Addition cannot be made merely because customers have not transacted assessee post or pre demonetization: ITAT

ITAT Mumbai ruled out that Addition cannot be made merely for reason that those customers have not transacted assessee post or pre demonetization.

Cash Deposit during Demonetization

Reetu | Jul 17, 2023 |

Addition cannot be made merely because customers have not transacted assessee post or pre demonetization: ITAT

Addition cannot be made merely because customers have not transacted assessee post or pre demonetization: ITAT

The Income Tax Appellate Tribunal (ITAT Mumbai) in the matter of DCIT Vs. M/s Mangal Bullion Pvt. Ltd. has quoted that addition on account of cash sales made during demonetization u/s 68 and 69A cannot be made in the hands of the assessee merely for the reason that those customers have not transacted with the assessee post or pre demonetization

The Brief fact of the case shows that assessee is a company engaged in the business of trading in Diamonds, Gold and Jewellery, it filed its return of income of the assessment year 2017-18 on 30.10.2017 declaring a loss of Rs.76,550. This return of income was picked up for scrutiny assessment. Necessary notice was issued.

During the Course of assessment proceedings the Ld. AO noted that assessee has deposited cash to the tune of Rs.2,09,65,000 in its account with Bharat Co-operative Bank, vile parle, Mumbai. Therefore, the assessee was issued show cause notice to submit the complete details in respect of source of cash deposits. The assessee submitted vide a letter dated 11.12.2019 stating that assessee is engaged in the business of wholesale retail trading of polished diamond/ gold and gold jewelry. The source of cash deposit of ₹02,09,65,000/- is on account of retail sale and wholesale of gold bar and gold ornaments. The Assessee has sold gold to the retail customers in cash from 08.11.2016 and is in receipt of cash, which has been deposited in the bank account. It was explained that source of cash deposit of sale of gold to the walking and retail customers. It was stated that the retail customers visited the shop of the assessee in order to purchase gold and diamonds. The assessee has collected the permanent account no. from the retail customer. However, the permanent account no. is collected from who have purchased diamond and gold and gold jewelry worth Rs.2 lakh and above. It was further stated books of account of assessee are audited and the sale proceeds are credited to the profit loss account. Assessee explained that source of cash deposit is customers whose transaction is supported by the PAN, and transaction is sale. Therefore, the above cash deposited may be treated as explained.

ITAT

We have carefully considered the contentions and perused the orders of lower authorities. We have also carefully considered the reply dated 19.12.19 placed at page no. 45-336 pages paper book at the page 329 to 333. The assessee has given copies of cash books wherein sales of Jewellery are recorded. We find that cash sales from 1.11.2016 to 08.11.2016 are all in excess of Rs.2 lakhs for which assessee had provide the copies of bills wherein the complete address of the customers are mentioned. The bills are supported by the permanent account no of those parties. The copy of permanent account no. cards is also produced before the Ld. AO, before the Ld. CIT(A) as well as before us. This fact has not been denied by any of the lower authorities. The sales of the assessee at Mumbai branch has also been recorded in the stock register on the day on which sales have been recorded. Therefore, the sales register of the assessee and stock register of the assessee coupled with the cash books are completely matching. With respect to the Surat sales cash book is placed before us at page no 334 of the paper book. None of the sales made in cash to the customer is not supported by the address and pan card of such persons. The Ld. AO also could not show that gross profit shown by the assessee is abnormally high or abnormally low. The sales credited in the profit and loss account though made in cash have also resulted into profit to the assessee which has already been offered for taxation. No doubt if the assessee fails to show source of cash receipts or any sum credited in the books of account of the assessee, even though it may be sale, same can be added u/s 68 of the Act, if assessee fails to show nature and sources of such credit to the satisfaction of the ld AO. However, here assessee has shown source of cash by sales bills and permanent account no. of buyers and the consequent reduction in the stock is also shown.

Therefore, the nature and source of credit in the books of account have been explained by the assessee. Further, with respect to the purchases made by the customers in cash from Surat and Mumbai also, we find that out of these seven instances only three instances are pertaining to the purchases at both branches on the same day. It is not improbable that a person purchases gold and diamonds at two places on the same day looking at the distance between two cities. Even otherwise if the AO has a doubted with respect to these seven parties whose permanent account no. and address given by the assessee, at least inquiry should have been made. The LD AO has not made any such inquiries with those customers. We find that assessee has reasonably explained the nature and source of cash sales credited in his books of account. Further, the allegation of the AO that those parties to whom assessee has sold gold and Jewellery in cash was neither the customer of the assessee prior nor post demonetization. Arguably this answer could have been obtained by the AO had he examined any of the customers whose permanent account no. and address are provided to him.

The issue would have been different had AO made inquiry by issue of summons u/s 131 or inquiry u/s 133(6) which would not have been responded or satisfactory explanation was not available. Such is not the case before us. Identical issue has been dealt with by the coordinate bench in Heera panna Jewelers [Supra] and M/S Mangal Jewels Pvt. Ltd. [supra].Therefore, this issue is clearly covered in favour of the assessee by these judgments also. It is not the case that bills of sales of Jewellery doesn’t contend the complete address of the parties. Giving the complete address in cash memo/cash sales above Rs.50 mandatory requirement of GST ACT. In this case such facts do not exist. Further cash transfer from Surat to Mumbai has been recorded in both branches cash book. Addition cannot be made in the hands of assessee merely for the reason that those customers have not transacted with the assessee post or pre demonetization. This could be the trigger point for investigation, but LD AO , despite having complete address and PAN of customers did not make any such inquiry. In view of this, we confirm the order of LD CIT(A) to the extent addition deleted by him and reverse the order of the CIT(A) to the extent, he confirmed the addition. Therefore respectfully following the decisions of the coordinate benches cited above, we direct the ld AO to delete the addition of Rs.33,29,886/- and the order of the ld CIT (A) is confirmed for deletion of addition of Rs.01,76,35,114. Accordingly, Ground no 1 -3 of appeal of ld AO are dismissed. Ground nos. 1 and 2 of appeal of Assessee are allowed.

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