Paras Prints (Pvt.) Ltd., Surat V. Assistant Commissioner of Income Tax, Cir. 2(1)(1), Surat

ITA 273/SRT/2022

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The case involves Paras Prints (Pvt.) Ltd., a company engaged in dyeing and printing in the textiles sector, which appealed against the order of the Learned Commissioner of Income Tax (Appeals) confirming the addition of Rs. 45,00,000 as unexplained cash deposit during the demonetization period. The Assessing Officer had treated these deposits as income from undisclosed sources under section 69A of the Income Tax Act, 1961, due to insufficient explanation of their source. The Tribunal, after examining the detailed submissions and the audited financial records of the company, concluded that the deposits were from legitimate business operations and not unexplained income.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301832 (ITAT-SURAT)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-02-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 21-09-2022
• Other Referred Cases: Kapurchand Shrimal vs. ITO, Navinchandra Mafatlal vs. CIT, ATUL GUPTA V/S ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Deemed to accrue or arise in india; Set aside
• Section: 143(3); 142(1); 143(2); 69A

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.273/SRT/2022 Ǔनधा[रण वष[/Assessment Year: (2017-18) (Physical Court Hearing) Paras Prints (Pvt.) Ltd., 276, GIDC, Pandesara, Surat, Surat-395001. Vs. The ACIT, Circle -2 (1)(1), Surat. (Appellant) (Respondent) èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AABCP3787H Appellant by Shri Ramesh Goyal, AR Respondent by Shri Vinod Kumar, Sr. DR Date of Hearing 24/02/2023 Date of Pronouncement 21/03/2023 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)”], National Faceless Appeal Centre (in short ‘NFAC’), Delhi, dated 29.07.2022, which in turn arises out of an assessment order passed by Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 26.12.2019. 2. The grounds of appeal raised by the assessee are as follows: “1. The Ld. CIT(A) has erred on the fact of the case and in law by not giving speaking finding on ground no.1 relating to vague show case notice. 2. The Ld. CIT(A) has erred on the facts of the case and in law in confirming the addition of Rs.45,00,000/- deposit into bank during demonetization period u/s 69A in spite that transaction has recorded in books of accounts with proper source of deposit. The amount has been deposit. The amount has been deposited out of cash withdrawn from bank and available as cash in hand.” 3. Succinctly, the factual panorama of the case is that assessee before us is a Private Limited Company and filed its return of income for the A.Y. 2017-18 on 17.10.2017 declaring total income at Rs.75,74,170/-. The assessee is engaged in Page | 2 ITA No.273/SRT/2022 Paras Prints (Pvt.) Ltd. the business of dyeing and printing in the textiles sector. For the assessment year under consideration, the assessee has shown income under the head Profit and Gains from Business and Profession. The case was selected for complete scrutiny through CASS and notice u/s 143(2) of the Income Tax Act was issued to the assessee. Subsequently, notices u/s 142(1) dated 05.08.2019 and 17.10.2019 calling for relevant details and documents, were also issued. During the assessment proceedings, various details, documents and explanations relevant to the case have been furnished online by the assessee. 4. On perusal of the details available, it was noticed by the assessing officer that the assessee holds A/c. No.4535002100014069 in the Punjab National Bank and A/c No. 2542201000218 in the Canara Bank wherein the assesses has made cash deposits to the tune of Rs.25,00,000/- and 20,00,000/- respectively totaling to Rs.45,00,000/- during the demonetization period (9 th November, 2016 to 30 th December, 2016). The assessee was required to furnish details of the source of the cash deposits during the demonetization period along with supporting documentary evidences. 5. In response, the assessee has made submissions regarding the source of the cash deposit. The assessee has stated in its explanation regarding source of the cash deposit that withdrawal of cash is a regular feature in its business and the cash that was deposited during the demonetization period had been withdrawn for payment of wages. Since the Rs.500 and Rs.1000 notes ceased to be legal tender with effect from 09.11.2016, these notes which had been withdrawn from bank for payment of wages were deposited back in the bank account. 6. However, Assessing Officer observed that in Gujarat after Diwali there is continuous closure of business activity for at least five days after Diwali, which may extend upto 10 days after Diwali. Moreover, wages and salaries are also given before Diwali invariably by all employers specially when Diwali comes to end of the Month. So in assessee’s case salary must have been paid before Page | 3 ITA No.273/SRT/2022 Paras Prints (Pvt.) Ltd. Diwali since Diwali was on 28.10.2016., the dates of the cash withdrawal in October coincides with the pre Diwali period and therefore it has been understood that the cash withdrawn before Diwali had been paid as wages and salary prior to Diwali. The cash deposited is obviously therefore cash which is other than the cash withdrawn for payment of wages and salary purposes. Therefore, the contention of the assessee appears to be general in nature and it cannot said that the assessee as given any specific detail regarding the source of the