating that no specific defect in the books of account was pointed out by the AO which is not even part of the assessment order.

6. That the CIT(A) NFAC erred in confirming the action of the AO based upon surmises and conjecture without there being any evidence contrary to the contention of the assessee which is duly supported by documents.

7. That the CIT(A) NFAC has erred in confirming the addition of Rs. 28217200/- being cash deposited in bank accounts without appreciating that the said cash was part of the cash account submitted with the submissions made and was sourced from sales duly accepted by VAT department, out of cash withdrawals, etc.

8. That the CIT(A) NFAC has erred in ignoring the past history of the appellant since, the cash deposit was not against the past history of the appellant.

9. That the CIT(A) NFAC has erred in confirming the order of the AO ignoring the position of law that provisions of section 68 cannot be applied in respect of income from a source which has already been taxed which would amount to double taxation.

10. That the CIT(A) NFAS has erred in confirming the order of the AO ignoring the position of law that no addition u/s 68 can be made where books of account had been rejected by the AO u/s 145(3) and again relying upon the same books of accounts for the purpose of section 68.

11.That the learned assessing Officer has erred in rejecting the books of accounts u/s145(3), without serving the show cause notice as embedded in Sec 144 read with Sec145(3).

12. That the appellant craves leave to add, amend any ground of appeal.”

2. Brief facts of the case are that the assessee deposited cash in bank account amount to Rs 4,09,50,000/- during demonetization. The assessee is a proprietor of M/s Radhika Sales Corporation, Dhab Wasti Ram, Amritsar and is engaged in the business of the business of wholesale/retail of sugar, refined oil, ghee and other allied karyana items. The assessee is registered under Punjab VAT Act in 2005. During the assessment year the assessee’s turnover Rs.10,38,81,637/-. The ld. AO completed the assessment under section 143(3) making addition of Rs 2,74,000,00/- out of total cash deposited during demonetization period at Rs 4,09,50,000/-.The addition has been made by the ld. AO alleging that the appellant had inflated the sales to cover unaccounted money and assessed the total income at Rs. 2,82,17,200/-. As per assessee the amount deposited in bank on account out of his turnover which was declared in the P & L a/c during filing of the return. So, the same amount will be doubled tax. Aggrieved assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) passed an order in ex parte and upheld the decision of the ld. AO. Being aggrieved assessee filed an appeal before us.

3. During hearing, the ld. Counsel for the assessee filed written submissions which are kept in the record. In the argument assessee has placed that:

The book of accounts of the assessee is subject to audit on year to year basis and is maintaining proper quantitative records. That the assessee had filed the return of income for the year under consideration amount to Rs 967203/-and had declared total turnover of Rs 10,38,81,637/-. The Copy of audited balance sheet, trading and profit and loss account is enclosed at page no 15-28 of APB.

3.1. The ld. Counsel argued that the case of the appellant was selected for scrutiny under CASS by issuing jurisdiction notice u/s 143(2) dated 09.08.2018. The copy of same is enclosed at page no 1-4 of APB. The case was selected for scrutiny for the primary reason of large cash deposit during demonetization. Pursuant to the same, the appellant was issued various notices u/s 142(1) requiring the appellant to provide necessary information and documents in respect of source of such cash deposit amounting to Rs 4,09,50,000/- during demonetization. The appellant during the course of assessment proceedings explained that he was in the business of sale / purchase of sugar, refined oil and other allied items and the said cash was deposited out of sale proceeds, cash withdrawal and out amount realized from debtors during the year consideration.

3.2. In argument the ld. Counsel placed that the appellant was also asked to submit the month wise total sales and purchases and corresponding cash sales made in every month for the year under consideration and for the last year. It was also explained that the total cash deposit during FY 2015-16 is to the tune of Rs 4,31,25,914 against the cash deposit in FY 2016-17 of Rs 5,98,60,500/-. The assessee vide reply dated 20.11.2019 submitted the desired information and the copy of the same is enclosed at page no 45& 61 of APB.

