आयकर अपील य अ धकरण,च डीगढ़ यायपीठ, च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, ‘A’, CHANDIGARH BEFORE SHRI A.D. JAIN, VICE PRESIDENT & SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No. 1 3 8 / C H D / 2 0 1 9 नधा रण वष / Assessment Year : 2012-13 Girish Kumar & Sons Prop Shiv Shakti & Co C/o Girish Garg, Near Ghantaghar Chowk, Sangrur (PB-148001) Vs. बनाम The ITO, Ward-1, Sangrrur थायी लेखा सं./PAN No: AACHG9268C अपीलाथ /Appellant यथ /Respondent नधा रती क ओर से/Assessee by : Sh. Ashwani Kumar, CA राज व क ओर से/ Revenue by : Smt. Amanpreet Kaur, Sr. DR स ु नवाई क तार#ख/Date of Hearing : 27.03.2023 उदघोषणा क तार#ख/Date of Pronouncement : 04.05.2023 आदेश/Order Per A.D. Jain, Vice President: This is an appeal filed by the Assessee against the order dated 19.11.2018 passed by the ld. CIT(A), Patiala, taking the following grounds of appeal:- 1. That the Ld. CIT(A), Patiala has erred in confirming cash credit of Rs. 46,97,859/- u/s 68 of the Income Tax Act. 2. That the Ld. CIT(A) has erred in confirming the addition of Rs. 46,97,859/- u/s 68 of the Act ibid 138-Chd-2019- Girish Kumar & Sons, Sangrur 2 despite the fact that all the particulars were disclosed. 2. As per the Registry, there is a delay of two days in filing the appeal. According to the application for condonation of delay, the Assessee had forwarded Form No. 36 along with requisite documents through Speed Post bearing No. EP533078085IN on 01.02.2019 anticipating the same to reach well within the limitation of 60 days, however, unfortunately, due to some postal delay, not in the hands of the Assessee, the concerned documents reached two days late. In these facts and circumstances, the delay of two days has been sought to be condoned. 3. Considering the contents of the application for condonation of delay, finding that the Assessee was prevented by sufficient cause from filing the appeal in time, the delay of two days in filing the appeal is condoned. 4. The AO found that the Assessee had made large cash deposits in bank accounts with Axis Bank and IOB, amounting to Rs. 73,15,000/-. It was found that these cash deposits were in excess of Rs. 20,000/-. The Assessee produced a cashbook and stated that the money in question was cash balance as per cash book, deposited in the bank account on different dates. On examination of the books, the 138-Chd-2019- Girish Kumar & Sons, Sangrur 3 AO found that the cash book contained entries of cash of Rs. 20,000/- or just below, credited against the names of a number of parties. The AO asked the Assessee to justify the credits by producing the identity of the creditors, genuineness of the transaction and creditworthiness of the parties. The Assessee could establish the identity of just a few of the parties. The AO observed that there was no cash balance either in the books, or cash withdrawal from the bank accounts to justify any alternative source of cash. The AO further mentioned that from the copy of the accounts, it appeared that a number of creditors had been squared off during the financial year itself and in such accounts, the Assessee had shown cash receipts, each of Rs. 20,000/- or below several times during the year till December 2011, and after December 2011, the Assessee had shown repayment of the same, again, through cash payments and below Rs. 20,000/- each. It was further observed that the Assessee had also shown sales relating to the Rice Bran (R.B. Doc) Tax free of these parties sometime in February 2012 and the Assessee had, in some of the creditors, left very small credit balances at the end of the year. The AO held that the sale of R.B. Doc Tax free had been booked to provide a veneer of legitimacy of the transactions and the entire gamut of transactions did not appear to be in consonance with regular trade practice, or of common sense, especially since the Assessee had failed to produce sale bills, copies 138-Chd-2019- Girish Kumar & Sons, Sangrur 4 of receipts and any other supporting documents for the sales and also did not give any reasons for failure to produce these sale bills. The AO again asked the Assessee to show cause as to why the entire cash introduced should not be added back as the unexplained income of the Assessee. In its reply, the Assessee stated that it had not introduced any cash in the books and that the parties in question were genuine creditors and all the money received were genuine credits which were not utilised by the Assessee for over a month; that the market of the produce DaRB fluctuates and often customers pay an advance, but when the rates are not conducive, the orders are cancelled and the advance is refunded, while when rates are conducive, the orders mature. The Assessee also submitted that the receipt of and repayment of amounts less than Rs. 20,000/- was on account of a bonafide belief that sales transactions in excess of Rs. 20,000/- cannot be done in cash. The Assessee also filed some confirmations before the AO. 5. The AO, however, did not accept the submissions of the Assessee, observing that confirmations of the creditors, wherever filed, were photocopies and not originals, which the Assessee had failed to furnish; that the accounts had been fabricated to manage cash in hand for depositing it in the bank accounts; that the Assessee’s contention that the amounts were in the nature of trade advances and 138-Chd-2019- Girish Kumar & Sons, Sangrur 5 that sales had been booked, which would result in double taxation, was not acceptable, as the advances had been received up to December 2012 and the sales had been made in February 2012; and that the Assessee had failed to produce sale bills in respect of these sales. Relying on various decisions to establish that