Income Tax Appellate Tribunal - Chandigarh
Madan Lal Aggarwal Huf, Ambala Cantt vs Dcit, Cc-2, Chandigarh on 8 December, 2023
आयकर अपीलीय अिधकरण,च डीगढ़ यायपीठ "बी" , च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH "B", CHANDIGARH
ी आकाश दीप जैन, उपा य एवं ी िव म सह यादव, लेखा सद य
BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM
आयकर अपील सं./ ITA NO. 28/CHD/2023
िनधारण वष / Assessment Year : 2017-18
Madan Lal Aggarwal HUF बनाम The DCIT
C/o Rajiv Goel and Associates, 179, Central Circle-2
Bank Road, Ambala Cantt Chandigarh
थायी लेखा सं./PAN NO: AAHHM2284F
अपीलाथ /Appellant यथ /Respondent
िनधा रती क ओर से/Assessee by : Shri Rohit Goel, C.A
राज व क ओर से/ Revenue by : Shri Dharam Vir, JCIT, Sr. DR
सुनवाई क तारीख/Date of Hearing : 19/09/2023
उदघोषणा क तारीख/Date of Pronouncement : 08/12/2023
आदेश/Order
PER VIKRAM SINGH YADAV, A.M. :
This is an appeal filed by the Assessee against the order of the Ld. CIT(A)-3, Gurgaon dt. 05/11/2021 pertaining to Assessment Year 2017-18.
2. At the outset, it is noted that there is delay in filing the present appeal by 350 days as pointed out by the Registry.
3. In this regard, the Ld. AR submitted that the appeal was filed before the ld CIT(A) Central in this case of assessee along with 22 other appeals filed related to family members in Jan 2019. The assessee had filed complete replies in all cases up to 2021 to CIT(A). The order in the case of associated concern M/s CM Jewellers was passed by ld CIT(A) on 22/9/2021 and immediately an appeal was filed and also decided by ITAT in ITA 386/2021 dated 23/6/2022. As a Counsel, we have moved an application for consolidation of cases before the CIT(A) and request for consolidated hearing in all these cases. Shri Madan Lal Aggarwal, the Karta of the HUF who looks after the cases was suffering from gangrene and 2 finally died on 9-8-2022 after prolonged illness. That no manual copy of ld CIT(A) order was received and the order uploaded by the office of the ld CIT(A) on portal could not be noticed under the impression that appeal is pending. All other 22 cases are still pending with ld CIT(A) for orders. In the month of January 2023, while checking the portal, it was noticed that order of ld CIT(A) was passed in the case of assessee and immediately thereafter, the appeal was filed. There is a delay of 350 days in filing of appeal caused due to facts narrated above which may please be condoned in the interest of substantial justice. In this regard it was further submitted that the assessee has not make any benefit in late filing of the appeal and is keenly interested to pursue the appeal filed on merits and in support reliance was placed on the following decisions:
Improvement Trust Ludhiana Vs. Ujagar Singh & Ors Civil Appeal No. 2395 of 2008 of June 9, 2010 Jayvantsinh N Vaghela Vs. Income Tax Officer 40 Taxmann.com 491 (Gujarat) Paras Rice Mills Kurukshetra Vs. CIT Karnal ITA No. 657 of 2009 (P&H) 3.1 Further, our reference was drawn to the Affidavit filed by the Karta of the HUF and contents thereof read as under:
"I, Rohit Aggarwal s/o Late Sh. Lal Aggarwal resident of House no. 61-P, Sector-7, Urban Estate, Ambala City do hereby solemnly affirm and state as under:
1. That I am Karta of Madan Lal Aggarwal HUF (PANAAHHM2284F) post death of my father, Madan Lal Aggarwal on 09.08.2022.
2. That all our group cases were handled in appeal by CA Rohit Goel pursuant to search/survey conducted on 21.03.2017.
3. Assessments in the group cases were finalized by the AO in December 2018 and additions were made in multiple cases including the assessee. Appeals were filed against such additions before CIT(A)-3, Gurgaon.
4. The affairs of assessee's business were supervised by my late father and Karta of the HUF, Shri Madan Lal Aggarwal and he was responsible for coordinating with counsel regarding the pending appeal. Madan Lal Aggarwal was suffering 3 from gangrene which resulted into removal of his legs and after prolonged illness of over one year he died on 09.08.2022.
5. That after death of my father, I collected the old files and records and gathered that replies in all appeals in my Individual capacity as well as Madan Lal Aggarwal HUF was filed and the order is pending.
6. I was checking the Income Tax portal in January 2023 and found that order in case of Madan Lal Aggarwal HUF was uploaded on the portal on 09.12.2021 and was emailed on the email of our previous counsel, CA Naresh Mittal. However, since no physical copy was received and neither email received by assessee, no action against the same could be taken till such date.
7. That due to this reason appeal against the order was not filed before Hon'ble ITAT Chandigarh within the statutory period of 60 days and the appeal was filed with a delay of 350 days.
8. The assessee is keenly interested to pursue the appeal filed on merits and requests for condonation of delay in filing of appeal.
3.2 It was accordingly submitted that the delay so happened in filing the present appeal may be condoned and appeal be heard on merits.
4. Per contra, the Ld. DR objected to the condonation of delay application filed by the assessee. It was submitted that there was substantial delay of 350 days as rightly pointed out by the Registry and the assessee has failed to submit reasonable cause which has caused the delay in filing the present appeal except the fact that the Karta of the HUF had died in the interim on 09/08/2022. It was submitted that even if the period of ill health and the expiry of the Karta of the HUF is excluded still there is delay which has happened in filing the present appeal and therefore the delay so happened in filing the present appeal should not be condoned.
5. We have heard the rival contentions and purused the material available on record. We find that the assessee has reasonably explained the reasons for the delay in filing the present appeal due to non-receipt of the appellate order, prolonged illness and death of the Karta of the family and thereafter, time taken by the new Karta to take stock and file the present appeal. Given the facts and circumstances of the case, we are satisfied that there was reasonable cause for 4 the delay in filing the present appeal and in the interest of substantial justice, the delay is hereby condoned and the appeal is admitted for adjudication on merits.
6. In the present appeal, the assessee has raised the following grounds of appeal:
1. That the learned CIT(A) has erred in law and on facts in confirming the actions of learned AO of treating cash of Rs. 17,00,000/- deposited out of cash sales as unexplained income u/s 68 r.w. section 115BBE of the Act.
2. That the learned CIT(A) has erred in law and on facts in confirming the actions of learned AO of reassessing the business income of assessee from Rs. 8,49,091/- to Rs. 6,18,026/-.
3. That the learned CIT(A) has erred in law and on facts in confirming the actions of AO of treating cash sales of Rs. 17,00,000/- as unexplained income without rejecting the audited books of accounts.
4. That the learned CIT(A) has erred in law and on facts in confirming the actions of AO of treating cash sales of Rs. 17,00,000/- as unexplained income ignoring that no discrepancy in the books of accounts and other accounting records were found during survey u/s 133A conducted upon assessee.
5. That the learned CIT(A) has erred in law and on facts in confirming the actions of AO of treating cash sales of Rs. 17,00,000/- as bogus solely on basis of presumptions and suspicions."
7. Briefly the facts of the case are that the assessee is part of M/s C.M. Jewellers Group of cases where search and seizure operation were conducted on 21/03/2017 and in case of the assessee, survey under section 133A was conducted on the same date. The assessee thereafter filed its return on 12/10/2017 disclosing the total income of Rs. 8,69,400/-, subsequently, notice under section 143(2) and 142(1) were issued alongwith questionnaire.
7.1 During the course of assessment proceedings the assessee was asked to provide complete details of source of cash deposits post demonetization in its various bank accounts alongwith complete documentary evidence thereof.
57.2 In response, the assessee submitted that the source of cash deposit post demonetization is from day to day sales undertaken by the assessee. It was further submitted that there is moderate increase in sales for the year under consideration as compared to last year and increase in cash sales commensurate with last year cash sales. Thereafter another show cause was issued to the assessee and in response, the assessee filed its submission which were considered but not found acceptable to the AO.