cash that was deposited during the demonetization period. The Assessing Officer also noted that assessee has not produced any supporting documents to explain the source of cash deposit. Therefore, Assessing Officer held that in assessee’s case, the source not being known, such deemed income is covered under the provisions of section 69A of the Act in view of the scheme of those provisions. For application of section 69A of the Act, two conditions are required to be satisfied: (i) Investment/expenditure are not recorded in the books of account of assessee; (ii)The nature and source of acquisition of assets or expenditure are not explained or not explained satisfactorily. The expression "nature and source" used in this section should be understood to mean requirement of identification of source and its genuineness. To explain "Nature" it would require the assessee to explain what is description of investment or expenditure period and the manner in which it was done. Therefore, Assessing Officer held that assessee failed to prove the fact that the cash deposited during demonetization period are normal business receipts and therefore, it is held that the amount of deposits made in the bank accounts, including cash deposited during demonetization period, represent income from undisclosed sources. Hence, Assessing Officer held that the assessee has failed to give any satisfactory explanation about the nature and source of cash deposits and hence the unexplained cash deposit of Rs.45,00,000/- was deemed as unexplained money u/s 69A of the Income Tax Act, 1961. 7. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has reiterated the findings of the Page | 4 ITA No.273/SRT/2022 Paras Prints (Pvt.) Ltd. assessing officer and then after confirmed the action of Assessing Officer. Aggrieved by the order of Ld. CIT(A), the assessee is in further appeal before us. 8. Shri Ramesh Goyal, Learned Counsel for the assessee, begins by pointing out that cash was deposited out of the opening balance and the cash in the hand available with the assessee-company. As per the cash book, the cash in hand available with the assessee-company was sufficient, therefore assessee-company has deposited in the bank account, out of the cash in hand available in cash book. The assessee has submitted a table for explaining the cash withdrawals, expenses incurred and the closing balance on monthly basis. As per the assessee the closing cash balance on 08.11.2016 was Rs.69,49,182/-. The assessee submits that Rs. 45 Lacs was deposited out of the amount withdrawn from bank and remained in cash in hand after meeting expenses. The Ld. Counsel also submitted that the amount mentioned in the notice issued by the Assessing Officer, as proposed addition, is different than the actual addition made by the Assessing Officer, therefore order passed by the Assessing Officer is not sustainable in the eye of law. The Ld. Counsel further stated that addition was made by the Assessing Officer, quoting wrong section 69A of the Act, which does not apply to the assessee under consideration. The assessee has furnished the summary of cash, which is placed at paper book page no.6 and stated that assessee was having sufficient cash in hand and the same was deposited in the bank account during the demonetarization period therefore addition made by the Assessing Officer should be deleted. 9. On the other hand, Learned Departmental Representative (Ld. DR) for the Revenue argued that assessee is maintaining books of account and having sufficient balance in the cash book and despite of this, the assessee has withdrawn cash from the bank and kept the hard cash with him without any business purposes, hence explanation of the assessee is not acceptable to the effect that cash was kept for the purpose of payment of salary and wages. The said excess cash in hand was not utilized for payment of wages and salary. No, any intelligent assessee- company kept the idle cash with him. During the Page | 5 ITA No.273/SRT/2022 Paras Prints (Pvt.) Ltd. previous year and during the subsequent years, the cash balance with the assessee is very nominal, however during the year of demonetization, the assessee has managed the cash book to demonstrate that the amount withdrawn from the bank has been redeposited in the bank account, which is nothing but a cooked story therefore ld DR prays before the Bench that addition made by the Assessing Officer should be sustained. 10. 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. Though facts have been discussed in detail in the foregoing paragraphs, however in the succinct manner, the relevant facts and background are reiterated in order to appreciate the controversy and the issue for adjudication.The assesses claims to be in the business of processing of cloths on job work. The business is located in Gujarat. The AO has observed the facts the assessee has made cash deposits of Rs.25 Lacs and 20 Lacs in its bank account in Punjab National Bank and Canara Bank respectively. Thus, the total deposit was Rs.45 Lacs ( Rs.25 Lacs and 20 Lacs), during the demonetization period (09.11.2016 to 30.12.2016). The Assessing Officer concluded that the nature and source of the cash deposited in the bank account to the tune of Rs.45 Lacs was not explained satisfactorily therefore, the same was treated as unexplained money by invoking provisions u/s 69A of the Income Tax Act, 1961. 