the advances fell within the ambit of section 68 of the I.T. Act, the AO added the amount of Rs. 46,97,859/- as unexplained cash credits u/s 68 of the I.T. Act. 6. By virtue of the impugned order, the ld. CIT(A) rejected the Assessee’s appeal on this issue. It was observed that the AO had found the Assessee to have introduced unaccounted cash in the business and when asked to explain the same, it tried to explain the same in the guise of trade advances where there was no actual trade and where bogus trade creditors were created, most of which were squared off during the previous year relevant to the assessment year under consideration, whereas in some cases, some sales were booked in R.B.Doc Tax free; that further, there was a common pattern in that amounts were credited, to the tune of Rs. 20,000/- or less, against these parties, as advanced from April 2011 to December 2011 and that thereafter, money had been returned, again, in cash tranches of Rs. 20,000/- and less, which was unlikely to have happened in the case of trade advances; that the Assessee had taken the stand that 138-Chd-2019- Girish Kumar & Sons, Sangrur 6 the deposits were on account of cash advances for supply of goods and that most of the creditors were direct consumers; that there is no legal requirement that while purchasing goods from the dealers or shopkeepers, a purchaser has to produce proof of his identity and capacity to purchase the goods; that the AO could have verified the sale from selected parties, which was not done; and that some confirmations were finished and ledger containing accounts of all the persons or parties who had advanced the money and copies of the some accounts of the requisite depositors had been submitted. 7. The ld. CIT(A) refused to agree with the stand taken by the Assessee. It was observed that there was an internal inconsistency therein, with reference to normal common sense business practices; that the Assessee had admittedly made huge deposits of Rs. 73,15,000/- in its bank accounts; that the Assessee had duly submitted audited books of account before the AO; that the Assessee had sought to explain the deposits through a cash book, wherein, the amounts of Rs. 20,000/- or less stood credited against a number of parties; that the total of such transactions was Rs. 46,97,859/-; that the amounts credited were shown as received before the end of December 2011; that most of the credits were shown squared off by repayment in cash of Rs. 20,000/- and below; that in the remaining cases, either small sales of a Tax free oil item had been shown booked 138-Chd-2019- Girish Kumar & Sons, Sangrur 7 or small credit balances had been shown; that the Assessee could not produce valid confirmation or sale bills or cash receipts from any of the parties. The ld. CIT(A) observed that the transactions recorded by the Assessee in its books qua the cash deposits had been carefully designed not to leave any footprints either in the banks, or with the government / tax authorities; that this was clearly established, as the sales related to a Tax free oil item and the purported advances and repayments were in cash and of Rs. 20,000/- and under; and that the Assessee had not been able to furnish a valid confirmation of sale bill / receipt, which went to belie the Assessee’s arguments; that the Assessee’s arguments regarding the volatility of RC Doc Tax free, the item whose sale had purportedly been booked, were also not supported by any proof / rates, which would explain the behavior of the stated buyers paying small advances before December, 2011 and any cancellation thereafter; that though the Assessee may not be required to remember all the trade buyers, some documentation, with regard to the cash receipts, bills of sales, and methodology for claiming refund, etc., would need to be maintained to manage such large cash advances; and that the Assessee’s transactions fell within the rubric of dubious transactions. The ld. CIT(A) concluded by holding that the deposits in question were not trade advances and that the entire edifice created by the Assessee was an elaborate charade 138-Chd-2019- Girish Kumar & Sons, Sangrur 8 to establish the transactions as trade advances, where the provenance of trade was not established. In this manner, the ld. CIT(A) confirmed the addition of Rs. 46,97,859/- made by the AO. 8. Challenging the impugned order, the ld. Counsel for the Assessee has maintained the stand taken by the Assessee before the authorities below. It has been reiterated that the cash deposits in accounts with Axis Bank and IOB had been made out of cash available in the cashbook from day to day conduct of business; that such receipt of cash entries stood reflected in the cash book and the ledger for the whole of the F.Y. 2011-12, which were produced before the authorities below; that the receipt of cash was during the normal and regular course of day to day conduct of the business of the Assessee; that the deposits were on account of advances of cash by the Assessee’s customers for the supply of goods to them; that most of the creditors of the Assessee were direct consumers of the goods and only a few of them were dealers; that the accounts of the persons / parties who advanced the money to the Assessee for supply of goods were appearing in the ledger which was duly produced; that no law requires that while purchasing goods from the dealer or shop keeper, the purchaser has to produce proof of his identity and capacity to purchase the goods; that the accounts of the customers in the ledger were opened to record the facts regarding the advances given by the 138-Chd-2019- Girish Kumar & Sons, Sangrur 9 customers, adjustment of advances against goods