7.3 As per the AO, the onus is on the assessee to prove the source of cash deposits post demonetization in its various bank accounts and the assessee has tried to explain the source of cash deposits post demonetization as its sales receipts for the period just preceding demonetization, however the said explanation is found not satisfactory.
7.4 It was further held by the AO that every day sales are deposited on day to day basis in the bank account and the same is evident from the bank account statement of the assessee in which the sales are credited from time to time. Therefore, it is not possible that the source of cash deposits post demonetization are out of sales proceeds of the assessee. Further the AO carried out the comparison of cash sales for the month of October and November for the year under consideration with the last two years and came to conclusion that the sales shown by the assessee during the year under consideration are unreasonably high and therefore bogus and not genuine as they are incomparable to previous year sales. Further the AO referred to the total number of cash sales transactions for the period 25/10/2016 to 08/11/2016 and compared with total number of cash sales during the year under consideration and held that the total cash sales for the month of October & November is incomparable to the rest of the year and therefore , it again shows that the sale for this period are not genuine. Further the AO referred to cash in hand position of the assessee as on 07th November for the year under consideration as well as 6 for the last two assessment years and noted that the assessee has booked bogus sales to increase its cash in hand as on 08/11/2016. Further the AO referred to the cash deposits made by the assessee in the month of October and November and compared to the last two years and held that the cash deposit made by the assessee during these two months are unreasonably high. It was accordingly held by the AO that the explanation of the assessee regarding source of cash deposits post demonetization as its day to day sales of pre demonetization period is not acceptable. The assessee has provided no explanation for such unreasonable increase in its sales booked for the period preceding demonetization.
7.5 It was held by the AO the assessee has shown unreasonably high cash sales in the month of October and November (eight days only when cash sales could be made). The average amount of cash sales for these two months for past two years came to Rs. 2,38,373/- i.e; Rs. 2.5 lacs approximately for the month of October and Rs. 1.5 lacs approximately for the month of November. Therefore out of total cash sales of Rs. 11,94,308/- and Rs. 10,47,311/- shown by the assessee for the month of October and November, cash sales of Rs. 4 lakhs were considered genuine and remaining cash sales shown by the assessee was treated as bogus. Therefore out of total cash deposits of Rs. 21,00,000/- post demonetization made by the assessee in its different bank accounts, the explanation of the assessee about the cash deposits of Rs. 17,00,000/- was found unsatisfactory and not genuine. Therefore the addition of Rs. 17,00,000/- was made to the income of the assessee as unexplained cash credits for the year under section 68 of the Act and which was brought to tax @ 60% in terms of Section 115BBE of the Act.
8. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) who has since confirmed the said additions.
79. Against the said findings and the direction of the Ld. CIT(A), the assessee is in appeal before us.
10. During the course of hearing, the Ld. AR reiterated the submissions made before the Ld. CIT(A) and it was submitted that the Ld. CIT(A) has failed to appreciate the submission so made and the legal authorities so submitted in right perspective and the contents of the submission so made read as under:
"2. The above grounds of appeal are inter-related and as such are taken up together and to explain / present the submissions to support the above grounds.
FACTS IN BRIEF A. That during the year in question post demonetization period assessee has deposited cash of Rs. 21,00,000/- in between 9-11-2016 to 31-12-2016 in bank and copy of cash book was filed before AO and copy attached at page 2-35. That cash was deposited out of cash sales made to various parties against sales Bills and relevant evidences supporting such sales were also produced for verification of the AO.
B. That AO did not accept the explanations of assessee and held that Rs. 4,00,000/- cash as genuine and treated the balance sales of Rs. 17,00,000/- as unexplained cash credit u/s 68. This conclusion of AO is based on suspicion and not based on any adverse finding during survey or otherwise.
C. Further, the learned AO has arbitrarily reduced Net profit @ 13.61 percent on such alleged bogus sales of Rs. 17,00,000/-, thereby considered business profit for the year at Rs. 6,18,026/- in place of Rs. 8,49,091/- in the profit and loss account. In fact, effective addition of Rs. 14,68,935/- (Rs. 17,00,000/- (-) 2,31,065/-) was made to the returned Income by AO.
E. A complete Cash Book, Ledger was maintained and audited by a Chartered Accountant and these books are not rejected by AO while making additions.
F. That all products of assessee are subject to VAT and complete returns of Sales and Purchases under VAT are also filed to VAT and assessment under VAT for FY 2016-17 has since been completed accepting the sales reported in books of accounts and copy of VAT assessment order is attached at page 36.
G. Your attention is invited to CBDT Instruction No. 3/2017 dated 21-2-2017 wherein CBDT has instructed the officers, under Para 8- where cash deposit is not in line with earlier return or information profile then survey u/s 133A can be considered and where there is suspicion of back dating or fictitious transactions- evidences to be gathered.8
H. A survey was conducted by Income Tax Department on 21-3-2017 but there was no evidence like back dating and fictitious transaction. That despite no adverse evidences found the learned AO has alleged the bona fide sales as bogus sales ignoring the facts on records.
I. The complete books of accounts were maintained and audited and a comparative sales / cash deposit and GP/NP rate is appended here under:
PARTICULARS F.Y. 2014-15 F.Y. 2015-16 F.Y. 2016-17 Total Sales 74,58,286 71,61,693 62,40,969 Cash Sales 19,30,613 20,68,615 38,36,345 Cash Deposited in the Bank 25,00,000 26,10,000 43,70,000 Gross Profit % 13.06% 13.75% 15.83% Net Profit % 7.89% 8.51% 13.61%
FINDINGS OF AO AT PAGE 3-6 OF ASSESSMENT ORDER WHILE MAKING ADDITIONS AO has made the additions on the basis of para 5.5 page 3-6 of the assessment order:
A. Assessee could not prove that huge cash deposits in the bank accounts post demonetization are from sales only (Para 5.5.1) This is a strange finding of AO as cash deposit was duly recorded in the books of accounts which are duly audited and accepted by AO and there is no justification of accepting a document in parts and casting suspicion without any evidence.
B. Comparative Cash Sales of October and November of last 2 years as detailed at page 4 of the Assessment order. The finding of AO was that cash sales are not comparable to previous year.
All sales are subject to VAT @ 12%. Sales has been accepted by VAT department and applicable VAT was paid to department. There is no justification of suspicion without any evidence. Moreover, learned AO has applied the deeming provision contained in s.68 and there can not be any deeming within deeming.
C. AO has further observed that Number of Cash Sales vouchers are on higher side in October and November.
D. The cash in hand on 8-11-2016 was Rs. 20,63,712/- whereas cash in hand on 8-11-14 was Rs. 7,22,554/-.
E. Cash Deposit in October and November 2016 is Rs. 24,50,000/- whereas cash deposit in earlier years were Rs. 7,50,000/-.9
All the transaction are in the regular course of business and recorded as it happened.
F. That against the cash sales of Rs. 11,94,308/- in October and Rs. 10,47,311/- in November, Cash sales of Rs. 4,00,000/- was considered genuine. If cash sales is reduced by Rs. 18,41,619/- then where that stock is lying as no such stock was found on the date of survey. Further, VAT @ 12% is paid to Government on such sales G. Thus out of total cash deposit of Rs. 21,00,000/- is on higher sideand Rs. 17,00,000/- is held to be not genuine and added u/s 68.
H. The total sales of Rs. 62,40,969/- is reduced by Rs. 17,00,000/- and against the declared Net profit of 8,49,090/- Net profit from business is reduced to Rs. 6,18,026/-.
3. LINE OF ARGUMENTS A. No Justification in holding Cash Sales as Deemed Income u/s 68.
B. Cash Sales out of stock in hand cannot be added u/s 68 c. Purchases / Stock accepted - Sales cannot be doubted. d. Explanation offered by Assessee rejected without bringing any tangible material on record no addition can be made u/s 68.
4. Cash Sales cannot be alleged to be Cash Credit u/s 68 - Deemed Income In the assessment order learned officer has held that out of cash sales in October and November 2016, Rs. 4,00,000/- is held to be genuine and balance cash sales is treated as Deemed Income u/s 68 on the basis of suspicion. That no evidence was brought on record except for the fact that cash is deposited in bank.
