2024 (9) TMI 259 - AT - Income Tax

Addition u/s 68 - cash (SBN) deposited during demonetization period as unexplained cash credit - allegation of non rejection of books - HELD THAT - Observations of the revenue authorities, shows that the assessee was unable to substantiate his contentions with any corroborative evidence regarding receipt of cash on account of sale as well as recovery from debtors. From the material placed before us in the form of paper book, again such contentions could not be substantiated. Here again the assessee failed in proving that the so-called debtors from whom the cash was collected during the demonetization period belongs to the relevant AY or preceding years so the profit from sale to such debtors have been brought to tax in the return of income of the year under consideration. The mismatch in closing and opening cash balance in the assessee s cash flow statement, which was noted by both the revenue authorities, could not be disproved even before us by placing any cogent evidence. As in view of various deficiencies in the books of assessee qua difference in cash balance, actual receipt from current sales or from debtors, which were called for explanations, but the assessee was unable to demonstrate before both the Authorities below, thus, it cannot be conclusively construed that the returned income offered by the assessee was again taxed under the provisions of section 68. Therefore, the contention that addition u/s 68 without rejection of books was invalid cannot be concurred with, but, we in our considered view are of the opinion that the issue in present case requires certain verifications qua the closing balance of cash as on 31.03.2016 and its matching with the opening cash balance as on 01.04.2016 from the audited accounts of the assessee, the verification of sale bills and sales recorded in the books of accounts, the verification of impact of cash collected from debtors on the returned income of the assessee for the year under consideration. Consequently, following the principle of natural justice the issue in the present appeal is remitted back to the file of Ld. AO for verification of all these material aspects and to re-adjudicate the issue afresh. Needless to say, reasonable opportunity of being heard shall be provided to the assessee.

Issues Involved:
1. Addition of Rs. 21,00,000/- under Section 68 of the Income Tax Act.
2. Treatment of cash deposits during the demonetization period as unexplained cash credit.
3. Application of tax rate under Section 115BBE.

Issue-wise Detailed Analysis:

1. Addition of Rs. 21,00,000/- under Section 68 of the Income Tax Act:
The assessee challenged the addition of Rs. 21,00,000/- made by the Assessing Officer (AO) under Section 68, arguing that the cash deposits were from genuine sources reflected in the books of accounts. The AO observed discrepancies in the cash flow statements, specifically a difference in the closing cash balance for AY 2016-17 and the opening cash balance for AY 2017-18. The AO also noted an abnormal increase in cash deposits during the demonetization period compared to the average deposits before demonetization. The CIT(A) upheld the AO's addition, finding the cash flow statements unreliable and noting the assessee's failure to produce sales bills or evidence of receipts from debtors.

2. Treatment of Cash Deposits During the Demonetization Period as Unexplained Cash Credit:
The AO treated the cash deposits during the demonetization period as unexplained cash credit under Section 68, citing the assessee's failure to substantiate the source of cash deposits. The assessee argued that the cash deposits were from sales and receipts from debtors, which were recorded in the books of accounts. The CIT(A) found the assessee's explanations insufficient, noting discrepancies in the cash flow statements and the lack of supporting evidence for the claimed sales and receipts from debtors.

3. Application of Tax Rate Under Section 115BBE:
The assessee contested the application of the 60% tax rate under Section 115BBE, arguing that the transactions occurred before the amendment to Section 115BBE, which increased the tax rate from 30% to 60%. The assessee contended that the higher tax rate should not apply retrospectively to transactions made before the amendment date. The CIT(A) upheld the AO's application of the 60% tax rate, finding the addition justified under Section 68.

Decision and Analysis:
The Tribunal noted that the AO made the addition based on abnormal cash deposits during the demonetization period and discrepancies in the cash flow statements. The AO and CIT(A) observed that the assessee failed to substantiate the source of cash deposits with supporting evidence. The Tribunal acknowledged the assessee's argument that the books of accounts were accepted by the department, and the sales were reflected in the VAT returns. However, the Tribunal found that the discrepancies in the cash flow statements and the lack of evidence for the claimed sales and receipts from debtors warranted further verification.

The Tribunal remitted the issue back to the AO for verification of the closing and opening cash balances, sales bills, and the impact of cash collected from debtors on the returned income. The Tribunal directed the AO to re-adjudicate the issue afresh, providing the assessee with a reasonable opportunity of being heard.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes, remitting the main issue and the consequential tax rate issue back to the AO for further verification and re-adjudication. The Tribunal emphasized the need for the assessee to assist vigilantly in the set-aside proceedings.

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