Furthermore the Ld. AO also requested to segregate the cash deposit between the period 01.04.2015 to 08.11.2015 vis-a-visa cash deposit between the period 01.04.2016 to 08.11.2016. The appellant vide reply dated 20.11.2019 submitted the same and the summary of same is tabulated form which is placed before the bench and reproduced as under:-

3.3. That the appellant during assessment proceedings submitted that the appellant has started dealing in various new commodities as compared to last financial year i.e. sugar, cotton seed oil, Vanaspati Tin and Soya DO. It was also explained that month to month comparison is not possible in the present case as the appellant has engaged in trading of various new commodities as stated above. The assessee has submitted various other documents during assessment proceedings which are placed in page 75-154 of APB before the bench as under:-

a) Copy of VAT returns for the period 01.04.2016 to 31.03.2017submitted before AO vide reply in response to notice u/s 142(1) dated 25.12.2019, copy of the VAT return on page no 85-91 of the APB

b. Copy of purchase bills in respect of all the parties from the purchases were made for the period 01.04.2016 to 31.03.2017 submitted before AO vide reply in response to notice u/s 142(1) dated 25.12.2019, copy of the purchase invoices on page no 92-148 of the APB

c. Quantitative tally for the period 01.04.2016 to 31.03.2017 submitted before AO vide reply in response to notice u/s 142(1) dated 25.12.2019 and the copy of same is placed at page no 75-82 of APB.

d. Copy of transport bills along with DharmKanda receipts in respect of purchases made for the period 01.04.2016 to 31.03.2017submitted before AO vide reply in response to notice u/s 142(1) dated 25.12.2019 and the copy of Dharm Kanda receipts duly submitted before the AO in the reply dated 25.12.2019relevant page no. 79 of APB

e. Complete books of accounts along with sale & purchase register for the period 01.04.2016 to 31.03.2017was submitted before AO vide reply in response to notice u/s 142(1) dated 27.12.2019 and the copy of same is placed at page no 157 of APB.

f. Copy of cash book for the period 01.04.2016 to 31.03.2017submitted before AO vide reply in response to notice u/s 142(1) dated 27.12.2019 and the copy of same is placed at page no 157 of APB.

g. Complete Postal address of debtors and creditors to/from whom sale/purchases submitted before AO vide reply in response to notice 142(1) dated 11.11.2019 and the copy of same is placed at page no 64-68 of APB.

h. Copy of month wise stock statement submitted to the AO vide reply in response to notice 142(1) dated 11.11.2019 and the copy of same is placed at page no 63 of APB.

i. Copy of account of debtors and creditors exceeding Rs 5 lakhs vide reply in response to notice u/s 142(1) dated 25.12.2019 and the copy of same is placed at page no 75-154 of APB.

3.4. The ld. Counsel placed that during assessment proceedings it was also brought to the knowledge of the assessing officer that the case for assessment year 12-13 has been opened under section 148 for cash deposit of Rs 3,02,06,000/- in HDFC Ltd. That the department has completed the assessment under section 147 at returned income. Furthermore, the department had accepted that the assessee was regularly depositing cash out of sales proceeds. It is pertinent to mention here that the assessment for AY 12-13 was completed by the same jurisdictional AO. Meaning there by, the stand of AO is contradictory to AY 2017-18 where the AO has alleged that the assessee has inflated sales for AY 2017-18. It is pertinent to bring to consideration that the AO has not considered the said fact while passing the order for AY 2017-18 in spite of the fact that the re-assessment order for AY 2012-13 was passed on 14.12.2019.