A. Section 68 is an anti-abuse provision to bring into the tax net, credit entries for which no satisfactory explanation (about its nature and source) is furnished by the taxpayer in respect of a credit entry in books of accounts. Such transactions usually are credit entries received by the assessee from other persons in the form of loan, share capital or gift and entries representing the income which has been claimed by the assessee as not taxable.
B. Section 68 is a deeming fiction where by receipt of money will be considered as income despite it being not in the nature of Income. A deeming provision requires the Assessing officer to collect relevant facts and then confront the assessee, thereafter, required to explain incriminating facts and in case he fails to provide a credible information. It is true that inferences and presumptions are integral to an adjudicatory process but cannot by themselves be raised to the status of substantial evidence or evidence sufficient to raise an inference.
C. A deeming provision, thus, enables the revenue to raise an inference against an assessee on the basis of tangible material and not on mere suspicion, conjectures or perceptions. It would also be necessary to reiterate that it is not 10 perceptions but concrete facts that underline quasi judicial determinations and where concrete facts are not available, relevant facts, as would raise a credible inference of culpability requiring an assessee to rebut the inference so raised.
D. In the case in hand the question is whether Cash Sale recorded as Income can be alleged to be Cash Credit u/s 68 without any evidence on record.
It is a settled judicial preposition of law that "If deeming within deeming provision is allowed then it may lead to absurdity."
E. It is submitted that such proposed actions based upon suspicion and doubts in absence of any evidence on record are not valid as per the provisions of the Act. Kind attention in this regard is invited to the decision of jurisdictional High court in the case of CIT vs Jawahar Lal Oswal[2016] 382 ITR 453 wherein the court has clearly held that once assessee offers explanation regarding sources of its credit, the same can be treated as deemed income only on the basis of tangible evidences brought on record by the AO and not on basis of suspicions and doubts.
Relevant extracts of the decision are as under:
"The principle that governs a deeming provision is that the initial onus lies upon the revenue to raise a prima facie doubt on the basis of credible material. The onus, thereafter, shifts to the assessee to prove that the gift is genuine and if the assessee is unable to proffer a credible explanation, the Assessing Officer may legitimately raise an inference against the assessee. If, however, the assessee furnishes all relevant facts within his knowledge and offers a credible explanation, the onus reverts to the revenue to prove that these facts are not correct. The revenue cannot draw an inference based upon suspicion or doubt or perceptions of culpability or on the quantum of the amount, involved. Any ambiguity or any ifs and buts in the material collected by the Assessing Officer must necessarily be read in favour of the assessee, particularly when the question is one of taxation, under a deeming provision. Thus, neither suspicion/doubt, nor the quantum shall determine the exercise of jurisdiction by the Assessing Officer."
............
"A deeming provision requires the Assessing Officer to collect relevant facts and then confront the assessee, who is thereafter, required to explain incriminating facts and in case he fails to proffer a credible information, the Assessing Officer may validly raise an inference of deemed income under section 69-A of the Act. As already held, If the assessee proffers an explanation and discloses all relevant facts within his knowledge, the onus reverts to the revenue to adduce evidence and only thereafter, may an inference be raised, based upon relevant facts, by invoking the deeming provisions of Section 69-A of the Act. It is true that inferences and presumptions are integral to an adjudicatory process but cannot by themselves be raised to the status of substantial evidence or evidence sufficient to raise an inference. A deeming provision, thus, enables the revenue to raise an inference against an assessee on the basis of tangible material and not on mere suspicion, conjectures or perceptions."11
F. This view is also supported by the decision of the jurisdictional ITAT in the case of Lal Chand Naresh Chand HUF vs DCIT, ITA 537/Chd/2015 wherein the ITAT has clearly held that in absence of any evidences to reject the explanations of the assessee, additions u/s 68 could not be made by the AO. Relevant extracts of the decision are as under:
"The assessee having discharged his onus by providing a credible explanation, the onus to prove the falsity in the assessees explanation now rested with the AO. Having failed to do so and having not availed of the opportunity to examine the witnesses, which was presented to him by the assessee himself, the Revenue now cannot make the addition under section 68 of the Act. The Hon'ble Punjab and Haryana High Court has dealt at length on the issue of onus under the deeming provisions of the Act such as section 69A, in the case of CIT © Ludhiana vs Sh. Jawahar Lal Oswal in GTA No.5/Chandi/99 dated 29.1.2016. The Hon'ble High Court has held that if the assessee fails to give a credible explanation the AO can draw inference against the assessee, but if the assessee gives a credible explanation and discharges the onus cast upon it under the deeming provisions, the onus reverts to the Revenue to prove the falsity in the facts and without doing so it cannot draw inference merely on suspicions and doubts."
G. Similarly, the Allahabad HC in the case of Sri Ram Tandon vs CIT, [1961] 42 ITR 689 (All), also rejected the actions of the AO in rejecting the cash balance claimed by assessee on date of demonetization by stating that explanations of assessee could not be rejected on basis of mere guess and arbitrary basis. Relevant extract of the same are as under:
"After having heard learned counsel for the Department and after giving our best consideration to the matter we find ourselves quite unable to see any reason or basis for the socalled finding recorded by the Tribunal that the assessee was in possession of 35 notes on the day Ordinance was promulgated or that 10 notes were from some undisclosed source. These cannot be recognised as findings at all.
The assessee's business was not one in which large amount of petty notes might have been necessary for the purpose of business, and keeping money in large notes is evidently more convenient for counting, for making payments and for other purposes and no material has been placed before us to show that the explanation offered by the assessee was one which was inherently improbable or one which could not be accepted. The so-called estimated made by the Income-tax Appellate Tribunal was based on no reason and was to our mind a mere guess. In fact there was no justification in the circumstances of the case for making an estimate at all. The assessee had a large cash balance which could very conveniently include the 45 high denomination notes encashed by him. The explanation offered by the assessee was not unreasonable and nothing has been said which could justify its being rejected as unreasonable. On the other hand the so-called estimate by the Tribunal is based on no reason and is purely arbitrary and cannot be upheld as legal."
5. CASH SALES OUT OF STOCK IN HAND CAN NOT BE ADDED U/S 68 A. As per undisputed facts on records assesse has maintained complete books of accounts which were audited. Books of accounts have been accepted 12 by AO. The purchases have been accepted sales are doubted. All goods sold are subject to VAT @12% and sales has been accepted by VAT authorities. There is no justification in treating sales realization as undisclosed Income u/s 68.
B. Your attention is invited to the following judicial pronouncements where it is held that Cash deposited in bank out of
cashsalesisoutofthepurviewofsection68ofthe Income Tax Act. No addition for cash sales if stock is available C. Kishore Jeram Bhai Khaniya Vs ITO (ITATDelhi) (ITANO.1220/Del/2011) as long as stock is available and nothing adverese against the cash memo is found then cash sale con not be doubted. Cash sale is offered as Income hence same can not be added u/s 68 "6. There is another dimension to this issue. The AO made addition of Rs. 22.06 lacs u/s 68 of the Act, which contemplates the making of addition where any sum found credited in the books of the assesse is not proved to the satisfaction of the AO. It is only when such a sum is not proved that AO proveeds to make addition u/s 68 of the Act. We are dealing with a situation in which the assesse has himself offered the amount of cash sales as his income by duly including it in his total sales as his income. Once a particular amount is already offered for taxation, the same can not be again considered u/s 68, in fact such addition has resulted into double addition."
No additions u/s 68 for deposit against Sales - when purchases accepted sales can not be ignored.
D. Shree Sanad Textiles Industries Ltd. V. DCIT (Ahmedabad ITAT) ITA No. 1166/Ahd/2014 "Para 9.5 From the above, we note that the provisions of section 68 of the Act can be attracted where there is a credit found in the books of accounts and the assessee failed to offer any explanation or the offer made by the assessee is not satisfactory in the opinion of the assessing officer. The assessee has explained to the authorities below that the impugned amount represents the sale which has not been doubted by the authorities below. Thus in our considered view, the impugned amount cannot be treated as unexplained cash credit under section 68 of the Act merely on the ground that the assessee failed to furnish the details of the existence of the parties."
