2022 (10) TMI 1187 - AT - Income Tax

Unexplained cash credit - unexplained sources of cash deposit made during demonetisation period - failure of the assessee to satisfactorily explain cash sales - assessee is engaged in the business of wholesale and retail trading of gold bar, gold ornaments, diamond ornaments and other precious articles - HELD THAT - There is merit in the contentions of A.R that the provisions of sec.68 can be invoked only in cases of cash credits, which were not offered as income, i.e., a legal fiction has been created in sec.68 to assess certain cash credits, which were not otherwise shown as income. In the instant case, the assessee has declared the cash sales as its income in the profit and loss account. Hence it is not a case of cash credits, which were not shown as income, in order to attract the provisions of sec.68. We notice that an identical issue has been considered in the case of Hirapanna Jewellers 2021 (5) TMI 447 - ITAT VISAKHAPATNAM and it was decided in favour of the assessee. The books of accounts and stock register have been found to be correct by the auditors and survey officials. During the course of assessment proceedings, the AO also did not find any fault or defect in the books of accounts or stock register maintained by the assessee. The impugned deposits have been made by the assessee from the cash balance available in the books of accounts, which were duly generated on sale of goods out of stock available with the assessee. It is not the case of the AO that the purchases of stock made by the assessee and entered in the stock register were not genuine. As observed by the Visakhapatnam bench of ITAT, there is no case of making abnormal profits from the cash sales recorded by the assessee. The observations of the AO with regard to non-response by the customers to the notices issued by him and non-filing of returns by the customers are not relevant to the facts of the present case. Thus we hold that the assessee has duly explained the sources for making cash deposits into its bank account. Since the sources of cash have been generated out of business activities of the assessee, the same cannot also be assessed u/s 69A of the Act as unexplained asset - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs. 4.85 crores as unexplained cash credit.
2. Validity of cash sales during the demonetization period.
3. Application of Section 68 and Section 69A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 4.85 Crores as Unexplained Cash Credit:
The primary issue was whether the cash deposits of Rs. 4.85 crores made by the assessee in its bank account during the demonetization period were unexplained cash credits. The assessee claimed that these deposits were from cash sales of gold and diamond ornaments prior to the demonetization announcement. The Assessing Officer (AO) did not accept this explanation, citing a sudden increase in cash sales from November 2, 2016, and the lack of customer signatures on sale bills. The AO further observed that the PAN data of customers showed that many did not file income tax returns, and some summons issued to customers were returned undelivered. Consequently, the AO assessed the amount under Section 68 and alternatively under Section 69A of the Income Tax Act.

2. Validity of Cash Sales During the Demonetization Period:
The assessee argued that the cash sales were genuine, recorded in the books of accounts, and supported by stock registers audited by their auditor and verified by the survey team. The survey team found no discrepancies between physical stock and book stock. The CIT(A) agreed with the assessee, noting that the stock was sufficient to support the sales and that the sales were reported to and accepted by the Sales Tax authorities. The CIT(A) also considered the unusual circumstances of demonetization, which led to a surge in sales as people rushed to convert their demonetized currency into tangible assets like gold. The CIT(A) found that the sales were disclosed in VAT returns filed before the search and seizure action, further supporting the genuineness of the transactions.

3. Application of Section 68 and Section 69A of the Income Tax Act:
The Tribunal observed that the provisions of Section 68 apply to cash credits not offered as income, whereas the assessee had declared the cash sales as income in its profit and loss account. The Tribunal cited various judicial precedents, including the Bombay High Court's decision in R.B. Jessaram Fatehchand (Sugar Dept) Vs. CIT, which clarified that the failure to maintain customer addresses for cash sales does not necessarily indicate that the transactions are not genuine. The Tribunal also referred to the Visakhapatnam Bench of ITAT's decision in Hirapanna Jewellers, which held that cash sales supported by stock registers and sales bills should not be disbelieved in the absence of any defects in the books of accounts.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 4.85 crores, concluding that the assessee had satisfactorily explained the cash deposits as proceeds from genuine cash sales. The Tribunal emphasized that the sales were recorded in the stock register, verified by auditors and survey officials, and reported in VAT returns. The Tribunal also noted that the AO's observations about non-response from customers and non-filing of returns were not relevant to the assessee's case. Consequently, the Tribunal found no infirmity in the CIT(A)'s decision and dismissed the revenue's appeal.