M/s Kays Jewels (P) Ltd , Kanpur V. The Pr.Commissioner of Income Tax-I, Kanpur

ITA 60/LKW/2022

AI Insights

The case involves M/s Kays Jewels Pvt. Ltd., which appealed against the order of the Principal Commissioner of Income Tax (PCIT), Kanpur, passed under section 263 of the Income Tax Act, 1961, for the assessment year 2017-18. The PCIT's order was based on the grounds that the original assessment order did not adequately address the issues of unexplained inflated sales post-demonetization and lacked proper examination of transactions with certain creditors. The Tribunal, after considering the detailed submissions, the directions under section 144A, and the provisions of the PMGKY Scheme 2016, found that the original assessment was thorough and correctly applied, leading to the setting aside of the PCIT's revision order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127421 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-03-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 07-04-2022
• Other Referred Cases: Pr. CIT-16, Mumbai Vs. M/s Universal Music India Pvt. Ltd., CIT Vs. G.K Kabra, Synergy Entrepreneur Solutions Pvt. Ltd. Vs. DCIT, Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax, Income Tax Officer Vs. D.G. Housing Projects Ltd., Damini Resorts & Builders (P) Ltd. Vs. Commissioner of Income Tax (Central), Ludhiana, Vardhaman Industries Ltd. Vs. Dy. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEELA CHOPRA
• Keywords: Unexplained cash credit; Business income; Revision of order; Opportunity of being heard; Audit objection; Principle of natural justice; Application of stay; Corroborative evidences; Competent authority; Assessment record; Set aside
• Section: 68; 263; 143(3); 142(1); 234B; 133(6); 143(2); 64; 43

