DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, RANGE-1, LUCKNOW., LUCKNOW. V. .M/S. MG AUTOSALES PRIVATE LIMITED, LUCKNOW.

ITA 58/LKW/2023

AI Insights

The case involves the Revenue's appeal against the order of the CIT(A) which had deleted additions made under section 68 of the Income Tax Act, 1961, amounting to Rs. 98,08,000, related to cash deposits during the demonetization period. The Assessing Officer had initially made these additions, suspecting them to be from unaccounted sources, which the CIT(A) later deleted. The Tribunal found that the CIT(A) had not adequately addressed the issues raised by the Revenue, particularly concerning the acceptance of new facts without verification and the procedural lapses under Rule 46A of the Income Tax Rules.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 471438 (ITAT-LUCKNOW)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2024
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Other Referred Cases: Sumati Dayal vs CIT 214 ITR 801 (SC)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHOK SETH
• Assessee Lawyers: SUNIL KUMAR RAJWANSHI
• Keywords: Set aside; Additional evidence; Tax effect; Wrong claim; Assessment record; Bogus
• Section: 143(3); 143(1); 68; 13

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “B”, LUCKNOW BEFORE SHRI KUL BHARAT, VICE PRESIDENT AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER ITA No.58/LKW/2023 (Assessment Year: 2017-18) DCIT, Circle-1 Pratyaksh Kar Bhawan, 57, Ramtirath Marg, Lucknow- 226001. v. M/s. MG Autosales Pvt Ltd 3/44 Ambalika, Gokhale Vihar Marg, Lucknow- 226001. PAN:AAMCS0717R (Appellant) (Respondent) Appellant by: Shri Ashok Seth, C.A. Respondent by: Shri Sunil Kumar Rajwanshi, Addl. CIT(DR) Date of hearing: 11 12 2024 O R D E R PER ANADEE NATH MISSHRA, A.M.: 1. The present appeal has been filed by Revenue challenging the impugned order dated 15/06/2022 passed by the learned Commissioner of Income Tax (Appeals) [hereinafter referred as “CIT(A)”]/National Faceless Appeal Centre (NFAC), Delhi for the assessment year 2017-18. In this appeal, Revenue has raised the following grounds: - “1. The Ld. CIT(A) has erred on facts by deleting additions of Rs. 98,08,000/- made under section 68 of the Income-tax Act, 1961(‘the Act’) by not appreciating AO’s finding that average cash sale for period 01.10.2016 to 08.11.2016 has increased compared to same period in F.Y. 2015-16 while for rest of the period i.e. from 01.04.1016 to 30.09.2016 and from 09.11.2016 to 31.03.2017, cash sales have decreased as compared to the same period in F.Y. 2015-16, due to the fact of adjustment of unaccounted money, as sales of the period, beginning on 01.10.2016 to 08.11.2016. 2. The Ld. CIT(A) has erred on facts by deleting additions of Rs. 98,08,000/- made under section 68 of the Act by accepting assessee’s claim that it had provided list of 144 debtors along with PAN, from ITA No.58/LKW/2023 Page 2 of 19 whom cash was received by the assessee between 22.08.2016 to 29.11.2016. No such PAN/KYC details of debtors were provided. 3. The Ld. CIT(A) has erred on facts by deleting additions of Rs. 98,08,000/- made under section 68 of the Act by not appreciating AO’s finding the assessee has not provided insurance details even in case of single customer to prove genuineness of cash sales despite the fact that third party insurance is a legal requirement for motor vehicles. 4- The Ld. CIT(A) has erred on facts by deleting additions of Rs. 98,08,000/- made under section 68 of the Act by not appreciating AO’s finding the assessee kept making deposit of SBN till December 2016, read with finding that average cash sales has increased for period from 01.10.2016 to 08.11.2016, as compared to same period in F.Y. 2015-16 while cash sales have decreased for rest of the year as compared to same period in F.Y. 2015-16. 5. The Ld. CIT(A) has erred on facts and law by deleting additions made of Rs. 98,08,000/- under section 68 of the Act by assuming that AO needs to reject the books of account to make additions under section 68 of the Act. 6. The Ld. CIT(A) has erred on facts and law by deleting additions made of Rs. 98,08,000/- under section 68 of the Act on the basis that the assessee has maintained a cashbook and books of account are audited by Auditor. 7. The Ld. CIT(A) has erred on facts and law by deleting additions made of Rs. 98,08,000/- under section 68 of the Act by claiming thatthe addition is made without bringing any evidence to the contrary on record, despite irregularities pointed out in the assessment order and assessee not providing PAN of debtors who transacted in cash with the assessee. 8. The Ld. CIT(A) has erred on facts and law by deleting additions made of Rs. 98,08,000/- under section 68 of the Act by claiming that the AO has accepted books of ‘account, despite the fact that assessment order clearly states that unaccounted money of the assessee has been shown as bogus sales. 