Case Law Details
Abhishek Prakashchand Chhajed Vs ITO (ITAT Ahmedabad)
ITAT Ahmedabad held that treatment of cash receipts from sale of gold/gold ornaments which are duly recorded in audited books of account cannot be treated as unexplained cash credit under section 68 of the Income Tax Act.
Facts-
The assessee is an individual who claimed to be engaged in the business of trading gold and silver items under the name and style of M/s Adheshwer Jewelers. The assessee during the demonetization period deposited cash amounting to Rs. 50 Lakh in the bank account held with Yes Bank and UCO Bank.
Assessee submitted that there was cash sales of Rs. 50,47,147/- during the festival time of Diwali, Dhanteras, and Pushnanakshatra which are considered as good mahurat by the people for purchase of jewelry.
AO held that the entire submission of the assessee showing cash deposits out of trading of gold and silver is camouflaged and afterthought. Therefore, the AO rejected the same. Accordingly, the AO treated the entire cash deposit of Rs. 50 Lakh as unexplained cash credit under section 68 of the Act and added to total income.
CIT(A) confirmed the addition. Being aggrieved, the present appeal is filed.
Conclusion-
It was noted held that the assessee has duly shown the cash receipt from the sale of gold/gold ornaments duly recorded in audited books of the account supported by sales bill and stock details. The AO has not pointed out any defect in the books of accounts. Therefore, in our considered opinion, AO cannot treat the cash generated from sales duly recorded in books of account from unexplained/unaccounted sources unless books of account are rejected based on valid reasons.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals), Ahmedabad, arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2017-2018.
2. The assessee has raised following grounds of appeal:
1. CIT(A) erred in law as well as on fact in upholding addition of Rs.50,00,000 u/s.68 being sales credited to profit and loss account and declared as income.
2. CIT(A), erred in law as well as on fact in upholding addition of Rs.4,65,000/- u/s.68 being unsecured loans.
3. The first issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of cash deposit of Rs. 50 Lakh as unexplained cash credit under section 68 of the Act.
4. The facts in brief are that the assessee is an individual who claimed to be engaged in the business of trading of gold and silver items under the name and style of M/s Adheshwer Jewelers. The assessee during the demonetization period (08th November 2016 to 31st December 2016) deposited cash amounting to Rs. 50 Lakh in the bank account held with Yes Bank and UCO Bank. The details of the same stand as under:
| Sr. No. | Name of Bank | Name of the Bank Account No | Date of Deposit | Cash Deposit (In Rs.) |
| 1. | Yes Bank | 21563400000000153 | 11/11/2016 | 15,00,000/- |
| 2. | Yes Bank | 21563400000000153 | 02/12/2016 | 10,00,000/- |
| 3. | Uco Bank | 4090210003305 | 11/11/2016 | 15,00,000/- |
| 4. | Uco bank | 4090210003305 | 02/12/2016 | 10,00,000/- |
| Total | 50,00,000 |
4.1 The assessee regarding source of cash deposit submitted that during the year under consideration, he started business of trading of gold and silver for which it received Gumasthadhara certificates (shop establishment certificate) from AMC as on 29-03-2016 and opened bank account in May 2016. The business started on 1st October 2016. Through the period from 21st October 2016 to 31st October 2016, it made cash sales of Rs. 50,47,147/- during the festival time of Diwali, Dhanteras and Pushnanakshatra which considered as good mahurat by the people for purchase of jewelry. Since random customers came and purchased gold or silver wanting delivery on same day, the sales were made in cash instead of taking cheque against the sales. The assessee in support of his contention furnished a copy of sales bills and cash book. The assessee further submitted that the proceeds of cash sales in the month of October 2016 were held in the business instead of depositing in the bank as the period was considered good for business and for that he needed liquidity to earn more profits. After Diwali (30th October 2016), the assessee has gone on vacation with family. Therefore, the cash was not deposited in the first week of November also. When he came back from vacation, the Government announced demonetization of high value currency note on 8th November. The assessee immediately after demonetization announced deposited cash the bank in instalment on different dates. As such, the assessee deposited cash amounting to 30 Lakh on 11th November and remaining cash of Rs. 20 Lakh on 2nd December 2016.
4.2 However, the AO found certain deficiencies in the claim made by the assessee detailed as under:
– Evidence of purchases of gold or silver such as bills/voucher/weighing slip etc. was not provided.
– Stock registered was not maintained even though the books of accounts were audited.
– The assessee got AMC permission for business on 29th March 2016 and as per bank account several transactions were made during the year. However, entire sales were made during 21st to 31st October 2016 only and that too in cash only which was only deposited during the demonetization period.