3.5. In argument the ld. Counsel placed that the Ld. AO completed the assessment under section 143(3) making addition of Rs 2,74,000,00/- out of total cash deposited during demonetization period at Rs 4,09,50,000/-.The addition has been made by the AO alleging that the appellant had inflated the sales to cover unaccounted money and assessed the total income at Rs. 28217200/-. That the Ld. AO has rejected the books of accounts undersection 145(3)on the ground that the assessee has not furnished the sales bills. That the addition of Rs 2,74,00,000/-was made u/s 68 of the Act on account of unexplained cash deposit and the same is taxed u/s 115BBE of the Act at the rate of 60%.

That the Ld. AO has accepted partial cash deposit of Rs 1,35,00,000/- out of total cash deposit of Rs 4,09,50,000/- made during demonetization period. The said benefit has been given by accepting cash collection from debtors at Rs 97,29,777/-and estimating the cash sales for the month of October at Rs 28,06,536/- and for the November (8 days i.e 01.11.2016 to 8.11.16) at Rs 9,63,687/- against the actual cash sales of Rs 1,58,06,636/- and Rs 1,53,63,687/-. The said action of the AO is based on surmises and conjectures ignoring the fact that the assessee has duly paid VAT on sales declared in the VAT return for the period 01.04.2016 to 31.03.2017.

3.6. That the CIT(A) confirmed the action of AO by passing the order ex parte without considering the request for adjournment filed by the appellant on 11.08.2022.The copy of adjournment letter as submitted before NFAC on 11.08.2022 on the online portal is enclosed at page no 48 of APB reply dated 22.02.2023.

4. The ld. Counsel for assessee has made ground wise submission which is reproduced as below:-

Ground No- 2,3 &7.

The ld. Counsel for assessee invited our attention in written submission duly filed before the bench. The relevant paragraphs are reproduce as below: –

“12. Submissions in respect of ground No 2, 3 and 7

a. There has been no dispute in respect of assessments of the earlier years and the assessee’s book result have been accepted year after year on the basis of ‘stock tally’ of different items of and said stock register have been maintained right from the date of start of business. During the earlier years, there has been no dispute of any nature, whatsoever, and the book results of the assessee have been accepted by the department.

b. For the year under consideration, the return of income was filed an income of D 9,67,203/-and the assessment have been framed by the Assessing Officer by making the addition of Rs. 2,74,00,000/- which have been challenged by us and the income have been assessed by the Assessing Officer at D 28217200/- vide order, dated 31.12.2019 [Refer page no 158-167].

c. We have attached the statement of facts along with Form No. 35 before your goodself and
while ground No. 1 is general in nature and ground No. 2,3,& 7 relate to the addition of D 27400000/- on account of cash deposit during demonetization , presuming the same as  ‘inflated cash in hand’ from ‘inflated sales’ and such addition is based on conjectures and surmises and hence the addition made is against the facts and circumstances of the case.

d. It is submitted that year after year, the assessee has been filing the returns by drawing year-wise trading account duly supported by quantitative tally. The same record has been maintained since the inception of the business and in this year also, same type of record has been maintained and no defects at all have been pointed out by the Assessing Officer on such quantitative tally.Even in the assessment proceedings the quantitative summary each item have been given by mentioning the opening stock, purchases and sales during the year under consideration and closing stock. Besides the above the assessee has submitted month wise availability of stock and no defects or any other omission with regard to the purchases and sales have been pointed out in such detailed ‘stock register’ maintained on day to day basis. Copy of such reply in which the stock register has been produced is enclosed at page no 63 & 76-77 of the Paper Book.

e. All the purchases are from identifiable parties and majorly all the payments for the purchases have been made through normal banking channels and nothing has been doubted about such purchases. Thus, all the purchases are fully vouched. The sales are also fully vouched but majorly, the sales are made in cash, due to the nature of trade and some of the sales are on account of cheques/RTGS . In every bill of purchase and sale, quantity and description of the item purchased or sold has been given in full form.