9.6 We also note that the provisions of section 68 cannot be applied in relation to the sales receipt shown by the assessee in its books of accounts. It is because the sales receipt has already been shown in the books of accounts as income at the time of sale only.
9.7. We are also aware of the fact that there is no iota of evidence having any adverse remark on the purchase shown by the assessee in the books of accounts. Once the purchases have been accepted, then the corresponding sales cannot be disturbed without giving any conclusive evidence/finding. In view of the above we are not convinced with the finding of the learned CIT(A) and accordingly we set aside the same with the direction to the AO to delete the addition made by him.
13Cash Sales can not be treated as Undisclosed Income E. CITv.KailashJewelleryHouseITANo.613/2010decidedbyDelhi High Court on09.04.2010 In the facts of above case cash of Rs.24,58,400/- was deposited in bank account. The Assessing Officer made the addition on the ground that nexus of such deposit was not established with any source of income. The assessee claimed that it was duly recorded in the books on account of cash sales and was considered in the Profit and Loss Account. The Assessing Officer had verified the stock and cash position as per books and had accepted the same. Complete books of account and cash book was submitted to the Assessing Officer and no discrepancy was pointed out. On this basis CIT(A) deleted the addition. Tribunal also observed that it is notindisputethatsumofRs.24,58,400/-was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. Therefore, cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same. The Hon'ble High Court dismissed the appeal filed by the Department.
para 2 of the judgment reads as "....On examination of the orders passed by the Assessing Officer, the Commissioner of Income-tax (Appeals) and the impugned order passed by the Tribunal, we find that both the appellate authorities below have disagreed with the Assessing Officer and have deleted the said addition on the ground that the cash sales were duly recorded in the books and that they had found place in the profit and loss account."
Para 3 reads as "The Commissioner of Income-tax (Appeals) had returned a finding that the stock and cash found at the time of search had been examined by the Assessing Officer and was compared with the stock and cash position as per books. The stock and cash position as per the books had been arrived at after the effect of the aforesaid cash sales. The stock position as well as the cash position as per the said books had been accepted by the Assessing Officer. The Commissioner of Income-tax (Appeals) also noted that the appellant had furnished the complete set of books of accounts and the cash books and no discrepancy had been pointed out."
Para 4 reads as "The Tribunal also observed that it is not in dispute that the sum of 24,58,400/- was credited in the sale account and had been duly included in the profit disclosed by the assessee in its return. It is in these circumstances that the Tribunal observed that the cash sales could not be treated as undisclosed income and no addition could be made once again in respect of the same."
Cash received against cash sales can not be treated as Cash Credit u/s 68 amounts to double Addition L. 2018(3) TMI 1094- ITAT NAGPUR SHRI MANOJ CHAINSUKH ASAWA VERSUS INCOME TAX OFFICER, WARD-4 (1) , NAGPUR
5. We find from the above reasons of the Assessing Officer that the Assessing Officer admits these cash sales as unexplained in the absence of confirmation by the parties. Admittedly, these are trade creditors and not cash creditors because the assessee has deposited the cash in its trading bank account out of the proceeds of sales, although those are not verified. It means that these have 14 relation with trading entries and these are not independent cash credit. On the other hand, the Assessing Officer is also rejecting the books of account u/s 145(3) of the Act and applied profit rate and making addition by enhancing the income of ₹ 6,09,366/- to ₹ 19,57,569/-. We find from the above facts in entirety that the Assessing Officer cannot blow hot and cold at the same time for the reason he has made twin additions out of the trading results i.e., treating the cash sales as cash credit and adding the same u/s 68......... We direct the Assessing Officer accordingly. However, we delete the addition of cash credits added by the Assessing Officer treating the same as unexplained cash credits u/s 68 of the Act as the same are arising out of the trading entries i.e., cash sales made by the assessee which are unproved. Our view is supported by the decision of Hon'ble Andhra Pradesh High Court in the case of CIT Vs. Maduri Rajaiah gari Kistaiah - (1979) 120 ITR 294 (AP) and of Hon'ble Allahabad High Court in the case of CIT Vs. Neema Ram Badlu Ram - (1980) 122 ITR 68 (All). Accordingly, we delete the addition of bank deposits treated by the Assessing Officer as cash credits being trade creditors and sustained the addition of gross profit applied by the Assessing Officer after rejecting the gross profit addition but only at the rate of 5%. The Assessing Officer will recompute the income accordingly.
No additions u/s 68 on account of Cash Sales out of Stock O. ITAT DELHI in the case of AKSHIT KUMAR VERSUS ACIT, CIRCLE-59 (1), NEW DELHI, ITANo:-6527/Del/2017 The assessee is engaged in the business of trading in fabric. The AO has made an addition of Rs. 4,20,62,550 u/s 68 on account of cash deposit representing in the bank account of assessee's as unaccounted income which has been claimed as sale of opening stock by the assessee. The additions made by the AO was sustained by the CIT(A) which was deleted by ITAT:
para 17 'Thus, in our opinion the sale made by the assessee out of his opening stock cannot be treated as unexplained income to be taxed as 'income from other sources'; firstly, the stock was available with the assessee in his books of account and trading in such stock including purchase, sale, opening and closing stock (quantity wise and value wise) has been accepted by the department year after year and in some years under scrutiny proceedings, therefore, non existence of stock or business cannot be upheld; secondly, the sale of stock in the earlier years and the sale of balance left out stock in subsequent years has been accepted or has not been disturbed, then to hold that no stock was sold in this year and remained with the assessee will be difficult proposition; thirdly, inquiry and inspection by the AO done much after the closure of business may not be persuasive for the past events especially in wake of facts as discussed above; and lastly, once neither any item in the trading account, nor gross profit has been rejected, then one part of credit side of the trading account, that is, sales cannot be discarded completely so as to hold that it is unexplained money.' Purchase accepted-doubt on Sales not acceptable-No Addition u/s68 O ITAT INDORE in the case of ACIT 1(1), UJJAIN VS Dewas Soya Limited, ITA No:-
336/Ind/2012 15 Assessee is engaged in manufacturing of refined Soyabean oil and DOC from soyabean seeds. AO did not accept the genuineness of sales effected to four parties out of six parties (one from Delhi & three dealers of MP).Enquiries were made by the Assessing Authority based on which the inference was drawn that such parties were non-exist. He, therefore, concluded that the appellant (selling dealer) introduced cash in its books of accounts as sale proceeds of goods. He therefore, rejected the books of accounts U/S 145 of the Act and assessed additional income as cash credit U/S 68 of the Act. CIT(A) deleted the additions and also by ITAT, findings of ITAT is as under :
para 6.20'The claim of the appellant that such addition resulted into double taxation of the same income in the same year is also acceptable because on one hand cost of the sales has been taxed (after deducting gross profit from same price ultimately credited to profit & loss account) and on the other hand amounts received from above parties has also been added u/s. 68 of the Act.' para 6.13 'Appellant had supplied the goods to the parties after receiving advance payments, which were credited in the core banking account through cheques/DDlPayorderslR TGS and after verification of receipt of payments, the appellant had delivered the refined oil to the party through the tanker arranged by him. The appellant is making necessary entries in its regular books of accounts and in the stock register. Appellant has furnished the evidences in support of its contentions and established the genuineness of the transaction and nature and source of the receipts. Thus application of section 68 by the A.O. on those receipts is not justified."
In view of the above uncontroverted finding more specifically when the Assessing Officer has not doubted the genuineness of the purchases and when the stocks tally has been accepted by the Assessing Officer then there is no reason to doubt the sales.
The broker from Gwalior who arranged the sales with the said party also confirmed in his statement recorded by the department confirming that he made the dealing with M/s A.K. Impex and consequently the assessee recorded the sales in its regular books of accounts. Even otherwise, the goods were supplied to the parties after receiving the advance payments which were credited through cheques/DDs/RTGs, etc. Therefore, we hold that the CIT(A) has rightly come to the conclusion that the addition made by the Assessing Officer u/s 68 of the Act by considering the sale proceeds as cash credits cannot be sustained Likewise, the learned CIT(A) very elaborately dealt with the issue with regard to other parties like M/s Pravin Trading Co., M/s Mohan Traders and MaaBhagwati Traders, etc. wherein the goods were delivered on the same day and sale invoices were issued quoting cross-numbers evidencing that such receipts were sale proceeds credited to the profit and loss account of the assessee.'
