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2023 (3) TMI 1196 - AT - Income TaxAddition u/s 68 r.w.s. 115BBE - unexplained cash deposited in bank - Non rejection of books of accounts by revenue - HELD THAT - In the present case the department has not rejected the books of accounts of the Assessee accepted in VAT. The regular books of accounts were maintained in the normal course of business in which no flaw fallacy or deficiency was pointed out by the AO. It is well settled law that once the assessing officer accepts the books of accounts and the entries in the books of accounts are matched there is no case for making the addition as unexplained. AO and the ld CIT(A) have concluded the findings on the basis of conjectures and surmises. AO has to establish the link between the evidence collected by him and the addition to be made. The entire case has to be dependent on the Rule of evidence the assessee in this case explained the source of bank deposits are from cash sales. AO proceeded to disbelieve the explanation of the assessee on the presumption basis without bringing the corroborative material on record. AO is required to act fairly as reasonable person and not arbitrarily capriciously. The assessment should have been made based on the adequate material and it should stand on its own leg. AO without examining any parties to whom the goods are sold by the assessee came to conclusion that the sales are not genuine without even rejecting the books of account which is in our opinion is erroneous - Decided in favour of assessee.
Issues Involved:
1. Legitimacy of cash deposits during the demonetization period. 2. Application of Section 68 read with Section 115BBE of the Income Tax Act. 3. Rejection of books of accounts and reliance on circumstantial evidence. Summary: 1. Legitimacy of Cash Deposits During the Demonetization Period: The primary issue was whether the cash deposits amounting to Rs. 1,37,95,040/- during the demonetization period were legitimate. The assessee claimed these deposits were from sales of jewelry, supported by books of accounts, purchase vouchers, sales invoices, stock registers, VAT records, and bank statements. The CIT(A) upheld the addition made by the Assessing Officer (AO), stating that the appellant brought in unaccounted cash by inflating sales at unusually high levels during the demonetization period. The Tribunal, however, noted that the extraordinary incident of demonetization was unique to the financial year 2016-17 and could not be the basis for rejecting accounts and making additions under Section 68. 2. Application of Section 68 Read with Section 115BBE of the Income Tax Act: The AO invoked Section 68 read with Section 115BBE, treating the cash deposits as unexplained cash credits. The Tribunal found that the assessee had explained the source of the deposits as sales and produced relevant documents. The Tribunal cited the case of ACIT Vs. Hirapanna Jewellers, where it was held that once the source is explained as sales and supported by books of accounts, there is no basis for treating the deposits as unexplained cash credits under Section 68. 3. Rejection of Books of Accounts and Reliance on Circumstantial Evidence: The CIT(A) and AO relied on circumstantial evidence, such as the high volume of cash sales during the demonetization period and the invoices being below Rs. 2,00,000/-, to reject the assessee's claims. The Tribunal emphasized that the books of accounts were not rejected by the VAT authorities and were maintained in the normal course of business. It was noted that suspicion, however strong, should not lead to adverse conclusions without tangible evidence. The Tribunal highlighted that the AO did not find any defects in the books of accounts or stock registers and that the sales were duly recorded and matched with the stock position. Conclusion: The Tribunal concluded that the lower authorities erred in upholding the addition under Section 68. The appeal of the assessee was allowed, and the stay application was dismissed as infructuous. The Tribunal emphasized the need for direct evidence rather than circumstantial evidence and underscored the importance of acting fairly and reasonably based on adequate material. Order Pronounced: The judgment was pronounced in the open court on 27/03/2023.
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