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Case Law Details

Case Name : Bollam Sampath Kumar Jewellers (P) Ltd Vs ACIT (ITAT Hyderabad)
Appeal Number : ITA No. 254/Hyd/2023
Date of Judgement/Order : 11/12/2023
Related Assessment Year : 2017-18

Bollam Sampath Kumar Jewellers (P) Ltd Vs ACIT (ITAT Hyderabad)

Introduction: The Income Tax Appellate Tribunal (ITAT) Hyderabad’s decision in the case of “Bollam Sampath Kumar Jewellers (P) Ltd Vs ACIT” marks a pivotal moment in the scrutiny of unexplained cash deposits during the demonetization period in India. The case, relating to the assessment year 2017-18, delves into the complexities surrounding the treatment of substantial cash deposits made by the assessee, a private limited company engaged in the jewellery business, during the demonetization period announced by the Government of India in November 2016.

Detailed Analysis

The core of the ITAT’s decision revolves around two major additions made by the Assessing Officer (AO) under sections 69A and 68 of the Income Tax Act. The first addition pertained to unexplained cash deposits amounting to Rs. 14,88,01,620 made during the demonetization period, while the second related to a difference in the gross profit (GP) rate before and after demonetization, leading to an additional income estimation of Rs. 10,97,68,945.

The assessee’s primary contention was the lack of proper consideration of submitted books of accounts, daily summaries of cash, bank statements, and sales records, which allegedly demonstrated the legitimacy of the cash deposits and maintained gross profit margins. Despite these submissions, both the AO and the CIT (Appeals) upheld the additions, citing insufficient evidence to explain the nature and source of the deposits and a lack of convincing demonstration of the sales figures and corresponding GP rates for the periods in question.

Upon appeal, the ITAT identified a need for a more thorough examination of the assessee’s records. It highlighted that the assessee claimed to have maintained proper books of account, supported by bills and vouchers for all transactions. The Tribunal found that these claims, if substantiated with detailed documentation, could potentially explain the cash deposits and the consistency of the GP rates pre- and post-demonetization.

Consequently, the ITAT remanded the matter back to the AO with instructions to reassess the case after allowing the assessee an opportunity to present all necessary documents, including purchase and sale bills and vouchers, to justify the cash deposits and GP rates. This decision underscores the Tribunal’s stance on ensuring that assessments are based on a comprehensive evaluation of all relevant evidence, thereby upholding the principles of fairness and transparency in tax proceedings.

Conclusion: The ITAT Hyderabad’s ruling in “Bollam Sampath Kumar Jewellers (P) Ltd Vs ACIT” serves as a significant reminder of the critical importance of maintaining and presenting comprehensive financial records to justify cash transactions and income declarations, especially during extraordinary circumstances like demonetization. It also emphasizes the judiciary’s role in ensuring that tax assessments are conducted fairly, with due regard to the taxpayer’s right to present evidence. This case sets a precedent for similar disputes, highlighting the necessity for both taxpayers and tax authorities to adhere closely to procedural and documentary requirements to achieve accurate and fair tax assessments.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

This appeal filed by the assessee is directed against the order dated 27.04.2023 of the learned CIT (A)-NFAC Delhi, relating to A.Y.2017-18.

2. Facts of the case, in brief, are that the assessee is a private limited company engaged in the business of jewellery. It filed its return of income on 8.11.2017 declaring total income of Rs.35,93,490/-. The case was selected for scrutiny for verifying the following:

“High Revenue from operations (including other income) and no scrutiny in preceding 5 A. Ys. Large value cash deposited during demonetization period”.

ITAT Hyderabad Orders Review of Jewellers' Demonetization Cash Deposits & Sales

3. During the course of assessement proceedings, the Assessing Officer noted that information was received that the assessee has deposited huge cash in bank accounts held by it during demonetization period. The Assessing Officer asked the assessee to submit books of account, P&L Account, Bank Account Statements, Tax Audit Report and details of turnover for last 3 years and details of cash deposits made during demonetization However, there was no compliance from the side of the assessee. Since the assessee has made cash deposit of Rs. 14,88,01,620/- during the demonetization period, the Assessing Officer made addition of the same treating the same as unexplained money u/s 69A r.w.s. 115BBE of the Act.

