2025 (3) TMI 647 - AT - Income Tax

Addition u/s 68 r.w.s.115BBE - unexplained cash deposits in the bank account of the appellant company during the period of demonetization - HELD THAT - The books of accounts of the assessee are subject to audit and from the perusal of the financial statement we find that neither the auditor has pointed out any deficiency in the maintenance of the books of accounts nor the Assessing Officer has pointed out any defects in the same who has accepted the books of accounts and had not disturbed the trading results declared by the assessee. It is also seen that the assessee is having substantially amount of cash sales throughout the year under appeal as well in preceding year also. It is also seen that the assessee has filed regular returns under the VAT Act where the sales declared by the assessee were accepted. Once the AO has accepted the books and not raised any doubts on the day to day stock register maintained and sales made thereon it is not correct to say that the cash deposited out of such cash sales which duly reflected in the books of accounts is unexplained. The Assessing Officer failed to find any error in the details and evidences filed by the assessee. The realization of cash sales is duly recorded in the cash book maintained on day to day basis which is evident from the perusal of the cash book submitted during the course of assessment proceedings. AO has tried to support his finding merely on the basis of incorrect comparison of daily cash sales and cash deposits in the bank accounts in the year before us as well as in preceding year and such observations have already been answered by the assessee and not controverted by Revenue Thus we are of the considered view that when the AO has accepted the entire sales no addition could be made on account of cash deposit in the banks which is part of such sales and is tantamount to double taxation of income which has already been offered to tax sales. Addition u/s 68 of the Act on account of unexplained income towards the cash deposit in the bank account during demonetization is hereby deleted.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

1. Whether the Commissioner of Income Tax (Appeals) erred in upholding the determination of the assessee's total income at a higher amount than declared, specifically regarding the addition of Rs. 4,07,89,150/- as unexplained cash deposits under Section 68 of the Income Tax Act.

2. Whether the disposal of the appeal ex-parte by the Commissioner of Income Tax (Appeals) without granting the assessee a fair opportunity to be heard was justified.

3. The validity of the interest levied under Sections 234B and 234C of the Income Tax Act.

ISSUE-WISE DETAILED ANALYSIS

1. Addition of Unexplained Cash Deposits under Section 68

- Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act allows for the addition of unexplained cash credits to the income of the assessee if the assessee fails to provide a satisfactory explanation regarding the nature and source of such credits. The Tribunal referenced several precedents, including the Delhi High Court's judgment in the case of Kailash Jewellery House, which held that cash sales duly recorded in the books of accounts cannot be treated as unexplained income.

- Court's Interpretation and Reasoning: The Tribunal found that the assessee maintained regular books of accounts, which were audited without any noted defects. The cash sales were consistent with previous years, and the cash deposits were made from the cash available as of the demonetization date. The Tribunal emphasized that the Assessing Officer (AO) did not point out any specific defects in the books of accounts or the cash sales recorded therein.

- Key Evidence and Findings: The assessee provided detailed financial records, including sales registers, stock registers, and cash books, all of which were accepted by the AO. The Tribunal noted that the AO's analysis of cash sales and deposits was factually incorrect, as highlighted by discrepancies in the AO's calculations.

- Application of Law to Facts: The Tribunal applied Section 68 and concluded that the AO failed to provide any corroborative evidence to dispute the assessee's explanation of cash deposits. The Tribunal determined that the cash deposits were adequately explained as being from cash sales, which were already taxed, thus preventing double taxation.

- Treatment of Competing Arguments: The Tribunal considered the Department's argument that the AO's addition was reasonable but found it unsupported by evidence. The Tribunal also addressed the AO's erroneous calculations and interpretations of financial data.

- Conclusions: The Tribunal concluded that the addition of Rs. 4,07,89,150/- under Section 68 was unjustified and should be deleted, as the cash deposits were explained and substantiated by the assessee's records.

2. Disposal of the Appeal Ex-Parte

- Relevant Legal Framework: The principles of natural justice require that parties be given a fair opportunity to present their case. The Tribunal considered whether the assessee was denied this opportunity.

- Court's Interpretation and Reasoning: The Tribunal noted that the Commissioner of Income Tax (Appeals) disposed of the appeal ex-parte without adequately considering the reasons for the assessee's non-appearance. The Tribunal emphasized the importance of granting a fair hearing.

- Conclusions: The Tribunal found that the ex-parte disposal was not justified and highlighted the need for the Commissioner of Income Tax (Appeals) to provide a fair opportunity to the assessee to present its case.

3. Levy of Interest under Sections 234B and 234C

- Relevant Legal Framework: Sections 234B and 234C pertain to the levy of interest for defaults in payment of advance tax and deferment of advance tax, respectively.

- Court's Interpretation and Reasoning: The Tribunal considered the circumstances under which the interest was levied and whether it was justified given the deletion of the addition under Section 68.

- Conclusions: The Tribunal did not provide a specific ruling on the interest levied but implied that the deletion of the addition would affect the computation of interest under Sections 234B and 234C.

SIGNIFICANT HOLDINGS

- The Tribunal held that the addition of Rs. 4,07,89,150/- as unexplained income under Section 68 was unjustified and should be deleted. It emphasized that the cash sales were already included in the taxable income, and taxing the cash deposits would result in double taxation.

- The Tribunal underscored the principle that when books of accounts are accepted and no defects are found, cash deposits from recorded sales cannot be treated as unexplained income.

- The Tribunal reiterated the importance of providing a fair hearing and the requirement for authorities to act based on evidence rather than assumptions or conjectures.

- The Tribunal's decision aligns with several precedents, reinforcing the principle that cash sales recorded in the books of accounts and accepted by tax authorities cannot be arbitrarily treated as unexplained income.