CREATIVE FABRICS, SURAT V. ITO WD 1- BARDOLI, BARDOLI

ITA 183/SRT/2022

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 3047 (ITAT-SURAT)
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 31-03-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 07-06-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Business income; Right to appeal
• Section: 68; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.183/SRT/2022 Assessment Year: (2017-18) (Physical Hearing) Creative Fabrics, Plot No.29, Fairdeal Taxtile Park, Village Mahuvej, Taluka Mangol, District – Surat, 394125, Gujarat Vs. The ITO, Ward – 1, Bardoli èथायीलेखासं./जीआइआरसं./PAN/GIR No: AAIFC4946K (Appellant) (Respondent) Appellant by Shri P. M. Jagasheth, CA Respondent by Shri Vinod Kumar, Sr. DR Date of Hearing 01/04/2024 Date of Pronouncement 10/04/2024 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2017-18, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short “the ld. CIT(A)”], Surat, National Faceless Appeal Centre (in short ‘the NFAC’), dated 23.03.2022, which in turn arises out of an assessment order passed by Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 12.12.2019. 2. The grounds of appeal raised by the assessee are as follows: “1. That, the learned CIT(A) has wrongly confirmed the addition of Rs.27,89,385/- as income without appraising the additional evidences submitted. 2. That, the findings of the learned CIT(A) are not justified and required to be deleted.” 2 183/SRT/2022/AY.2017-18 Creative Fabrics 3. The appeal filed by the assessee for assessment year (AY) 2017- 18, is barred by limitation by 17 days. The assessee has explained the reasons for this minor delay, stating that such delay has occurred due to miscalculation of period while filing the appeal before this Tribunal, therefore such minor delay may be condoned, in the interest of justice. 4. On the other hand, learned Senior Departmental Representative (ld. Sr. DR) for the Revenue argued that assessee has not explained the sufficient cause/ reasons for the delay, therefore, the delay should not be condoned and appeal of the assessee should be dismissed. 5. We have heard both the parties on this preliminary issue. In considering the condonation petition, it is to be remembered that statutes conferring a right of appeal must be construed in furtherance of justice and the provision limiting the time for bringing an appeal must be liberally interpreted, so that the party pursuing such remedy allowed to him by the law is not non-suited on mere technicalities [Chaman Lal Bros. P. Ltd. v. The Punjab State, (1961) 12 STC 643 (Punjab)]. The words “sufficient cause” should receive liberal construction so as to advance substantial justice. Having heard both the parties and taking into account the reasons explained by the Ld. Counsel that delay has occurred due to miscalculation of days of delay by the assessee, we condone the delay of 17 days and admit the appeal of assessee for hearing. 6. Brief facts, as discernible from the orders of lower authorities are that during the assessment proceedings, the assessing officer noticed that there was abnormal increase in cash deposits during demonetization period as compared to pre-demonetization period, by the assessee in his bank account. Accordingly, bank statement of the assessee for the 3 183/SRT/2022/AY.2017-18 Creative Fabrics relevant period was obtained from the bank by the assessing officer. On perusal of same, total cash deposits made by the assessee is summarized as under: Bank Account No Cash deposits during pre- demonetization period Cash deposits during demonetization period Total cash deposit during the year Bank of Baroda (CC A/c) 02600500000154 22,500 53,13,830 53,36,330 On perusal of above, the assessing officer noted that it is clear that there is drastic increase in cash deposits into bank account after the demonetization period. The assessing officer noted that in support of aforementioned cash deposits, only details submitted by the assessee was cash book for the year under consideration and that is also without any supporting documentary evidences i.e. bills/vouchers. Hence, the sanctity of the same remained doubtful. Further, month-wise cash sales for Financial Year (FY) 2015-16 and FY 2016-17, was submitted by the assessee. Further, the assessing officer also noted that the bank account in which cash has been deposited during the demonetization period is a Cash Credit account and it has been noticed that as on 01.04.2016, the assessee had negative balance (debit balance) of Rs.1.38 Crores and the assessee has been paying interest to the bank on the said balance. The assessing officer noted that assessee had furnished self-made cash sales vouchers. On perusal of sales register, it was observed by the assessing officer that tax invoices were made ranging from Rs.20,000/- to Rs.30,000/-, however, the cash sales have been shown ranging from Rs.50,000/- to Rs.60,000/-. In view of the above, the assessing officer observed that the source of cash deposits amounting to Rs.53,13,830/- remained unexplained. Therefore, the same amount of Rs.53,13,830/- 4 183/SRT/2022/AY.2017-18 Creative Fabrics was treated by the assessing officer as unexplained cash credits of the assessee u/s 68 of the Income Tax Act and added to his income. 7. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has partly allowed the appeal of the assessee, observing as follows: 5.1. However, even then, the opening cash balance shown by assessee cannot be ignored. Even without cash sales, assessee was having substantial cash balance in all the months of F.Y. 2015-16. There was a regular cash withdrawal in F.Y. 2015-16. But in F.Y. 2016-17, there was no cash withdrawal till 9.11.2016. In my considered view, the AO was not reasonable in totally ignoring the opening cash balance. In my view, it will be fair and reasonable if benefit to the extent of opening cash balance is given to assessee. Therefore, assesse gets relied of Rs.25,24,445/-.” Therefore, out of total addition of Rs.53,13,830/-, the ld CIT(A) deleted the addition of Rs.25,24,445/-, and hence allowed the appeal of the assessee partly. 