4. During the course of assessement proceedings, the Assessing Officer, in order to verify the actual trading quantity and the sales of gold jewellery asked the assessee to submit the corresponding purchase and sale bills for the financial year. However, the assessee submitted the sale bills randomly. The Assessing Officer observed form the said bills and vouchers that they are not the corresponding bills(purchase/sales) to verify the correct gross profit of the assessee. He, therefore, proceeded to estimate the net profit. He noted that the trading account for the two periods i.e. 1.4.2016 to 8.11.2016 and 9.11.2016 to 03.2016 shows gross profit margin of 11.32% and 0.65% respectively. According to the Assessing Officer by any stretch of imagination, there cannot be such a wide variation in gross profit percentage for two durations. This according to the Assessing Officer is clearly an attempt by the assessee to conceal its income by showing lesser G.P in his own case which is 16.41 times less than that shown for the period from 1.4.20 16 to 8.11.2016 which is unbelievable. He therefore, adopted a gross profit percentage of 11.32% on the sales to arrive at the profit and made an addition of Rs. 10.97,68,945/- to the total income of the assessee by invoking the provisions of section 68 of the I.T. Act. The Assessing Officer accordingly determined the total income of the assessee at Rs.26,2 1,64,060/-.

5. In appeal, the learned CIT (A) NFAC confirmed both the additions made by the Assessing Officer. So far as the addition of Rs. 14,88,01,620/- is concerned, he rejected the argument of the assessee that it produced the books of account and daily summary of the cash according to which an amount of 7,70, 12,947/- was the opening balance and all the sales were reflected in the cash book on the ground that despite number of opportunities granted the assessee did not offer any explanation regarding the nature and source of the deposits. Similarly, he sustained the addition of Rs. 10,97,68,945/-made by the Assessing Officer on account of difference in the gross profit on the ground that the assessee has not demonstrated with market price vis-à-vis the quantity sold during both the period i.e. during pre-demonetization period and post demonetization period to support its claim.

6. Aggrieved with such order of the learned CIT (A) the assessee is in appeal before the Tribunal by raising the following grounds:

1. The order of the learned Commissioner of Income-Tax (Appeals)/NFAC is erroneous both in law on facts and circumstances of the case.

2. The learned Commissioner of Income-Tax (Appeals)/NFACE erred in concluding the cases without considering the submissions made by the appellant on 20.01.2021, 07.11.2022 & 03.04.2023 and without verifying the figures.

3. The learned Commissioner of Income-Tax (Appeals) NFAC erred in concluding the matter without remitting back and verification of all the evidence to the A.O. The learned CIT(Appeals) ought to have seen that the additional evidence was filed along with application under Rule 46A and the learned CIT(A) failed to get the evidence

4. The learned Commissioner of Income-Tax (Appeals)/NEAC erred in upholding the addition of entire cash deposits made in the bank accounts during the demonetization period of Rs. 14,88,01,620/- as unexplained money u/s 69A and taxing the same u/s 115BBE of the Act. The learned CIT (Appeals) ought to have seen that every deposit is properly explained and no addition should have been upheld.

5. The learned commissioner of Income-Tax (Appeals) /NFAC erred in treating the cash deposits made in the bank accounts as unexplained money u/s 69A having accepted the entire sales as per the books of accounts maintained.

6. The learned commissioner of Income Tax (Appeals) /NFAC erred in applying provisions u/s 69A of the I. T Act. Even after the appellant disclosed the cash deposits in bank accounts and maintained proper books of account and provisions of section 69A cannot be applied to the cash credits entered in the books of account.

7. The learned Commissioner of Income-Tax (Appeals) /NFAC erred in upholding the addition made by the A.O of 10,97,68, 945/-difference arrived by estimating the gross profit at 11.32% over the sales during the period from 09.11.2016 to 31.03.2017 as unexplained credits u/s 68 of the Act and taxing the same u/s 115BBE of the Act.

8. The learned Commissioner of Income-Tax (Appeals) /NFAC erred in rejecting the books of accounts and in estimating the gross profit at 11.32% over the sales and further erred in treating the income from other sources.

9. The learned Commissioner of Income-Tax (Appeals) / NFAC ought to have treated the entire sales receipts including profit element were disclosed and entered in the books of account. the Commissioner of Income-Tax (Appeals) is holding that such excess gross profit as unexplained income assessable u/s 68 of the I. T Act.