9. The Ld. CIT(A) has erred on law while deleting addition of Rs. 98,08,000/- made under section 68 of the Act by admitting the assessee’s claim that it has provided list of all debtors for the years with PAN, so AO has already verified all the details. No such PAN/KYC details were provided during assessment. The Ld CIT(A) admitted assessee’s claim without seeking remand report from the assessing officer as per provisions of Rule 46A of Income Tax Rules. 10. The Ld. CIT(A) has erred on law by going against ‘preponderance of probabilities’ as explained by the Apex Court in case of Sumati Dayal vs CIT 214 ITR 801 (SC) by accepting assessee’s claim that ALL the PURCHASERS who paid for vehicle purchase in cash, purchased insurance online, making online payment in pre-demonetization period when online payments were not as popular. 11. The Ld. CIT(A) has erred on law, in deleting addition of Rs. 16,18,571/- by admitting claim of the assessee, without seeking remand report from AO as per provisions of Rule 46A of Income Tax Rules that actual service turnover in the ITR is Rs. 4,19,39,369/- which after discounts of Rs. 36,17,770 comes to Rs. 3,83,21,598 ITA No.58/LKW/2023 Page 3 of 19 without documentary evidence thereof. No such details are recorded in ITR either. 12. The appellant craves to modify/amend/change/enhance the grounds of appeal during the pendency of the appeal.” 2. In this case, the assessment order dated 25.12.2019 was passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as “the Act”) wherein the total income of the assessee was assessed at Rs.1,55,99,160/- as against the returned income of Rs.41,72,590/-. In the aforesaid assessment order, addition amounting of Rs.98,08,000/- was made on account of specified bank notes (SBN) deposited by the assessee in bank accounts during the demonetization period. Further, addition of Rs.16,18,571/- was made by the Assessing Officer on account of discrepancy between turnover reported in Service Tax Return as compared with turnover reported in Income Tax Return. The relevant portion of the order of the Assessing Officer is reproduced as under: - ITA No.58/LKW/2023 Page 4 of 19 ITA No.58/LKW/2023 Page 5 of 19 ITA No.58/LKW/2023 Page 6 of 19 ITA No.58/LKW/2023 Page 7 of 19 2.1 The assessee filed appeal against the aforesaid assessment order in the office of the Ld. CIT(A). Vide impugned appellate order dated 15.06.2022, the aforesaid additions were deleted by the Ld. CIT(A) in the assessee’s appeal was allowed. The relevant portion of the Ld. CIT(A) is reproduced as under: - “5. The appellant has e-filled the written submissions which were examined and printout of the same is placed in the appellant folder. The written submissions filed by appellant are reproduced as under: - “Ground no. 1 General Ground ITA No.58/LKW/2023 Page 8 of 19 ITA No.58/LKW/2023 Page 9 of 19 ITA No.58/LKW/2023 Page 10 of 19 ITA No.58/LKW/2023 Page 11 of 19 ITA No.58/LKW/2023 Page 12 of 19 ITA No.58/LKW/2023 Page 13 of 19 2.1.1 The present appeal has been filed by the Revenue against the aforesaid impugned appellate order dated 15.06.2022 of the Ld. CIT(A). In the course of appellate proceedings in ITAT, the assessee filed a paper book containing the following particulars: - 2.1.2. On perusal of the Form no. 36 filed by the Revenue, it is found that the Assessing Officer’s Comments/Statement of Facts has also been enclosed therein which is reproduced below for the ease of reference: - ITA No.58/LKW/2023 Page 14 of 19 “The assessee e-filed its return of income on 07.11.2017 bearing acknowledgement no, 293891891071117 declaring total income of Rs. 41,72,590/- in the status of a company engaged in business of dealership of Honda Cars and servicing. The case was processed u/s 143(1) of the LT. Act, 1961 by CPC. Subsequently, the case was selected for scrutiny through CASS. The Assessing Officer vide order u/s 143(3) dated 25.12.2019 has made an addition of Rs. 98,08,000/as bogus cash receipts during demonetization period and Rs. 16,18,571/as concealed income being difference between sale of services reported in ITR and Service Tax Return. Aggrieved with this order, the assessee filed an appeal on 11.01.2020. In this regard, it is to submit that the assessee brought out the following points during the course of appellate proceedings: (i) The assessee has filed a list of 144 debtors with PAN details to prove the source of cash deposits from which cash was received from 22.08.2016 to 29.11.2016. The amount of cash received from these debtors by the assesse is Rs. 89,93,239/-. HDFC Bank has also confirmed /certified that Rs. 11,64,000/- was deposited in Non-SBNs by the assesse between 16.12.2016 to 30.12.2016. Cash was deposited from cash in hand received through car sales show the genuineness of cash. It is also to mention that AO has made additions as bogus cash receipts during this period. (ii) The cash book and bank book have been audited by auditor for F.Y. 2015-16 & 2016-17. In these, the cash sales