– As per the cash book submitted by the assessee, no expenditure was incurred out of cash till the date of demonetization.
– The details of supplier of gold/silver were not provided. Further, sales bill issued to customers do not contain full name & address of customers, description of goods and weight of goods.
– The assessee took VAT registration and filed VAT return only after scrutiny notice under the Act issued to him.
4.3 In view of the above finding, the AO held that the entire submission of the assessee showing cash deposits out of trading of gold and silver is camouflaged and afterthought. Therefore, the AO rejected the same. Accordingly, the AO treated the entire cash deposit of Rs. 50 Lakh as unexplained cash credit under section 68 of the Act and added to total income.
5. Aggrieved assessee preferred an appeal before the learned CIT(A) and reiterated the submissions made during the assessment proceedings. The learned CIT(A) after considering the facts in totality confirmed the addition made by the AO.
6. Being aggrieved by the order of the learned CIT(A) the assessee in appeal before us.
7. The learned AR before us filed paper book running from pages 1 to 275 and submitted that the business of the assessee was established 06-05-2016 which is evident from VAT registration certificate, placed on page 90 of the PB. The ld. AR also submitted that the cash was deposited in the bank out of the sale proceeds. The ld. AR in support of his contention has drawn our attention to the cash book, sale register, stock register and VAT returns which are placed in the paper book.
8. On the other hand, the learned DR vehemently supported the order of the authorities below.
9. We have heard the rival contentions of both the parties and perused the materials available on records. Admittedly, the assessee deposited cash during the demonetization period for Rs. 50 lakhs in two different bank accounts. The sources of such deposit were explained by the assessee as sales proceeds of jewelry business in which he indulges during the month of October 2016. The assessee, in support of his explanation, furnished a business permission letter from AMC, VAT registration certificate, sales bills and VAT return etc. However, the AO, without pointing any defect in the documentary evidence filed by the assessee held the cash deposit from unaccounted sources merely on reasoning that the assessee has not maintained stock register. The AO also found that the assessee has taken VAT registration after his case was selected for scrutiny assessment. In this regard, we have perused the VAT registration certificate available on page 91 of paper books which clearly states that the assessee was registered under the VAT w.e.f 06-May-2016 i.e. before the demonetization period. Thus, the finding of the AO in this regard is factually incorrect. We also note that the assessee has duly shown the cash receipt from the sale of gold/gold ornaments duly recorded in audited books of the account supported by sales bill and stock details. The AO has not pointed out any defect in the books of accounts. Therefore, in our considered the opinion, the AO cannot treat the cash generated from sales duly recorded in books of account from unexplained/unaccounted sources unless books of account rejected based on valid reasons.
9.1 We also note that the coordinate bench of Jaipur Tribunal in case of Mahesh Kumar Gupta vs. ACIT in ITA NO. 149/JP/2022 vide order dated 23-032023 in the similar facts and circumstances deleted the addition made by the AO by observing as under:
None of these records were disputed by the ld. AO. We have also seen that even the ld. AO has not dealt with the specific submission of the assessee and he has merely written one paragraph confirming the view of the ld. AO without dealing with the various contentions raised and judicial decision cited by the assessee even the ld. CIT(A) has not dealt with any of the judgement relied upon the ld. AR of the assessee while dealing with the appeal of the assessee.
9.2 The ld. AR of the assessee vehemently submitted that law nowhere prohibits cash sales to the assessee. Assessee by selling the goods in cash did not violates any provision of the Income Tax Act and even the ld. AO has not mentioned any of the law provision to disbelieve the sales so made by the assessee. All the sales made by the assessee is supported by a commercial invoice duly complied with the value added tax (VAT) provision and the related VAT is also paid by the assessee. The invoices issued is also reported in VAT return filed and the sales has been accepted by the VAT authority without any adverse remark and in fact even the ld. AO has not made any adverse remark on the sales register and cash book submitted by the assessee to support the contentions of having been sold the goods/jewellery in cash.
9.3 The bench noted the ld. AR of the assessee has relied upon the various judgment and the some of the judgment which has direct bearing on the dispute and having similar facts are considered one by one in brief. Decision in the case of Hirapana Jewellers in ITA no. 253/Viz/2020 where in it is held that since the assessee has already admitted the sales as revenue receipt, there is no case for making the addition u/s. 68. The second decision relied upon is in the case of Agson Gobal Private Limited 115 taxmann.com 342 wherein it is held that“ “It is not the case of the revenue that assessee has not shown the relevant stock register before the assessing officer. The assessee has maintained the complete stock tally in its accounting software. Such books of accounts are audited, quantitative records produced before the tax auditor, such quantitative records are certified by tax audit and no questions have been raised by the assessing officer. Thus, it cannot be said that the figures of sales and purchases are not supported by the quantity details.”
