2018 (12) TMI 179 - AT - Income Tax

Addition on account of cash deposits - CIT-A deleted by admitting the additional evidences - Held that - The assessee was maintaining current account and overdraft account in Karur Vysya Bank Ltd. and deposited the sale proceeds in those bank account. The assessee also deposited cash out of the sales in his individual saving bank account which was later on transferred to current account and OD account. AO accepted the sales made by the assessee and also accepted the deposits in current account as well as over draft (OD) account from the cash sales, he only doubted the deposits in the saving bank account of the assessee. Copy of saving bank account is placed at page nos. 138 to 142 of the assessee s paper book, the AO doubted the cash deposits in the said saving bank account but has not doubted the transfer from the said saving bank account to other accounts through cheque - when the AO has not doubted the quantum of cash sales and accepted the deposits, out of those sales in current account and overdraft account maintained with Karur Vysya Bank Ltd. then there was no occasion to doubt the part of deposit from the accepted sales in the saving bank account of the assessee. We, therefore, considering the totality of the facts, are of the view that the CIT(A) was justified in deleting the impugned addition made by the AO. - decided against revenue.

Issues Involved
1. Admittance of additional evidence by CIT(A) in violation of Section 250 of the I.T. Act and Rule 46A.
2. Nature of business activities of the assessee.
3. Deletion of addition of ?81,50,175/- made on account of cash deposits.
4. Lack of details in invoices regarding the consignee.
5. Cash deposits in rounded figures in bank accounts.
6. Maintenance of cash register and issuance of cash memos.
7. Non-maintenance of a stock register.
8. Admission of submissions by the assessee during appellate proceedings that were not submitted during assessment proceedings.

Detailed Analysis

1. Admittance of Additional Evidence by CIT(A):
The department contended that the CIT(A) violated the provisions of Section 250 of the I.T. Act and Rule 46A by admitting additional evidence that was not presented during the assessment proceedings. However, the assessee argued that no new documents were presented and all necessary documents were already on record with the AO. The CIT(A) found that the documents were part of the record and did not constitute new evidence.

2. Nature of Business Activities:
The department highlighted discrepancies in the nature of business activities reported by the assessee, noting differences in the audit report and assessment submissions. The assessee clarified that they were engaged in trading of fabrics and garments, and the variations were due to the nature of export surplus fabrics.

3. Deletion of Addition of ?81,50,175/-:
The AO added ?81,50,175/- as unexplained cash credit under Section 68 of the Act, questioning the genuineness and creditworthiness of the cash deposits. The assessee explained that the deposits were from sales proceeds of export surplus fabrics, which were deposited in various bank accounts. The CIT(A) observed that the sales were recorded in the books and the deposits were reflected in the audited balance sheet, thus deleting the addition.

4. Lack of Details in Invoices:
The AO noted that the invoices lacked details of the consignee, with only 'Cash' written in place of consignee details. The assessee argued that the nature of their business involved sales to petty vendors, making it impractical to record detailed consignee information. The CIT(A) accepted this explanation, noting that the overall sales were not disputed.

5. Cash Deposits in Rounded Figures:
The AO raised concerns about the cash deposits being in rounded figures, suggesting irregularities. The assessee clarified that the deposits were from daily sales, which were often in rounded figures. The CIT(A) found this explanation satisfactory, given the nature of the business.

6. Maintenance of Cash Register and Issuance of Cash Memos:
The AO criticized the assessee for not maintaining a cash register or issuing cash memos. The assessee explained that due to the nature of their business, maintaining detailed cash records was impractical. The CIT(A) accepted this, noting that the sales were recorded and audited.

7. Non-Maintenance of a Stock Register:
The AO questioned the lack of a stock register, which was noted in the audit report. The assessee argued that maintaining a stock register was not feasible due to the varied nature of the export surplus fabrics. The CIT(A) accepted this explanation, given the practical difficulties involved.

8. Admission of Submissions During Appellate Proceedings:
The department argued that the CIT(A) admitted submissions that were not presented during the assessment proceedings. The assessee countered that all relevant documents were already on record. The CIT(A) found that the submissions were part of the existing record and did not constitute new evidence.

Conclusion
The CIT(A) deleted the addition of ?81,50,175/- made by the AO, finding that the cash deposits were from legitimate sales proceeds and were properly recorded in the books of accounts. The CIT(A) also found that there was no violation of Rule 46A as all necessary documents were already on record. The appeal by the department was dismissed, upholding the CIT(A)'s decision.

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