10. Any other ground that may be urged at the time of hearing.”

7. The learned Counsel for the assessee referring to six volumes of Paper Book filed before the Tribunal drew the attention of the Bench to various details filed before the Assessing Officer as well as the CIT (A) NFAC containing the audited accounts, statement of the bank accounts, cash book and ledger for the impugned A.Y and the various details asked by the Assessing Officer from time to time. He submitted that for the impugned A.Y, the total turnover of the assessee is at Rs. 154,79,41,530/- out of which sale of pure gold is Rs.75,3 1,07,710/-. He submitted that the net profit arrived at Rs.33,52,463/- from sale of gold giving a G.P rate of 0.4% is normal in bullion trade. He submitted that the assessee has maintained proper books of account including the stock register duly supported by bills and vouchers and all purchases and sales are recorded in the books of account. The sales are not disputed by the Assessing Officer. Further, the books of accounts were audited as required under the Companies Act and also under the provisions of section 44AB of the I.T. Act. He submitted that the opening cash balance as on 8.11.2016 was Rs.70,70, 12,947/- and the sales effected are recorded in the cash book and the assessee has made the deposit in the bank account out of the cash available at that time. Therefore, both the lower authorities are not justified in making the addition by applying the provisions of section 69A.

7.1. Referring to the provisions of section 69A of the Act, he submitted that when the money, which is recorded in the books, cannot be treated as income of the assessee u/s 69A of the Act. Referring to the order of the Assessing Officer wherein he has mentioned that the assessee did not mention the sources for depositing the money into the bank account, he submitted that the assessee produced the cash book before the Assessing Officer containing the opening balance and the source for the receipt. The deposits made into bank account as on 10.11.2016 are from the opening balance and the sales effected as on 9.11.2016 and 10.11.2016 which were recorded in the cash book and thereafter deposited in the bank account. Therefore, the observation of the Assessing Officer that the sources are not explained in the cash book is not correct. He submitted that the learned CIT (A) NFAC could have called for a remand report from the Assessing Officer or he could have verified the books of account himself. However, the learned CIT (A) NFAC sustained the addition made by the Assessing Officer which is not correct.

7.3 So far as the addition of Rs. 10,97,88,945/- on account of difference in G.P rate is concerned, he submitted that the assessee submitted the sales bills and purchase vouchers on test check basis since the bills and vouchers are huge in numbers. He submitted that the assessee is in possession of all the bills and vouchers for the entire year and since the Assessing Officer did not insist for production of all the bills and vouchers, the assessee had produced some sample bills and vouchers. However, the Assessing Officer without understanding the nature of business carried on by the assessee and the rate of G.P shown by other assessees doing similar business, made the addition which is not correct. He submitted that when the assessee has maintained proper books of account and all bills and vouchers are available, provisions of section 68 cannot be invoked for making G.P addition. Further, the assessee also maintained stock register and no defects were found in the books of account either by the Auditor or by the Assessing Officer.

8. The learned Counsel for the assessee further submitted the following details to justify its trading results:

assessee has maintained proper booksof account
section 68 cannot be invokedstock register
9. He submitted that when the assessee can justify the book results and the rate of profit is almost the same for both the periods, the Assessing Officer could not have resorted to estimation of income and thereby making the addition of 10,97,68,945/- and the learned CIT (A) NFAC was also not justified in sustaining the addition. He accordingly submitted that both the additions made by the Assessing Officer and sustained by the learned CIT (A) NFAC should be deleted.

10. The learned DR, on the other hand, strongly objected to the arguments advanced by the assessee and drew the attention of the Bench to Para 6.4 of page 11 and 12 of the order of the learned CIT (A) NFAC where he has observed as under:

NFAC

10.1 Thereafter, he drew the attention of the Bench to Para 6.5 to 6.7 wherein the learned CIT (A) NFAC has discussed the issue and sustained the addition of Rs. 14,88,01,620/- which is as under:

NFAC has discussed the issue

 10.2. He accordingly submitted that the order of the learned CIT (A) NFAC sustaining the addition of Rs. 14,88,01,620/-is justified.