6. Explanations / Evidences / Facts furnished by Assessee are ignored by AO without any tangible material A. Assessee has explained in detail about source of deposit of cash in bank in between 9-11-2016 to 30-12-2016 and has already explained under facts of the 16 case. Assessing officer has unreasonably rejected these explanation, convert good proof into no proof and made the additions at his whims and fancies.
The following judicial pronouncement are relied in support of assessee contention:
Conclusion can not be based on suspicion without any evidence B. Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC):
"the Tribunal in arriving at the conclusion it did in the present case indulged in suspicions, conjectures and surmises and acted without any evidence or upon a view of the facts which could not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found, or the finding was, in other words, perverse and this court is entitled to interfere."
Cash Book accepted Entries not challenged - 31 out of 61 notes accepted - this is pure surmise. Despite highly suspicious but decision must rest not on suspicion but on legal testimony.
C. Mehta Parikh and Company vs. CIT (1956) 30 ITR 181 (SC) It has to be noted, however, that beyond these calculations of figures, no further scrutiny was made by the Income-tax Officer or the Appellate Assistant Commissioner of the entries in the cash book of the appellants. The cash book of the appellants was accepted and the entries therein were not challenged. No further documents or vouchers in relation to those entries were called for, nor was the presence of the deponents of the three affidavits considered necessary by either party. The appellants took it that the affidavits of these parties were enough and neither the Appellate Assistant Commissioner, nor the Income-tax Officer, who was present at the hearing of the appeal before the Appellate Assistant Commissioner, considered it necessary to call for them in order to cross- examine them with reference to the statements made by them in their affidavits. Under these circumstances it was not open to the Revenue to challenge the correctness of the cash book entries or the statements made by those deponents in their affidavits.
The Tribunal also fell into the same error. It could not negative the possibility of the appellant being in possession of a substantial number of these high denomination currency notes. It, however, considered that it was impossible for the appellants to have had 61 such notes in the cash balance in their hands on 12th January, 1946, and then it applied a rule of the thumb treating 31 out of such 61 notes as within the bounds of possibility, excluding 30 such notes as not covered by the explanation of the appellants. This was pure surmise and had no basis in the evidence, which was on the record of the proceedings.
VENKATARAMA AYYAR, J.--I agree to the order just proposed ;but I prefer to rest my decision on the ground that the finding of the Tribunal that high denomination notes of the value of Rs. 30,000 represented the concealed profits of the appellant is not supported by any evidence, and is, in consequence, erroneous in point of law and liable to be set aside. The evidence on record has been 17 exhaustively reviewed in the judgment just delivered, and there is no need to traverse the same ground again. To put the matter in a nut-shell, the accounts of the appellant have been accepted by the Tribunal as genuine, and it is impossible to say, having regard to the cash balance as shown therein, that the notes in question could not have been included therein. The Tribunal observes that it is unlikely that so many high denomination notes would have been held as part of the cash on hand for a such a large number of days. That, no doubt, is highly suspicious ; but the decision of the Tribunal must rest not on suspicion but on legal testimony. For the respondent, Mr. Joshi contended that the cash balance shown in the books could not be accepted as true, because the appellant had ample time to rewrite the accounts, as the Ordinance was issued on 12th January, 1946, and the year of account of the assessee was the calendar year. Whether the accounts are genuine or not is a pure question of fact, and a finding on a question of fact is as much binding on the Revenue as on the subject.
Explanation of Assessee rejected without any material can not be accepted D. Kanpur Steel Company vs. CIT (1957) 32 ITR 56 (All) "the Tribunal rejected the explanation of the assessee company on surmises and their opinion, which is not based on any material at all but on reasoning which is not necessarily correct, can hardly be acceptable. In this case, therefore, it cannot be said that the explanation given by the assessee company was either unreasonable or wrong. When the assessee company had given an explanation which was reasonable, the Income-tax authorities could have been entitled to treat the sum of Rs. 32,000 as income from undisclosed sources only if there was some other material from which such inference could have been drawn. No other material has been mentioned by the Tribunal in their appellate judgment or in the statement of the case."
AO can not reject the explanation of Assessee without any contra material E. CIT v Ramkrishna Nursing Home 313 ITR 290, Where the assessee gives a credible explanation that is found to be satisfactory, no additions can be made to his income.
"7. The enquiry under the Income-tax Act unlike before the civil court is not adversarial in nature. The assessing authority has power to adopt inquisitorial enquiry. When the assessee has given the joint statement of all the visiting specialists, wherein they categorically said that they have collected their fee directly from the patients and that the amount collected by them is not charged to the accounts of the assessee. The said statement gets prima facie credibility. Merely because the assessee has examined some of the specialists is not a ground to reject the statement of other specialists who are not examined. In the joint statement, the names and addresses of the specialists is given in detail. The Assessing Officer should have conducted suomotu enquiry of the specialists who are not examined before him to find out the truth of the joint statement. The technical insistence by the Assessing Officer that the assessee should have examined all the specialists is an untenable view. In the absence of contra material, the Assessing Officer cannot reject the genuineness and correctness of 18 the statement. In that view of the matter, the question of law in both the appeals is answered in favour of the assessee. Both the appeals are dismissed.
Suspicion cannot take place of Proof F. That additions in the present case based on suspicion is contrary to law that "suspicion however strong can not take place of legal proof." As held by the Supreme Court in the case of Umacharan Shaw & Bros vs CIT 37 ITR 0271 (SC) Para 12 "Taking into consideration the entire circumstances of the case, we are satisfied that there was no material on which the ITO could come to the conclusion that the firm was not genuine. There are many surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof in these matters."
Falsity in explanation of Assessee can not be established on suspicion by Revenue G. This view is also supported by the decision of the jurisdictional ITAT in the case of Lal Chand Naresh Chand HUF vs DCIT, ITA 537/Chd/2015 wherein the ITAT has clearly held that in absence of any evidences to reject the explanations of the assessee, additions u/s 68 could not be made by the AO. Relevant extracts of the decision are as under:
"The assessee having discharged his onus by providing a credible explanation, the onus to prove the falsity in the assessees explanation now rested with the AO. Having failed to do so and having not availed of the opportunity to examine the witnesses, which was presented to him by the assessee himself, the Revenue now cannot make the addition under section 68 of the Act. The Hon'ble Punjab and Haryana High Court has dealt at length on the issue of onus under the deeming provisions of the Act such as section 69A, in the case of CIT © Ludhiana vs Sh. JawaharLalOswal in GTA No.5/Chandi/99 dated 29.1.2016. The Hon'ble High Court has held that if the assessee fails to give a credible explanation the AO can draw inference against the assessee, but if the assessee gives a credible explanation and discharges the onus cast upon it under the deeming provisions, the onus reverts to the Revenue to prove the falsity in the facts and without doing so it cannot draw inference merely on suspicions and doubts."
7. Gr.3: Additions made without rejection of Books of Accounts.
A. A complete books of accounts cash book, ledger, stock register is maintained and same are not doubted u/s 145 of the Act and stated cash deposits are duly accounted for in books of accounts and are explained to be from cash sales, it is not open to Assessing officer to make additions in respect of certain entries in books of accounts with rejecting such books of accounts.
B. That before resorting to disregard the disclosed results in books of account an appropriate satisfaction on part of assessing officer as required and stipulated in section 145 is essential to claim that books are incorrect and incomplete etc. So where cash deposits are validly supported by regular & audited books of accounts then same carry huge relevance and cant be brushed aside lightly.
19C. The additions in this case made by AO on account cash sales treated as deemed Income u/s 68/69A is without rejecting the books of accounts. The learned AO has placed suspicion on sales bills but not rejected the books of accounts. It is settled law that no additions as applicable to the present case can be made by AO without rejecting the books of account.
