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2024 (3) TMI 946 - AT - Income TaxRejection of the books of account of the assessee company u/s. 145(3) - addition of Cash deposits in bank accounts in demonetized currency - adverse inferences drawn by the A.O regarding the authenticity of the sale transactions of the assessee company i.e. by dubbing the same as sales carried out against SBNs during the demonetization period - HELD THAT - AO conclusion is not supported by any evidence, but is based on a general presumption, i.e reference to certain media clippings and the modusoperandi that was adopted by some jewellers who during the demonetization period had indulged in laundering the ill-gotten money of their customers, therefore, we are unable to persuade ourselves to concur with the same. As the rejection of the books of account of the assessee u/s. 145(3) of the Act pre-supposes satisfaction of either of the two conditions contemplated under the said statutory provision, viz. (i) dissatisfaction of the A.O as regards the correctness and completeness of the accounts of the assessee; or (ii) failure on the part of the assessee in computing its income as per system of accounting regularly employed by him, existence of neither of which, had been proved in the case of the assessee company before us, therefore, rejection of its books results by the A.O cannot be approved. Estimation of income - AO estimated profit element (Net Profit) of 25% on the subject sales - We find substance in the claim of the Ld. AR that no material had been placed on record by the department, which would reveal that the subject sales were not carried out by the assessee company during the pre-demonetization period, i.e, as disclosed in its books of accounts, but were made during the demonetization period. Also, as stated by the Ld. A.R., and rightly so, there is even otherwise no basis for the A.O. to have inferred that the assessee company had carried out the subject sales at an abnormally high profit of 25%. We are unable to comprehend that as to on what basis, the A.O. had presumed a profit element (Net Profit) of 25% on the subject sales. In our view, both the assumptions of the A.O, viz. (i) that the sales in question were antedated, i.e., though disclosed by the assessee as having been carried out during the pre-demonetization period, but were carried out by the assessee company in lieu of SBN's during the demonetization period; and (ii) earning of the super profit by the assessee company on the subject disclosed sales of Rs. 2.37 crores (approx.) in SBN's, are merely based on mere suspicion, assumptions, presumptions, surmises, and conjecture without any material proving the same. Although the A.O had drawn support from certain media clippings and status reports of the Income Tax Department on Operation Clean Money , and also the fact that certain jewellers had opted for IDS and PMGKY scheme and had offered 25% to 40% of their total cash deposits as undisclosed income, but the said observation, on a standalone basis, in our view, cannot justify the drawing of adverse inferences and the consequential impugned addition in the hands of the assessee company. Thus we are unable to fathom the very basis, on which, the duly disclosed sales of the assessee company had been related by the A.O to the demonetization period, i.e. 09.11.2016 to 31.12.2016; and also, the presumption drawn by him regarding earning of super profit of 25% on the subject sales, thus, are unable to persuade ourselves to subscribe to the view taken by the lower authorities. Accordingly, we set aside the order of the CIT(Appeals), and vacate the addition made by the A.O. Assessee appeal allowed.
Issues Involved:
1. Confirmation of addition of Rs. 36,57,000/- made by A.O. during demonetization. 2. Validity of invoking Section 145(3) by the A.O. Summary: Issue 1: Confirmation of Addition of Rs. 36,57,000/- The assessee company, engaged in trading gold, diamond, and silver ornaments, filed its return for A.Y. 2017-18 declaring an income of Rs. 2,61,38,530/-. During demonetization, the company deposited Rs. 3,06,32,000/- in cash, out of which Rs. 2,71,30,000/- was in Specified Bank Notes (SBN). The A.O. suspected that the sales were backdated to pre-demonetization, leading to an addition of Rs. 36,57,000/-. The CIT(Appeals) upheld the A.O.'s decision, citing the assessee's non-compliance during appellate proceedings and lack of evidence to substantiate its claims. The Tribunal found the A.O.'s assumptions, based on media clippings and general presumptions about jewellers' practices during demonetization, insufficient to justify the addition. The Tribunal noted that the cash deposits during the demonetization period were consistent with deposits in the previous year and that a survey conducted during demonetization found no discrepancies in stock or cash. Consequently, the Tribunal vacated the addition of Rs. 36,57,000/-. Issue 2: Validity of Invoking Section 145(3) by the A.O. The A.O. invoked Section 145(3) to reject the assessee's books of account, doubting the authenticity of sales transactions during the demonetization period. The Tribunal held that the rejection of books u/s 145(3) requires either dissatisfaction with the correctness and completeness of accounts or failure to compute income as per the regular accounting system, neither of which was proven. The Tribunal found that the A.O.'s conclusions were based on suspicion and lacked concrete evidence. Thus, the rejection of the books of account was deemed unsustainable. Conclusion: The Tribunal set aside the CIT(Appeals)'s order and allowed the appeal, vacating the addition of Rs. 36,57,000/- made by the A.O. The Tribunal emphasized that assumptions and general presumptions without substantive evidence could not justify such additions. The order was pronounced on 18th March 2024.
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