9.4 As regards the applicability of section 68 in this case we have persuaded the decision of HonZble Delhi High Court in the case of Keshav Social and Charitable Foundation 278 ITR 152 wherein the court considered a situation where the assessee, a charitable trust, had disclosed donations received by it as its income, and claimed exemption u/s. 11. The Assessing Officer, on finding that the assessee was unable to satisfactorily explain the donations and the donors were fictitious persons, held that the assessee had tried to introduce unaccounted money in its books by way of donations and, therefore, the amount was to be treated as cash credit u/s. 68. The Delhi High Court held that section 68 did not apply, as the assessee had disclosed such donations as its income.
9.5 The bench has also noted that the ld. AO accepted the opening stock, purchase, as well as the closing stock at the yearend to be genuine and correct. It is also worthwhile to mention that the ld. AO has not rejected the books of accounts of the assessee by invoking the provisions of Section 145(3) and even there is no whisper in the order about any defects in the books of account. The ld. AO has not brought any material on record to establish that the sale bills were bogus or any evidences indicating that sales were bogus. The ld. AO is wrong in not accepting the declared cash sales as not verifiable which are recorded in books of accounts which were found to be correct and complete. We have also noted that the assessee has undertaken cash sales of Rs. 1,86,45,067. Out of the total cash sales, cash sales amounting to Rs. 80,00,000 has been found to be non-genuine and added under section 68 of the Act. Explanation offered to substantiate the cash sales has been arbitrarily rejected without holding that the sales is duly recorded in the books and is also supported by the various records produced in the assessment proceedings. Here we note that similar view is taken in the case of CIT vs P. Mohanakala (2007) 291 ITR 278 (SC), the Apex Court while dealing with the true nature and scope of Section 68 of the Act has held that the opinion of the assessing officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The court further held that the opinion of the assessing officer is required to be formed objectively with reference to the material available on record. Hence, application of mind is sine qua non for forming the opinion. The only reason placed by the ld. AO in his order that the full name, address or/and PAN of the customer to whom goods were sold in cash during the course of business below to the prescribed limit has not been given. It is voluntary to the customer to provide their personal information to the assessee while goods being sold and even the law does not mandate to the assessee up to an amount of Rs. 2 lac. This view is also taken by co-ordinate bench of this Jaipur bench in the case of Mahendra Kumar Agarwal in ITA No. 172/JP/2022 the relevant finding is reiterated here in below:
*********
9.6 As regards the fact that as on 21.10.2016 the opening cash balance was Rs. 11,63,263/- and thereafter, 112 cash sales bills were issued by the assessee for an amount of Rs. 70,80,376/- till the time demonetization announced. To counter this fact the ld. AR in his submission stated that Diwali was on 30.10.2016 and thereafter marriage season started and as result the cash sales rise during these periods. The case law cited by the ld. AO was distinguished by the ld.AR in the submission filed before the ld. CIT(A). The said finding has not been disputed by the revenue in the appeal before us.
9.7 In the light of the detailed discussions and finding that has been recorded by us in the preceding para we are of the considered view that the action of the ld. AO making an addition under section 68 for an amount of Rs. 80,00,000/- as unexplained cash deposit without rejecting the books of account is unwarranted based on the discussion so recorded here in above. Even the ld.AO has not find any defects in the details submitted by the assessee and audited books were considered and accepted while finalizing the assessment. Similar view has been taken by this coordinate bench of Jaipur in the case of Chandra Surana in ITA No. 166/JP/2022 wherein the similar view has been taken. The relevant finding is reproduced here in below;
*****
9.8 Respectfully following the consistent view and after considering the factual matrix of the cash on hand in our considered view the addition made cannot sustain and therefore, we vacate the addition of Rs. 80,00,000/- made under section 68 of the Act as the same cannot be made without rejecting the books of account of the assessee regularly maintained by the assessee and the said cash deposited is duly supported by the entries passed in the books of account and part of the sale accepted by the AO.
9.2 In view of the above and after considering the facts in totality, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence, the ground of appeal raised by the assessee is hereby allowed.
10. The second issue raised by the assessee is that the Ld. CIT(A) erred in confirming the addition made by the AO for Rs. 4,65,000/- only on account of unexplained cash credit u/s 68 of the Act.
