2022 (8) TMI 79 - AT - Income Tax

Unexplained money u/s. 69A - cash deposit made by the assessee during the demonetization period i.e. from 09.11.2016 to 30.12.2016 - mere possibility of assessee earning considerable amount out of cash sales on the date of announcement of demonetization - HELD THAT - Comparability of the circumstances which existed on the day of demonetization announcement, he pointed to the occasion of Dhanteras which is a festival wherein similar kind of high traffic volume of customers happens for the purchase and sale of gold/bullion/jewellery, it being an auspicious day for making such investments. It was placed on record that on the day of Dhanteras which fell on 28.10.2016 i.e. prior to the day of announcement of demonetization, sales bills to the tune of 229 numbers were generated while dealing with those many customers which was also during the smaller time window available on that day depending on the muhurats. As pointed out that the VAT returns filed by the assessee for the year under consideration have not been revised in any manner so as to reflect any kind of adjustment or accommodation made in the accounted data of the assessee. All these facts and explanations were placed before the lower authorities, copies of which are placed. The guess work adopted by AO in arriving at probable sales value and the judicial precedents relied upon, we find no reason to interfere with the factual findings given by the CIT(A) in deleting the addition made by the ld. AO. Accordingly, the appeal of the revenue stands dismissed.

Issues Involved:
1. Justification of the deletion of the addition of Rs. 1,95,03,291/- on account of cash deposits during the demonetization period.
2. Validity of the rejection of books of account under section 145(3) of the Income Tax Act, 1961.
3. Credibility of sales and the estimation of probable sales value during the demonetization period.
4. Explanation and source of cash deposits during the demonetization period.

Issue-wise Detailed Analysis:

1. Justification of the Deletion of the Addition of Rs. 1,95,03,291/-:
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which deleted the addition of Rs. 1,95,03,291/- made by the Assessing Officer (AO) on account of cash deposits treated as unexplained money under section 69A of the Income Tax Act, 1961. The CIT(A) found that the AO's estimation of probable sales value during the demonetization period was based on assumptions and lacked scientific basis. The CIT(A) noted that the assessee had provided all relevant details and explanations, which were reasonable and supported by documentary evidence. The Tribunal upheld the CIT(A)'s findings, stating that the AO's approach was based on suspicion and conjecture without any material evidence.

2. Validity of the Rejection of Books of Account under Section 145(3):
The AO rejected the assessee's books of account under section 145(3) of the Act, citing discrepancies in the sales figures. The assessee countered this by providing detailed explanations and documentary evidence, including books of account, stock registers, and sales records. The CIT(A) found that the AO did not point out any specific defects in the books of account and that the purchases recorded by the assessee were not doubted. The Tribunal agreed with the CIT(A), noting that the AO's rejection of the books was based on irrelevant considerations and lacked a rational basis.

3. Credibility of Sales and the Estimation of Probable Sales Value:
The AO estimated the probable sales value during the demonetization period by assuming a fixed bill value per customer and the number of customers that could be handled by the cash counters. The AO's estimation was based on the hypothesis that each cash counter could handle a customer in five to ten minutes, leading to a maximum sale value of Rs. 1,89,00,000/- from 8:30 PM to midnight on 08.11.2016. The assessee argued that the estimation was arbitrary and that the actual sales were recorded in the books of account. The CIT(A) found that the AO's estimation was based on conjecture and lacked any scientific basis. The Tribunal upheld the CIT(A)'s findings, stating that the AO's approach was speculative and not supported by any evidence.

4. Explanation and Source of Cash Deposits:
The assessee explained that the cash deposits during the demonetization period were sourced from opening cash in hand, cash sales recorded in the cash book, and customer advances. The CIT(A) found that the assessee had provided a reasonable explanation for the cash deposits and that the AO's addition was based on hypothetical assumptions. The Tribunal noted that the assessee had recorded all sales in the books of account and that there was no discrepancy in the stock records. The Tribunal also observed that the AO's approach was based on suspicion and lacked any material evidence to support the addition.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order, which deleted the addition of Rs. 1,95,03,291/- made by the AO. The Tribunal found that the AO's approach was based on conjecture and lacked any scientific basis or material evidence. The Tribunal also noted that the assessee had provided reasonable explanations and documentary evidence to support the cash deposits during the demonetization period. The appeal of the Revenue was dismissed, and the order was pronounced in the open court on 27.06.2022.

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