have dropped by 89.73% during demonetization period for which the additions is made. All SBNs was deposited upto 13.12.2016 and all deposits afterwards were made in Non SBNs so mixing of Non-SBNS & SBNs does not appear to be sustainable. (ii) Detail analysis of data show that cash sales has increased due to Diwali festival during that period. (iv) The assesse has also submitted that Bogus sales are not possible in sale of Honda Car as TCS @1% is deducted with sale consideration in excess of Rs. 10 Lakh per car. The assesse has also but up that the purchasers do insurance through App like Policy Bazar and it is not mandatory for purchasers to share the insurance details of vehicle with the seller. (v) Total revenue from provision of services as per ITR is Rs. 4,19,39,369/before discounts Which is much higher than the revenue shown in Service Tax Return for AY 2017-18. The facts corroborated from the Audited Financial Statements, Tax Audit Report, Copy of half yearly Service Tax Returns filed by the assessee. After considering the facts and submission of the assessee, the NFAC, Delhi vide order dated 15.06.2022 deleted the additions of Rs. 98,08,000/- & Rs. 16,18,571/- made by the AO and allowed the appeal of assessee. 3. In view of the facts and circumstances of the case, it is seen that the Hon'ble CIT(A) has not addressed the issues raised by the revenue. Hence, the decision of the Hon'ble CIT(A) is not acceptable on merit. The tax effect is Rs. 68,55,942/- for A.Y. 2017-18, which is above the monetary limit prescribed as per Board's Instruction No. 17/2019 dated 08.08.2019 for filing appeal before Appellate Tribunal. The CIT(A) has also considered the new facts while deciding the case without the knowledge of this office. Hence, filing of 2nd appeal is recommended in this case. Detailed reasons for Appeal: ITA No.58/LKW/2023 Page 15 of 19 1. Issue of service turnover: The Ld. CIT(A) has admitted a new fact based on claim of the assessee without independent verification by herself or by seeking remand report by the assessing officer. The relief with respect to Ground no 8 of appeal in front of CIT(A) to taxpayer is related to difference in turnover with respect to ITR and service tax return. As per ITR of the year, Services turnover is Rs. 3,83,21,599/- which is lesser than the turnover in the service tax return i.e. Rs. 3,99,40,170/-. Therefore, this difference amount Rs. 16,18,571/- (Rs. 3,99,40,170 - Rs. 3,83,21,599) was added by the assessing officer income concealed income as per para 16. of the assessment order u/s 143(3) dated 15.12.2019. As the assessee has not offered satisfactory explanation regarding this difference. However, the Ld. CIT(A) admitted the new claim introduced by the assessee that actual service turnover in the ITR is Rs. 4,19,39,369/- which after discounts of Rs. 36,17,770 comes to Rs. 3,83,21,598/-. On perusal of ITR of the year it seen that there is no mention of service turnover of Rs. 4,19,39,369/- or the discount of Rs. 36,17,770. Thus, The Ld. CIT(A) has not carried out any verification this claim either on her end or by seeking remand report as per provisions of Rule 46A of Income Tax Rules and deleted addition made by AO on this ground without any reasonable basis. 2. Issue of cash deposit of Rs 98,08,000/: The assessing officer had added cash deposit made during demonetization period under section 68 as the assessee has made cash deposit of SBN till December 2016. The assessee kept depositing huge amounts of SBN until 01.12.2016. The AO accepted the following first four transactions during demonetization period as reasonable: S. No Date of deposit of SBN Amount (Rs.) 1 10.11.16 14,90,000 2 11.11.16 1,42,99,000 3 12.11.16 17,00,000 4 15.11.16 35,00,000 Total 2,09,89,000 However, the assessee kept depositing the SBN until 13.12.2016 Therefore, the AO considered the rest of the transactions after 15.12.2016 as transactions done in SBN which were adjusted in the books of account as sale of period 1.10.2016 to 8.11.2016 by creating bogus debtors/sales entries. As the assessee did not provide details of corresponding sales and KYC or purchaser along with vehicle insurance receipt, the same could not be verified. Later, the assessee, in the appeal claimed that the AO has accepted books of amount and sales, which is untrue as the AO has already doubted the sales in the period 1.10.2016 to 8.11.2016. That’s why cash deposited in SBN after 15.12.2016 was added as unexplained cash as per meaning of section 68 of the Income Tax Act. A there is no explicit requirement of rejection of books of account under Section 68. 