11. The Ld. Counsel argued before us that the amount mentioned in the notice issued by the Assessing Officer, as proposed addition, is different from the actual addition made by the Assessing Officer, therefore order passed by the Assessing Officer is not sustainable in the eye of law. We do not agree with the proposition canvassed by ld Counsel, as we have gone through para no.2 of assessment order, wherein assessing officer made enquiry about cash deposit of Rs.45 lakhs ( 25 lakhs + 20 lakhs), besides, we have gone through the notice of the assessing officer dated 20.12.2019( vide paper book page no.15), wherein the Page | 6 ITA No.273/SRT/2022 Paras Prints (Pvt.) Ltd. assessing officer asked the assessee to furnish the explanation about cash deposited during demonetization period. Thus, assessing officer made inquiry in para no.2 of his order for Rs.45 Lakhs and finally made addition at Rs.45 Lakhs (vide para no.15 of his order). Hence, we do not find any contradiction so far addition of Rs.45 lakhs is concerned, therefore, contention raised by the ld Counsel is hereby rejected. 12. The Ld. Counsel also argued that addition was made by the Assessing Officer, quoting wrong section 69A of the Act, therefore addition made by assessing officer, is not sustainable in law. We do not agree with ld Counsel and note that just to quote the wrong section by assessing officer, by mistake, does not vitiate the findings of the assessing officer. For this reliance can be placed on the judgment of the Hon`ble Supreme Court in the case of Kapurchand Shrimal, [1981] 7 Taxman 6 (SC), wherein it was held as follows: “13. From a fair reading of section 25A it appears that the ITO is bound to hold an inquiry into the claim of partition if it is made by or on behalf of any member of the HUF which is being assessed hitherto as such and record a finding thereon. If no such finding is recorded, sub-section (3) of section 25A becomes clearly attracted. When a claim is made in time and the assessment is made on the HUF without holding an inquiry as contemplated by section 25A(1), the assessment is liable to be set aside in appeal as it is in clear violation of the procedure prescribed for that purpose. The Tribunal was, therefore, right in holding that the assessments in question were liable to be set aside as there was no compliance with section 25A(1). It is, however, difficult to agree with the submission made on behalf of the assessee that the duty of the Tribunal ends with making a declaration that the assessments are illegal and it has no duty to issue any further direction. It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeals and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by the statute. The statute does not say that such a direction cannot be issued by the appellate authority in a case of this nature. In interpreting section 25A(1), we cannot also be oblivious to cases where there is a possibility of claims of partition being made almost at the end of the period within which assessments can be completed making it impossible for the ITO to hold an inquiry as required by section 25A(1) by following the procedure prescribed therefor. We, however, do not propose to express any opinion on the consequence that may ensue in a case where the claim of partition is made at a very late stage where it may not be reasonably possible at all to complete the inquiry before the last date before which the assessment must be completed. In the instant case, however, since it is not established that the claim was a belated one the proper order to be passed is to set aside the assessments and to direct the ITO to make fresh assessments in Page | 7 ITA No.273/SRT/2022 Paras Prints (Pvt.) Ltd. accordance with the procedure prescribed by law. The Tribunal, therefore, erred in merely cancelling the assessment orders and in not issuing further directions as stated above. 14. We do not, however, agree with the orders made by the High Court by which it upheld the assessments and directed the ITO to make appropriate modifications. Such an order is clearly unwarranted in the circumstances of this case. The order of the High Court is, therefore, set aside. The question referred by the Tribunal to the High Court does not appear to be comprehensive enough to decide the matter satisfactorily. The question may have to be read as including a further question regarding the nature of the orders to be passed by the Tribunal, if the orders of assessments are held to be contrary to law. In the light of the above, we hold that the orders of assessments are liable to be set aside but the Tribunal should direct the ITO to make fresh assessments in accordance with law. 15. The appeals are accordingly disposed of. There shall be no order as to costs” 13. As Per Chagla CJ, Navinchandra Mafatlal v CIT [1955] 27 ITR 245, 261, affirmed, [1961] 42 ITR 53 (SC): “If an order is made by an income-tax Officer and even though he may state that he has not made it under any particular section of the income-tax Act, or even if he may state that he has made it under a particular section, it is for us to decide which is the proper provision of the law under which such an order should have been made.” 14. Therefore, we do not agree with the argument of Ld. Counsel to the effect that addition was made by the Assessing Officer, quoting wrong section 69A of the Act, is not sustainable in law. 15. Coming to the merit of the case, we note that assessee has submitted before us the detail of the cash withdrawal of Bank of Baroda which is reproduced below: “(4) The amount of Rs.45,00,000/- has been deposited Into bank account out of the amount withdrawn from bank and remained