Jwalamala Jewellers, Bangalore V. The ACIT, Circle-7(2)(1), Bengaluru

ITA 1121/BANG/2022

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The case involves M/s. Jwalamala Jewellers, a partnership firm engaged in retail trade of gold jewellery, which appealed against the order of the National Faceless Appeal Centre, Delhi, for the Assessment Year 2017-18. The primary contention was the treatment of Rs. 43,19,100 as unexplained cash credit under section 68 of the Income Tax Act, 1961, and its taxation under section 115BBE. The assessee argued that these were legitimate business sales, supported by bills and invoices, and not unexplained cash credits. The Tribunal found procedural lapses in the verification of the assessee's submissions and remanded the matter back to the Assessing Officer for a detailed examination in line with specific guidelines related to the demonetisation period.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124282 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-01-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 12-12-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Principle of natural justice
• Section: 68; 234B; 44AB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No. 1121/Bang/2022 Assessment Year : 2017-18 M/s. Jwalamala Jewellers, No. 17, 9 th Main, 36 th Cross, 5 th Block, Jayanagar, Bangalore – 560 041. PAN: AADFJ8948H Vs. The Assistant Commissioner of Income Tax, Circle – 7 (2)(1), Bengaluru. APPELLANT RESPONDENT Assessee by : Smt. Suman Lunkar, CA Revenue by : Shri K. Sankar Ganesh, JCIT DR ITAT Date of Hearing : 12-01-2023 Date of Pronouncement : 06-03-2023 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against order dated 24.11.2022 passed by National Faceless Appeal Centre, Delhi for A.Y. 2017-18 on following grounds of appeal: “1. The impugned appellate order passed by learned Commissioner of Income-Tax (Appeals) is bad in law and is against the principles of natural justice is required to be quashed in toto. 2. The very succinct conclusions drawn by the learned Commissioner of Income tax (Appeals) in a small Para 6.8 is totally against the Appellate Proceedings to be followed, especially when the appellant had submitted detailed written submissions which is reproduced in the Pages 8 to 12 of the Appellate Order. Such an order passed by the Page 2 ITA No. 1121/Bang/2022 learned Commissioner of Income tax (Appeals) is totally against the principles of law and against the established proceedings of law is therefore required to be quashed. 3. In any case and without prejudice, the learned Commissioner of Income tax (Appeals) has erred in confirming the treatment of sum of Rs. 43,19,100/- as unexplained cash credit u/s. 68 of I.T. Act, 1961 and taxing the same under the provisions of sec. 115BBE of the Act. On the facts and circumstances of the case and law applicable there was no unexplained cash credit and therefore, the treatment as given by the Learned Assessing Officer to the sum of Rs.43,19,100/- and as confirmed by the learned Commissioner of Income tax (Appeals) being erroneous is to be disregard and quashed. 4. The addition as made by the learned Assessing Officer and as confirmed by learned Commissioner of Income tax (Appeals) are without basis and evidence and are totally relied on assumptions and surmises and the treatment of a sum of Rs. 43,19,100/- by the authority below being wholly erroneous and is to be deleted. 5. The sum of Rs. 43,19,100/- was actual business sale made by the appellant and is to be accepted as such. And the treatment given by the authorities below is to be deleted. 6. The learned Assessing Officer had erred in taxing sum of Rs. 43,19,100/- under the provisions of section 115BBE of the Act, and the learned Commissioner of Income tax (Appeals) has erred in not considering and deciding this ground. The levy of taxes at special rates u/s 115BBE of the Act being erroneous is to be deleted. 7. The appellant denies to pay interest u/s 234B & C of the IT Act, 1961. As the interest so levied being erroneous has to be deleted. 8. In view of the above and other grounds to be adduced at the time of hearing, it is requested that the treatment of Rs. 43,19,100/- as unexplained cash credits u/s. 68 of the Act, be deleted, it be also held that provisions of section 115BBE of the Act, are not applicable to the facts of the case and interest levied u/s. 234B and 234C be also deleted.” 2. Brief facts of the case are as under: 2.1 Assessee is a partnership firm and is carrying on the business of retail trade in gold jewellery. For year under consideration it filed its return of income on 25.10.2017 declaring total income of Rs.62,23,150/-. The assessee has also Page 3 ITA No. 1121/Bang/2022 maintained regular books of accounts that is subjected under audit u/s. 44AB of the Act. For the year under consideration, the case was selected for scrutiny under CASS for following reasons:  High value receipt of cash shown from third parties in response data.  