supplied and to find out any outstanding from such customers, or amount returnable to such customers; that this being so, it was meaningless to ask for the identity of each customer and his capacity of purchase; that however, a selected few persons / parties could have been asked for verification of the transactions, etc., whereas, no such requirement was evinced by the AO; that therefore, it was wrong on the part of the AO to add all the advances to the returned income of the Assessee and it was similarly erroneous for the ld. CIT(A) to have confirmed the additions; that moreover, the AO having himself admitted in the assessment order that the identity of a few persons had been given, no weightage with regard thereto however stands given; that the disallowance has, thus been made on the basis merely of conjectures and surmises; that the customers / creditors were existing consumers or businessmen and goods were actually supplied to them; that there was no paucity of funds or money with the Assessee and, therefore, there was no need for the Assessee to have collected deposits from various persons or parties in the guise of advances from customers; that as a matter of fact, the rates of the goods dealt in by the Assessee were fluctuating rates and the customers wanted to be secure to get the supply of the goods at the prevailing rate on a particular date, so as to avoid the risk of loss on account of increase in the rates of the goods booked for; that 138-Chd-2019- Girish Kumar & Sons, Sangrur 10 though for reasons best known to him, the AO did not take any cognizance thereof, it is a fact that some of the persons / parties had furnished their confirmations, admitting to have advanced money to the Assessee for supply of goods and that their accounts had been settled by supplying the goods to them, or otherwise; that complete ledger containing the accounts of all the persons / parties who had advanced money to the Assessee for supply of goods, had been produced and copies of some accounts of the requisite depositors had also been supplied; that as required in the questionnaire issued, in Question No.22 thereof, the complete books of account, bills and vouchers, etc., were produced before the AO and the same were test checked by him; that it does not stand disputed that the accounts of the Assessee were audited accounts and so they cannot be dubbed as having been fabricated; that the Assessee’s Chartered Accountants had checked the books of account with the support of bills and vouchers and no defect therein stood pointed out; that even the AO himself stated to have checked the books of account, bills and vouchers on a test-check basis; that the genuine advances received by the Assessee have wrongly been tainted by the authorities below as cash deposits obtained by the Assessee for its personal needs, or due to paucity of funds, whereas the customers deposited the money with the Assessee as advance to ensure the supply of the goods at the 138-Chd-2019- Girish Kumar & Sons, Sangrur 11 prevailing rate; that the factum of the goods having been supplied to the customers, against which, the advance were received, stands admitted by the AO himself, and there was only a small amount of the advances which remained outstanding and unadjusted at the close of the year; that the fact remains that in the assessment order the AO has himself stated that the Assessee had supplied the goods, adjusted accounts and returned the money in a few cases, whereas a few advances remained with it for supply of goods or repayment as on 31.3.2012; that this itself clearly shows the regular conduct of business by the Assessee on a day to day basis, as accepted by the AO; that therefore, the addition was wrongly made and the same was wrongly confirmed by the CIT(A); that in these facts, the advances having been made for sums of Rs. 20,000/- or less is of no consequence, the substance being that the advances were for the supply of goods and not for any other motive, much less any established by the Department. The ld. Counsel for the Assessee has, thus, requested that the appeal to be allowed by cancelling the addition made and confirmed by the ld. CIT(A). 9. The ld. DR, on the other hand, has placed strong reliance on the impugned order. It has been reiterated that the Assessee deposited huge money in its bank accounts, but the same was not available in its cash book; that the Assessee had failed to prove the 138-Chd-2019- Girish Kumar & Sons, Sangrur 12 identity of most of its creditors; that in a number of cases, the accounts had been squared up during the year itself; that the Assessee had failed to file the sale bills, copy of receipts, vouchers, etc.; that stock was not available with the Assessee throughout the year, as observed by the AO; that the original bills were not produced, but only photocopies were filed; that even no valid confirmations have been filed; and that therefore, there being no force therein, the appeal of the Assessee be dismissed and the well versed order of the ld. CIT(A) be upheld. 