as cash in hand after meeting expenses and the details of month of Oct and upto 08/11/2016 is as under; Date Amount Narration 13/10/2016 50,000/- Withdrawn from Bank of Baroda 18/10/2016 15,00,000/- Withdrawn from Bank of Baroda 26/10/2016 30,00,000/- Withdrawn from Bank of Baroda 27/10/2016 30,00,000/- Withdrawn from Bank of Baroda 29/10/2016 5,00,000/- Withdrawn from Bank of Baroda Total 80,50,000/- Page | 8 ITA No.273/SRT/2022 Paras Prints (Pvt.) Ltd. Less: Amount spent out of Above for part exp. Of October month (expenses Rs.84,26,399- opening cash RS.73,39,189/- 10,87,210/- Less: Amount spent out of Above for exp. Upto 08//11/2016 13,608/- Balance as on 08/11/2016 69,49,182/- In view of above details, the amount of Rs.45,00,000/- has been deposited out of Rs.69,49,182/- remained as cash in hand as on 08/11/2016 after meeting the expenses. The amount has been withdrawn on 26/10/2016, 27/10/2016 and 29/10/2016 to meet the expenses for the month of November and to meet any contingency, as per policy of the company.” 16. From the above chart, it is evident that the amount of Rs.45,00,000/- has been deposited out of Rs.69,49,182/-. Therefore, it is accounted money (cash) in books of accounts which have been redeposited in bank account. Hence, source of the cash deposited in bank account has been explained by the assessee with help of the cash book balance. We note that books of accounts of assessee- company are subject to statutory audit and opening and closing balance of cash book have been verified by the auditor. Therefore, genuineness of the cash book cannot be doubted. 17. The Ld. Counsel also submitted before the Bench a comparative position of month-wise opening and closing balance and cash withdrawn from the bank for the period 01.04.2013 to 08.11.2013 and 01.04.2014 to 08.11.2014, which are reproduced below: Page | 9 ITA No.273/SRT/2022 Paras Prints (Pvt.) Ltd. 18. Therefore, the above comparative position of cash withdrawn from the banks and expenses shown by the assesse-company prove that there is no abnormality in the cash withdrawn by the assessee-company, so far the period of 01.04.2013 to 08.11.2013 and the corresponding period from 01.04.2014 to 08.11.2014 are concerned. Considering the above factual position, it can be said that cash withdrawn from bank, and cash expenses made by assessee-company Page | 10 ITA No.273/SRT/2022 Paras Prints (Pvt.) Ltd. during demonetization period are normal as compared to previous years. Therefore, cash redeposited during demonetization period is out of cash in hand available with the assessee-company. The Ld. Counsel also submitted the position of cash in hand and utilization of amount withdrawn from bank against wages and salary for the month of October, especially on the occasion of Diwali festival, which is reproduced below: “The summary of expenses for the month October and up to 08/11/2016 is as under; Particulars Amount (Rs) Amount (Rs.) Opening cash in hand as on 01/10/2016 73,39,189/- 80,50,000/- Add: Amount withdrawn from bank Total 1,53,89,189/- Less: Expenses other than wages and Salaries 86,979/- Less: wages and Salary for the month of September paid 28,90,570/- Less: Wages and Salary for the month of October paid 54,48,850/- 84,26,399 BALANCE AS ON 31/10/2016 69,62,790 Less: expenses form 01 /11/2016 to 08/11/2016 13,608/- Closing cash balance as on 08/1 1/2016 69,49,182/- 19. Furthermore, above chart it is clear that the cash in hand is available with the company after wages and salary for the month of October and therefore we note that addition made by Assessing Officer is not correct. 20. We note that assessee’s books of account were not rejected by the Assessing Officer and hence books result are genuine, therefore once the Assessing Officer has accepted the books of accounts as genuine, the cash balance shown in the cash book should not be treated wrong (not genuine), as the cash book is a part of audited books of accounts. 21. We note that amount was kept by assessee- company for meeting the requirement of expenses and contingency as per policy of company as depict from above and allegation of AO for keeping cash over a long period is not correct as mention in the Assessment order. We note that assessing officer had Page | 11 ITA No.273/SRT/2022 Paras Prints (Pvt.) Ltd. not able to brought any evidences on record which prove that cash in hand was not available with the company on the date of deposit of said amount into bank and moreover cash book having been accepted as genuine by assessing officer, it is proved that cash was available with the assessee- company on the fact of the case and hence the addition cannot be made arbitrary. We note that Coordinate Bench of ITAT Delhi in the case of ATUL GUPTA V/S ITO [142 TAXMANN.COM 36 (ITAT DELHI)] held that “where assessee had explained source of availability of cash with him to deposited into bank accounts, there was no reason to doubt correctness of the claim and no addition on that account could be made to assessee`s income”. 22. Therefore, we note that cash in hand recorded in books of accounts and on the basis of which assessee has been filing the Income tax return, hence in such cases addition should not be made. Based on the facts and circumstances, as narrated above, we delete the addition. 23. In the result, appeal filed by the assessee is allowed. Order pronounced on 21/03/2023 by placing the result on the Notice Board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 21/03/2023 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