2024 (2) TMI 1230 - AT - Income Tax

Addition u/s 68 r.w. section 115BBE - unexplained cash deposits in the bank account - CIT(A) confirmed addition without disturbing the book results - HELD THAT - AO did not accept the source of cash deposited in the month of October to November, 2016 on the basis that there was no historical basis for such deposits. Admittedly, the accounts of the assessee have been accepted by the lower authorities. CIT(A) has confirmed the finding of the AO without disturbing the book results. Under these facts and circumstances of the case, it can be safely inferred that the AO has accepted the sales of the assessee. The natural corollary would be that AO accepted the sales made in cash also. Hence, the source of cash deposits ought to have been treated as explained. AO has not commented on purchases. Undisputedly manufacturing and trading activity would be based on sale and purchase. If the purchases are treated as genuine and stock is also accepted then treating the sales as bogus is not logical. CIT(A) did not advert to submission that no error was found in the stock of the assessee. Once the assessee has recorded the sales in its books and there is no adverse finding qua stock and purchases are made. In my considered view, invoking the provision of section 68 would not be justified. It is not case of inflated purchases but AO treated cash sales being bogus without disturbing the book results. We therefore, hold that authorities below have committed error in making impugned addition without bringing any adverse material in respect of purchases and stock of assessee. Appeal of the assessee is allowed.

Summary

Issues involved:
The issues involved in the judgment are the determination of income, jurisdiction of the Income Tax Officer, addition of unexplained cash deposits, treatment of cash sales, and initiation of penalty under section 270A of the Income Tax Act.

Determination of Income:
The appeal was against the order upholding the determination of income by the Assistant Commissioner of Income Tax, which was significantly higher than the income declared by the appellant. The appellant contested the legality and factual basis of the determination.

Jurisdiction of the Income Tax Officer:
The appellant challenged the jurisdiction of the Income Tax Officer to issue a notice under section 143(2) of the Act for the assessment year, claiming it was illegal and void-ab-initio, thus questioning the validity of the assessment order.

Addition of Unexplained Cash Deposits:
The main ground raised by the assessee was against the addition of INR 39,27,414 made by the Assessing Officer under section 68 of the Income Tax Act, related to alleged unexplained cash deposits during the demonetization period. The appellant argued that the source of cash deposits was from legitimate sales and should not be treated as unexplained income.

Treatment of Cash Sales:
The appellant contended that the Assessing Authority failed to consider the legitimate source of cash deposits, as the accounts were not rejected and sales were accepted. The appellant provided details of cash deposits preceding the demonetization period to support the legitimacy of the transactions.

Initiation of Penalty under Section 270A:
The issue of penalty under section 270A of the Act was raised, but the Tribunal deemed it premature as it was only initiated and not levied. Therefore, this ground was dismissed as premature.

The Tribunal found that the Assessing Officer did not provide a historical basis for rejecting the source of cash deposits, and the accounts of the assessee were accepted by the lower authorities. The Tribunal noted that if sales and purchases were accepted as genuine, treating the sales as bogus was illogical. The Tribunal set aside the addition of unexplained cash deposits, directing the Assessing Officer to delete the impugned addition, as no adverse material was presented regarding purchases and stock. Consequently, the appeal of the assessee was allowed, and the impugned order was overturned.