2024 (7) TMI 1426 - AT - Income Tax

Addition u/s 69A - unexplained source of cash in hand - non rejection of books of accounts - HELD THAT - As we observe that the AO has not adversely commented on the details of sales, purchases and stocks both in terms of quantity and amount and the party-wise sales/purchase etc. AO has also accepted the sales declared by the assessee. As a sequel to such undisputed facts, we are compelled to think that cash in hand declared in the books is backed by documentary evidences. The assessee being in Kiryana business where large cash transactions are generally involved, the source of cash in hand draws considerable strength. The purchases made are stated to be through banking channel which further strengthens the audited financial accounts. Besides, we see no semblance in the view taken by the AO that only average balance of cash in hand needs to be given credit. For doing so the cash book necessarily has to be discarded. The books of account are admittedly not rejected. The sales, purchases and stocks have been accepted. Thus, the prerequisites of Section 69A do not appear to have been fulfilled. Several judgments have been quoted on behalf of the assessee to contend that rejection of books is necessary to indulge in such addition. The action of the AO in our view, as rightly contended on behalf of the assessee has resulted in double additions which is not permissible in law. We thus see no rationale in confirming the additions towards unexplained cash under Section 69A in the facts of the case by granting credit only towards average cash balance rather than actual cash in hand at the relevant point of time. We note that as against the sale of Rs. 7,46,90,131/-, the assessee has declared a net profit ratio of 0.9% as against the immediately previous F.Y. 2017-18 where against the turnover of Rs. 2,02,83,095/-, the net profit ratio stands at 3.43%. Thus, there is a drastic fall in the net profit ratio vis- -vis earlier year. Hence, in the balance of things, additional business income @2.53% being difference in net profit ratio of turnover of 7.46 crore which stands at Rs. 18,89,660/- calls for addition attributable to cash sales in question. Thus, the additions to the extent of Rs. 18,89,660/- is retained and the remaining amount of Rs. 1,13,77,807/- is deleted. Appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Jurisdiction and limitation of notice under Section 143(2).
2. Validity of assessment order without Document Identification Number (DIN).
3. Validity of assessment order under Section 153D.
4. Addition of Rs. 1,32,61,467/- under Section 69A.

Issue-wise Detailed Analysis:

1. Jurisdiction and Limitation of Notice under Section 143(2):
The assessee contended that the notice under Section 143(2) was issued without jurisdiction and beyond the stipulated statutory time, rendering the assessment order void. The CIT(A) rejected this claim, determining that the legal grounds lacked merit. The Tribunal did not find sufficient basis to overturn this decision, affirming that the notice was validly issued within the statutory period.

2. Validity of Assessment Order Without Document Identification Number (DIN):
The assessee argued that the assessment order was illegal and non-est due to the absence of a valid DIN. However, during the Tribunal hearing, the assessee's counsel chose not to press this ground. Consequently, this issue was dismissed as not pressed.

3. Validity of Assessment Order under Section 153D:
The assessee claimed that the assessment order was based on mechanical approval under Section 153D, which was arbitrary. The CIT(A) dismissed this claim, and the Tribunal upheld the CIT(A)'s decision, finding no substantive evidence to support the assessee's contention that the approval process was flawed.

4. Addition of Rs. 1,32,61,467/- under Section 69A:
The primary issue revolved around the addition of Rs. 1,32,61,467/- as unexplained income under Section 69A. The AO found cash of Rs. 1,70,00,000/- in the assessee's locker and determined that only Rs. 37,38,533/- was explained based on average cash holdings, leading to the addition of the remaining amount as unexplained income. The CIT(A) upheld this addition.

The assessee argued that the cash was duly recorded in the books of account and that the AO's method of using average cash balance was irrational. The Tribunal noted that the AO accepted the sales, purchases, and stocks declared by the assessee, and the books of account were not rejected. The Tribunal found no rationale in the AO's approach of granting credit only for the average cash balance rather than the actual cash in hand at the time of the search.

The Tribunal also observed a significant drop in the net profit ratio for the year under consideration compared to the previous year. To balance the situation, the Tribunal retained an additional business income of Rs. 18,89,660/- based on the difference in net profit ratios, while deleting the remaining addition of Rs. 1,13,77,807/-.

Conclusion:
The Tribunal partially allowed the appeal, modifying the orders of the CIT(A) and AO. The addition under Section 69A was reduced, retaining Rs. 18,89,660/- as additional business income and deleting Rs. 1,13,77,807/-. The other grounds raised by the assessee regarding jurisdiction, DIN, and Section 153D were dismissed.