2023 (8) TMI 1491 - AT - Income Tax

Addition u/s 68 - cash deposits made during demonetization period as unexplained/unaccounted income - claim of assessee about the sale of its stock in cash from September, 2016 to November, 2016 is improbable and is not acceptable - HELD THAT - As applying the test of human probability, we could not convince ourselves, with the submissions assessee that the cash deposits was from the special cash sales organized by the assessee, which was just before the demonetization period. Still we find some merit in the submissions of ld AR of the assessee that the purchases of the assessee was not doubted and the books of account of assessee was not rejected, therefore, in our view, the entire sales, though it is doubted, cannot be rejected. Therefore, keeping in view the facts that neither the assessee could prove the cash sales just before 8th November 2016, nor the assessing officer rejected the books of assessee nor disputed the purchase, hence, to avoid the possibility of revenue leakage a reasonable disallowance would meet the end of justice. Considering all the facts and circumstances of the case, in our considered view 10% cash generated on alleged cash sales is reasonable to avoid the possibility of revenue leakage. Decided in favour of assessee partly.

Summary

Issues Involved:
1. Addition of Rs. 53,21,482/- as unexplained/unaccounted income from cash deposits during the demonetization period.
2. Double taxation of income already offered for taxation.
3. Validity of the cash sales claimed by the assessee.

Issue-wise Detailed Analysis:

1. Addition of Rs. 53,21,482/- as unexplained/unaccounted income from cash deposits during the demonetization period:

The assessee, engaged in the diamond business, deposited Rs. 56,35,000/- in cash during the demonetization period in four different bank accounts. The Assessing Officer (AO) questioned the source of these deposits, suspecting them to be unexplained income. The assessee claimed that the deposits were from cash sales of diamonds made between September and November 2016. However, the AO found discrepancies, noting that such cash sales were not reported in previous years and doubted the genuineness of these transactions. The AO also mentioned the lack of quality and quantity details of the diamonds sold and the absence of GIA or IGI certificates. Consequently, the AO added Rs. 53,21,482/- (after deducting the opening cash balance) to the income under Section 115BBE of the Income Tax Act, 1961.

2. Double taxation of income already offered for taxation:

The assessee argued that the cash sales were already included in the total turnover and offered for taxation, and any further addition would result in double taxation. The assessee maintained detailed books of accounts, including purchase and sale registers, stock registers, and bank books, which were not found defective by the auditors. The AO, however, did not accept this explanation, leading to the addition.

3. Validity of the cash sales claimed by the assessee:

The CIT(A) upheld the AO's decision, stating that the sale of diamonds for cash during the demonetization period was improbable and not acceptable. The CIT(A) noted that diamonds were not listed among the commodities for which cash transactions were allowed post-demonetization. The Tribunal, while considering the submissions, found that the assessee's claim of cash sales was doubtful, especially since all cash sales were reported just before demonetization and were below Rs. 20,000/-. The Tribunal referred to the Supreme Court's decision in Sumati Dayal Vs CIT, applying the test of human probabilities, and concluded that the cash deposits were not convincingly proven to be from genuine sales.

Conclusion:

The Tribunal acknowledged that while the purchases and books of accounts were not disputed, the cash sales claimed by the assessee were not convincingly proven. To avoid revenue leakage, the Tribunal deemed it reasonable to disallow 10% of the cash sales, thus partly allowing the appeal. The final order resulted in a partial allowance of the assessee's appeal, with a reasonable disallowance to address potential revenue leakage. The appeal was partly allowed, and the judgment was announced in open court on 21st August 2023.