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2024 (10) TMI 425 - AT - Income TaxRejection of books of accounts u/s 145 - Addition u/s 68/69A with 115BBE - cash deposited during demonetization as unexplained credit - HELD THAT - As is not disputed that ld. AO has not rejected the books and not passed order u/s. 144. Ld. CIT(A) has done so based on the mere surmise and conjecture as noted herein above. As is also evident from the orders of the lower authority that the assessee has produced all the details that has been required by the AO and they have not found the records defective. Merely the AO and the ld. CIT(A) made suspicions on the records of sales of stone that too on account of rocky land excavated and thereby sold stone so excavated. Relevant receipt is reflected in the books of accounts. Out of the sum of received part of the amount considered as explained and part of the same as not genuine for the same set of records. We note that the CIT(A) has not advanced single a reason or basis of rejection of the book results which are otherwise verified, and no defects were found by the ld. AO and ld. CIT(A) and that when ld. AO and CIT(A) has already considered the part of the amount deposited into the bank account as business receipt and the part of the same was not considered. CIT(A) has not satisfied the condition as required as per provision of section 145(3) of the Act and that too without pointing out any defects in the books of accounts. The ld. CIT(A) merely rejected the book results because the assessee deposited cash in demonetized currency, and that was the reasons to reject the book results which is not a valid reason to invoke the provision of 145(3). Section 145(3) can be invoked when the AO is not satisfied about the correctness or completeness of the accounts of the assessee, when the method of accounting provided in Section 145 (1) has not been regularly followed by the assessee and when the accounting standards notified u/s 145 (2) have not been regularly followed by the assessee. From the observations recorded in the order of the lower authority none of the conditions are satisfied and thus same is not evident from the finding of the lower authority. Not only that the bench also observed that when the provision of section 145(3) is to be invoked the assessment is to be completed as per the manner provided in section 144 and the proper opportunity is required to be given by pointing out the defects in the books of account which we observe that the same is not followed and the order is passed u/s.143(3) of the Act which is also not correct. We get strength to support our view based on the provision of the Act and decision of the Hon ble Jurisdiction Rajasthan high court in the case of CIT Vs. Pink City Developers 2017 (11) TMI 1082 - RAJASTHAN HIGH COURT Here we note that out of the sales of wort partial amount was not considered as genuine because the assessee out of those sales deposited the amount in the specified bank notes. Thus, on the same set of records revenue was satisfied for sales hold a view that the assessee has not maintained proper sales records and therefore invoked the provision of section 145(3) of the Act is not correct. Ld. AO or that of ld. CIT(A) has not considered it fit to make the verification of the contention at the place of business / site to verify the contention and thereby tried to collect the corroborative evidence and without doing so part sales is accepted and part not is not correct reasons to reject the books of accounts. Based on these observations ground no. 1 raised by the assessee is allowed. Treating the part of the sales attributable to cash sales as unexplained money (u/s 69A) or that of the unexplained cash credits (u/s 68 ) - As we hold a view that the revenue cannot be accept the part of the sales as explained and part of the sales not explained on the same set of evidence. Therefore, the cash deposited in the demonetized currency added as income of the assessee by applying the provisions of section 68 of the Act while the provisions of 68 as such are not applicable on the sale transactions recorded in the books of accounts because the sale transaction are already part of the income which is already credited in statement of profit loss account. Therefore, there is no occasion to consider the same as unexplained credit entry of the assessee by applying the provisions of section 68 of the Act. We get support from Smt. Harshila Chordia 2006 (11) TMI 117 - RAJASTHAN HIGH COURT case wherein it was held that no addition could be made in respect of the amount standing in the books of the assessee, which was found to be the cash receipts from the customers and against which delivery of vehicle was made to them. As the fact of this cash being similar that part of the sales is considered by the revenue has explained and part of it not is not correct and therefore, we hold that cash deposited by the assessee out of sales proceeds of stone cannot be considered attributable to the provision of section 68 or that of 69A of the Act. Based on these observations ground no. 2 raised by the assessee is allowed.
Issues Involved:
1. Rejection of books of account under Section 145(3) of the Income Tax Act. 2. Addition of Rs. 2,64,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act. 3. Application of Section 115BBE for taxing the unexplained cash credit at a higher rate. 4. Whether CIT(A) can apply Section 68 instead of Section 69A. 5. Double taxation of the same income. Detailed Analysis: 1. Rejection of Books of Account under Section 145(3): The assessee challenged the rejection of its books of account by the CIT(A) under Section 145(3) without examining the books or asking the assessee to produce them. The CIT(A) invoked this provision on the grounds that the assessee failed to furnish credible evidence supporting the source of cash deposited during demonetization. However, the Tribunal observed that the Assessing Officer (AO) did not reject the books of account during the assessment proceedings and found no defects in the records maintained by the assessee. The Tribunal noted that the books were audited under both the Companies Act and the Income Tax Act without any adverse remarks. The Tribunal held that the CIT(A) rejected the books based on mere suspicion without pointing out specific defects, which is not a valid reason to invoke Section 145(3). Thus, the Tribunal allowed the assessee's appeal on this ground. 2. Addition as Unexplained Cash Credit under Section 68: The CIT(A) upheld the addition of Rs. 2,64,00,000/- as unexplained cash credit under Section 68, treating the cash deposited during demonetization as unexplained. The assessee argued that the cash sales were duly recorded in the books of account and that the addition under Section 68 was not justified. The Tribunal found that the AO and CIT(A) had accepted part of the sales as genuine and part as unexplained without any basis. The Tribunal held that the provisions of Section 68 are not applicable to sales transactions already recorded in the books of account. The Tribunal relied on the decision of the Rajasthan High Court in Smt. Harshila Chordia vs. ITO, which held that no addition could be made for amounts standing in the books as cash receipts from customers. Consequently, the Tribunal allowed the assessee's appeal on this ground. 3. Application of Section 115BBE: The CIT(A) applied Section 115BBE to tax the unexplained cash credit at a higher rate. The assessee contended that Section 115BBE should not apply to genuine receipts already offered to tax as income. The Tribunal observed that the CIT(A) applied Section 115BBE without a specific show cause notice, which is not required by law. However, since the Tribunal found that the addition under Section 68 was not justified, the application of Section 115BBE was also not warranted. Thus, the Tribunal allowed the assessee's appeal on this ground. 4. Whether CIT(A) can Apply Section 68 Instead of Section 69A: The CIT(A) applied Section 68 instead of Section 69A, which was originally applied by the AO. The assessee argued that the CIT(A) cannot apply a different section without a specific notice. The Tribunal noted that the CIT(A) has coterminous powers with the AO and can do what the AO ought to have done. However, since the Tribunal found that the addition was not justified under either section, the issue of applying Section 68 instead of Section 69A became moot. 5. Double Taxation of the Same Income: The assessee contended that the same income was taxed twice: once as sales and again as unexplained cash credit. The Tribunal agreed with the assessee, noting that the sales were already recorded in the books and subjected to tax. The Tribunal held that taxing the same amount again as unexplained cash credit would result in double taxation, which is impermissible. Thus, the Tribunal allowed the assessee's appeal on this ground. Conclusion: The Tribunal allowed the assessee's appeal, holding that the rejection of books of account under Section 145(3), the addition under Section 68, and the application of Section 115BBE were not justified. The Tribunal emphasized that the same income cannot be taxed twice and that the provisions of Section 68 are not applicable to sales transactions already recorded in the books of account.
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