2023 (9) TMI 378 - AT - Income Tax

Addition of cash deposit made during demonetization period u/s 68 - HELD THAT - It is not the case of the AO that assessee was asked to produced the buyers. AO also did not show that assessee was further statutory required to give more information than what has been already submitted. Even AO has not recorded the statement of the assessee to examine the situation prevalent on that date. The close circuit camera recording would also have substantiated or proved the claim of the assessee otherwise. It is also important that in response to someone by the investigation wing the stand of the assessee is same. Therefore no fault can be found with the claim of the assessee unless the assessing officer further makes an investigation on that issue. In absence of any evidence of bogus sales when identical information is available for sales recorded by the assessee prior to demonetization as well as post demonetization is accepted by AO there is no reason that details produced by the assessee for demonetization sale is rejected. Mere statistics of preparation of number of bills transactions cannot be used to invoke the provisions of section 68 of the income tax act when no independent enquiry by the AO is made. The necessary ingredient of section 68 of the act such as nature and source of the credit is explained by assessee. To make the addition the learned assessing officer should have thrown back onus on the assessee by making an independent enquiry. The simplest thing that could have been done was whether the assessee was having the adequate stock prior to the demonetization or not. AO failed to do that also. The learned CIT A also did not make any enquiry by himself or through AO. In view of above facts and circumstances the addition in the hence of the assessee cannot be sustained. Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of cash deposit during the demonetization period.
2. Challenge to the observation of the principles of natural justice.

Summary:

Issue 1: Addition of Cash Deposit During Demonetization Period

The assessee, engaged in trading gold ornaments under M/s Nirosha Jewels, filed a return of income declaring Rs. 942,610. During scrutiny, the AO found a cash deposit of Rs. 15,990,000 in old currency during the demonetization period in the assessee's bank account. The assessee claimed this was from cash sales on 8/11/2016 due to panic buying post-demonetization. However, the AO found discrepancies, primarily questioning the plausibility of such high sales in a short time and the preparation of sales bills within minutes.

The CIT(A) upheld the AO's addition under Section 68, noting the assessee's failure to prove the identity of customers and the genuineness of transactions, and considered the cash sales an afterthought to justify the deposits.

On appeal, the ITAT found the assessee maintained regular books of accounts and stock registers, showing sufficient stock before demonetization. The sales were supported by invoices, and the cash sales were reflected in the profit and loss account. The ITAT noted that the AO did not conduct further investigations or ask the assessee to produce buyers. It emphasized that the AO should have verified the stock availability before demonetization. Citing judicial precedents, the ITAT concluded that the addition under Section 68 was unsustainable as the nature and source of the cash deposits were explained, and directed the AO to delete the addition of Rs. 15,691,401.

Issue 2: Challenge to the Observation of the Principles of Natural Justice

The assessee challenged the observation of the principles of natural justice, but no arguments were advanced before the ITAT. Consequently, this ground was dismissed.

Conclusion:

The appeal was partly allowed, with the ITAT reversing the lower authorities' order and directing the deletion of the addition related to the cash deposit during the demonetization period. The challenge to the principles of natural justice was dismissed due to a lack of arguments.