Large increase in unsecured loan during the year.  Large value of cash deposit during demonetization period reported. 2.2 The Ld.AO issued statutory notices to the assessee during the assessment proceedings and various details were filed by assessee. The Ld.AO observed that assessee had huge cash deposits during demonetisation period. Accordingly, details were called for to explain the source of the same. It was submitted by the assessee that the source of cash deposits was out of cash sales during the month of November 2016 and assessee had submitted bank statements, sale bill and cash book VAT 240, audited statement, VAT 100 returns etc. The Ld.AO further issued notice calling for the details and evidences to explain very high sales during the month of November 2016 that amounted to Rs.2,60,49,748/- out of which the total sales from 01.11.2016 to 08.11.2016 itself amounted to Rs.2,27,99,506/- and the sales from 09.11.2016 to 30.11.2016 was Rs.32,50,242/-. The Ld.AO further noted that the total sales for the month of November amounted to Rs.2,03,67,825/- out of which cash sales with PAN details amounted to Rs.1,60,48,725/- and cash sales without PAN details amounted to Rs.43,19,100/-. Assessee was asked to explain the reason why PAN details was not collected in respect of the said sales in response to which assessee submitted that there Page 4 ITA No. 1121/Bang/2022 was no compulsion to collect PAN as each bill was below Rs. 2 lakhs. The assessee submitted that entire turnover was supported by bills and invoices and the purchases at stock and sales were fully accounted for and duly vouched by assessee in the books of accounts. The assessee further submitted that the spurt in cash sales was due to Diwali and Dussehra festivals that happened during the month of October, 2016 due to which the regular purchases of gold and silver increased. The assessee further submitted that demonetisation was announced on 08.11.2016 and circulation of SBN was banned from 09.11.2016 due to which the customers rushed to the shop of assessee and made purchases. The Ld.AO after considering all the above details, made addition in the hands of the assessee in respect of the cash sales that was effectuated without PAN details amounting to Rs.43,19,100/- u/s. 68 r.w.s. 115BBE. 2.3 Aggrieved by the order of the Ld.AO, assessee preferred appeal before the Ld.CIT(A) who confirmed the addition made in the assessment. 2.4 Aggrieved by the order of Ld.CIT(A), assessee is in appeal before this Tribunal. 3. The Ld.AR before us vehemently argued that the sales are accepted and the quantity tallies. There is no dispute with the department that the source of cash deposits are due to cash sales though admittedly during the demonetisation period. She submitted that assessee cannot be put to such addition based on any surmises and conjectures. 4. On the contrary, the Ld.DR objected the argument advanced by the Ld.AR. The Ld.DR submitted that there is no acceptance Page 5 ITA No. 1121/Bang/2022 by the Ld.AO regarding any sales and quantity being tallied. Infact the authorities are doubting the genuineness of the cash deposited to the extent of Rs.43,19,100/- for the reason that it is not supported by any PAN details. He submitted that the conclusion of the Ld.AO in the assessment order is pertinent which is reproduced as under: “As per point no. 3 noted above, no conclusive finding can be drawn as to the source of the cash. It can either be (a) the assessee's untaxed moneys lying with him which was introduced in the books as cash sales or (b) it can be the demonetised currency notes that he has accepted from other "customers". In both the above scenarios discussed in the Sec 68 is triggered. In (a) the genuineness of transaction is non-existent as it was done by way of illegal tender. And in (b), the assessee's untaxed money was introduced into his books by way of unidentified sales. Also, by the very nature of cash transaction, the genuineness of the transaction cannot be established beyond doubt. At his juncture, it becomes pertinent again to note that the assessee was unable to furnish the PAN identities of the sales to the extent of Rs. 43,19,100. He has stated that the assessee is under no obligation to maintain the identities of the purchasers by any law. Under regular circumstances, this office would have been satisfied even if the assessee was unable to provide identity details of the counterparty. But in the exceptional scenario of demonetisation, and the exceptional highs in the assessee's cash sales, the verification of ccunterparty identity becomes important. With the assessee's fantastical "cash sales", in the backdrop of demonetisation, without identity of the counterparty, this office is constrained to treat the transactions during the impugned period