f. It is beyond doubt that the Assessee was having sufficient stock and the same was duly accounted for in the books of accounts for the year under consideration. The entire sales were made from the regular stock in hand of the Assessee. So, under such circumstance, the sales cannot be doubted. The items are sold and from which cash has been received by the Assessee and the same stands deposited in the Bank accounts of the Assessee itself during the demonetization period. In other words, it is only a case, wherein the existing stock in hand as available with the Assessee is sold for cash. Hence, it is a case, wherein the stock is out and in return is cash is in, which stands deposited in the bank account and the same is disclosed in the books of accounts of the Assessee. The books of accounts of the Assessee are further duly audited by a Chartered Accountant. Thus, there is no scope of any default on the part of the Assessee.It is pertinent to mention here that the appellant had made purchase to the tune of Rs. 3,09,69,406/-in October 2016 on which the assessee has duly paid the VAT [please refer page 63 of the PB]. The Ld. AO has not doubted the purchases, opening stock and quantitative tally. It is a matter of record The purchase & sale have duly been reflected in the VAT return filed before the Punjab VAT Authorities.

g. As regard AO’s objection regarding increase in sales in the month of October 2016 and November 2016. In this regard it is very humbly submitted that the appellant is engaged in whole sale/ retail trading of sugar, refined oil, ghee and other allied karyana items. The major sales take place around Diwali as demand of Ghee/oil/ sugar increases near festive season. It is pertinent to mention here that the ‘Diwali’ festival in the year 2016 was on 30^th October 2016 and increase in sales as stated by the assessee in comparison the earlier months was justified. Furthermore it was also brought to the knowledge of AO that the assessee has started dealing in new commodities i.e.sugar, cotton seed oil(loose), Vanaspati  Tin and Soya However, the assessing officer while estimating the sales has not considered the festival season and new commodities added by the appellant to its product line. Therefore, the cash deposited in bank was as per books of accounts and same can be verifiable from cash book where all the sales were reflected. The Ld. AO has failed to appreciate that the sales for the AY 2016-17 and 2017-18 have almost doubled. Moreover, the appellant is registered with VAT authorities and all the purchases were made from identified parties registered with VAT authorities. The appellant has paid VAT of Rs. 5026724/- on total purchases made during the year. The Ld. AO has not pointed out any defects in the purchases.The Ld. AO while raising the doubt in respect of sales made in  October & November has failed to appreciate that the applicant has made purchase to the  tune of Rs. 3,09,69,406/- in the month of October 2016 which is much before the date of announcement of demonetization by the Hon’ble Prime Minister. The summary of comparison of sale is as under: –

h) It is further submitted that the A.O. has invoked the provisions of Section 68 of the Income Tax Act 1961, in the absence of any corroborative evidence even when the assessee had explained the nature and source of cash deposits in the bank account and that nowhere in the assessment order, the A.O. had mentioned that he was not satisfied with the explanation offered to him since no deficiency was raised by him with regard to the said deposited cash. It is also submitted that the assessee deposited cash amounting to Rs.4,09,50,000/- during the demonetization period out of cash sale proceeds, cash withdrawals to the tune of Rs. 46,05,000/- and cash received from debtors and the same stands reconciled from the cash books, PVAT Returns filed with the Trade &Taxes Department along with the P&L Account for the relevant assessment year. The copy of vat 20 is enclosed at page no 85-91 of the paper book.”

5. The ld. Counsel for the assessee further respectfully relied on the orders of the Hon’ble Courts& ITAT which are extracted as below:

i.Smt. Charu Aggarwal Vs. Deputy Commissioner of Income-tax [2022] 140 taxmann.com 588 (Chandigarh – Trib.).

