2023 (12) TMI 1392 - AT - Income Tax

Unexplained income u/s 68 r.w. section 115BBE - cash deposit post demonetization - Onus to prove - AO referred to the cash deposits made by the assessee in the month of October and November and compared to the last two years and held it to unreasonably high - HELD THAT - Source of such cash deposits has been explained by the assessee as out of its cash sales so undertaken from time to time and it has also been explained that such cash sales are subject to VAT where VAT has been collected and deposited with the government treasury. Assessee has furnished the cash book containing the entries towards the cash sales cash deposits with bank complete sale and purchase ledgers sundry creditors VAT returns copy of trading and profit/loss account and balance sheet which are duly audited. No defect has been pointed out by the AO in terms of availability of stock or in any of the documentation so submitted by the assessee or in the books of accounts. Merely the fact that certain cash deposits have been made by the assessee during the period of demonization and such deposits are on a higher side considering the past year figures cannot be basis to hold the explanation so made by the assessee as unsustainable and treat the cash sales as bogus and bringing the cash deposits to tax u/s 68 of the Act. The comparative figures for past years can no doubt provides a starting point for further examination and verification but basis such comparative analysis alone and without any further examination which points out any defect or manipulation in the documentation so submitted or in terms of availability of requisite stock in the books of accounts the sales so undertaken by the assessee which is duly recorded in the books of accounts cannot be rejected and treated as bogus. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily addresses the following legal issues:

• Whether the delay of 350 days in filing the appeal by the assessee should be condoned.
• Whether the cash deposits made by the assessee post-demonetization, claimed to be from cash sales, can be treated as unexplained income under Section 68 of the Income Tax Act.
• Whether the application of Section 115BBE to tax the alleged unexplained income at a higher rate is justified.
• Whether the books of accounts maintained by the assessee, which were not rejected by the AO, can be partially accepted and partially rejected regarding the cash sales.

2. ISSUE-WISE DETAILED ANALYSIS

Condonation of Delay

• Legal Framework: The principle of substantial justice is often invoked in deciding whether to condone delays in filing appeals, focusing on whether there was a reasonable cause for the delay.
• Court's Interpretation: The court considered the illness and subsequent death of the Karta of the HUF, non-receipt of the appellate order, and the time taken by the new Karta to file the appeal as reasonable causes for the delay.
• Conclusion: The delay was condoned in the interest of substantial justice, allowing the appeal to be heard on merits.

Cash Deposits as Unexplained Income

• Legal Framework: Section 68 of the Income Tax Act deals with unexplained cash credits, requiring the taxpayer to satisfactorily explain the nature and source of any sum credited in the books.
• Court's Interpretation: The court noted that the assessee had maintained and audited complete books of accounts, and no defects were pointed out by the AO. The cash sales were recorded and subject to VAT, with no discrepancies found during the survey.
• Key Evidence: The assessee provided cash books, sales ledgers, VAT returns, and audited financial statements to support the claim that cash deposits were from legitimate sales.
• Application of Law to Facts: The court found the assessee's explanation credible and supported by documentation, rejecting the AO's reliance on presumption and suspicion.
• Conclusion: The addition of Rs. 17,00,000 as unexplained income under Section 68 was deleted.

Application of Section 115BBE

• Legal Framework: Section 115BBE imposes a higher tax rate on income deemed unexplained under various sections, including Section 68.
• Court's Interpretation: The court did not find it necessary to address the retrospective application of Section 115BBE, as the primary addition under Section 68 was not upheld.
• Conclusion: The issue of applying Section 115BBE was rendered moot by the deletion of the addition under Section 68.

Partial Acceptance of Books of Accounts

• Legal Framework: The rejection of books of accounts under Section 145 requires specific findings of inaccuracies or incompleteness.
• Court's Interpretation: The court emphasized that the AO did not reject the books of accounts, which were audited and accepted as genuine, making it unjustifiable to doubt specific entries without evidence.
• Conclusion: The court found no basis for the AO to selectively treat cash sales as bogus while accepting other parts of the accounts.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes: "The assessee has reasonably explained the reasons for the delay in filing the present appeal due to non-receipt of the appellate order, prolonged illness and death of the Karta of the family and thereafter, time taken by the new Karta to take stock and file the present appeal."
• Core Principles: The judgment reinforces the principle that tax authorities must rely on tangible evidence rather than suspicion when invoking deeming provisions like Section 68.
• Final Determinations: The court condoned the delay in filing the appeal, deleted the addition of Rs. 17,00,000 under Section 68, and did not apply the higher tax rate under Section 115BBE.

In conclusion, the judgment underscores the necessity for tax authorities to substantiate claims of unexplained income with concrete evidence, especially when the taxpayer's records are audited and accepted, and highlights the importance of ensuring substantial justice in procedural matters like condonation of delay.