2024 (8) TMI 337 - AT - Income Tax

Cash deposits made during the demonetization period - AO observed that there was an abnormal increase in cash sales from 1.11.16 to 8.11.16 which was not matching with the trend of cash sales in other months as submitted by the assessee - HELD THAT -Sales made by the assessee are duly subjected to VAT and assessee had duly suffered sales tax and had filed VAT returns accordingly. VAT returns for all the branches of the assessee are enclosed. Stock statement had been duly furnished by the assessee for the whole financial year 2016-17. The purchases made by the assessee in order to keep sufficient stock of goods in hand is not doubted by the revenue. The goods purchased had been duly reflected as goods inward in the stock register. The goods sold by the assessee (both cash and credit) had been duly reflected as goods outward in the stock register with quantity and value. There is no allegation leveled on the assessee that he had received cash in demonetized currency during the period 9.11.2016 to 31.12.2016. Hence the entire cash deposits made by the assessee stands clearly explained by proper sources drawn from the books of accounts itself. While this is so, there is absolutely no reason to disbelieve the cash sales reported by the assessee for the period 1.11.16 to 8.11.16 in the return of income by restricting it to the cash sales reported during the corresponding period in earlier year. We are unable to comprehend ourselves to accept to the aforesaid basis of addition by the AO. The basis of cash sales made in the earlier financial year cannot be adopted as a parameter for accepting the cash sales made during the year - no hesitation to hold that the basis of addition made by the AO is wholly misconceived and devoid of merit. Decided in favour of assesee.

Summary

Issues:
Determining the justification of confirming an addition on cash deposits during demonetization period.

Analysis:
The appeal pertains to an order by the National Faceless Appeal Centre (NFAC) based on an assessment order by the Assessing Officer under the Income-tax Act, 1961. The sole issue is whether the ld. CIT(A) was correct in upholding the addition on cash deposits made during the demonetization period. The assessee, engaged in the sale of garments, fabric, and tailoring, declared total income of Rs 2,04,12,120/- for the relevant assessment year. The Assessing Officer noted significant cash deposits during the demonetization period and sought detailed cash flow information. The AO observed discrepancies in cash sales trends and raised concerns about the legitimacy of the reported cash sales. Despite the assessee providing extensive documentation, the AO disregarded the details and made an addition of Rs 2,66,27,354/- based on perceived inconsistencies in cash sales figures.

The Tribunal highlighted that the disputed cash sales figure had already been included in the total sales reported by the assessee. The AO's addition was deemed unjustified as it essentially amounted to a double addition without a valid basis. The Tribunal emphasized that the assessee had diligently maintained proper accounts, including cash books, ledgers, and stock registers. The sales were subjected to VAT, and the assessee had complied with tax regulations by filing VAT returns. The Tribunal found no irregularities in the cash deposits based on the assessee's documented sources. Additionally, there were no allegations of unaccounted sales or receipt of demonetized currency. The Tribunal concluded that the AO's methodology for the addition lacked merit and was fundamentally flawed, leading to the decision to delete the addition and allow the assessee's appeal.

Conclusively, the Tribunal ruled in favor of the assessee, highlighting the inadequacies in the AO's approach and the absence of substantial grounds to support the addition. The decision to delete the addition was based on the thorough examination of the provided evidence and the lack of concrete allegations against the assessee's financial practices.