 10.3. So far as the addition of Rs.10,97,68,945/- is concerned, the learned DR drew the attention of the Bench to Para 7.5 of the order of the learned CIT (A) NFAC which reads as under:

order of the learned CIT (A)

10.4. Similarly, the learned DR drew the attention of the Bench to 7.6 of the order of the learned CIT (A) which is as under:

DR drew the attention of the bench

10.5 He accordingly submitted that the order of the learned CIT (A) NFAC being very exhaustive should be upheld and the grounds raised by the assessee should be dismissed.

11. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We find the assessee in the instant case is engaged in the business of jewellery business and filed its return of income declaring total income of Rs. 35,93,490/-. The AO made two additions i.e. Rs. Rs. 14,88,01,620/- being unexplained cash deposits during demonetization period and 10,97,88,945/- being the difference in G.P rate during pre-demonetization period and post demonetization period. It is the submission of the learned Counsel for the assessee that the total turnover of the assessee during the impugned A.Y is Rs. 154,79,41,530/- out of which the turnover of pure gold is amounting to Rs.75,3 1,07,710/- and the balance amount is on account of sale of jewellery. It is also his submission that the assessee has maintained proper books of account duly audited under the Companies Act and also under the provisions of section 44AB of the I.T. Act giving quantitative details of gold and the auditors have not pointed out any defects in the books of account. It is also his submission that the assessee had an opening cash balance of Rs.7,70,12,947/- as on 8.11.2016 and the entire sales are reflected in the books of account and the cash has been deposited out of the cash available in the books of account and therefore, provisions of section 69A are not attracted. Further each purchase and sale is supported by bills and vouchers and the assessee had produced the bills and vouchers on test check basis before the Assessing Officer. However, had the Assessing Officer insisted for production of all the bills and vouchers which are large in numbers, the assessee could have produced the same. Further, despite producing all the relevant details before the learned CIT (A) NFAC, he did not call for any remand report from the Assessing Officer nor restored the issue to the file of the Assessing Officer and sustained the addition which is not justified. Similarly, the addition on account of difference in GP rate during the pre-demonetization and post demonetization period is also incorrect since the profit derived during the pre-demonetization period and post demonetization period is same which is as per the trading account filed.

12. We find some force in the above arguments of the learned Counsel for the assessee. The business of the assessee consisted of sale of jewellery and sale of bullion. So far as the first addition is concerned i.e. addition of Rs. Rs.14,88,01,620/- being the cash deposited during the demonetization period, we find the assessee before the learned CIT(A)/NFAC had categorically mentioned that the assessee had produced the cash book containing the opening cash balance and sales during the year. The opening cash balance as on 8.11.2016 at Rs.7,70,12,947/- was not at all considered. The details of sales effected by the assessee has not been disputed by the Assessing Officer. Therefore, when the deposits are out of the cash balance available in cash book, the addition made by the Assessing Officer u/s 69A and upheld by the learned CIT (A) is not understood. Further, despite producing all relevant details, the learned CIT (A) did not call for any remand report, nor set aside the issue to the file of the Assessing Officer. So far as the other addition is concerned i.e. addition of Rs. 10,97,68,945/- on account of difference in the G.P rate during the pre-demonetization and post demonetization period, we find the learned CIT (A) NFAC had given a finding that the assessee has not demonstrated the market price vis-à-vis the quantity during the pre-demonetization period and post-demonetization period in support of its claim. According to the learned CIT (A) NFAC the assessee could have submitted before the Assessing Officer a chart giving the gold and silver sold at the prevailing market rate on day-today basis by obtaining the market price published by the respective Bullion Market Association placed on that day. However, the assessee before us has filed details of sale of gold ornaments prior to the demonetization period and post demonetization period according to which the rate of profit derived from gold ornaments and pure gold are almost same.

13. Under these circumstances and considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to grant one final opportunity to the assessee to substantiate its case by producing the books of account along with all the bills and vouchers and explain the nature and source of deposits in the bank accounts during the demonetization period. Similarly, the assessee is also directed to produce cogent evidence before the Assessing Officer to substantiate that there is no wide variation in the G.P rate of sale of gold during the pre-demonetization and post demonetization periods by producing the relevant bills and vouchers for purchase and sale of gold. The Assessing Officer shall decide the issue de novo as per fact and law after giving due opportunity of being heard to the assessee without being influenced by our observations in Para 12 above. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

13. In the result, appeal filed by the assessee is allowed for statistical purposes.

Order pronounced in the Open Court on 11th December, 2023.

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