“I. Section 68, read with section 153A, of the Income-tax Act, 1961 – Cash credit (Unexplained cash deposits) -Assessment year 2017-18 – Certain cash was deposited during post-demonetization in account of assessee, engaged in resale of jewellery, diamond etc. -Assessing Officer observed that there were two sets of books of account, i.e., one in computer of accountant and another in pen drive of accountant with different sales figures for October 2016 and assessee having failed to furnish documentary evidence regarding source of cash deposits in its bank accounts, addition was made to income of assessee – However, it was found that assessee was maintaining complete stock tally, sales were recorded in regular books of account and amounts were deposited in bank account out of sale proceeds – Nothing was brought on record to substantiate that cash obtained by assessee from sales which reduced stock of assessee was utilized elsewhere – Cash sales made during month of October, 2016 were in line of cash sales in earlier years and equal to sales in month of July, 2016 – Opening stock, purchases and sales and closing stock, declared by assessee were not doubted-Cash deposited post-demonetization by assessee was out of cash sales which had been accepted by Sales Tax/VAT Department and not doubted by Assessing Officer – There was sufficient stock available with assessee to make cash sales -Whether therefore, sales made by assessee out of existing stock were sufficient to explain deposit of cash (obtained from realization of sales) in bank account and could not have been treated as undisclosed income of assessee and accordingly, impugned addition made by Assessing Officer was not justified.”

ii. R.B. Jessaram Fatehchand (Sugar Dept.) v. Commissioner of Income- tax [1970] 75 ITR 33 (Bombay) HIGH COURT OF BOMBAY

“Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of the Indian Income-Tax Act, 1922] – Method of accounting – Rejection of accounts – On assessee’s inability to supply addresses of purchasers who purchased goods on cash, ITO rejected assessee ‘s books of account showing result in respect of cash sale transactions, and made addition -AAC deleted additions but Tribunal restored ITO’s orders – Whether there was no necessity whatsoever for assessee to maintain addresses of cash customers -Held. yes – Whether, therefore, rejection of book results of assessee was unjustified.”

iii. Commissioner of Income-tax, Ludhiana v. Ludhiana Steel Rolling Mills Ltd [2008] 166 Taxman 20 (Punjab & Haryana).

“Section 145 of the Income-tax Act, 1961 – Method of accounting – Rejection of accounts – Assessment year 1999-2000 – Assessing Officer on examination of books of account of assessee allegedly found various discrepancies which when confronted to assessee, no satisfactory explanation was filed by it – Further as trading results declared by assessee were much variable, by applying provisions of section 145(3), Assessing Officer rejected books of account and by applying GP rate of 8.5 per cent on enhanced sale, made an addition – Commissioner (Appeals) as well as Tribunal deleted additions – Whether since Commissioner (Appeals) as well as Tribunal had gone into detail in discussing evidence and recording conclusion after appreciating same, and on basis of evidence, they concluded that no discrepancy could be found in maintenance of accounts and even Assessing Officer who was present before Commissioner (Appeals) could not point out any such discrepancy, conclusion reached by Commissioner (Appeals) and Tribunal was correct”.

iv. Principal Commissioner of Income-tax v. Agson Global (P.) Ltd. [2022] 134 taxmann.com 256 (Delhi).

“IV. Section 68 of the Income-tax Act, 1961 – Cash credit (Bank deposits) – Assessment year 2017-18 -Assessee-company was engaged in business of selling dry fruits – post-demonetization, assessee deposited cash amounting to Rs. 180.53 crore in its bank accounts – Assessing Officer held that cash deposits made by assessee represented unaccounted income and accordingly, made additions – Tribunal analysed data pertaining to cash sales and cash deposits made in relevant assessment year as against two earlier assessment years and noted that in year of demonetization percentage increase in sales was less than earlier year – He, thus, held that growth in sales compared to earlier two years showed similar trend, and it could not be said that assessee had booked non-existing sales in its books post-demonetization -Furthermore, revenue made no allegation that assessee had backdated its entries – Whether since assessee placed material on record that cash deposits made with banks more or less corresponded with cash sales, it could only be concluded that there was growth in asses see’s business and impugned addition was to be deleted.”

v.Jet Freight Logistics Ltd. v. Commissioner of Income-tax Appeal (NFAC)[2023] 146 taxmann.com 349 (Mumbai – Trib.)

