2020 (2) TMI 1274 - AT - Income Tax

Addition u/s 68 - advances received from customers on the occasion of Ramnavami Nayakhata - HELD THAT - Claim of the AO is that, the assessee has conveniently and very cleverly filed his reply before few days, when the case is going to be time barred and hence the documents filed cannot be verified is factually incorrect. Just because there are problems of time and manpower to conduct verification and detailed examination of the claims of the assessee, an addition cannot be made by rejecting the claim of the assessee. In the normal course, we would have restored the issue to the file of the AO for fresh verification of the claim of the assessee that it had received advances from customers on the occasion of Ramnavami Nayakhata. In other words, we would have given the AO more time to conduct enquiries and investigation. In this case we find that these advances have subsequently been recorded as sales of the assessee firm and that these sales have been accepted as income by the AO during the year. He has not disturbed the sales of the assessee. When a receipt is accounted for as income, no separate addition of the same amount as income of the assessee under any other Section of the Act can be made as it would be a double addition. In the result, we delete the addition made and allow its claim of the assessee. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Legitimacy of the source of ?60 lakh cash found with a partner at Delhi Airport.
2. Verification of the assessee’s claim regarding advances received from customers.
3. Assessment of the addition of ?60 lakh to the assessee’s income by the AO.
4. Evaluation of the evidence and documents submitted by the assessee.

Issue-wise Detailed Analysis:

1. Legitimacy of the Source of ?60 Lakh Cash:
The assessee, a partnership firm engaged in the business of manufacturing, wholesaling, and trading gold ornaments, had a partner intercepted at Delhi Airport with ?60 lakh in cash. The partner claimed the cash belonged to the firm and was intended for purchasing gold ornaments in Delhi to be sold in Kolkata. This led to a survey under section 133A of the Income Tax Act at the firm’s premises to verify the source of the cash. The assessee provided a cash flow statement and explained that the cash was from advances received from various customers on the occasion of Ramnavami Nayakhata.

2. Verification of the Assessee’s Claim:
The Assessing Officer (AO) determined the total income of the assessee at ?64,24,257, including the addition of ?60 lakh, citing the assessee's failure to provide concrete justification for the source of the cash. The AO noted that the confirmations from 20 out of over 450 customers were insufficient to prove the genuineness or creditworthiness of the transactions. The AO also pointed out that the addresses of only 32 parties were provided, and the rest were claimed to be frequent visitors to the shop without any documentary evidence of their deposits.

3. Assessment of the Addition of ?60 Lakh:
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s findings, stating that the assessee could not explain the source of the ?60 lakh during the survey. The CIT(A) referred to the statement recorded from another partner, Mr. Umesh Gupta, and concluded that the assessee failed to substantiate the claim during the survey.

4. Evaluation of the Evidence and Documents:
The assessee argued that both the AO and CIT(A) were incorrect in stating that no explanation was provided immediately after the cash seizure. The assessee submitted that a detailed explanation and supporting documents, including books of account, were furnished to the Investigation Wing on 08.07.2013. The Tribunal found that the AO was factually incorrect in claiming that the explanation was given for the first time during the assessment proceedings. The Tribunal noted that the assessee had indeed provided a cash flow statement and other records to the Directorate of Income Tax (Investigation), which were not adequately considered by the AO.

The Tribunal emphasized that the AO’s rejection of the assessee’s claim due to time constraints and manpower issues for verification was not justified. Furthermore, the Tribunal observed that the advances received from customers were subsequently recorded as sales, which were accepted as income by the AO. Therefore, adding the same amount again would result in double addition.

Conclusion:
The Tribunal concluded that the addition of ?60 lakh was not justified and deleted the addition, allowing the appeal of the assessee. The Tribunal noted that the explanation provided by the assessee was not rebutted with evidence by the AO, and the claim that the assessee filed the reply conveniently before the case was time-barred was factually incorrect. The Tribunal held that the advances received were accounted for as sales, and thus, no separate addition could be made. The appeal of the assessee was allowed, and the addition of ?60 lakh was deleted.