of Rs. 43.19,100 as unexplained cash credits to the books of accounts of the assessee. The balance of Rs.43.19,100 treated as unexplained cash credits to the books of accounts of the assessee within the meaning of Sec 68 of the IT Act. Thus, as per clause (ii) of section 115BBE(1), the business income of the assessee is reduced by Rs.43,19,100.” He thus supported the order passed by authorities below. Page 6 ITA No. 1121/Bang/2022 We have perused the submissions advanced by both sides in the light of records placed before us. 5. We note that various details furnished by the assessee in respect of VAT returns has not been verified by the Ld.AO. Admittedly, assessee has deposited cash of specific bank notes during the demonetisation period. There is an explanation offered by the assessee which is supported by various documents. We note that the Ld.AO has not verified all the details filed by the assessee in support of the cash deposited into the bank account based on the Circular. We have perused the submissions advanced by both sides in the light of records placed before us. 6. We are of the opinion that there is a violation of natural justice in respect of not properly verifying the details filed by the assessee by the authorities below. Considering the fact that, in any event, the issue would have to be remanded to the Ld.AO in order to verify the cash deposit of Rs.43,19,100/- in specified bank notes during the demonetisation period in its bank account in accordance with various instructions referred to by the Ld.DR hereinabove. 7. Admittedly, the assessee accepted the SBNs which were no longer a legal tender and were to be explained in accordance with the relevant circular mentioned hereinabove. These instructions gives a hint regarding what kind of investigation, enquiry, evidences that the assessing officer is required to take into consideration for the purpose of assessing such cases. Page 7 ITA No. 1121/Bang/2022 8. In 1 of such instructions dated 09/08/2019 speaks about the comparative analysis of cash deposits, cash sales, month wise cash sales and cash deposits. It also provides that whether in such cases the books of accounts have been rejected or not where substantial evidences of vide variation be found between these statistical analyses. Therefore, it is very important to note that whether the case of the assessee falls into statistical analysis, which suggests that there is a booking of sales, which is non-existent and thereby unaccounted money of the assessee in old currency notes (SBN) have been pumped into as unaccounted money. 9. The instruction dated 21/02/2017 that the assessing officer basic relevant information e.g. monthly sales summary, relevant stock register entries and bank statement to identify cases with preliminary suspicion of back dating of cash and is or fictitious sales. The instruction is also suggested some indicators for suspicion of back dating of cash else or fictitious sales where there is an abnormal jump in the cases during the period November to December 2016 as compared to earlier year. It also suggests that, abnormal jump in percentage of cash trails to on identifiable persons as compared to earlier histories will also give some indication for suspicion. Non-availability of stock or attempts to inflate stock by introducing fictitious purchases is also some indication for suspicion of fictitious sales. Transfer of deposit of cash to another account or entity, which is not in line with the earlier history. Therefore, it is important to examine whether the case of the assessee falls into any of the above parameters are not. Page 8 ITA No. 1121/Bang/2022 10. The assessee is directed to establish all relevant details to substantiate its claim in line with the above applicable instructions. We are aware of the fact that not every deposit during the demonetisation period would fall under category of unaccounted cash. However the burden is on the assessee to establish the genuineness of the deposit in order to fall outside the scope of unaccounted cash. The Ld.AO shall verify all the details / evidences filed by the assessee based on the above direction and to consider the claim in accordance with law. Needless to say that proper opportunity of being heard must be granted to the assessee. The assessee may be granted physical hearing in order to justify its claim. Accordingly, we direct the Ld.AO to verify the cash deposited in the light of the above circular by granting proper opportunity of being heard to the assessee. In the result, the appeal filed by the assessee stands allowed for statistical purposes. Order pronounced in the open court on 06 th March, 2023. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 06 th March, 2023. /MS / Page 9 ITA No. 1121/Bang/2022 Copy to: 1. Appellant 2. Respondent 3. DR, ITAT, Bangalore 4. CIT 5. Guard file By order Assistant Registrar, ITAT, Bangalore