2023 (3) TMI 851 - AT - Income Tax

Undisclosed sales - unexplained cash sales - whether those were the cash sales as claimed? - HELD THAT - We find that firstly, the assessee during the course of the survey, brought to the notice of the income tax authorities, the figures of the profit worked out were on higher side. During the course of the survey proceedings, the accountant of the assessee was not available, and the director of the company cannot be expected to explain each and every entry of sales to the Income tax authorities, without specifically pointed out to him, particularly, about the monthly sales recorded in the name of XYZ. Secondly, the series of bills recorded in respect of the XYZ is different from the series in respect of the undisputed sales, which also indicate that those are not part of regular sales. Thirdly, when the assessee himself is submitting that those sales are fictitious sales, then onus is on the AO to establish whether those are cash sales. The income tax authorities have carried out survey at the premises of the assessee and no evidence suggesting cash sales by the assessee has been found. The assessee cannot substantiate more than that that no such party in the name of XYZ Private Limited exist in the registrar of companies. Allegation of the revenue, that non-existence of XYZ Private Limited in the ROC does not support the case of the assessee, are rejected. In the preceding assessment year the turnover of the assessee was of Rs.4.43 crore, and in the year under consideration turnover was only of ₹2.5 Crores, therefore any such attempt for increasing the turnover for the purpose of availing bank loan by an accountant or other person cannot be ruled out, though it is an illegal act and Bank Authorities should take note of this. Thus it is the AO, who was required to establish whether those were the cash sales as claimed by him and not the fictitious sales as claimed by the assessee. In absence of any such evidence of the cash sales, the addition confirmed by the Ld. CIT(A) is not justified and accordingly, we set aside the finding of the Ld. CIT(A) on the issue in dispute. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Addition of Rs. 81,07,050 to the income of the assessee as sales.
3. Assessment of the actual profit and sales entries.
4. Burden of proof regarding the fictitious nature of sales entries.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee's counsel argued for condonation of delay in filing the appeal, citing health problems of the director, which caused a delay in filing the appeal by 18 days. The director's affidavit supported this claim. The Tribunal, after hearing both parties, found the reason for the delay to be reasonable and sufficient, thus admitting the appeal for adjudication.

2. Addition of Rs. 81,07,050 to the Income of the Assessee as Sales:
The Assessing Officer (AO) added Rs. 81,07,050 to the assessee's income, treating it as actual sales. The assessee contended that these were fictitious entries made to inflate turnover for obtaining bank credit. The AO rejected this explanation, considering it an afterthought to evade tax. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing the lack of convincing evidence from the assessee and the consistency of the profit figures with the books of accounts.

3. Assessment of the Actual Profit and Sales Entries:
During a survey under Section 133A of the Income-tax Act, discrepancies were found between the cash balance in the books and actual cash. The net profit recorded was Rs. 1,57,05,468, but the director claimed this was inflated due to unrecorded expenses. The AO and CIT(A) did not accept the assessee's explanation that the sales entries were fictitious, as the books of accounts were claimed to be genuine by the assessee.

4. Burden of Proof Regarding the Fictitious Nature of Sales Entries:
The assessee argued that the burden of proof was on the revenue authorities to establish that the income was indeed earned by the assessee. The Tribunal noted that the AO did not provide evidence of cash sales and that the series of bills for XYZ differed from regular sales, indicating they were not part of regular sales. The Tribunal found the assessee's explanation plausible and noted the lack of evidence from the revenue to prove the sales were actual cash sales.

Conclusion:
The Tribunal concluded that the AO failed to establish that the sales entries were actual cash sales and not fictitious as claimed by the assessee. The addition of Rs. 81,07,050 was not justified, and the appeal was allowed in favor of the assessee. The Tribunal set aside the findings of the CIT(A) and ruled that the burden was on the AO to prove the sales were genuine, which was not done. The appeal was thus allowed, and the addition was deleted.