2.1 Issue of lines at bank and risk of carrying cash: ITA No.58/LKW/2023 Page 16 of 19 The assessee has claimed that due to long lines at bank and security risk of Carrying cash, it could not deposit the cash in lump sum. However, this claim is without any basis as assessee already deposited the cash before 15.11.2016 ( on 11.11.16 the Cash deposit in SBN was Rs. 1,42,99,000) and he could have deposited all SBN in bigger transactions which he already did on 11.11.2016 by depositing Rs 1.4299 cr in a single day. There is no justification that why he could not deposit higher amounts on 10.11.2016, 12.11.2016 and 15.11.2016 as well, and in this way he could have avoided long lines as well which he faced as per his claim for making deposits subsequently. Further, the assessee has not pointed any specific security threat during demonetization Period. Further, it is to be noted that he assessee is based in Heart of Lucknow city in Hazratganj, with its bank within 5 km of business premises in Hazratganj and Faizabad Road. It has also been dealing with huge cash in hand on regular basis already. Thus, it is reasonable to assume based on preponderance of human probabilities that cash in SBN deposited after 15.12.2016 was from unexplained cash which was adjusted in books by showing sales/debtors in books. The debtors/sales also remain unverified as the assessee did not provide KYC details regarding sales and debtors. Further, this was also possible as the VAT return for October was due only on 20.11.2020 giving assessee to adjust the SBN based cash in the books of the assessee, which it was regularly receiving during demonetization period. It is to be noted that it was a common practice during demonetization period. The assessee also claimed before CIT(A) that it has provided list of all debtors for the* years with PAN, so AO has already verified the details. However, on checking the assessment record (online on ITBA), it is found that the assessee has not provided PAN and address of the debtors for verification. Here again, The Ld. CIT(A) has not carried out any verification this claim either on her end or by seeking remand report as per provisions of Rule 46A of Income Tax Rules and deleted all the addition with respect to cash deposit made by AO on this ground without any reasonable basis. 2.2 The claim The AO accepted the books of account: The Id CIT(A) has claimed without any basis that the AO has accepted sale ledger of the assessee. The assessee has not submitted any sale bills before the AO citing volume. The assessee did not response to CPC for cash filed during demonetization period which is well recorded in Para 6 of relevant assessment order. 4 Also, the AO has already raised doubts on sale made by the assessee through bogus debtors. The AO did not reject books of account as there is no such requirement for invoking section 68 of IT Act. Thus, here again, The Ld. CIT(A) has not carried out any verification this claim either on her end or by seeking remand report as per provisions of Rule 46A of Income Tax Rules and deleted all the addition with respect to cash deposit made by AO on the ground that the assessee has submitted all details. Here, the CIT(A) has accepted the claim of the taxpayer without any verification. 2.3 50 days allowed by the Gol of cash deposit in SBN: The Id CIT(A) has claimed that the government of India had given 50 days for deposit of SBN, so addition cannot be based on cash deposit during demonetization period. In this regard, it is stated that the AO has made addition based on preponderance of human probabilities based on unsatisfactory explanation ITA No.58/LKW/2023 Page 17 of 19 given by the assessee such as security issue and long lines at bank for depositing SBN throughout November 2016 in installments. It is to be noted that the assessee is a business customer who deposits cash in large amount regularly and not a common man who has to stand in line. Further, the assessee could have avoided lines at the bank by making lump-sum deposit at the beginning of demonetization, instead of making 11 visits to bank to deposit cash. The assessee has not provided evidence of any credible security risk either. Further, security risks could pave been covered by if the assessee perceived security risk. Further, the assessee only submitted name of the debtors and not KYC details such as PAN and address. Therefore, the AO could not verify the genuineness of sales/debtors. Therefore, Ld CIT(A) has accepted the explanation of the assessee without a sound basis. 2.4 Cash sales in this year were lower compared to previous financial year: The Ld CIT(A) has further assumed that since cash sales were lesser in the F.Y. under question therefore, cash deposit is genuine. The Id. CIT(A) has ignored the fact that the assessee has been regularly depositing huge amount of cash in the bank account and there is no reason that assessee would be depositing cash from sales of period between 01.10.2016 to 08.11.2016 on 11 different dates beginning 10.11.2016 to 13.12.2016 unless the assessee. was receiving SBN in this period itself. Further, the assessee failed to establish genuineness of debtors by failing to provide KYC details. 