The following position of law will make the position absolutely clear:
D. The basic principle is the same in the law relating to income-tax as well as in civil law, namely, that if there is no challenge to the transaction represented by the entries or to the genuineness of the entries, then it is not open to the other side -in this case the revenue to contend that that which is shown by the entries is not the real 'state of affairs. As held in the case of 1980 (6) TMI 10 - GUJARAT HIGH COURT Other Citation: [1981] 129 ITR 573, 19 CTR 105 AMITBHAI GUNVANTBHAI VERSUS COMMISSIONER OF INCOME-TAX, GUJARAT.
E Similarly in the case of 2009 (3) TMI 379 - ORISSA HIGH COURT Other Citation: [2009] 319 ITR 339 (Orissa) COMMISSIONER OF INCOM&TAX VERSUS UTKAL ALLOYS LIMITED "13. The procedure of assessment is quasi-judicial in nature and in making the assessment the Assessing Officer must observe the judicial principles. Accounts regularly maintained in the course of business have to be relied upon unless there are strong and sufficient reasons to disbelieve them. Needless to say that discrepancy worked out on the basis of estimation of quantity and value of stock is not accurate, correct and scientific. Therefore, in the absence of any defect found out in the books of account, maintained in the regular course of business, no addition can be made to the income disclosed by the assessee in its return of income on the basis of discrepancy worked out on estimation of stock".
Books not rejected - Balance at hand on relevant date of deposit - no addition F. Lakshmi Rice Mills vs. CIT [1974] 97 ITR 258 (Pat.) (HC) "It is a fundamental principle governing the taxation of any undisclosed income or secreted profits that the income or the profits as such must find sufficient explanation at the hands of the assessee. If the balance at hand on the relevant date is sufficient to cover the value of the high denomination notes subsequently demonetised and even more, in the absence of any finding that the books of account of the assessee were not genuine, the source of income is well disclosed and it cannot amount to any secreted profits within the meaning of the law. What has to be disclosed and established is the source of the income or the receipt of money, not the source of the receipt of the high denomination notes which were legal tender at the relevant time. Thus, the so-called findings of fact by the Tribunal were based upon placing a wrong onus of proof and applying not the correct principles of law governing such cases. On the facts, no tangible material had been brought on the record to take the shape of any legal evidence for the purpose of recording a finding that the assessee's explanation was not worthy of acceptance. This by itself was a question of law arising from the Tribunal's decision. Therefore, the Tribunal erred in coming to the conclusion that the cash balance did not include 140 high denomination notes when they were presented to the bank for encashment."
Sales credited against cash deposit - books not rejected - no additions u/s 68 20 G. ITAT INDORE in the case of ACIT 1 (2) INDORE VERSUS M/S S.S.P. ENTERPRISES PVT. LTD. AND VICE-VERSA, I.T.A. No. 278/Ind/2014, CO NO.29/Ind/2014 Arising out of ITA No. 278/Ind/2014, I.T.A. No. 320/Ind/2014 The assessee is engaged in trading business of plastic granules. AO has made an addition of Rs. 35.05 lakh u/s 68 on account of cash deposit made in bank account out of cash sales. CIT(A) deleted the additions and ITAT confirmed the additions made by CIT(A) and held that:
para 5 'We have considered the submissions of both the sides. After careful perusal of record we find that the assessee has made cash sales and the collection from the parties has been deposited in the bank. The entire deposit to the bank account has been recorded in the books of the assessee and the books were produced before the Assessing Officer. The total sales of the assessee were of ₹ 8511415/-. Out of the total sales, the assessee has cash sales of Rs, 449338/-. The entire cash deposit is either from sale proceeds or from the collection against the book debt. We find that as per section 68 of the Act sum should be credited in the books but the assessee has credited the sale proceeds in its books of accounts which has been accepted by the Assessing Officer. The Assessing Officer has nowhere found the defect in the books of accounts, therefore, when the assessee has credit sale proceeds in cash in the books of accounts and the same is deposited in bank, no addition can be made u/s 68 of the Act.
H. Similarly in the case of [2014] 42 taxmann.com 349 (Punjab & Haryana) HIGH COURT OF PUNJAB AND HARYANA Commissioner of Income-tax, Patiala v. Dulla Ram, Labour Contractor "A bare reading of Section 68 of the Act would reveal that it would not apply to a situation where account books have not (sic) been rejected."
I. IN THE HIGH COURT FOR THE STATES OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.194 of 1999 Date of decision: February 21, 2014 M/s S.V. Auto Industries, Phagwara v. Commissioner of Income Tax, Jalandhar and another "Concededly, books of accounts including stock register maintained by the assessee in the course of manufacturing process and business operations, have neither been doubted in their correctness nor have been questioned much less rejected under Section 145 of the Act. Once the books of accounts have not been doubted in their correctness and much less are rejected, there is absolutely no explanation coming forth from the revenue as to why the Assessing Officer as also the appellate authorities including the Tribunal went on to substitute their own judgment for the actual figures of wastage emerging from stock register and from the books of accounts of the assessee? When the books of accounts including stock register etc. have neither been rejected nor are doubted, accounts could not be bye passed merely on the whims and fancies of the authorities. Almost the same view was taken in Madnani Construction Corporation P.Ltd. v. Commissioner of Income Tax, (2008) 296 ITR 45 (Gauhati)andPyarelal Mittal v. Assistant Commissioner of Income Tax, (2007) 291 ITR 214 (Gauhati).21
Your attention is further invited to the decision of CIT v. Maharaja Shree Umed Mills Ltd. [1991] 192 ITR 565 (Raj), in which it was held in paragraph 3 as follows:
"The assessee was asked to give reasons for the abrupt fall in the gross profit rate to which a reply was given that it was due to increase in expenditure on salaries and wages, fuel consumption and stores consumption. The assessee was directed to furnish the details of the percentage of consumption of the different items but, in spite of repeated reminders, he failed to furnish the same. It was held by the IAC that the assessee-company had failed to discharge the onus of proof regarding the fall in the gross profit rate to the extent of 6.4 per cent. and the conclusion was that the expenses under various heads had been inflated. On appeal, the learned Commissioner of Income- tax took into consideration the change in the gross profit rate for 11 years and various other factors including the maintenance of accounts, which have not been rejected and that the IAC had not pointed out any single instance of inflation in expenditure. The appeals of the assessee were allowed in part. In appeal, the Tribunal did not discuss the matter, but simply stated that the opinion of the Commissioner of Income-tax was correct and that the Inspecting Assistant Commissioner had been unduly influenced by the action of his predecessor and had not applied his judicial mind in the proper perspective. The reasoning of the Commissioner of Income-tax was adopted."
K. Further the Hon'ble ITAT, Jaipur in the case of Ambika textile Industries vs. DCIT held that huge trading addition can't be made without pointing any defect in the books of accounts. Apart from this the Hon'ble ITAT, Jaipur in the case of DCIT vs. Mewar Textile Mills Ltd. held that the AO had nowhere invoked the provisions of section 145(1) and if the provisions was not invoked then the estimate of profit would not possible in the eyes of law.
L. Rajvi Paper Traders P. Ltd., I.T.A.No.2745/AHD/2016; Surat ITAT held in Para "However, the Assessing Officer has not rejected the books of accounts u/s.143(3) of the Act, therefore no addition can be made without rejection of the books of accounts as held by the Hon'ble Karnataka High Court in the case of CIT Vs. Anil Kumar & Co. [2016] 67 Taxmann.com 278 (Karnataka) wherein it was held that where the books of accounts of the assessee had not been rejected and assessment having not been framed u/s.144 of entireaddition made by Assessing officer based on estimation of income was to be deleted. Similarly, the ld.Counsel further placed reliance on the decision of Hon'ble Rajasthan High Court in the case of Vijay Industries Vs. CIT, Alwar, Tax Appeal NO.21/2005 dated 21.03.2017 wherein also it was held that addition cannot be justified without rejection of books of accounts. Similarly, in the case of ACIT Vs. Ercon Composites[2014] 49 taxmann.com 489 (Jodhpur Tribunal) wherein it was held that without rejecting books of account addition on estimate basis was not justified. Similarly, the ld.Counsel also placed reliance in the case of Sky Jet 71 ITD 91 Ahmedabad Tribunal."
