2023 (4) TMI 529 - AT - Income Tax

Unexplained deposits in bank account - appellant had inflated the sales to cover unaccounted money - AO has rejected the books of accounts u/s 145(3) on the ground that the assessee has not furnished the sales bills - addition made u/s 68 on account of unexplained cash deposit and the same is taxed u/s 115BBE at the rate of 60% - HELD THAT - It is pertinent to mention here that the assessee has duly submitted books of accounts, sale purchase register, confirmations, bank statements, expenses, parties from whom the purchase and to whom sales were made. AO has computed the sales for the month of October November 2016 at Rs. 28,06,536/- and Rs. 9,63,687/- respectively. AO while doing such exercise has ignored the fact as to why a prudent businessman will make purchases to the tune of Rs. 3,09,69,406/- in the month of October, 2016 much before the date of demonetization in order to execute such meagre sale as computed by the AO. Assumption drawn by the AO in respect of estimating the sales is merely on assumption or presumption or surmises or conjectures . AO has made addition in the hands of the assessee by reducing the actual sales for the month of October, November 2016. The basis of rejection of books was not acceptable here. AO has made such addition without discharging the burden of prove the correctness of addition. It is a settled law that once the adequate evidence/material has been provided which prima facie discharge the burden of the assessee in that case, the burden shifts on the revenue and the revenue has not discharged its onus in these circumstances. Amount deposited in the bank account was out of sale of various items as held by the assessee as stock in trade and since the deposits in the bank account were out of sale of stock therefore the stock of the assessee has depleted and the cash has come in respect of stock, such sales had been disclosed in the trading account against the purchase which had not been doubted, neither the opening and closing stock had been doubted. Nothing could have been doubted when the source of cash was well explained and was shown in the bank account. Addition was made only on the basis of surmises without establishing any motive on the part of the assessee and without disturbing the closing stock as on 31/03/2017 which had been arrived at after reducing the sale in quantity of stock in trade. AO has no right to calculate sales on hypothetical basis ignoring the evidence submitted during the course of assessment proceedings in the form of VAT return, purchase bills and quantitative details. Once the amount is declared as turn over cannot be called concealed income and be taxed doubly on same amount. We further relied on order of Jet Freight Logistics Ltd. 2022 (9) TMI 1183 - ITAT MUMBAI - addition U/s 68 is beyond jurisdiction of the ld. AO as the turnover is already reflected in the books of the assessee. Decided in favour of assessee.

Issues Involved:
1. Confirmation of assessment order by CIT(A) NFAC.
2. Decision without considering the request for adjournment.
3. Decision without considering vital documents.
4. Passing a non-speaking order.
5. Rejection of books of accounts under Section 145(3).
6. Confirmation of AO's action based on surmises and conjecture.
7. Addition of cash deposited in bank accounts.
8. Ignoring the past history of the appellant.
9. Application of Section 68 resulting in double taxation.
10. Addition under Section 68 despite rejection of books under Section 145(3).
11. Rejection of books of accounts without serving show cause notice.

Summary:

Issue 1: Confirmation of Assessment Order by CIT(A) NFAC
The CIT(A) NFAC confirmed the assessment order passed by the AO, which assessed the total income at Rs. 2,82,17,200/- against the returned income of Rs. 8,17,200/-. The AO made an addition of Rs. 2,74,00,000/- alleging inflated sales to cover unaccounted money.

Issue 2: Decision Without Considering Request for Adjournment
The CIT(A) NFAC erred by deciding the appeal without considering the appellant's request for adjournment filed on 11.08.2022.

Issue 3: Decision Without Considering Vital Documents
The CIT(A) NFAC ignored vital documents such as the cash book, purchase bills, ledger, and VAT returns submitted by the appellant during the assessment proceedings, violating the principles of natural justice.

Issue 4: Passing a Non-Speaking Order
The CIT(A) NFAC passed a non-speaking order, which is against the law, even if the assessee was not represented before it.

Issue 5: Rejection of Books of Accounts Under Section 145(3)
The CIT(A) NFAC confirmed the AO's action of rejecting the books of accounts by invoking Section 145(3) without pointing out any specific defect in the books of account.

Issue 6: Confirmation of AO's Action Based on Surmises and Conjecture
The CIT(A) NFAC confirmed the AO's action based on surmises and conjecture without any evidence contrary to the contention of the assessee, which was duly supported by documents.

Issue 7: Addition of Cash Deposited in Bank Accounts
The CIT(A) NFAC confirmed the addition of Rs. 2,82,17,200/- being cash deposited in bank accounts without appreciating that the said cash was part of the cash account submitted with the submissions made and was sourced from sales duly accepted by the VAT department.

Issue 8: Ignoring the Past History of the Appellant
The CIT(A) NFAC ignored the past history of the appellant, where similar cash deposits were accepted by the department in previous assessment years.

Issue 9: Application of Section 68 Resulting in Double Taxation
The CIT(A) NFAC ignored the position of law that provisions of Section 68 cannot be applied in respect of income from a source which has already been taxed, resulting in double taxation.

Issue 10: Addition Under Section 68 Despite Rejection of Books Under Section 145(3)
The CIT(A) NFAC erred in confirming the order of the AO, ignoring the position of law that no addition under Section 68 can be made where books of account had been rejected by the AO under Section 145(3).

Issue 11: Rejection of Books of Accounts Without Serving Show Cause Notice
The AO erred in rejecting the books of accounts under Section 145(3) without serving the show cause notice as embedded in Section 144 read with Section 145(3).

Conclusion:
The tribunal quashed the addition of Rs. 2,74,00,000/- made by the AO under Section 68 and allowed the appeal of the assessee. The tribunal held that the AO's rejection of books of accounts and the addition made were based on surmises and conjectures without any substantial evidence, and the cash deposits were part of the declared turnover. The tribunal emphasized the importance of considering all relevant documents and past history in such cases.

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