2024 (11) TMI 628 - AT - Income Tax

Addition u/s 69A - increase of the cash sale during the year under consideration - assessee is engaged in the business of trading of gold, silver and diamond jewelry - HELD THAT - The cash sales made has been included in the sales in the month of October and first week of November was that, Dussehra and Diwali festivals which were celebrated from 30-10-2016 to 10.11.2016. Accordingly in the month of October, 2016 there was substantial increase in sales with regard to increase in sale during the above said period after the announcement of the demonetization on 08.11.2016 at 8 pm shutters of the jewellers were opened and during the period 8.30 pm to 12.00 am substantial sales were made by the jewellers. We find that during the assessment proceedings, copy of the purchase register and sale register item wise and value wise was filed. Further copy of the complete item wise and value wise stock summary of the FY 2016-17 was also filed before the AO and the assessee also filed the copy of the returns. Even the book of accounts has not been rejected by the AO. We observed that in support of the above, the assessee has filed the paper book in which he has filed details of the sale and purchase of the jewellery and the same was increased due to the festival occasion because the people may have chosen to purchase the jewellery in cash. Therefore, the assessee has explained the reason of the increase of the cash sale during the year under consideration. We observed that the assessee has deposited during the demonetization period in the bank account and explained the reason of the cash deposit, hence he has discharged the onus and prove the genuineness of the transaction. In view of the above, there is no justification for sustaining addition u/s. 69A - Decided in favour of assessee.

Issues Involved:

1. Legality and jurisdiction of the assessment order.
2. Issuance of notice under Section 143(2) of the Income Tax Act.
3. Opportunity to present the case before the Assessing Officer (AO).
4. Treatment of cash deposits as unexplained income under Section 69A.
5. Consideration of cash deposits as sales income already offered for taxation.
6. Application of amended provisions of Section 115BBE.
7. Initiation of penalty proceedings under Section 271AAC.

Issue-wise Detailed Analysis:

1. Legality and Jurisdiction of the Assessment Order:
The assessee contended that the assessment order was illegal, bad in law, without jurisdiction, and time-barred. It was argued that the order was passed by an AO who lacked jurisdiction. The Tribunal referred to precedents indicating that jurisdictional issues should be raised at the earliest possible stage. The Tribunal found that the assessee did not challenge the jurisdiction within the stipulated time frame, thus rendering the argument untenable.

2. Issuance of Notice under Section 143(2):
The assessee argued that the assessment order was passed without issuing a proper notice under Section 143(2) by the AO who had jurisdiction. The Tribunal noted that the notice was issued by ITO Ward 30(3) but the assessment was completed by ITO Ward 30(6). However, since the jurisdiction was not challenged in a timely manner, this ground was not sustained.

3. Opportunity to Present the Case:
The assessee claimed that the assessment order was passed without providing a reasonable opportunity to present its case. The Tribunal observed that the assessee participated in the assessment proceedings and submitted various documents, thereby indicating that an opportunity was indeed provided.

4. Treatment of Cash Deposits as Unexplained Income under Section 69A:
The AO treated cash deposits of Rs. 2,25,00,000/- as unexplained income under Section 69A. The assessee argued that these deposits were from cash sales during the festival season. The Tribunal found that the assessee provided sufficient evidence, including sales and purchase registers, to substantiate the claim that the cash deposits were from legitimate sales. The Tribunal concluded that the AO's addition was based on suspicion and was unsustainable, leading to the deletion of the addition.

5. Consideration of Cash Deposits as Sales Income Already Offered for Taxation:
The assessee contended that the cash deposits were part of sales income already declared for taxation. The Tribunal accepted this argument, noting that the sales were recorded in the books and were part of the declared income, thus negating the AO's addition under Section 69A.

6. Application of Amended Provisions of Section 115BBE:
The assessee argued that the AO incorrectly applied the amended provisions of Section 115BBE, which were not applicable at the time of the cash deposits. The Tribunal agreed, stating that the AO's application of the amended provisions was arbitrary and against the principles of natural justice.

7. Initiation of Penalty Proceedings under Section 271AAC:
The Tribunal noted that the initiation of penalty proceedings under Section 271AAC was not justified as the primary addition under Section 69A was deleted. Consequently, the basis for penalty proceedings was eliminated.

Conclusion:
The Tribunal allowed the appeal, finding that the AO's addition of Rs. 2,25,00,000/- as unexplained income was unjustified and that the assessee had adequately explained the source of the cash deposits. The Tribunal also ruled that the jurisdictional challenge was not raised in a timely manner, thus not affecting the validity of the assessment order. The appeal was decided in favor of the assessee, and the addition made by the AO was deleted.

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