2.5 Insurance details of vehicles sold is not provided: Here, to verify genuineness of sales and corresponding debtors the AO had sought the information regarding sales of vehicles and corresponding insurance receipts (Para 4 of the assessment order), as sale agencies have to mandatorily insure the vehicles before those leave the showroom. Also the customers cannot take vehicles out of showroom without insurance. Sale agencies also have to keep a copy of insurance receipts. It is also to be noted that third party insurance is mandatory legal requirement under Motor Vehicles Act, and most people by comprehensive insurance for new vehicles. Such, insurance is usually obtained from the insurer desk setup in the vehicle showroom itself. However, the assessee has not provided even a single insurance receipt even, by stating that Customer gets their insurance done online through portals like ‘POLICY Bazaar’, as per requirement, therefore insurance receipts can’t be provided for each and every Customer. However, the assessee has not provided such insurance receipt for even a Single customer. In this regard as mentioned above getting vehicle insured is not a Choice for sale agency or customer as third party insurance is a mandatory legal requirement. Again, it against preponderance of human probabilities that ALL the PURCHASERS who paid for vehicle purchase in cash purchased insurance online, making online payment in pre-demonetization period when online payments were not as popular as on date. The Id CIT(A) has completely ignored this fact while deleting additions made under section 68 of the Act, in lieu to cash deposit in SBN. Further, the assessee did not provide KYC information regarding sales/debtors to A.0,, so that appropriate enquiry NOT could be carried out. Later, it appears that the assessee made a false claim in appeal that it had provided PAN details of all the debtors which resulted in cash deposit in SBN during demonetization period. The Id CIT(A) too has accepted claims of the assessee without seeking remand report from the AO or carrying out verification on her end. Thus, the addition under section 68 for unexplained cash deposit was deleted without sound basis. ITA No.58/LKW/2023 Page 18 of 19 2.6 Issue of double addition: The assessee claimed and the Ld. CIT(A) accepted that the cash deposit made by it was added both as unexplained cash as per section 68, and the same was counted in sales as well. On this basis as well addition under section 68 is deleted by the Ld CIT (A) stating the issue of double addition and by also claiming that the A.O. has accepted books of account. It is to be noted that, as clearly mentioned in the Para 10 of the assessment order that it not the requirement under section 68 that books of account must be rejected, if addition is to be made under this section. In this regard, it is also to be noted that the AO had made addition under section 68 only, the sales may have been adjusted accordingly by Ld CIT(A) after due verification, which is well within her power. It is also be noted that The AO also had limited information as the assessee did provide KYC details of debtors and details of sales made along with bills, therefore exact sale amount could not be determined. Now, the assessee can’t claim benefit of omission on its own part. Thus, the Ld CIT(A) has deleted the whole addition made under section 68 without sound basis.” 2.1.3 At the time of hearing before us, the Ld. Departmental Representative (“DR”) for Revenue relied on the assessment order. He placed further reliance on the AO’s Comments/Statement of facts record, referred to in foregoing paragraph no. 2.1.2 of this order. The Ld. Authorized Representative (“AR”) for the Assessee strongly supported the order of the Ld. CIT(A). He read out the relevant portions from the order of the Ld. CIT(A). 3. We have heard both sides. We have perused materials available on record. It is found that in ground nos. 9 & 11 of appeal; objection has been raised by Revenue against the admission of additional evidence by the Ld. CIT(A) without seeking remand report from the Assessing Officer as per the provisions of Rules 46A of Income Tax Rules, 1963 (hereinafter referred as “Rules”). As the Ld. CIT(A) has not provided any opportunity to the Assessing Officer, in violation of provisions of Rule 46A(3) of Income Tax Rules; in the specific facts and circumstances of the present case, the impugned order of Ld. CIT(A) is set aside and the Ld. CIT(A) is directed to pass denovo order in accordance with law after providing reasonable ITA No.58/LKW/2023 Page 19 of 19 opportunity to the assessee and to the Assessing Officer. All grounds of appeal are treated as disposed off in accordance with the aforesaid directions. The appeal is partly allowed for statistical purposes. Order pronounced in the open Court on 19/12/2024. Sd/- Sd/- [KUL BHARAT] [ANADEE NATH MISSHRA] VICE PRESIDENT ACCOUNTANT MEMBER DATED: 19/12/2024 Vijay Pal Singh, (Sr. PS) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. DR 5. Guard file By order //True Copy// Assistant Registrar "