8. Aggrieved by the order of ld. CIT(A), the assessee is in further appeal before us. 9. Shri P. M. Jagasheth, Learned Counsel for the assessee, argued that assessee is engaged in manufacturing of grey fabrics and deposited cash in the bank account of Rs.53,36,330/-, out of sale of grey fabric. The Assessing Officer made the addition for the same amount, however the ld. CIT(A) has partly deleted addition taking into consideration, the opening cash balance of the assessee of Rs.25,24,445/- and balance addition was confirmed by ld. CIT(A). The Ld. Counsel submitted that the assessee made the sale during the pre-diwali period and the amount received in cash was deposited in the bank account and during the pre- Diwali period, the assessee even was not aware that there would be announcement on account of demonetization by the Central Government. Hence it is not a planning made by the assessee to defraud 5 183/SRT/2022/AY.2017-18 Creative Fabrics the revenue. However, whatever the cash sale made by the assessee out of his trading sale is genuine sale. Therefore, this is assessee’s business income which has been deposited in the bank account and such sale has suffered tax, as the same has been included in the profit and loss account. The Ld. Counsel also submitted that since the cash receipts were generated out of business activities which were deposited in the bank account, therefore section 115BBE would not attract on the assessee under consideration. Finally, the ld Counsel prays the Bench that addition made by the assessing officer may be deleted. 10. On the other hand, ld. Sr. DR for the Revenue, argued that assessee has not submitted VAT return before the assessing officer. The assessee has also not proved that he had sufficient cash in his cash book and the cash was deposited during the demonetization is out of business income of the assessee. The ld. Sr. DR also submitted that ld. CIT(A) has given part relief to the assessee and therefore assessee does not deserve further relief, hence addition sustained by ld CIT(A) may be upheld. 11. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We note that the assessee made the cash sale during the pre-diwali period and in pre-diwali period, the most of the sale was in cash. Soon after diwali period, there was announcement by the government of India for demonetization of a specified bank note of Rs.500 and Rs.1000, therefore assessee has to deposit the amount in the bank account during the demonetization period. We note that the deposit made in the bank account is out of the cash sales of the assessee`s 6 183/SRT/2022/AY.2017-18 Creative Fabrics business and for that the assessee has produced before the assessing officer, the cash book, bank account, copy of ledger account and Balance Sheet etc. We note that ld CIT(A) has given part relief to the assessee, taking into consideration the opening cash balance in the cash book. However, the assessing officer rejected the cash book of the assessee, at all and made the addition in the hands of the assessee. The ld CIT(A) has accepted the genuineness of the cash book, hence for other cash deposit by the assessee, during the demonetization period, out of the said cash book, should also be treated as genuine cash deposit in the bank account out of the cash sales made by the assessee. 12. We note that prior to the demonization period, the assessee has made cash sales on the occasion of Diwali festival and the same was recorded in the cash book of the assessee and showing the cash balance in the assessee`s cash book, and out of that cash balance, the assessee has deposited the money in the bank account, therefore, it is a genuine money of the assessee, which is out of sale of assessee`s business products/goods, hence such income of the assessee should not be taxable under section 115BBE of the Act, as it is normal business income of the assessee. We also noted that nature of assessee’s business is such that cash transactions are involved, therefore out of cash sale, the assessee has deposited cash during the demonetization period, which should not be treated unexplained money. We note that assessee has submitted tax audit report, audited Profit and Loss Account and Balance sheet for the year ending 31.03.2016. The Audit report was signed on 20.8.2016 i.e. before demonetization was announced. In the audited balance sheet against “Cash and bank”, a figure of Rs.25,29,475/- was shown. On further examination of schedule ‘6’ of the account, the breakup of “cash and bank” was shown as under: 7 183/SRT/2022/AY.2017-18 Creative Fabrics (i) Bank of Baroda Current Account 5,038/- (ii) Cash in hand 25,24,448/- From the above, the ld CIT(A) noted that assessee was having cash balance of Rs.25,24,445/- at the beginning of the financial year 2016-17. Subsequently, in financial year, 2016-17, assessee claimed to have substantial monthly cash sale from the month of April till October. By the end of October 2016, assessee claimed to have cash balance of Rs.60,64,628/-. We note that ld CIT(A) treated the opening cash balance in the cash book as a genuine. However, at the same time, the ld CIT(A) did not believe the closing balance of the cash book, during the demonetization period, as genuine and sustained the addition for the balance amount of Rs.27,89,385/- (Rs.53,13,830 - Rs.25,24,445), which is not acceptable in the eye of law. That is, for a particular transaction, the cash book was treated as genuine and for other particular transaction, the same cash book was treated as ingenuine by ld CIT(A), which is not acceptable and therefore we are inclined to delete the balance addition sustained by the ld CIT(A). However, considering the fact that cash sales was deposited in the bank account during demonetization period, therefore, in our opinion the ends of justice would be met, if a net profit rate of 10% is adopted on the balance, addition sustained by ld CIT(A) to the tune of Rs.27,89,385/-, since, the same would take care of the inconsistencies, if any, in the documents and evidences submitted by the assessee. Therefore, we direct the assessing officer to make the addition in the hands of the assessee to the tune of Rs.2,78,938/- (10% of Rs.27,89,385), which should be taxed under the normal provisions of the Act and not under section 115BBE of the Act, as the assessee had deposited the cash out of business cash sales. 8 183/SRT/2022/AY.2017-18 Creative Fabrics 13. In the result, the appeal of the assessee is partly allowed in above terms. Order is pronounced on 10/04/2024 in the open court. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 10/04/2024 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat