2024 (8) TMI 174 - AT - Income Tax

Unexplained cash deposits in Bank account during demonetization - case of the assessee that the source of cash deposits in question bears direct nexus to cash sales made prior to such deposits - HELD THAT - The issue involved is essentially a question of fact and depends on appraisal of all relevant evidences on record on cumulative basis. The income thus arising from cash sales has been duly subjected to taxation. The cash sales under cloud are also declared in the VAT returns filed before the concerned Govt. agencies. The cash and other sales are inseparable from imported purchases. No aspersions have been cast on purchases reported in the books for which the payments have been made through banking channel and custom duty have also been paid. Similar is the pattern in the earlier years as well as the subsequent years. Thus, where the propriety of purchase and stocks have been endorsed, casting aspersion on a minuscule cash sale gives infallible impression that the action of the AO is driven by suspicion, conjecture and surmises. Sale of goods has corresponding effect on the closing stock as well as the profitability. These aspects have not been questioned. The Assessing Officer has picked up the amount declared by way of cash sales and treated that as non-existent to hold the corresponding cash deposits as unexplained. The assessee, on the other hand, has demonstrated the factum of cash sales to be genuine by the direct and circumstantial evidences as noted above. The Revenue, in our view, has based itself findings on suspicion and conjectures and on improper rejection of tangible material. The assessee on the other hand has successfully demonstrated the propriety of cash sales by corresponding purchases, reduction in stock and declaration of profits on sales. The Revenue, in our view, has based itself findings on suspicion and conjectures and on improper rejection of tangible material. The assessee on the other hand has successfully demonstrated the propriety of cash sales by corresponding purchases, reduction in stock and declaration of profits on sales. Having assessed a credit of revenue character as income, it is outside the remit of the AO to subject the same credit under different provision i.e. section 68 yet again, inflicting double whammy on the assessee. Besides, the books of accounts and book results have been not rejected per se. No defect has been pointed out on the declarations made towards purchases, the closing stock and the profits either. The additions made have resulted assessment of cash sales twice which is not permissible in law. It is trite that suspicion, howsoever strong, cannot take the place of proof as held in Umacharan Shaw Bros. vs. CIT 1959 (5) TMI 11 - SUPREME COURT The assessment should rest on principles of law and one should avoid presumption of evasion in every matter. The assessee, in the instant case, has sufficiently demonstrated the source of cash deposits. On a broader reckoning, the apprehension raised by the Revenue authorities militates against the tangible material and is thus extraneous. The additions made under section 68 of the Act is thus unsustainable - Decided in favour of assessee.

Issues Involved:
1. Legitimacy of the addition of Rs. 1,36,90,000/- as unexplained cash deposits during demonetization.
2. Admission of additional ground raising legal objection regarding double addition.
3. Evaluation of cash sales as the source of cash deposits.
4. Rejection of books of accounts and the assessment under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Legitimacy of the Addition of Rs. 1,36,90,000/- as Unexplained Cash Deposits During Demonetization:
The assessee challenged the addition of Rs. 1,36,90,000/- made by the AO as unexplained cash deposits during the demonetization period. The AO treated these deposits as undisclosed income under Section 68 read with Section 115BBE of the Income Tax Act, 1961, as the explanation provided by the assessee was deemed unsatisfactory.

2. Admission of Additional Ground Raising Legal Objection Regarding Double Addition:
The assessee raised an additional ground arguing that the impugned addition amounted to double addition since the cash deposited in the bank account was out of cash sales already offered to tax by reflecting the same in the trading and profit and loss account. The Tribunal admitted this additional ground for adjudication, citing Rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963, and relevant Supreme Court judgments.

3. Evaluation of Cash Sales as the Source of Cash Deposits:
The assessee contended that the cash deposits were sourced from cash sales duly recorded in the books of accounts, which were subjected to statutory audit. The cash sales were out of purchases, primarily imported goods, and were reported in VAT returns. The assessee argued that the impugned addition led to double taxation, as the cash sales were already offered to tax. The Tribunal found that the cash sales were recorded in the 'statement of profit and loss' and subjected to VAT, with no defects pointed out in the books of accounts.

4. Rejection of Books of Accounts and the Assessment Under Section 68 of the Income Tax Act:
The Tribunal noted that the AO did not reject the books of accounts per se, nor did he point out any defects in the declarations made towards purchases, closing stock, and profits. The Tribunal emphasized that the assessment should be based on evidence and material rather than suspicion and conjecture. The assessee successfully demonstrated the legitimacy of cash sales through corresponding purchases, reduction in stock, and declaration of profits. The Tribunal held that the addition under Section 68 was unsustainable, resulting in double taxation.

Conclusion:
The Tribunal concluded that the addition of Rs. 1,36,90,000/- as unexplained cash deposits was based on suspicion and conjecture without proper rejection of tangible material. The assessee had sufficiently demonstrated the source of cash deposits, and the books of accounts were not rejected. The Tribunal set aside the order of the CIT(A) and directed the AO to cancel the impugned additions. The appeal of the assessee was allowed. The order was pronounced in the open court on 31.07.2024.

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