“I. Section 68, read with section 115BBE, of the Income-tax Act, 1961 – Cash credit (Tax on income) -Assessment year 2017-18 – Assessee-company had deposited certain sum in specified bank notes during period of demonetization and explained in detail complete modus operandi of its operations and submitted cash book, bank statements and details of persons from whom cash was received together with their name, address, PAN, ledger confirmation etc. -However, Assessing Officer observed that assessee merely submitted copy of confirmations from parties but had not proved creditworthiness of availability of cash with those persons by documentary evidences, and he proceeded to tax entire cash deposits as unexplained cash credit under section 68 – As per business model adopted by assessee, it was in continuous need for payment of cash at various points of time and hence, it had to withdraw cash in order to satisfy its business requirements – Assessee had furnished entire details of cash received from customers containing name and address of customers, PAN, and invoice amount – Further, Assessing Officer had not brought any cogent evidence on record to disbelieve details furnished by parties and assessee -Whether, on facts, no addition could be made under section 68”.

v. ACIT, Central Circle – 1, Visakhapatnam v. Hirapanna Jewellers [2021] 128 taxmann.com 291 (Visakhapatnam -Trib.)

INCOME TAX: Where AO made addition under section 68 on account of huge cash amount deposited by assessee-jeweller in its bank account post demonetization, since assessee had explained source of said cash deposits as sales of jewellery, produced sale bills and admitted same as revenue receipt as well as offered it to tax and assessee also represented out………go of stocks which was matching with sales, impugned addition was to be deleted.

[ Emphasis supplied]

6. The ld. counsel for the assessee further placed argument in ground no. 5 and filed a submission which is extracted as below: –

11. The ld. CIT DR vehemently argued and relied on the order of the ld. AO. Copy of the said order of para 6.1 is extracted as below:

“6.1 The above discussion clearly shows that the assessee had shown inflated cash sales to cover his unaccounted money. Total sale shownby the assessee in October, 2016 is Rs.1,58,06,636/-, out of this the credit was allowed to the assessee by considering the maximum sale shown of June, 2016 i.e Rs.23,28,355/- and also after considering gross profit shown @ 4.84% by the assessee in his trading account on these inflated cash sales, benefit of Rs.28,06,536/- is allowed for Oct, 2016 and balance Rs.1,30,00,000/- is treated as unexplained cash deposited in the bank and is assessed u/s 68 of the Income Tax, Act,1961. On the same analogy, out of cash sale of Rs.1,53,63,687/- shown for 8 days of Nov, 2016, benefit of Rs.9,63,687/- as allowed on account of sale and G.P, balance of Rs.1,44,00,000/- has been treated as unexplained cash deposit in the bank and assessed u/s 68 of the I.T. Act, 1961. Hence total addition on account of unexplained cash deposit is made amounting to Rs. 2,74,00,000/- u/s 68 of the Income Tax Act, 1961 and the same is taxed u/s 115BBE of the Act at the rate of 60%. Further, penalty proceedings u/s 271AAC(1) of the Income Tax Act, 1961 are also initiated on this issue.”

11. The ld. CIT DR further relied on the order of the ld. CIT(A)’s para nos. 4 to 4.1are extracted as below:

“4. Decision:-

The AO in its order u/s 143(3) of the Act has noted that the assessee has made large cash deposit in his bank account during the demonetization period i.e., during 9.11.2016 to 31.12.2016. The AO asked the reasons for this increase in the cash sales i.e. ,of Rs. 40950000/-. After examining the submission of the assessee, the AO as per Para 6.1 had added Rs. 27400000/- u/s 68 r.w.s 115BBE of the Act after allowing the credit of the sales made up-to October 2016 and the profit margin as worked out from the submission of the assessee.

