INCOME TAX OFFICER, PARWANOO V. KAMLA OLEO PRIVATE LIMITED, BAROTIWALA

ITA 897/CHANDI/2024

AI Insights

The case involves an appeal by the Income Tax Officer, Parwanoo against M/s Kamla Oleo Private Limited concerning the assessment year 2017-18. The primary issues in the appeal were the addition of unexplained cash credits under section 68, disallowance under section 14A, and addition of unexplained credit under section 69A of the Income Tax Act. The Assessing Officer had made these additions based on the abnormal increase in cash deposits during demonetization and other discrepancies. However, the CIT(A) deleted these additions, citing substantial documentary evidence and the regular business practices of the assessee. The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of basis for the additions and the adherence to legal and procedural standards in the assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 361007 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2017-2018
• Other Referred Cases: Chettinad Logistics Pvt. Ltd. (95 Taxmann.com 250), Odeon Builders P. Ltd (418 ITR 315), Andaman Timber Industries vs. CCE (281 CTR 0241), Pr. CIT vs DSG Papers Pvt. Ltd. (161 Taxmann.com 586)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUDHIR SEHGAL . LD
• Assessee Lawyers: VIVEK VARDHAN LD.
• Keywords: Unexplained cash credit; Rejection of books of accounts; Principle of natural justice; Accommodation entries; Earning of tax free income
• Section: 143(3); 68; 14A