M 2016 (3) TMI 184 - KARNATAKA HIGH COURT Other Citation: [2016] 386 ITR 702 THE COMMISSIONER OF INCOME TAX, THE INCOME TAX OFFICER VERSUS M/S ANIL KUMAR AND CO.
Trading addition - non rejection of books of accounts - ITAT deleted the addition - Held that:- "Tribunal has rightly held that when the books of accounts of the 22 assessee had not been rejected and assessment having not been framed under section 144 of the Income Tax Act the said authorities were in error in resorting to an estimation of income and such exercise undertaken by them was not sustainable. Section 145(3) of the Act lays down that the Assessing Officer can proceed to make assessment to the best of his judgment under section 144 of the Act only in the event of not being satisfied with the correctness of the accounts produced by the assessee. In the instant case the Assessing Officer has not rejected the books of accounts of the assessee. To put it differently the Assessing Officer has not made out a case that conditions laid down in Section 145(3) of the Act are satisfied for rejection of the books of accounts. Thus, when the books of accounts are maintained by the assessee in accordance with the system of accounting, in the regular course of his business, same would form the basis for computation of income. In the instant case it is noticed that neither the Assessing Officer nor CIT(Appeals) have rejected the books of accounts maintained by the assessee in the course of the business. As such tribunal has rightly rejected or set aside the partial addition made by Assessing Officer for arriving at gross profit and sustained by the CIT(Appeals) and rightly held that entire addition made by the Assessing Officer was liable to be deleted." - Decided in favour of assessee In the light of above there is no justification in making this addition without rejecting the books of accounts of asessee and the additions made by AO may kindly be deleted.
8. Gr No.2:Retrospective application of rate of tax u/s 115BBE RATE OF TAX BASED ON AMENDED S.115BBE @77.5% IS WRONG.
A. With prejudice to our submission on the issue that there is no justification in making addition of Rs. 45,40,810/- and more specifically u/s 69A. A detailed submissions on the above has been filed under preceding para. Therefore, the provisions of s. 115BBE can not be applied to the present case as there is no Income which is assessable u/s 68,69A.
B. The learned AO has not only made additions of Rs. 45,40,810/- but also has charged the rate of tax @75% as specified undersection115BBEoftheActas amended vide Taxation laws Second Amendment Act, 2016 (passed on 15-12- 2016) to provide for a 60% tax rate on deemed income plus a surcharge of 25% retrospectively with effect from 01-04-2017. The amended section 115BBE of the Act reads as under:
(1) Where the total income of an assessee,-- a) includes any income referred to in section 68, section 69, section 69A,
section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139;or
b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause(a),the income-tax payable shall be the aggregate of--
23i. the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent; and ii. the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause(i).
(2) Notwithstanding anything contained in this Act, no deduction in respect of an expenditure or allowance [or set off of any loss]shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) [and clause (b)] of sub-section(1).
C. Onperusaloftheaboveamendedsection115BBEoftheActasapplicable A.Y. 2017-18 onwards it is observed that the basic rate of tax has been doubled vide the said amendment with retrospective effect. This retrospective amendments create an unreasonable restriction on the fundamental rights guaranteed under Article 19(1)(g) of the Constitution of India, 1950 'right to practise any profession, or to carry on any occupation, trade or business' and therefore, invalid and unconstitutional.
D. It is, therefore, imperative to understand the stance of the judiciary with respect to retrospective amendments in law in so far as they are prejudicial to interests of the taxpayer. It has been held in a catena of judgements that the principle of 'fairness' must be the basis for every legal rule. In this regard, reliance is placed on the following judicialprecedents:
E. The Hon'ble Supreme Court in the case of DCawasji&Covs. State of Mysore 1984 AIR 1780 held that a retrospective amendment which instead of removing the lacuna which it intended to remove, merely legislates to impose a new/higher burden is unconstitutional. In the said case the Mysore Sales Tax Act, 1967 was modified by the State Government to raise the rate of tax with retrospective effect to avoid the liability of refunding the excess amounts collected. The enhancement of the rate of tax was, therefore, clearly arbitrary, unreasonable and it could not be considered as rectifying any defect. The Supreme Court, therefore,set aside the amendment to the extent that it imposed a higher levy with retrospective effect and considered it as invalid and unconstitutional.
F. The Hon'ble Apex Court in the case of CIT vs. Vatika Township Pvt.Limited 367 ITR 466 while deciding whether the proviso appended to section 113 of the Income-tax Act which was inserted in that Section by the Finance Act 2002 is to operate prospectively or is clarificatory and curative in nature and, therefore, has retrospective operation observed as follows:
"Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lexprospicit non respicit: law looks forward not backward. As was observed in Phillips vs. Eyre[3], a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law."24
G. The Hon'ble Supreme Court while deciding the case of Karimtharuvi Tea Estate Ltd. vs.- State of Kerala 60 ITR 262opined asunder:
"10. Now, it is well-settled that the Income-tax Act, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into, force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force."
H. CIT vs. Scindia Steam Navigation Co. Ltd.(1961) 42 ITR 589 (SC): The learned judges held that as it was the Finance Act of 1946 that imposed the tax for the assessment year 1946-47, the total income had to be computed in accordance with the provisions of the Income-tax Act as on April 1, 1946; that as the amendments made by the Amendment Act of 1946 with effect from May 4, 1946, were not retrospective, they could not be taken into consideration merely because the assessee was assessed after that date; and that the assessee was not liable to pay tax on the sum because the fourth proviso to section 10(2)(vii) of the Income-tax Act under which it was sought to be taxed was not in force in respect of the assessment year 1946-47.
I. As per the settled judicial pronouncement, any retrospective amendment can be made only on the fulfilment of following conditions
i) Whether retrospective amendment was to mitigate hardships caused to assesse?
ii) Whether the amendment is clarificatory in nature?
Both these conditions are not fulfilled, as provisions of s.115BBE as on 1-4-2016 mandate to charge tax at maximum marginal rate and rate of tax can not be enhanced to 75% under the garb of clarification.
J. In the light of above, there is no justification of retrospective application of enhanced rate of tax @75% to the transaction prior to 15-12-2016. The transaction in question was executed on 10-11-2016 & 11-11-2016 and applicable rate of tax u/s 115BBE was 30% on that date."
11. It was further submitted that a complete set of books of accounts were maintained and audited by a Chartered Accountant and these books are not rejected by AO but at the same time, part of the sales were held to be bogus and cash received against such sales added as Income u/s 68 ignoring that sales has already been declared as income by assessee. It was submitted that post deposit of cash, a survey was conducted to verify the deposit on 21-3-2017 and following undisputed facts are as per records:
a. no evidence of any back dating of Sales were found.
25
b. No difference in stock was found.
c. There was sufficient stock available with assessee to make the sales.
d. Assessee was regular in filing VAT returns and the same were never
revised.
e. If cash sales of Rs. 18,41,619/- is bogus then such stock must have been
found in excess on the date of survey at the business premises. f. Further, VAT @ 12% is paid to Government on such sales. The regulatory authority i.e Sales Tax department had accepted the recorded sales for the year and copy of Assessment order is lying at page 83.
11.1 It was submitted that the basic principle is the same in the law relating to income-tax as well as in civil law, namely, that if there is no challenge to the transaction represented by the entries or to the genuineness of the entries, then it is not open to the other side -in this case the revenue to contend that that which is shown by the entries is not the real 'state of affairs.
11.2 Our attention was invited to decision of the Hon'ble Punjab and Haryana High Court in ITA No. 194 of 1999 dated February 21, 2014 in case of M/s S.V. Auto Industries, Phagwara v. Commissioner of Income Tax, Jalandhar and another wherein it was held that "Concededly, books of accounts including stock register maintained by the assessee in the course of manufacturing process and business operations, have neither been doubted in their correctness nor have been questioned much less rejected under Section 145 of the Act. Once the books of accounts have not been doubted in their correctness and much less are rejected, there is absolutely no explanation coming forth from the revenue as to why the Assessing Officer as also the appellate authorities including the Tribunal went on to substitute their own judgment for the actual figures of wastage emerging from stock register and from the books of accounts of the assessee? When the books of accounts including stock register etc. have neither been rejected nor are doubted, 26 accounts could not be bye passed merely on the whims and fancies of the authorities."
