2023 (4) TMI 1340 - AT - Income Tax

Unexplained cash credit u/s 68 r.w.s. 115BBE - cash deposited in bank out of business receipts - distinguish between the demonetized and non- demonetized currency - whether there is a reason provided by the assessee for the rise in sales in the months of October and November? - HELD THAT - Cash deposit in bank on account of cash sales and cash realizations from debtors was a normal feature of the assessee's business and that the cash deposit figures of October, 2016 November, 2016 were a little higher due to cyclic variations, mainly on account of festivals and marriage season in Northern India during that time. As a result of higher cash sales higher realizations from trade debtors in October 2016, the opening cash in hand as on 1st November 2016 was Rs. 75,65,401 and as on the morning of 9th November 2016, the opening cash in hand was Rs. 75,44,135, out of which, the assessee deposited Rs. 56,55,000 in two current bank accounts from 9th November, 2016 till 25th November, 2016 Rs. 52.50 Lakh in demonetized currency notes of Rs. 500 1000, and the balance Rs. 4,05,000/- in non-demonetized currency/new currency. Similarly, the assessee deposited Rs. 35,70,000 in the two bank accounts in the Month of December 2016 only in non-demonetized currency out of cash sales/realization from trade debtors in the months of November and December 2016. All these figures were duly established by the assessee by furnishing details of sales, purchases along with complete cash book and bank accounts as duly supported by the quantitative tally of stock in the tax audit report during the course of assessment proceedings and the Assessing officer had also accepted the trading results declared by the assessee as he could not point out any defect in the figures. However, despite having accepted the books of account and the trading results, the Assessing Officer still took a detour from the well-established accounting and legal norms, by adding the cash (received by the assessee on account of realizations made from trade debtors and out of cash sales) deposited in the bank again to the income of the assessee as 'unexplained credits' under section 68 in total disregard of the fact that an amount cannot be considered twice in computing the income. Moreover, it was not understandable as to how the cash deposited out of realizations made from trade debtors and cash sales, both recorded in the books of account and, thereafter, deposited in bank accounts, can be treated as 'unexplained cash credit under section 68 of the Act. Thereby, the addition made u/s 68 in respect of unexplained cash credits is indeed illegal, bad in law and void-ab-initio as rightly alleged. The addition deserved to be knocked down on this ground itself. It is a trite law that when the reliability of books is not in question and all the transactions including sales and purchases and the ensuing effect of this trading have been accepted, then the embedded facets flowing from the trading transitions -generation, retention rotation of funds- can also not be doubted. When the cash deposited in the bank is already recorded as part of sales or sales realizations and the same is not found to be incorrect, it is legally not permissible to add the same to the income of the assessee as unexplained cash credit u/s 68 for two reasons firstly, it is not a credit, in the sense used in section 68, at all, what to talk of unexplained credit , and, secondly, the action amounts to double addition (firstly as sales and secondly as unexplained cash credit) of the same amount in the hands of the assessee. AO did not state as to which details furnished by the assessee by way of additional evidence, were not available before him, i.e., the AO, during the assessment proceedings. Assessee has shown to have furnished all the requisite documents and details, firstly before the AO in the reassessment proceedings, and then before the CIT(A). Further, the AO has wrongly observed that the assessee failed to supply the source of the cash deposits made in HDFC Bank during the assessment year, whereas the assessee has given complete details before both the authorities. Even in response to the Show Cause dated 04.12.2019, the assessee, vide submissions dated 09.12.2019, had given complete cash book and many other details, including the details of all the cash deposits made, against receipts from debtors and against cash sales. Likewise, the AO had wrongly observed that details were not provided by the assessee in response to the statutory notices, whereas without the response of the assessee, it was not possible for the AO to have accepted the cash deposits for the whole assessment year excluding the demonetization period. In fact, no defect was pointed out by the AO in the details furnished by the assessee, particularly when the Cash Book and the Sale Book clearly reflected the cash deposits in the bank which were covered in the audited financial statements of the assessee. Therefore, from the above discussion, it is clearly evident that the ld. CIT (A) has gone wrong in confirming the addition wrongly made by the AO. The order under appeal is, found to be a result of complete misreading and non-reading of material and cogent unrebutted documentary evidence brought on record before the AO and reiterated before the ld. CIT(A). The impugned order is, therefore, reversed and the addition confirmed by the ld. CIT (A) is cancelled - Decided in favour of assessee.

Summary

Issues Involved:
1. Reasonable and adequate opportunity of hearing.
2. Addition of Rs. 87,95,000/- as unexplained cash credit under section 68 read with section 115BBE.
3. Initiation of proceedings under section 271 AAC.
4. Charging of interest under sections 234B, 234C, and 234D.

Detailed Analysis:

1. Reasonable and Adequate Opportunity of Hearing:
The assessee contended that the Assessing Officer (AO) passed the order under section 144 of the Income Tax Act, 1961, without providing a reasonable and adequate opportunity of hearing. The AO issued multiple notices under section 142(1) to which the assessee responded partially but failed to provide complete information. A show cause notice was issued on 04.12.2019, and the assessee responded on 09.12.2019, but the information remained incomplete. The AO concluded that the non-compliance indicated the assessee's unwillingness to provide further explanation, leading to an ex-parte assessment under section 144(1)(b).

2. Addition of Rs. 87,95,000/- as Unexplained Cash Credit:
The AO analyzed the bank accounts and observed significant cash deposits during the demonetization period, suspecting them to be unaccounted money. The AO cited the Supreme Court's decision in "Smt. Srilekha Banerjee and others Vs CIT," which held that unexplained money could be treated as assessable income. The AO added Rs. 87,95,000/- as unexplained cash credit under section 68 and taxed it under section 115BBE.

The CIT(A) confirmed the AO's addition, noting that the appellant failed to provide a reason for the rise in sales in October and November, suggesting the cash deposits were from undisclosed sources. The assessee argued that the CIT(A) passed a non-speaking order, ignoring the nature of the business and the details furnished in the Tax Audit Report.

The Tribunal found that cash deposits in the bank were a normal feature of the assessee's business, with higher deposits in October and November due to cyclic variations like festivals and marriage season. The assessee provided detailed cash flow statements, showing that the cash deposits were from business receipts and were duly recorded in the books of account. The Tribunal noted that the AO accepted the trading results and books of account, which included the cash deposits. Therefore, adding the same amount as unexplained cash credit amounted to double addition. The Tribunal concluded that the addition under section 68 was illegal, bad in law, and void-ab-initio.

3. Initiation of Proceedings under Section 271 AAC:
The Tribunal did not specifically address the initiation of proceedings under section 271 AAC in the judgment. However, given the cancellation of the addition under section 68, the basis for initiating proceedings under section 271 AAC would also be invalid.

4. Charging of Interest under Sections 234B, 234C, and 234D:
The Tribunal did not specifically address the charging of interest under sections 234B, 234C, and 234D. However, with the cancellation of the addition under section 68, the interest charged under these sections would also need to be recalculated based on the revised taxable income.

Conclusion:
The Tribunal allowed the assessee's appeal, canceling the addition of Rs. 87,95,000/- made under section 68 as unexplained cash credit. The Tribunal found that the cash deposits were part of the regular business transactions and were duly recorded in the books of account. The addition was deemed illegal, invalid, and void-ab-initio. Consequently, the initiation of proceedings under section 271 AAC and the charging of interest under sections 234B, 234C, and 234D would also be affected by this decision.