2023 (3) TMI 1312 - AT - Income Tax

Addition u/s 68 r.w.s. 115BBE - higher average sales - HELD THAT - AO nowhere recorded that the information and the evidences obtained by him from sundry creditors were shares with the assessee or any show cause to explain the discrepancy was issued to the assessee. At the time of making submissions before us, assessee explained certain discrepancy about the amount received by way of cheque from Swastik logistic, though the same amount was shown by Swastik Logistic in cash in their books. Thus, find merit in the submissions of assessee that had the AO issued show cause notice on such alleged discrepancy, the assessee would have explained all the entry. When the sales of the assessee is not doubted by the assessing officer and accepted the books result, the addition of section 68, on the basis of higher average sales is also not justified. Addition is deleted - Decided in favour of assessee.

Issues Involved:
1. Addition u/s 68 r.w.s. 115BBE for unreconciled cash deposited as cash sales during demonetization.
2. Addition u/s 68 for unaccounted cash received from debtors deposited during demonetization.
3. Alleged duplication of income of cash sales.
4. Treatment of cash sales and recovery from debtors as unaccounted investment.
5. Procedural fairness and natural justice in issuing show cause notices.

Summary of Judgment:

1. Addition u/s 68 r.w.s. 115BBE for unreconciled cash deposited as cash sales during demonetization:
The assessee, a dealer of Indian Oil Corporation, filed its return for AY 2017-18 declaring an income of Rs.1,27,417/-. A survey u/s 133A revealed discrepancies between cash sales and cash deposits during the demonetization period. The Assessing Officer (AO) noted a difference of Rs.13,65,241/- between average cash sales before and after demonetization, which was added as unaccounted income u/s 68 r.w.s. 115BBE.

2. Addition u/s 68 for unaccounted cash received from debtors deposited during demonetization:
The AO also added Rs.10,00,000/- as unaccounted cash received from debtors, Swastik Transport Udhna and Swastik Logistics Udhna, based on discrepancies between the assessee's ledger and the debtors' ledger accounts. Notices u/s 133(6) were issued to verify these transactions.

3. Alleged duplication of income of cash sales:
The assessee argued that the AO duplicated income by treating cash sales as both sales and cash deposits. The AO did not issue a show cause notice regarding this duplication, which the assessee claimed violated natural justice principles.

4. Treatment of cash sales and recovery from debtors as unaccounted investment:
The assessee contended that the AO treated legitimate cash sales and recoveries from debtors as unaccounted investments without proper verification. The assessee argued that the sales were not disputed, and the addition was based on hypothetical calculations.

5. Procedural fairness and natural justice in issuing show cause notices:
The Tribunal found that the AO did not issue a show cause notice before making the additions, violating the principles of natural justice. The Tribunal cited precedents, including *Mohammedarif Ibrahim Bhai Shaikh* and *Maruti Suzuki India Limited*, to support its decision that non-issuance of a proper show cause notice can be fatal to the proceedings.

Conclusion:
The Tribunal concluded that both additions were made without giving the assessee an opportunity to explain the discrepancies. The Tribunal deleted the additions of Rs.13,65,241/- and Rs.10,00,000/- and allowed the appeal in favor of the assessee, emphasizing the importance of procedural fairness and adherence to natural justice principles. The remaining grounds of appeal were deemed general and did not require specific adjudication.

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