2024 (1) TMI 791 - AT - Income Tax

Addition u/s 68 - cash deposits during demonetization period - trading in precious and semi precious Gem Stones - AO doubted the cash sales for the reason that the buyers were not identified and each sale was below Rs. 2,00,000/- - CIT(A) deleted the addition - HELD THAT - As correctly decided by CIT(A) AO has objection to the deposits in cash being in installments and keeping the cash in hand in spite of the fact that CC limit was bearing interest. The assessee has explained the reason for keeping the amount as cash in hand because he wanted to use the said cash for purchase of some property and if the said amount would have been deposited in the CC account the same would not have been available to the assessee for purchase of any immovable property as the banker do not allow use of CC limit for anything other than the trading transactions. The contention of the appellant deserves to be accepted. Similarly depositing the cash in bank account in piecemeal over the period cannot lead to any adverse inference. It is known fact that post demonetization, long queues were witnessed and there were security issues during those days. Under these circumstances not taking entire cash, in one go, for deposit in bank was a prudent decision. Once availability of cash by way of sale of goods is established in the cash book depositing the same in bank over a period, under the circumstances, cannot be doubted. Thus inclined to agree with the contentions made by the assessee appellant. The addition is without any basis and is solely based on surmises and conjectures and therefore the same is deleted. As decided in Shri Mahendra Kumar Agarwal 2022 (11) TMI 1333 - ITAT JAIPUR we find the explanation of the assessee is genuine and the sales cannot be doubted merely on surmises and conjectures on the ground of non-furnishing of address and PAN of the customer. The AO did not make any enquiry on the material submitted by the appellant. She merely proceeded on statistical analysis to make the addition on account of cash deposits. We agree with the findings of ld. CIT(A) that the AO has not brought any material on record to establish that the sale bills are bogus nor any evidence indicating that such sales was bogus and merely having some doubt by twisting the data and giving some findings which are not alone sufficient to justify the addition the income so assessed in not tenable in the eye of law. In fact the AO neither found any concrete and conclusive evidence of back dating of the entries of sales, evidence of bogus sales, evidence of bogus purchases, and non-existing cash balance in the books of account. The AO did not even reject the books of accounts of the appellant under the provision of section 145(3) of the Act. Therefore, the contention of the revenue on the facts and circumstances of the case is not accepted and we see no reason to interfere in the order of the ld. CIT(A). Decided in favour of assessee. Correct head of income - interest income as income from other sources or business income - HELD THAT - CIT (A) has decided the issue assessee has also paid interest on CC limit and interest to different private parties. Since the amount of CC limit as well as private borrowings are used for advancing the money on which interest income is earned, the assessee incorporated the transactions in his profit and loss account maintained for his business. Borrowing money on interest and advancing the same for earning interest, in a systematic manner over number of transactions makes the activity as business. Assessee has taken CC limit for business purpose. It has also advanced loans and has received interest on such loan. When the loan has been taken and advanced for business purpose the action of the assessee in reporting the said transactions under the head business is fully justified. Therefore, AO treating the said income from other sources and therefrom allowing interest expenditure only is not legally correct. Accordingly, the change of head and restricting the expenditure by learned AO is uncalled for. Relief is allowed to the assessee by deleting the addition - Decided against revenue.

Summary

Issues Involved:
1. Addition of Rs. 2,58,56,715/- under section 68.
2. Addition of Rs. 25,00,578/- due to alleged suppression of interest income.

Summary:

Ground No. 1: Addition of Rs. 2,58,56,715/- under section 68

The Revenue challenged the deletion of an addition of Rs. 2,58,56,715/- made under section 68 of the IT Act. The AO had rejected the books of accounts, considering them non-reliable, fabricated, and manipulated to explain undisclosed income. The AO found the cash sales recorded during the demonetization period suspicious due to the absence of buyer details and each sale being below Rs. 2,00,000/-. The CIT (A) deleted the addition, noting that the purchases were substantiated by payments through banking channels, and there was no legal requirement to maintain buyer identification for sales below Rs. 2,00,000/-. The Tribunal upheld the CIT (A)'s decision, emphasizing that the AO did not provide concrete evidence to prove the sales were bogus and that the AO's findings were based on surmises and conjectures. The Tribunal referenced several judicial pronouncements, including the Hon'ble Jurisdictional High Court's decision in Smt. Harshila Chordia vs. ITO and the Bombay High Court's decision in R.B. Jessaram Fatehchand vs. CIT.

Ground No. 2: Addition of Rs. 25,00,578/-

The Revenue also contested the deletion of an addition of Rs. 25,00,578/- related to alleged suppression of interest income. The AO had treated the interest income as "income from other sources" rather than "business income" and allowed only the interest expenditure as a deduction. The CIT (A) found that the assessee systematically borrowed money to advance loans and earn interest, thus justifying the treatment of interest income as business income. The Tribunal upheld the CIT (A)'s decision, noting that the AO failed to substantiate why the interest income should be classified under a different head and did not allow the set-off of business losses as per section 71 of the IT Act.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT (A)'s deletion of the additions under both grounds. The Tribunal emphasized the importance of concrete evidence and adherence to legal requirements in assessing the reliability of books of accounts and the classification of income.