10. It is seen that it remains undisputed that the Assessee had made deposits of Rs. 73,15,000/ - in its bank accounts with Axis Bank and IOB. A total of Rs. 46,97,859/- has been shown as received in cash from various persons / parties, as detailed in the assessment order. Such receipt of cash stands reflected in the cash book which was produced by the Assessee before the AO. This fact stands accepted by the AO in the assessment order. Extract of the relevant entries of cash received in the cash book from various persons has been reproduced at pages 7 to 12 of the assessment order, to explain the receipt of cash in the cash book. Though the receipt of cash stand at Rs. 46,97,850/-, the AO observed that the Assessee had no justifiable sources of cash in hand to enable it to deposit the amounts in its bank accounts. No source of cash has been shown so as to 138-Chd-2019- Girish Kumar & Sons, Sangrur 13 enable the Assessee to introduce the same in the cash book, other than the credits in question and a few bank withdrawals. The accounts of the creditors were appearing in the ledger which was produced before the AO. The AO was well within his powers to ask for verification of the transactions, etc., from parties. This, however, was not done, even though the Assessee has specifically stated that the deposits were on account of advances of cash by the customers, who were direct customers, and only a few of them were dealers, for the supply of goods to them. Too, as rightly contended, there is no legal requirement for producing of proof of identity and capacity of purchasers, at the time of purchase of goods from the dealers or shopkeepers. Also, this, despite the fact that the AO has himself admitted in the assessment order that the identity of the some persons had been provided by the Assessee. Remarkably, qua these persons also, no weightage was given by the AO. 11. The above apart, the taxing authorities have failed to establish any paucity of funds or money with the Assessee which would have led to the alleged collection of deposits by the Assessee from the various persons in the garb of advances from customers. It has also not been disputed that the goods dealt in by the Assessee were of fluctuating rates. This being so, it would be a normal business practice for the customers to book the goods in advance, so as to secure the supply of 138-Chd-2019- Girish Kumar & Sons, Sangrur 14 the goods at the rates prevailing on a particular date. This, obviously, would obviate the risk of loss on account of increase in the rates of the goods. 12. Besides, some of the persons had furnished confirmations, admitted having advanced the money to the Assessee for the supply of the goods. The accounts, in these cases, were settled by supplying the goods, or otherwise. The authorities below, remarkably, have not adverted to such confirmations, which have not been disputed as filed. The authorities have, rather, been swayed by the deposits being of Rs. 20,000/- or less, which in our considered opinion, is not of any detriment of the Assessee’s case, in view of the afore-discussed facts, which are patent on record. The books, bills and vouchers, etc., were produced before the AO and were test checked, as noted in the assessment order itself. The books of account are, undisputedly, audited books of account and the Chartered Accountants have certified to have checked the books of account with the support of the bills and vouchers. No defect therein has been pointed out by the Auditors. And not only this, the AO has also admitted that the goods were supplied to the customers, against which, the advances were received, and there was only a small amount of advances which remained outstanding and adjusted at the end of the year. At page 13 of the assessment order, the AO has stated that the Assessee supplied 138-Chd-2019- Girish Kumar & Sons, Sangrur 15 goods, adjusted accounts and returned the money in a few cases and a few advances remained with it, for the supply of goods, or repayment, as on 31.3.2012. Therefore, even the AO himself has not doubted that the Assessee had conducted its business in a regular manner, from day to day, as described by the Assessee. The AO has, thus, made the addition in question on the basis of mutually intrinsically contradictory observations made in the assessment order, which observations are not at all sustainable in the eye of law. The ld. CIT(A) too has not considered the controversy in its proper perspective in the light of the afore-discussed facts and circumstances. 13. The contradiction in the assessment order is also clear from the fact that whereas on the one hand, the AO observed that the Assessee had no money in hand to make the deposits in its bank accounts and deposits were made out of the advances received from the customers, to the contrary, he states that the entire amount of advances received by the Assessee from its customers were unexplained cash credits. To reiterate, even the amounts confirmed to have been paid as advances, were not considered as genuine advance receipt of goods. Not even an attempt has been made to establish the source of the money to make the deposits, in the absence of succeeding to refute the receipts of the amounts as trade advances. The Department, thus, has miserably failed to prove that the apparent 138-Chd-2019- Girish Kumar & Sons, Sangrur 16 is not the real, as required by ‘CIT Vs. Daulat Ram Rawatmull’, 87 ITR 239 (SC). 14. In this manner, looked at from any angle, the order under appeal is a result of mere conjectures and surmises. It is, therefore, not sustainable in the eye of law. The grievance of the Assessee in this regard is, hence, found to be justified and it is accepted as such. The order under appeal is, accordingly, reversed and the addition of Rs. 47,97,859/-, made by the AO u/s 68 of the I.T. Act and confirmed by the ld. CIT(A), is cancelled. 15. In the result, the appeal is allowed. Order pronounced on 04.05.2023. Sd/- Sd/- (VIKRAM SINGH YADAV) ( A.D. JAIN ) Accountant Member Vice President Dated : 04.05.2023 “आर.के.” आदेश क त)ल*प अ+े*षत / Copy of the order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent 3. आयकर आय ु 0त/ CIT 4. *वभागीय त न4ध, आयकर अपील#य आ4धकरण, च6डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड फाईल/ Guard File आदेशान ु सार/ By order, सहायक पंजीकार/ Assistant Registrar