4.1 The assessee filed its appeal and challenged the additions made by the AO. During the appeal proceedings the appellant did not file any submissions to support its grounds of appeal. As discussed above, the appellant has not complied with various notices issued in the course of appeal proceedings and also did not make any compliance during assessment proceedings. Therefore, it appears the appellant is not interested in prosecuting the appeal. In view of the above the various additions and disallowances made by the AO are upheld. The Grounds of appeal are dismissed.”

12. We heard the rival submission and relied on the documents available in the record. That the ld. A.O. had not disputed, the purchases, quantitative stock and sales for the entire period except October & November. It is pertinent to mention here that the assessee has duly submitted books of accounts, sale & purchase register, confirmations, bank statements, expenses, parties from whom the purchase and to whom sales were made. However, the Ld. AO has alleged that the appellant has inflated sales for the month of October &November, 2016. The total sales declared by the assessee was to be tune of Rs. 1,58,06,636/- and Rs. 1,53,63,687/- respectively. However, the ld. Assessing Officer has computed the sales for the month of October &November 2016 at Rs. 28,06,536/- and Rs. 9,63,687/- respectively. The Ld. AO while doing such exercise has ignored the fact as to why a prudent businessman will make purchases to the tune of Rs. 3,09,69,406/- in the month of October, 2016 much before the date of demonetization in order to execute such meagre sale as computed by the AO. The assumption drawn by the AO in respect of estimating the sales is merely on assumption or presumption or surmises or conjectures. Therefore, the Ld. AO has made addition of Rs. 2,74,00,000/- in the hands of the assessee by reducing the actual sales for the month of October, & November 2016. The basis of rejection of books was not acceptable here. We respectfully relied on the order of jurisdictional High Court in the case of Ludhiana Steel Rolling Mills Ltd, supra. The Ld. AO has made such addition without discharging the burden of prove the correctness of addition. It is a settled law that once the adequate evidence/material has been provided which prima facie discharge the burden of the assessee in that case, the burden shifts on the revenue and the revenue has not discharged its onus in these circumstances. Here, no addition can be called for. In this regard, the respectfully reliance is placed on the following case laws:

• K. P. Varghese vs ITO (1981) 7 Taxman 13 (SC)
• A. S. Sivan Pillai vs. CIT (1958) 34 ITR 328 (Madras)
• Roshan Di Hatti vs CIT 107 ITR 938 (SC),
• CIT, Faridabad v. Laul Transport Corporation, [2009] 180 Taxman 185 (Punjab & Haryana)

12.1 We also considered that the amount deposited in the bank account was out of sale of various items which had been held by the assessee as stock in trade and since the deposits in the bank account were out of sale of stock therefore the stock of the assessee has depleted and the cash has come in respect of stock, such sales had been disclosed in the trading account against the purchase which had not been doubted, neither the opening and closing stock had been doubted. Therefore, nothing could have been doubted when the source of cash was well explained and was shown in the bank account. However the addition was made only on the basis of surmises without establishing any motive on the part of the assessee and without disturbing the closing stock as on 31/03/2017 which had been arrived at after reducing the sale in quantity of stock in trade.

12.2 Further, in our considered view, the AO has no right to calculate sales on hypothetical basis ignoring the evidence submitted during the course of assessment proceedings in the form of VAT return, purchase bills and quantitative details. Once the amount is declared as turn over cannot be called concealed income and be taxed doubly on same amount. We further relied on order of ITAT, Mumbai Jet Freight Logistics Ltd. v. Commissioner of Income-tax Appeal (NFAC). The addition U/s 68 is beyond jurisdiction of the ld. AO as the turnover is already reflected in the books of the assessee. So, the addition amount of Rs 2,74,00,000/-is quashed.

13. In the result, the appeal of the assessee bearing ITA No. 195/Asr/2022 is allowed.

Order pronounced in the open court on 11.04.2023