11. The AO during the assessment proceedings found that the assessee has shown loan of Rs.4,65,000/- from the following parties.
| Sr. No. | Name of lender/depositor | Amount |
| 1. | Adheshwar Finance Corporation | 2,00,000/- |
| 2. | Chhajed Motors | 50,000/- |
| 3. | K S Motors | 2,00,000/- |
| Total | 4,65,000/- |
12. The assessee in support of the above unsecured loan filed the copy of the confirmation and PAN of the parties. The assessee also submitted that the AO in the event of having any doubt can also call for the information by issuing notice u/s 136 of the Act from the loan parties. However, the AO was of the view that the assessee failed to establish the genuineness of the transaction and creditworthiness of the loan parties. Therefore, the AO treated the same as unexplained cash credit under section 68 of Act and added to the total income of the assessee.
13. Aggrieved assessee preferred an appeal to the Ld. CIT(A) who confirmed the order of the AO.
10. Being aggrieved by the order of the learned CIT(A), the assessee in appeal before us.
11. The Ld. A.R before us submitted that the assessee has duly furnished the confirmation and the bank statement of the parties along with the Income-tax return which are placed on pages 161 to 231 of the paper book. It was further contended by the Ld. AR that the amount of loan taken from the parties is ranging from Rs. 50 thousand to 2 lacs only and therefore, considering the amount of loan, the creditworthiness of the parties cannot be questioned.
12. On the other hand, the Ld. DR vehemently supported the order of the authorities below.
13. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has received unsecured loan of Rs. 4,65,000/- which has been treated by the AO as unexplained credit u/s 68 of the Act. The order of the AO was confirmed by the Ld. CIT(A) by observing that the credit of unsecured loan from the parties cannot be treated as explained merely by providing PAN and bank statement until the proof of identity and credit worthiness of the parties are established. The relevant finding of the Ld. CIT(A) is extracted as under:
And it is held that genuineness of unsecured loan amounting of Rs. 4,65,000/-transaction could not be proved merely by providing PAN and bank statement of the lender, thus it is evident that the assessee has failed to prove identity, creditworthiness of the depositor and genuineness of transaction and same is treated as his unexplained cash credits u/s.68 of the Income Tax Act.
13.1 The provision of section 68 of the Act cast primary onus on the assessee to explain the nature and source of the sum credited in the books of account. This primary onus can be discharged by establishing/furnishing the proof of the identity of the creditor, their creditworthiness and genuineness of transaction. Once the primary evidence in relation to the identity, genuineness and creditworthiness is furnished by the assessee, the burden shifts on the revenue to bring credible material before rejecting the primary document furnished by the assessee. From the above extracted finding of the Ld. CIT(A) and materials available on record, we note that the assessee has discharged the onus cast upon him by furnishing ledger confirmation from the creditor, their PAN, their copy of ITR, and their Bank statements. In our considered view, the identity of the creditor was duly established by furnishing their PAN, ITR and bank statement. Likewise, the genuineness of the transactions also got established by the fact that the transactions were carried out through banking channel which were duly reflecting in their respective bank statements and duly recorded in the books of account as loan which also confirmed by the creditor. The revenue authorities do not bring any material on record suggesting otherwise. The AO does not point out any infirmity the in the primary documents nor conducted direct investigation from the creditors/ parties by issuing notice u/s 133(6)/131(1) of the Act. Therefore, in such facts and circumstances we are of the view that the genuineness of transaction cannot be doubted.
13.2 Coming to the aspect of creditworthiness of the creditor who lent such sum to the assessee. In this regard, we note that the loan amount received by the assessee from different creditor varying between Rs. 50 thousand to Rs. 2 lacs which are not huge sum. In addition to that the assessee provided PAN details as well as copy of ITR-V of the creditor based on which the revenue authority should have access to financial detail of the creditor. The assessee also furnished copy of bank statement of the creditor showing the availability of fund before lending money to the assessee. The revenue authorities without pointing any infirmity in the documentary evidence furnished by the assessee as well as without bringing independent material on record suggesting that the creditor does not possess the creditworthiness to lend money.
13.3 In view of the above detailed discussion and after considering the facts in totality, we are of the view that the assessee has duly discharged the onus cast upon him u/s 68 of the Act and the burden shifted upon the AO/revenue authority to bring the material on record before rejecting the explanation/evidence submitted by assessee is not satisfactory. However, the revenue authorities failed to discharge the burden shifted on them. Therefore, in such facts and circumstances, the sum credited in the books of the assessee cannot be treated as unexplained u/s 68 of the Act. Hence, we hereby set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition made by him. thus, the ground of appeal of the assessee is allowed.
14. In the result, the appeal filed by the assessee is hereby allowed.
Order pronounced in the Court on 04/10/2023 at Ahmedabad.
Author Bio
