2023 (10) TMI 1366 - AT - Income Tax

Addition u/s 68 - cash deposit in the bank account - rejecting the book of accounts - AO estimated the GP after reducing the amount of cash deposit from turnover - assessee during the demonetization period made cash deposit in the bank account - assessee submitted that cash has been deposited out of sale proceeds which were duly recorded in the books of accounts which were duly audited by the independent auditor, supported by the bills and voucher, purchases and stock register, cash book, bank book etc. HELD THAT - We find that the assessee has maintained proper books of account and furnished details as required by the A.O. except the details of the stock in the desired format. The details submitted by the assessee include audited financial statement, details of the purchases, gold stock summery and other information about the sales, GP of different years which are available in the paper book filed before us. In these documentary evidence no defect was pointed out by the AO except non-maintenance of stock register in the desired format. Therefore, without bringing any corroborative material on record suggesting specific defect in the books of account the book result cannot be rejected merely for not providing certain detail which the AO requires to verify. See AWADHESH PRATAP SINGH ABDUL REHMAN AND BROTHERS 1993 (12) TMI 28 - ALLAHABAD HIGH COURT AO after rejecting the books accounts has proceeded to treat the cash sales as unexplained cash credit u/s 68 of the Act on various grounds. AO has relied upon the same set of data/figures as shown by the assessee for treating the cash deposit as unexplained cash credit u/s 68 of the Act. There was no iota of doubt on the genuineness of the other income and the expenses was brought on record by the assessee. To our mind, once the books of accounts have been rejected, the AO has to estimate the profit and he has no right to make any individual addition or deletion to the total income of the assessee . However, in the case on hand, the AO has not done so. See HYNOUP FOOD OIL INDUSTRIES (P.) LTD. 1992 (2) TMI 111 - ITAT AHMEDABAD-A Therefore, we hold that the book result shown by the assessee in the given facts and circumstances has to be accepted. Accordingly, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Decided in favour of assessee.

Summary

Issues Involved:
1. Rejection of books of accounts.
2. Addition of Rs. 59.95 Lakh under Section 68 of the Income Tax Act.
3. Estimation of gross profit (GP) addition of Rs. 75,375/-.

Summary:

1. Rejection of Books of Accounts:
The Assessing Officer (AO) rejected the books of accounts of the assessee, who is in the business of trading gold and gold ornaments. The AO found discrepancies in the cash deposits during the demonetization period, with a significant increase in cash deposits and cash sales compared to previous periods. The AO noted that the cash sales were manipulated to show a higher cash balance before depositing during demonetization. The AO concluded that the books of accounts were unreliable and rejected them.

2. Addition of Rs. 59.95 Lakh under Section 68:
The AO treated the cash deposits made during the demonetization period as unexplained cash credits under Section 68 of the Income Tax Act. The AO found that the cash sales were not genuine and were made to justify the cash deposits. The assessee could not provide a satisfactory explanation for the abnormal increase in cash sales and deposits. The CIT(A) confirmed the AO's findings, stating that the assessee failed to justify the abnormal increase in cash sales and deposits, and upheld the addition of Rs. 59.95 Lakh under Section 68.

3. Estimation of Gross Profit (GP) Addition of Rs. 75,375/-:
The AO estimated the gross profit ratio for the assessment year 2017-18 based on previous years' GP ratios and deducted the cash deposits during the demonetization period from the turnover. The AO added the difference amount of Rs. 75,375/- to the total income of the assessee on account of GP estimation. The CIT(A) upheld the AO's approach, confirming the rejection of the books of accounts and the estimation of GP.

Tribunal's Decision:
The Tribunal found that the AO rejected the books of accounts without pointing out specific defects in the supporting documents, except for the non-maintenance of the stock register in the desired format. The Tribunal held that the rejection of books of accounts was not justified merely due to the non-furnishing of certain details. The Tribunal also noted that once the books of accounts are rejected, the AO should estimate the profit and not make individual additions. The Tribunal set aside the findings of the CIT(A) and directed the AO to delete the additions made.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the books of accounts were not liable to be rejected and the book results shown by the assessee should be accepted. The additions made by the AO under Section 68 and on account of GP estimation were directed to be deleted.