2024 (5) TMI 1241 - AT - Income Tax

Addition u/s 68 - addition on account of the difference between the cash deposited and the submission reflecting deposit - HELD THAT - There was no abnormal jump in any of the month in the sales, rather the highest sales in the month of January and the lowest sales were in the month of August. Hence, the addition made of Rs. 70,00,000/- on account of jump in the sales is found to be factually incorrect. The sales have been accepted by the revenue. The audited results have not been disputed. The profit derived out of the sale was not in dispute. The volume of sales during all months is accepted. Hence, we hold that no addition is called for on account of sales made in one month. With regard to the difference mentioned by the Assessing Officer, we find that the amount of Rs. 2,65,000/- was deposited on 05.11.2016, Rs. 50,000/- was deposited on 05.11.2016 and 1,25,000/- has been deposited on 07.11.2016. Hence, the difference of the amounts stands tallied. Hence, no addition on this account is called for. Appeal of the assessee is allowed on this ground. Disallowance u/s 40A(3) - cash purchases more than Rs. 20,000/- on any single day - AO held that the assessee was queried but no submission /documents have been uploaded on ITBA Portal till the date of passing the order - HELD THAT - We find that the AO has not mentioned any single date/day on which the cash purchases have been made in excess of Rs. 20,000/-. The total cash purchases were to the tune of Rs. 43,00,000/- which are petty purchases made from neighboring shops to meet the immediate requirements of the customers with regard to small sanitary items which were not available in their store. The total cash purchases were to the tune of 2.6% over the turnover of Rs. 17.42 Cr. The audit report has also not mentioned any purchases made in contravention of provisions of Section 40A(3) of the Income Tax Act, 1961. The query of the AO dated 19.12.2019 and the reply of the assessee dated 21.12.2019 have been examined. As the AO has not brought any specific instance of purchases of more than Rs. 20,000/- on any single day, we hold that no addition on this account is called for. Appeal of the assessee is allowed.

Issues Involved:
1. Ex-parte order by NFAC.
2. Short compliance time for show cause notice.
3. Lack of opportunity to reconcile differences with suppliers.
4. Treatment of sales as non-genuine.
5. Addition of unexplained income.
6. Application of 'average cash sale formula'.
7. Crediting of amount to P & L Account.
8. Applicability of section 68 and section 115BBE.
9. Addition of Rs. 440000/- u/s 68.
10. Applicability of section 68 and section 115BBE for Rs. 440000/-.
11. Disallowance u/s 40A(3).

Summary:

1. Ex-parte order by NFAC:
The assessee argued that NFAC should not have passed the appeal order in an ex-parte manner on 30.11.2023, especially when the appellant had sought additional time to provide details and documents for the preparation of Written Submissions and Paper Book.

2. Short compliance time for show cause notice:
The assessment order was challenged on the grounds that the AO allowed only 2 days for compliance with the final show cause notice dated 19.12.2019, which was deemed too short.

3. Lack of opportunity to reconcile differences with suppliers:
The assessment order was also contested because the AO did not provide the appellant with a due opportunity to explain or reconcile differences observed in replies from suppliers M/s Preeti Trade Link (P) Ltd. and M/s Kajaria Ceramics Ltd.

4. Treatment of sales as non-genuine:
The AO treated sales of Rs. 73,91,167/- recorded in October 2016 as non-genuine, which was contested by the assessee.

5. Addition of unexplained income:
The AO added Rs. 70,00,000/- as unexplained income, which was disputed by the assessee.

6. Application of 'average cash sale formula':
The NFAC applied the 'average cash sale formula' to restrict the addition of Rs. 70,00,000/- to Rs. 69,41,617/-, which was contested by the assessee, arguing that the books of account were audited.

7. Crediting of amount to P & L Account:
The addition of Rs. 70,00,000/- was challenged on the grounds that this amount was already credited to the P & L Account.

8. Applicability of section 68 and section 115BBE:
The provisions of section 68 and section 115BBE were argued to be inapplicable to the addition of Rs. 70,00,000/- (reduced to Rs. 69,41,617/- by NFAC).

9. Addition of Rs. 440000/- u/s 68:
The addition of Rs. 4,40,000/- u/s 68 was contested, with the assessee clarifying that Rs. 9,600,000/- was deposited during the demonetization period, and Rs. 4,40,000/- was deposited prior to 08.11.2016.

10. Applicability of section 68 and section 115BBE for Rs. 440000/-:
The provisions of section 68 and section 115BBE were argued to be inapplicable to the addition of Rs. 4,40,000/-.

11. Disallowance u/s 40A(3):
The AO disallowed Rs. 43,27,397/- u/s 40A(3) due to cash purchases exceeding Rs. 20,000/- in a day, which was contested by the assessee, arguing that no specific instance of such purchases was mentioned.

Tribunal's Findings:

- Reconciliation with Suppliers: The Tribunal found that the transactions with M/s Preeti Trade Link Pvt. Ltd. and M/s Kajaria Ceramics Ltd. were correctly reconciled, and no addition was warranted on this account.

- Sales in October 2016: The Tribunal noted no abnormal jump in sales for October 2016 compared to other months, thus rejecting the addition of Rs. 70,00,000/-.

- Difference of Rs. 4,40,000/-: The Tribunal found that the difference of Rs. 4,40,000/- was reconciled with deposits made on specific dates, thus no addition was warranted.

- Disallowance u/s 40A(3): The Tribunal held that no specific instance of cash purchases exceeding Rs. 20,000/- in a day was mentioned, thus rejecting the disallowance of Rs. 43,27,397/-.

Conclusion:
The appeal of the assessee was allowed, and the

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