2023 (8) TMI 1338 - AT - Income Tax

Addition u/s 68 - bogus sales - A.O. found certain suspicions features in the books in terms of sudden spike in cash sales as compared to earlier and succeeding years - HELD THAT - AO was not able to point out any defect in the books of account or audit financial statement of the assessee. The suspicion, however, strong it may be the same cannot be accepted as final truth without bringing on record some tangible evidence. Mere surmise cannot replace an evidence to prove the wrong doing if any by the assessee. Once, the A.O. accepts the books of accounts and the entries in the books of account are matched, there is no case for making the addition as bogus sales. As in the case of Lal Chand Bhagat Ambica Ram 1959 (5) TMI 12 - SUPREME COURT held that the assessee maintained the books of accounts according to the mercantile system and there was sufficient cash balance in its cash books and the books of account of the assessee were not challenged by the AO. If the entries in the books of accounts are genuine and the balance in cash is matching with the books, it can be said that the assessee has explained the nature and source of such deposit. Assessee has not obtained full address details of the customers who have purchased jewellery below the amount of Rs. 2 lacs. - Taking full address and PAN of the customers who have purchased the jewellery below 2 lakhs is not mandatory under law and not taking the address and the PAN details during demonization rush and pressure on the sales of the jewellery which is otherwise not mandatory under law cannot be ground for drawing adverse inference against the sales made by the assessee specially when all the other para meters like purchase, stock register, sufficient of stock for sale made are accepted. There is no allegation on the assessee of non availability of stocks or fictitious purchases and A.O. has also not rejected the Assessee s books of account u/s 145(3) we find no ground to interfere with the observations and conclusion of the CIT(A) and find no merit in the grounds of Appeal of the Revenue, accordingly, the Grounds of Appeal of the Revenue are dismissed.

Summary

Issues Involved:
The main issue in this case is the addition of Rs. 3,89,52,097 under section 68 of the IT Act, 1961, based on cash deposits made by the assessee during a specific period. The key questions revolve around the justification for the cash deposits, treatment of cash sales, cooperation of the assessee during assessment, acceptance of books of accounts, and the adequacy of stock and purchase records.

Grounds of Appeal by Revenue:
The Revenue contended that the Commissioner of Income Tax (Appeal) erred in deleting the addition under section 68 of the IT Act, 1961, without sufficient justification for the variance in cash sales between different assessment years. Additionally, the Revenue argued that the assessing officer's acceptance of the books of accounts was questionable, as there were discrepancies in cash sales figures. The Revenue sought to set aside the CIT(A)'s order based on these grounds.

Grounds of Cross Objection by Assessee:
The assessee maintained that the CIT(A) rightly deleted the addition, emphasizing that the assessing officer had accepted the books of accounts and that there were adequate stocks and purchases to support the sales. The assessee argued against double taxation, stating that the cash receipts had already been offered for taxation. The cross-objector reserved the right to modify the grounds before or during the hearing.

Key Facts and Background:
The assessee, engaged in the jewelry business, faced scrutiny regarding cash deposits during the demonetization period. The assessing officer raised concerns about a significant increase in cash sales before demonetization, suspecting them to be non-genuine. Subsequently, an addition of Rs. 3,89,52,097 was made as income from undisclosed sources under section 68 of the Act. The CIT(A) later allowed the assessee's appeal, leading to the Revenue filing an appeal against this decision.

Court's Analysis and Decision:
The Court considered the grounds of appeal by the Revenue, focusing on the addition made under section 68 of the Act. It noted that while suspicions were raised regarding the cash sales spike, there was no evidence of wrongdoing by the assessee. The Court emphasized that once the books of accounts were accepted and entries matched, additions as bogus sales were unwarranted. The Court cited legal precedent to support the importance of genuine entries and cash balance matching the books. Additionally, the Court addressed the issue of incomplete customer details, stating that not obtaining full addresses was not mandatory under the law and should not lead to adverse inferences. Given the lack of defects in stock data and acceptance of books of accounts, the Court dismissed the Revenue's appeal and upheld the CIT(A)'s decision.

Outcome:
The Court dismissed the Revenue's appeal in ITA No. 1597/Del/2022, upholding the CIT(A)'s order. Consequently, the cross objection filed by the assessee became redundant and was also dismissed. The final decision was pronounced in open court on 24th August 2023.