Judgement Text

"1 IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, CHANDIGARH BEFORE HON’BLE SHRI LALIET KUMAR, JUDICIAL MEMBER AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपीलसं./ ITA No.897/CHANDI/2024 (िनधाŊरणवषŊ / Assessment Year: 2017-18) ITO Parwanoo, Himachal Pradesh-173220. बनाम/ Vs. M/s Kamla Oleo Private Limited Village Buranwala, Barotiwala Solan, Himachal Pradesh. ̾थायीलेखासं./जीआइआरसं./PAN/GIR No. AADCK-7696-Q (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) अपीलाथŎकीओरसे/ Appellant by : Sh. Sudhir Sehgal (Adv.). – Ld. AR ŮȑथŎकीओरसे/Respondent by : Sh. Vivek Vardhan (Addl. CIT) – Ld. Sr. DR सुनवाईकीतारीख/Date of Hearing : 21-04-2025 घोषणाकीतारीख /Date of Pronouncement : 20-05-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by revenue for Assessment Year (AY) 2017-18 arises out of an order of learned Commissioner of Income Tax [CIT(A)] dated 25-06-2024 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 29-12-2019. The issues that arise in the appeal are – (i) Addition of unexplained cash credit u/s 68; (ii) Disallowance u/s 14A; (iii) Addition of unexplained credit u/s 69A. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. The assessee being 2 resident corporate assessee is stated to be engaged in manufacturing activities. 2. Addition of unexplained cash credit u/s 68 2.1 It transpired that the assessee deposited cash of Rs.62 Lacs in Specified Bank Notes (SBN) during demonetization. Accordingly, the assessee was required to prove the sources of the same. The assessee filed comparative chart of cash sales, cash withdrawals and cash deposits for FYs 2014-15 to 2017-18. The primary source of impugned case deposits was accumulated cash balance as on 08-11- 2016. The Ld. AO noted that the sales during September, 2016 and October, 2016 were abnormal in comparison to corresponding months of earlier years. The assessee had cash balance of Rs.66.35 Lacs as on 08-11-2016. The Ld. AO also observed that there was drastic reduction in cash expenses from April to October of FY 2016-17. Finally, it was concluded that the cash deposit was not in consonance with the routine business of the assessee. The Ld. AO computed average cash balance from August, 2015 to 08-11-2015 as Rs.24.83 Lacs which could be available with the assessee as on 08-11-2016. Accordingly, excess cash of Rs.41.52 Lacs (Rs.66.35 Lacs Less Rs.24.83 Lacs) was added to the income of the assessee u/s 68 of the act. 2.2 The Ld. CIT(A) noted that the assessee was engaged in business activities which involved cash sales as per prevalent market practices. This substantiates the origin of cash deposits in the bank account. Significant documentary evidences were furnished by the assessee 3 corroborating sales, purchases, stock movements and cash transactions corresponding to the deposited amount. The assessee was having turnover of Rs.333 Crores. It maintained comprehensive records including stock registers. The books were audited under law. The sudden announcement of demonetization necessitated deposit of cash-in-hand which was small fraction in comparison to the turnover. The sales were backed up by copies of invoices, bank statements, VAT returns, cash book etc. The books were accepted by VAT authorities. All sales and purchases were adequately substantiated with credible evidences. Therefore, there was no basis to treat cash sales as unexplained income. The sales were accepted by Ld. AO and the books were not rejected. In this year, the assessee made cash sales of Rs.88.09 Lacs which was sourced to make impugned deposits. In preceding years also, the assessee had made cash sales. The past record of cash deposits in immediately preceding years substantiates the authenticity of cash deposits during demonetization period. Adding the impugned amount has resulted into double addition since the sales were already accounted for in determining gross profits in the trading account. Finally, considering various judicial decisions, the impugned additions were deleted with following observations: - 4.27 Based on the preceding paragraphs and the facts presented, I am of the considered view that the assessing officer acknowledged the trading results, purchases, stock and sales of the appellant. However, the assessing officer overlooked the appellant’s historical pattern of significant cash sales in earlier years, attributing them to the appellant’s established modus operandi. Importantly, the assessing officer neither rejected the books of accounts nor questioned that purchases, instead the conclusion was speculative concerning the actuality of purchases or sales during the demonetization period. Consequently, this has resulted in double taxation, wherein the amount of cash sales has been counted 4 both as part of the appellant’s trading results and unexplained income by the assessing officer. 4.28 In view of this the addition of Rs.41,52,350 done by the assessing officer is hereby deleted. As a result, the appellant succeeds on ground No.1,2,3,4, and 5. Aggrieved as aforesaid, the revenue is in further appeal before us. 2.3 In our considered opinion, the Ld. CIT(A) has clinched this issue in correct perspective. The claim of the assessee stand substantiated by acceptance of audited books of accounts by Ld. AO. The cash sales and cash deposits in this year are in consonance with historical pattern of cash sales and cash deposits. The assessee has sufficient cash balance as on 08-11-2016 to make impugned deposits. No defect has been pointed out in the cash book of the assessee. The Ld. AO has arrived at possible cash balance merely on the basis of ratio analysis which is not a correct approach. As rightly held by Ld. CIT(A), significant documentary evidences have been furnished by the assessee corroborating sales, purchases, stock movements and cash transactions corresponding to the deposited amount. The assessee has maintained comprehensive records including stock registers. The sales were backed up by copies of invoices, bank statements, VAT returns, cash book etc. The books were accepted by VAT authorities. All sales and purchases were adequately substantiated with credible evidences. Therefore, there was no basis to treat cash sales as unexplained income. Adding the impugned amount without rejecting sales would result into double addition which is impermissible. Therefore, we find no reason to interfere in the same. The corresponding grounds as raised by the revenue stand dismissed. 5 3. Disallowance u/s 14A 3.1 The Ld. AO computed disallowance u/r 8D(2)(ii) for Rs.8.07 Lacs since the assessee had made investments. The Ld. CIT(A) deleted the disallowance on the ground that the assessee did not earn any exempt income during the year. Reliance was placed on the decision of Hon’ble Supreme Court in the case of Chettinad Logistics Pvt. Ltd. (95 Taxmann.com 250) for the same. 3.2 We find that the adjudication of Ld. CIT(A) is in accordance with the cited decision of Hon’ble Supreme Court and therefore, the same could not be faulted with. We order so. 4. Addition of unexplained credit u/s 69A 4.1 Pursuant to receipt of certain information from ADIT (inv.), it was alleged by Ld. AO that the assessee received credit of Rs.205.41 Lacs from a tainted concern M/s AS International (Prop. Shri Vipan Garg). Shri Vipan Garg, in recorded statement, admitted that he was involved in providing accommodation entries of sales / purchases through dummy / shell entities including through M/s AS International. Accordingly, the assessee was show-caused. The assessee refuted the allegation on the ground that this entity was assessee’s customer and the assessee made sales to this entity. In support, the assessee furnished copy of account of the said concern. It was stated that the assessee made sales of Rs.155.47 Lacs and the payment was received through banking channels. The attention was drawn to the fact that the assessee’s books were duly audited and the purchases / sales were supported by bills / vouchers and day-to-day quantitative details 6 of stock were maintained by the assessee. However, going by the investigation finding, Ld. AO maintained his stand and added the sum of Rs.205.41 Lacs to the income of the assessee u/s 68 and alternatively u/s 69A. 4.2 The Ld. CIT(A) noted that the assessee made sales to that entity for Rs.155.47 Lacs and in support, the assessee furnished ledger copy along with bank statement. The sales so made were offered to tax and trading results were accepted by Ld. AO. The payments were received through banking channels. The books were not rejected by Ld. AO. The quantitative and value-wise details of purchase, sales and stock were well documented by the assessee. The sales were made against statutory C-Form as issued by the purchasing dealer. The assessee charged CST of 2% on these sales and the VAT assessments were framed on the assessee. The Ld. AO merely relied on third-party statement without affording opportunity of cross- examination of that person to the assessee. Reference was made to the decision of Hon’ble Supreme Court in the case of Odeon Builders P. Ltd (418 ITR 315) as well as in Andaman Timber Industries vs. CCE (281 CTR 0241) to delete the impugned addition. Aggrieved, the revenue is in further appeal before us. 4.3 From the facts, it emerges that the assessee has made sales to M/s AS International after charging CST. The sales so made by the assessee are subjected to VAT assessment. The sales are duly supported by ledger extracts and sales invoices. The movements of the goods have been evidenced by the fact the sales were made 7 against statutory C-form. The payments have been received by the assessee through banking channels. The assessee is having turnover of Rs.333 Crores whereas the sales to this party are merely for Rs.1.55 Crores. The whole case of Ld. AO is based on third-party statement without there being any independent enquiry. No opportunity of cross-examination has been afforded to the assessee which is in clear violation of principles of natural justice. The cited case laws duly support the adjudication of Ld. CIT(A). The Hon’ble Punjab & Haryana High Court in the case of Pr. CIT vs DSG Papers Pvt. Ltd. (161 Taxmann.com 586) held that third-party statements could not be considered as conclusive evidence. Therefore, no fault could be found in the aforesaid adjudication of Ld. CIT(A). 5. The appeal stand dismissed. Order pronounced on 20-05-2025. Sd/- Sd/- (LALIET KUMAR) (MANOJ KUMAR AGGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 20-5-2025. आदेश की Ůितिलिप अŤेिषत / Copy of the Order forwarded to : 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3. आयकरआयुƅ/CIT 4. िवभागीयŮितिनिध/DR 5. गाडŊफाईल/GF ASSISTANT REGISTRAR ITAT CHANDIGARH "