2024 (7) TMI 834 - AT - Income Tax

Addition u/s 69A - Cash deposit during demonetization period - to support source of cash deposited the assessee has produced the details of cash sales, cash book, etc. that the amount of cash deposited in the bank account on four different occasions is out of the sale proceeds which are disclosed as sales in the trading account - HELD THAT - When the sales invoices on cash sales, the books of account are available with the AO, he should have made an enquiry to disprove the cash sales prior to demonetization. This exercise has not been done. It is also true that cash sales are also part of the trading result offered for taxation by the assessee which is not disputed. The mere allegation that books of account are manipulated without its rejection or without bringing on record any positive evidence, the addition could not have been made on account of cash deposit. Mere cash deposit or cash sales, without pointing out any latent, patent and glaring defect in books of accounts, books of accounts cannot be rejected. AO has to show that cash sales is not coupled with delivery of goods, or on that assessee did not have stock to sale. The allegation of the AO that after deposit of the cash, part of the money has been transferred to the sisters concern i.e. M/s Satawat Textile and part of the money to the assessee s own account does not help the case of the Revenue in proving that the cash sales recorded by the assessee is bogus. We reverse the orders of the lower authorities and allow ground directing the AO to delete the addition - Decided in favour of assessee.

Summary

Issues:
Appeal against appellate order under Section 143(3) of the Income-tax Act, 1961 for A.Y. 2017-18 - Dismissal of appeal by CIT (A) - Addition of cash deposits during demonetization period - Rejection of books of accounts - Cash sales reflected in profit and loss account - Allegation of manipulation in cash book and cash flow statement - Transfer of cash to sister concern - Grounds of appeal raised by assessee.

Analysis:

1. Appeal against Appellate Order:
The appellant filed an appeal against the appellate order passed by the National Faceless Appeal Centre, Delhi, dismissing the appeal against the assessment order dated 27.12.2019 under Section 143(3) of the Income-tax Act, 1961. The grounds of appeal raised by the appellant included issues related to the rejection of books of accounts, addition of cash deposits during demonetization, and the treatment of cash sales in the profit and loss account.

2. Rejection of Books of Accounts:
The Assessing Officer noted that the appellant had deposited a significant amount of cash during the demonetization period and raised concerns about the legitimacy of the cash sales. The CIT (A) rejected the appellant's contentions, stating that the cash book and cash flow statement appeared manipulated, leading to the rejection of the books of accounts. This rejection formed the basis for making additions under Section 69A of the Act, resulting in the dismissal of the appeal.

3. Cash Deposits and Sales Analysis:
The appellant argued that the cash deposits were part of sales already reflected in the books of accounts, and tax had been paid on such income. The appellant provided details of cash sales, cash flow statements, and bank statements to support the source of cash deposits. The appellant contended that the addition made by the lower authorities was incorrect, emphasizing that the cash sales were genuine and part of the business operations.

4. Judgment and Decision:
Upon careful consideration of the contentions and evidence presented, the Tribunal found that the appellant, a dealer in fabrics, had recorded cash sales prior to demonetization, which were supported by sales invoices and books of accounts. The Tribunal noted the lack of inquiry by the Assessing Officer to disprove the cash sales and highlighted that the mere allegation of manipulation without concrete evidence did not warrant the rejection of books of accounts. The Tribunal reversed the lower authorities' orders and directed the deletion of the addition of cash deposits, allowing the appeal of the assessee.

5. Conclusion:
The Tribunal's decision to reverse the lower authorities' orders and allow the appeal was based on the lack of substantial evidence to reject the books of accounts and the failure to investigate the legitimacy of cash sales prior to demonetization. The judgment emphasized the importance of conducting thorough inquiries before making additions based on mere allegations, ensuring a fair assessment of the taxpayer's income and business operations.