2024 (11) TMI 1187 - AT - Income Tax

Unexplained Cash deposits during demonetization - Huge sales made by the Assessee from a comparatively smaller station like Parwanoo in comparison to the big station Ludhiana - CIT(A) deleted addition - HELD THAT - We are of the view that the finding of the ld. CIT(A) is logical and therefore, correct to the extent that once the purchase and stock of the Assessee has been accepted, there is no reasons to deny sale out of such stock and purchase. We also find that the A.O. has not rejected the books of account of the Assessee, so, once cash purchases / sales based on vouchers had been accepted, there is no point in making addition on the deposit of such cash in the bank account, particularity on cash sales. Assessee has explained the source of such cash deposits and it has also explained that such cash sales are subject to VAT where VAT has been collected and deposited with the Government treasury. In support of her explanation, the Assessee has furnished the documents of the relevant period of VAT returns, copy of trading and profit and loss accounts and balance sheets, which are duly audited. We find that the AO has accepted the cash sales and has also accepted the VAT collected and deposited in the Government account. Even the Assessing Officer has accepted the VAT returns filed by the Assessee and accepted by the Indirect Taxes Department. Therefore, it clearly shows that the Assessing Officer has not doubted the availability of cash in the hands of the Assessee. Once availability of cash in the hands of the Assessee is accepted, then deposit of such cash in bank account cannot be rejected. Accepting the cash sale by the Assessee offered to tax, and then addition of same cash deposited in the bank, will amount of double taxation and the same is clearly unsustainable in the law and cannot be justified. Therefore, we find that the explanation offered by the Assessee is genuine, reasonable and duly supported by the documentation, books of account and audited accounts of the Assessee. Therefore, we find no reason to disturb the findings of the ld. CIT(A). Accordingly, Departmental appeal on this issue is dismissed.

Summary

Issues:
Appeal against order of the ld. Commissioner of Income Tax (Appeals) regarding huge sales made by the Assessee from Parwanoo, lack of bank account and strong room, and cash deposits during demonetization.

Analysis:
The Department filed an appeal before the Tribunal challenging the Assessee's sales from Parwanoo, a smaller station compared to Ludhiana, made in cash without a bank account or strong room in Parwanoo. The Department raised concerns about the feasibility of such operations and alleged tax evasion by the Assessee.

The Assessee, engaged in jewelry trading, operated from Ludhiana and Parwanoo. The Assessing Officer disallowed a substantial amount under section 68 of the Act due to cash deposits during demonetization. The Assessee maintained that the cash deposits were from regular sales and provided various documents to support the existence and operations of the Parwanoo branch.

The ld. CIT(A) found discrepancies in the Department's claims and accepted the Assessee's explanations. The CIT(A) highlighted flaws in the Inspector's report, lack of formal statements, and cross-examination. The Assessee's history of cash deposits and documentation convinced the CIT(A) that the sales were genuine, leading to the deletion of the addition.

The Tribunal upheld the CIT(A)'s decision, emphasizing that once purchases and stock were accepted, sales should not be doubted. The Tribunal found no reason to question the Assessee's cash deposits, especially when VAT collections and filings were in order. Double taxation was deemed unjustifiable, and the Assessee's explanations were considered genuine and supported by documentation.

In conclusion, the Departmental appeal was dismissed, affirming the CIT(A)'s decision. The Tribunal found the Assessee's explanations reasonable, supported by evidence, and rejected the notion of double taxation. The order was pronounced on 14.06.2024.