2024 (8) TMI 566 - AT - Income Tax

Unexplained cash credit - addition u/s 68 and tax u/s 115BBE - unusual sales - HELD THAT - None of the Officer was able to analysis the specific stand of the assessee and unnecessarily assumed availability of unexplained cash credit with the assessee. AO has observed that cash deposit trend of the assessee during demonetization period and in earlier few months is abnormal. To our mind, this finding is absolutely incorrect. The assessee has demonstrated in the tabulated details that cash deposit from 09.11.2014 to 30.12.2014 in Axis Bank Account was Rs. 53,36,100/-. As the total turnover of all these three years is being analyzed from 1st April to 30th December, then there is hardly any abnormality. In F.Y. 2014-15, it was 2.64 crores. In F.Y. 2015-16, it was roughly Rs. 4 crores and F.Y. 2016- 17, it was Rs. 4.61 crores. There is a gradual increase in the turnover. There is no all of a sudden increase in any year. Similarly, there is no abnormal growth in the turnover from 1st January to 31st March in all these three years. AO has not visualized the circumstances during demonetization, where every amount available, is required to be routed through the Bank accounts. He has made analysis of average cash balance from January, 2016 to June, 2016 and December, 2016 to March, 2017. AO has tried to compare un-comparable without visualizing the effects of the true situation. The other expectation of the ld. Assessing Officer was that the assessee should have maintained details of old and specified currency, which were deposited in the Bank, but no such guidelines were issued to the assessee by the Income Tax Department. Addition restricted by CIT(A) on different analogy - CIT(Appeals) though reduced the quantum addition, but adopted a very different analogy. He calculated the availability of cash in the hands of the assessee in the same ratio in which turnover of the business increased in different years starting from F.Y. 2014-15. The ld. CIT(Appeals) ought to have analyzed the purchases also and whether such a profit has resulted to the assessee, which can give rise to unexplained cash to the assessee. In such a situation, why the books of account should have not been rejected. It is to be find out by the Revenue that the profit ratio from sales and purchases could not be swindled of that magnitude but they have not examined in all that aspect. Therefore, we are of the view that this addition is not sustainable. We allow the appeal of the assessee and delete the addition. Decided in favour of assessee.

Issues Involved:
1. Addition of unexplained cash credit.
2. Legitimacy of cash deposits during the demonetization period.
3. Comparison of cash deposits with previous years.
4. Acceptance and rejection of the assessee's books of accounts.
5. Proportionality of cash deposits to sales turnover.

Detailed Analysis:

1. Addition of Unexplained Cash Credit:
The primary issue concerns the addition of Rs. 40,36,676/- out of the total Rs. 99,32,750/- made by the Assessing Officer (AO) on account of unexplained cash credit. The assessee contested this addition, arguing that the cash deposits were from legitimate sales and existing cash in hand.

2. Legitimacy of Cash Deposits During the Demonetization Period:
The assessee, engaged in retail trading of medicines, claimed that cash deposits during the demonetization period were from cash sales. The AO noted that the cash deposit trends during this period were abnormal compared to earlier months and years. However, the assessee provided detailed records, including audited financial statements, cash books, and bank statements, to substantiate the source of cash deposits.

3. Comparison of Cash Deposits with Previous Years:
The AO found the cash deposits during the demonetization period to be inconsistent with previous years. The assessee countered this by showing a gradual increase in turnover over the years:
- 2014-15: Rs. 3,86,54,249/-
- 2015-16: Rs. 5,16,35,014.65/-
- 2016-17: Rs. 4,61,18,460/-

The assessee argued that the increase in cash deposits was proportional to the increase in business turnover.

4. Acceptance and Rejection of the Assessee's Books of Accounts:
The AO did not reject the assessee's turnover but treated the cash deposits as unexplained. The AO's expectation that the assessee should have maintained details of old and new currency notes was deemed unreasonable as no such guidelines were issued.

5. Proportionality of Cash Deposits to Sales Turnover:
The CIT(Appeals) partially accepted the assessee's explanation but used a different method to determine unexplained cash. The CIT(A) calculated the cash deposits based on the increase in turnover ratio from previous years, concluding that the allowable cash deposits should be Rs. 58,96,064/-. This left an unexplained amount of Rs. 40,36,676/-, which was upheld.

Conclusion:
The Tribunal found that both the AO and CIT(A) failed to properly analyze the specific stand of the assessee. The AO's comparison of cash deposits without considering the demonetization context was flawed. The CIT(A)'s method of proportionality based on turnover increase was also deemed inappropriate without examining the profit ratio from sales and purchases. Consequently, the Tribunal allowed the appeal of the assessee and deleted the addition of Rs. 40,36,676/-.

Final Decision:
The appeal of the assessee is allowed, and the addition of Rs. 40,36,676/- is deleted.

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