11.3 Further, reference was drawn to the decision of the Hon'ble Supreme court in case of Mehta Parikh and Company vs. CIT (1956) 30 ITR 181 (SC) wherein it was held as under:
"It has to be noted, however, that beyond these calculations of figures, no further scrutiny was made by the Income-tax Officer or the Appellate Assistant Commissioner of the entries in the cash book of the appellants. The cash book of the appellants was accepted and the entries therein were not challenged. The Tribunal also fell into the same error. It could not negative the possibility of the appellant being in possession of a substantial number of these high denomination currency notes. It, however, considered that it was impossible for the appellants to have had 61 such notes in the cash balance in their hands on 12th January, 1946, and then it applied a rule of the thumb treating 31 out of such 61 notes as within the bounds of possibility, excluding 30 such notes as not covered by the explanation of the appellants. This was pure surmise and had no basis in the evidence, which was on the record of the proceedings.
To put the matter in a nut-shell, the accounts of the appellant have been accepted by the Tribunal as genuine, and it is impossible to say, having regard to the cash balance as shown therein, that the notes in question could not have been included therein. The Tribunal observes that it is unlikely that so many high denomination notes would have been held as part of the cash on hand for a such a large number of days. That, no doubt, is highly suspicious ; but the decision of the Tribunal must rest not on suspicion but on legal testimony.
11.4 Our attention was further invited to the following decision of Coordinate Bench Chandigarh & a few others where under similar circumstances cash deposited during demonetization out of cash sales without rejection of books of accounts was held not justified:
a. [2022] 98 ITR (Trib) 419 (ITAT [Chand]) THE DCIT CENTRAL CIRCLE-1, LUDHIANA VERSUS M/S ROOP FASHION AND (VICE-VERSA) b. 2023 (3) TMI 755 - ITAT CHANDIGARH, SH. GULSHAN KUMAR VERSUS DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2,LUDHIANA ITA No. 488/Chd/2022, Dated: - 31-10-2022 c. ITAT CHANDIGARH [2022] 97 ITR (Trib) 389 (ITAT [Chand]) SMT. TRIPTA RANI VERSUS THE ASSISTANT. COMMISSIONER OF INCOME TAX LUDHIANA.ITA No. 135/Chd/2021 Dated: - 13-6-2022 27
d. 2023 (4) TMI 529 - ITAT AMRITSAR RAJ KUMAR (M/S RADHIKA SALES CORP) DHAB WASTI RAM, AMRITSAR VERSUS ITO, WARD 3 (3) ,AMRITSAR. I.T.A. No.195/Asr/2022, Dated: - 11-4-2023 e. 2023 (3) TMI 1196 - ITAT DELHI M/S. FINE GUJARANWALA JEWELLERS VERSUS INCOME TAX OFFICER, DELHI, I.T.A. No. 1540/DEL/2022 Dated: - 27-3-2023 f. 2022 ITAT Lucknow Subodh Chandra Seth ITA 352/Lkw/2020 dated 22/8/22 g. 2022 ITAT Lucknow SITA RAM RASTOGI ITA 23\LKW\2022 dated 8/9/2022
12. The Ld. DR has relied on the order of the AO as well as that of the Ld. CIT(A). We have already taken note of the findings of the AO, hence the same are not reproduced for the sake of brevity. As far as the findings of the Ld. CIT(A) is concerned, the same are contained at para 5 of the impugned order and the same reads as under:
"5. The appellant submitted during the appellate proceedings that it is part of CM jewellers group and therefore it is covered by the declaration of Rs.3,00,00,000/- made by the group under PMGKY. Further, it was submitted that the cash of Rs.21,00,000/- was deposited out of day to day cash sales. The appellant submitted that there was no justification to make addition u/s 68 of the Act on account of cash sales recorded in books of accounts. The Ld. AR also questioned retrospective applicability of section 115BBE of the Act. After taking into consideration the above facts , the opportunities vide letter dated 24.08.2021 and 17.09.2021 were granted to the appellant to produce complete sale bill books and complete books of accounts for the year under consideration in order to verify the grounds of appeal and to verify the above contention. In response , the appellant submitted only copy of sales account, however, failed to produce the complete sale bill books for the period under consideration. Upon perusal of the submission of the appellant, it is noted that the cash sales shown by the appellant during the months of October and November, 2016 are considerably higher than the respective months of F.Y. 2015-16 and F.Y. 2014-15 .The onus to substantiate the cash sales was on the appellant which it has failed to discharge both during the assessment and appellate proceedings. The appellant has failed to furnish documentary evidence sought during the appellate proceedings thereby failing to establish genuineness of the cash sales and therefore, has failed to explain source and nature of such cash deposits in the bank account/ books of accounts. In view of the fact that the cash sales made by the appellant could not be verified and the genuineness of the same could not be established during the assessment as well as appellate proceedings, the addition made by the AO is justified and the same is hereby sustained. After going through the facts of the case it has been observed that unexplained cash sales is deemed income u/s 68 of the Act as the appellant could not establish the genuineness of the same and 28 the income assessed u/s 68 is liable to be taxed as per the provisions of section 115BBE of the Act. Therefore, this case falls squarely under the ambit of section 115BBE of the Act as applicable w.e.f. from 01.04.2017 i.e. for the year under consideration. Thus, it is not a case of retrospective application of section 115BBE of the Act. In this case, the AO has not considered the amount of Rs.17,00,000/- as genuine sales and therefore, reduced the total sales by the same amount, therefore, no double addition on this account has been made. Thus, it is found that the case laws relied upon by the appellant have no bearing on the instant case. Regarding the submission of the appellant that it's case is covered by declaration of Rs.3,00,00,000/- made by M/s CM Jewellers group under PMGKY, it is held that the declaration was made in the case of M/s CM Jewellers and not the appellant. Therefore, no credit out of the same can be allowed to the appellant."
13. We have heard the rival contentions and purused the material available on record. The assessee has deposited a sum of Rs 20 lacs on 10/11/2016, Rs 50,000/- on 6/12/2016 and Rs 50,000/- on 20/12/2016 in its bank account maintained with SBI, Ambala City. The source of such cash deposits has been explained by the assessee as out of its cash sales so undertaken from time to time and it has also been explained that such cash sales are subject to VAT where VAT has been collected and deposited with the government treasury. In support of its explanation, the assessee has furnished the cash book containing the entries towards the cash sales, cash deposits with bank, complete sale and purchase ledgers, sundry creditors, VAT returns, copy of trading and profit/loss account and balance sheet which are duly audited. No defect has been pointed out by the AO in terms of availability of stock or in any of the documentation so submitted by the assessee or in the books of accounts. Therefore, merely the fact that certain cash deposits have been made by the assessee during the period of demonization and such deposits are on a higher side considering the past year figures cannot be basis to hold the explanation so made by the assessee as unsustainable and treat the cash sales as bogus and bringing the cash deposits to tax u/s 68 of the Act. The comparative figures for past years can no doubt provides a starting point for further examination and verification but basis such comparative analysis alone and without any further examination which points out any defect or manipulation in the documentation 29 so submitted or in terms of availability of requisite stock in the books of accounts, the sales so undertaken by the assessee which is duly recorded in the books of accounts cannot be rejected and treated as bogus. In view of the same, we find the explanation of the assessee as genuine and reasonable duly supported by the documentation and books of accounts and the addition so made by the AO and confirmed by the ld CIT(A) is directed to be deleted.
14. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 08/12/2023.
Sd/- Sd/-
आकाश दीप जैन िव म सह यादव
(AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV)
उपा य / VICE PRESIDENT लेखा सद य/ ACCOUNTANT MEMBER
AG
Date: 08/12/2023
आदेश क ितिलिप अ ेिषत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु / CIT
4. आयकर आयु (अपील)/ The CIT(A)
5. िवभागीय ितिनिध, आयकर अपीलीय आिधकरण, च डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File
आदेशानुसार/ By order,
सहायक पं जीकार/ Assistant Registrar