2024 (2) TMI 1292 - AT - Income Tax

Addition u/s 69A - cash deposit in bank during demonetization period - as per assessee cash deposits are the amount as originated from the sale of stock - HELD THAT - The assessee deposited cash by claiming that the amount was originated from the sale of stock. It is never a question that the assessee has never controverted that assessee has in sufficient stock and purchased on the date of announcement of demonetisation on dated 08.11.2016. The assessee sold goods from his shop. Before that date, the assessee was sufficiently covered by the stock. The assessment was completed by the Sales Tax Authority and the turnover and purchased was duly accepted. As further submitted that from the documentary evidence the source, purpose and sequence of event duly established that there was direct nexus of cash deposit in bank account out of sales realization in cash. It is settled position of law that when the ld. AO had not doubted the sales, purchases, stock and gross profit declared by the assessee then the cash deposit out of such sales cannot be doubted. The authority below had treated the normal transaction in respect of business receipt as something unusual and out of the ordinary only as undiscerningly which is against the principle of natural justice.We respectfully, relied on the order of Anand Metal Corporation 2004 (7) TMI 49 - MADRAS HIGH COURT Assessee s books was rejected u/s 145(3) for non maintenance of stock register - The assessee claimed that the assessee is dealing with the items which are not possible for her to maintain stock register. The ld. AR respectfully relied in the order of the Hon ble Jurisdictional High Court in the case of Malani Ramjivan Jagannath 2006 (10) TMI 145 - RAJASTHAN HIGH COURT We also respectfully followed the order of the Hon ble Jurisdictional High Court in the case of non maintenance of stock register cannot be the reason for rejection of books of account. The assessee was eligible to prove the stock, the purchased and the assessment order of the Sales Tax Authority. There are no discrepancies on purchase and stock of goods. On mere suspicion the sale of goods cannot be treated u/s 69A of the Act. The ld. DR was unable to submit any contradictory orders / judgments before the bench. Accordingly, the ground of the appeal is allowed. Discrepancy of the stock valuation in survey team with the declared in the books of accounts - assessee filed a retraction letter for non-accepted the valuation of the revenue as assessee in reconciliation placed that the parties had accepted that the goods sale for approval, so, the same goods are not entered into the stock of the assessee and affidavit was also filed during the assessment and appeal proceeding but none of the revenue authorities had rejected the affidavit of the parties - HELD THAT - In our considered view, the assessee was filed a proper calculation of stock and with the details of approval of goods which are not entered in the stock of the assessee. Accordingly, we set aside the impugned appeal order. The addition of amount is quashed.

Summary

Issues Involved:
1. Rejection of books of accounts under Section 145(3) of the Income Tax Act.
2. Treatment of cash deposits during the demonetization period as unexplained money under Section 69A.
3. Discrepancy in stock valuation during the survey.

Summary:

Issue 1: Rejection of Books of Accounts Under Section 145(3)
The assessee argued that the rejection of books of accounts by the AO and upheld by the CIT(A) was arbitrary and lacked specific defects in the trading account or books of accounts. The assessee maintained day-to-day purchase and sales registers, cash book, bank book, and other documentary evidence. The AO's rejection was based on non-maintenance of a stock register, which the assessee contended was impractical due to the nature of the business. The Tribunal cited various cases, including *Paramount Impex v. ACIT* and *Chirag Nareshbhai Soni v. ITO*, stating that non-maintenance of a stock register alone cannot justify the rejection of books of accounts. The Tribunal concluded that the AO had no corroborative material to reject the books of accounts and allowed the appeal.

Issue 2: Treatment of Cash Deposits During Demonetization as Unexplained Money
The assessee deposited Rs. 76,00,000 in the bank during the demonetization period, claiming it was from cash sales. The AO treated Rs. 64,49,220 as unexplained money under Section 69A. The assessee provided documentary evidence, including cash book, sales invoices, and VAT orders, to substantiate the cash deposits. The Tribunal noted that the Sales Tax Department accepted the turnover and purchases as genuine. The Tribunal emphasized that cash deposits from genuine sales cannot be doubted if the sales, purchases, and stock are not questioned. The Tribunal relied on the *Anand Metal Corporation* case and quashed the addition under Section 69A, allowing the appeal.

Issue 3: Discrepancy in Stock Valuation During Survey
During a survey on 21.03.2018, a discrepancy in stock valuation was found. The assessee retracted the statement made during the survey, providing evidence that certain stocks were on approval and not part of the inventory. The assessee submitted affidavits from the concerned parties, which were not refuted by the revenue authorities. The Tribunal found that the assessee's reconciliation of stock was proper and quashed the addition of Rs. 94,27,696, allowing the appeal.

Conclusion:
Both appeals, ITA Nos. 353/Jodh/2023 and 354/Jodh/2023, were allowed by the Tribunal, quashing the additions made by the AO and upholding the assessee's contentions regarding the rejection of books of accounts, treatment of cash deposits, and stock valuation discrepancies.