2024 (4) TMI 1210 - AT - Income Tax

Addition u/s 68 r/w 115BBE - Assessee has deposited cash from undisclosed source on the mere basis of increase in sales during the said period when compared from previous year to preceding previous year - HELD THAT - Sales and profit figures in absolute terms are in rising pattern and the cash so deposited out of the cash sales are already included in the turnover of the year under consideration. It is also noted that AO emphasized on non-submission of party wise details of sales but ignored the fact that the assessee firm had submitted complete details of cash and credit sales undertaken by the assessee firm. No adverse inference has been drawn on the purchases and stock-register submitted by the assessee. Assessee firm was a registered VAT dealer and all such sales had been reflected in the VAT returns (Rajasthan and Maharashtra) of the assessee. Assessee submitted the same during the assessment proceedings. During the course of hearing, assessee submitted various case laws whose details mentioned hereinabove. We also noted that the written submission raised by the assessee contesting the orders of the lower authorities has merit and there appears no ambiguity. In such a situation, we do not concur with the order of the ld.CIT(A) and thus Ground of the assessee are allowed. Application of Section 115BBE - AO on finding that the assessee was unable to satisfactorily explain the donations and the donors were fictitious persons, held that the assessee had tried to introduce unaccounted money in its books by way of donations and, therefore, the amount was to be treated as cash credit u/s. 68. Delhi High Court in the case of Keshav Social and Charitable Foundation 2005 (2) TMI 84 - DELHI HIGH COURT held that section 68 did not apply, as the assessee had disclosed such donations as its income. Hence, in this view of the matter, application of Section 115BBE, by the AO, to the amount accounted for as sales by the assessee, is illegal and deserves to be quashed. Hence, on such amount, there cannot be any applicability of Section 115BBE. Thus the additional ground raised by the assessee is allowed.

Summary

Issues Involved:
1. Whether the addition of Rs. 25,86,000 under Section 68 of the Income Tax Act was justified.
2. Whether the application of Section 115BBE to the cash deposits was appropriate.

Detailed Analysis:

1. Addition under Section 68:
The primary issue in this appeal was the addition of Rs. 25,86,000 under Section 68 of the Income Tax Act, which pertains to unexplained cash credits. The assessee firm, engaged in the business of trading precious and semi-precious stones and jewellery, had deposited Rs. 52,89,500 in its bank account during the demonetization period. The Assessing Officer (AO) accepted the cash deposit of Rs. 2,32,500 for the Mumbai branch but doubted the remaining Rs. 50,57,000 deposited at the Jaipur branch, eventually adding Rs. 25,86,000 by disbelieving the cash sales of equivalent amount.

The AO's rationale for the addition included the non-provision of customer identities, non-production of books of accounts, sales invoices, and non-maintenance of a stock register as per the audit report. However, the Tribunal noted that cash sales are common in the jewellery sector, and the assessee had a history of cash sales in previous periods. The Tribunal found that the total cash deposits had actually decreased compared to the previous year, and the percentage of cash deposits to sales had also declined. The Tribunal emphasized that the books of accounts were audited and not rejected by the AO, indicating that the entries were correct. The Tribunal concluded that the AO's suspicion was not supported by tangible evidence, and therefore, the addition under Section 68 was not justified.

2. Application of Section 115BBE:
The second issue was the invocation of Section 115BBE, which deals with tax on income referred to in Sections 68, 69, 69A, 69B, 69C, or 69D. The AO applied this section to the cash deposit of Rs. 25,86,000, treating it as unexplained income. The Tribunal observed that Section 115BBE cannot be invoked for amounts already recorded as income by the assessee. The Tribunal referred to the Delhi High Court's decision in the case of Keshav Social and Charitable Foundation, which held that Section 68 does not apply if the income is already disclosed. Since the cash sales were recorded in the books and offered as income, the application of Section 115BBE was deemed inappropriate. Thus, the additional ground raised by the assessee was allowed.

Conclusion:
The Tribunal allowed the appeal, concluding that the addition under Section 68 was not justified due to the lack of evidence against the assessee's claims, and the application of Section 115BBE was inappropriate as the sales were already recorded as income. The decision emphasized the importance of substantive evidence over mere suspicion in tax assessments.