2025 (1) TMI 1403 - AT - Income Tax

Cash deposited in bank account as unexplained cash deposit u/s 69A - AO rejecting the books of account however directed the AO to adopt the net profit rate at 1.33% i.e. average of 1.46% shown during last year and 1.2% shown during this year to the sales including the cash sales - HELD THAT - Assessee has admittedly explained the nature and source of cash deposit which is out of cash sales and which has already been recorded in the books of account and the assessee has clearly explained the nature and source of such cash deposited in the bank account by producing the relevant details. Since each and every cash sale is less than Rs. 2 lakh the assessee is not required to obtain the PAN number and other details of the customers. Since the assessee in the instant case has given all the details including the details of purchases sales and quantitative details of stock etc. and the deposits in the bank accounts are out of cash sales in the month of April and May 2019 therefore the provisions of section 69A in our opinion are not applicable to the facts of the present case. In view of the detailed reasoning given by the Ld. CIT(A)/NFAC on this issue we do not find any infirmity in his order -Aappeal filed by the Revenue is dismissed.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this appeal were:

Whether the Assessing Officer (AO) was justified in treating the cash deposits of Rs. 4,43,90,000/- as unexplained under Section 69A of the Income Tax Act, 1961.
Whether the rejection of the books of account by the AO under Section 145(3) was appropriate.
Whether the CIT(A)/NFAC was correct in deleting the addition made by the AO and directing the AO to apply a net profit rate of 1.33% on the total sales, including cash sales.

ISSUE-WISE DETAILED ANALYSIS

1. Treatment of Cash Deposits as Unexplained under Section 69A

Relevant Legal Framework and Precedents: Section 69A of the Income Tax Act, 1961, applies when an assessee is found to be the owner of any money not recorded in the books of account, and the assessee fails to satisfactorily explain the nature and source of such money.
Court's Interpretation and Reasoning: The Tribunal found that the assessee had satisfactorily explained the nature and source of the cash deposits as being from cash sales, which were duly recorded in the books of account. The CIT(A)/NFAC observed that the AO failed to prove that the sales were not genuine and that the cash deposits were unexplained.
Key Evidence and Findings: The assessee provided sales invoices, GST returns, and a stock register, all of which were consistent with the cash deposits. The Tribunal noted that the sales were accepted by the GST department and that the assessee had advertised discounted sales on completion of 25 years in business, leading to increased cash sales.
Application of Law to Facts: The Tribunal agreed with the CIT(A)/NFAC that the provisions of Section 69A were not applicable since the cash deposits were explained as cash sales, duly recorded in the books.
Treatment of Competing Arguments: The Tribunal considered the AO's reliance on the statement of Mr. Ankit Jain, which was later retracted. It found the AO's reasoning implausible and unsupported by evidence.
Conclusions: The Tribunal upheld the CIT(A)/NFAC's decision to delete the addition of Rs. 4,43,90,000/- under Section 69A.

2. Rejection of Books of Account under Section 145(3)

Relevant Legal Framework and Precedents: Section 145(3) allows the AO to reject books of account if they are not reliable or do not reflect the true state of affairs.
Court's Interpretation and Reasoning: The CIT(A)/NFAC upheld the rejection of the books of account based on the AO's finding of bogus purchases from M/s Rishabh Trading Company. However, the CIT(A)/NFAC directed the AO to apply a net profit rate of 1.33% on total sales, including cash sales.
Key Evidence and Findings: The Tribunal noted that the assessee had submitted all necessary invoices and records, and no defects were pointed out by the AO in the sales invoices.
Application of Law to Facts: The Tribunal found that while the rejection of books was sustained due to alleged bogus purchases, the CIT(A)/NFAC's direction to apply a net profit rate was a reasonable approach.
Treatment of Competing Arguments: The Tribunal considered the AO's allegations of unsubstantiated sales and purchases but found the assessee's documentation and explanations satisfactory.
Conclusions: The Tribunal upheld the CIT(A)/NFAC's decision to apply a net profit rate of 1.33% on total sales.

SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal reaffirmed that for Section 69A to apply, the money must be unexplained and not recorded in the books. If the assessee provides a satisfactory explanation and the money is recorded, Section 69A does not apply.
Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)/NFAC's deletion of the addition under Section 69A and the application of a net profit rate of 1.33% on total sales.

The Tribunal concluded that the CIT(A)/NFAC's order was justified, and the grounds raised by the Revenue were dismissed, resulting in the appeal being dismissed.

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