Judgement Text

आयकर अपील य अ धकरण, लखनऊ यायपीठ “बी” ,लखनऊ IN THE INCOME TAX APPELLATE TRIBUNAL, LUCKNOW BENCH “B”, LUCKNOW (THROUGH VIRTUAL HEARING) ी आकाश द प जैन, उपा य एवं ी !व"म $संह यादव, लेखा सद(य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM ITA NO. 60/LKW/ 2022 Assessment Year : 2017-18 M/s Kays Jewels Pvt. Ltd. 24/66, Birhana Road, Kanpur The Pr. CIT-1 Kanpur PAN NO: AABCK3178R Appellant Respondent STAY APPLICATION NO. 01/LKW/2023 (In ITA NO. 60/LKW/ 2022) Assessment Year : 2017-18 M/s Kays Jewels Pvt. Ltd. 24/66, Birhana Road, Kanpur The Pr. CIT-1 Kanpur PAN NO: AABCK3178R Appellant Respondent ! " Assessee by : Shri Swaran Singh, CA # ! " Revenue by : Smt. Sheela Chopra, CIT(DR) $ % ! & Date of Hearing : 06/03/2023 '()* ! & Date of Pronouncement : 25/05/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld. PCIT-1, Kanpur passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’) pertaining to A.Y. 2017-18. Separately, the assessee has also moved a Stay Petition seeking stay of assessment proceedings initiated by the AO pursuant to the impugned revision order passed under section 263 of the Act. 2 2. At the outset, it is noted that subsequent to the filing of the appeal before the Tribunal, the assessee moved a writ petition before the Hon’ble Allahabad High Court and the Hon’ble High Court while disposing off the assessee’s writ petition vide its order dated 28/02/2023 has issued the following directions: “Since the appeal is already pending, we deem it appropriate to observe that the learned President of the Tribunal, if approached by the petitioner along with a copy of this order, may make appropriate arrangement so as to ensure expeditious hearing of the appeal and / or stay application.” 3. Pursuant to the aforesaid directions of the Hon’ble High Court, the Hon’ble President, ITAT vide his order dt. 03/03/2023 has constituted the present Bench to hear the matter through the virtual platform and hence this matter had came up for hearing before us and same was heard on 06/03/2023. 4. Briefly the facts of the case are that the assessee is engaged in the business of manufacturing, trading, sales and export of Gold and Diamond jewellery for the F.Y. 2016-17 relevant to A.Y. 2017-18. The assessee filed its return of income declaring total income of Rs. 9,16,10,910/-. Subsequently, the case was selected for complete scrutiny through CASS to examine cash deposits during the demonetization period. Thereafter notice under section 143(2) and 142(1) were issued from time to time and thereafter, the assessee was issued a show cause under section 142(1) dt. 09/12/2019 specially requiring to explain the source of cash deposits in its bank account and thereafter after considering the submissions filed by the assessee as well as taking into consideration the direction u/s 144A issued by the Ld. Add.CIT, Range -6, Kanpur vide letter no F.No. Add CIT/Rg 6/144A/19-20/771 dt. 26/12/2019, the assessment proceedings were completed accepting the returned income vide order passed u/s 143(3) dt. 29/12/2019. 5. Subsequently, the assessment records were called for and examined by the Ld. Pr. CIT, Kanpur and a show cause dt. 21/03/2022 was issued to the assessee. In the show cause notice, it has been stated by the Ld. PCIT that in the 3 course of review of the assessment records for A.Y. 2017-18, it has been observed that during the demonetization period, the assessee company had deposited a sum of Rs. 24,75,80,000/- and has declared source of the same as receipt from sale of goods in cash before demonetization. It has been further stated by the Ld. PCIT that after demonetization, the assessee had disclosed super profit of Rs. 4.00 crores on the said cash sales and offered it in the Pradhan Mantri Garib Kalyan Yojana (PMGKY) Scheme 2016 and paid due taxes thereon. 6. It has been further stated by the Ld. PCIT that from the details of the assessment records, it is noticed that total sales during the period of 39 days i.e. 01/10/2016 to 08/11/2016 comes to Rs. 33,95,55,859/- and total sales in the preceding six months has been shown at Rs. 29,25,42,304/-. In view of the same, it was observed by the Ld. PCIT that the AO has failed to examine the issue of unexplained inflated sales post demonetization and therefore the order passed by the AO was prima facie held erroneous and prejudicial to the interest of the Revenue and an opportunity was given to the assessee to show cause as to why the assessment order passed by the AO dt. 29/12/2019 should not be set aside. 7. In response to the show cause, the assessee filed its submissions which were considered but not found acceptable to the Ld. PCIT and the assessment order passed by the AO was held as erroneous and prejudicial to the interest of the Revenue and same was set aside and restored to the file of the AO with direction to frame the assessment afresh after undertaking necessary inquiry and verification in respect of cash sales and transaction with creditors as per the books of accounts after providing reasonable opportunity to the assessee. 8. Against the said findings and the directions of the Ld. PCIT, the assessee is in appeal before us and has raised the following grounds of appeal: 1. That the Learned Pr.CIT, Kanpur-1 has erred in law and on facts in invoking the provision of section 263 of the Income Tax Act 1961 without even pointing out in the Notice dated 21.03.2022 as to how and in what manner the impugned Assessment order under reference was erroneous as well as prejudicial to the 4 interest of revenue, therefore, the whole proceeding under section 263 of the Income Tax Act, 1961, concluded vide illegal order dated 31.03.2022, is unsustainable in law and on facts and liable to be quashed. 2. That the Ld. Pr. Commissioner of Income Tax-1, Kanpur has neither herself conducted any enquiry nor got such enquiry conducted on the issue(s) on which the impugned order under section 263 of the Income Tax Act, 1961 has been set aside, therefore, the Pr. Commissioner of Income Tax-1, Kanpur is not justified in exercising powers under section 263 of the Income Tax Act, 1961. 3. That the order No.lTBA/REV/F/REV/5/2021-22/1042357094(l)passed under section 263 of the Income Tax Act, 1961, dated 31.03.2022 was neither issued nor served on the assessee with in the limitation period concluded on 31.03.2022, therefore the said order is barred by the limitation and liable to be quashed. 4. That the reasons for initiating revision proceedings under section 163 of the Income Tax Act, 1961 given in show cause notice u/s 263 of the Income Tax Act, 1961, dated 21/03/2022, are ambiguous, non specific and different from the reasons for which the impugned assessment order has been set aside hence, the said revision order is insupportable in law and on facts and deserves to be quashed and assessment order restored. 5. That the Pr. C.I.T.-l, Kanpur has failed to bring on record lack of enquiry on the part of the AO during the assessment proceedings on the issues dealt with in the proceedings u/s 263 of the Income Tax Act, 1961 therefore, the assumption of jurisdiction under section 263 of the Income Tax Act, 1961 is void ab-initio and the consequent impugned order passed under section 263 of the Income Tax Act, 1961 is unsustainable in law and on facts and liable to be quashed. 6. That the Order passed under section 263 of the Income Tax Act, 1961, by the Ld. Pr. Commissioner of Income Tax-1, Kanpur is contrary to the principles of natural justice and equity arid liable to be quashed. 7. That the twin conditions that the impugned assessment is erroneous and prejudicial to the interest of revenue are totally absent in the facts of the present case hence the order under appeal is bad in law and desereves to be quashed. 8. That the Ld. Pr. C.I.T.-1, Kanpur has erred in law and on facts in not pointing out specifically and categorically as to how the assessment order was erroneous as well as prejudicial to the interest of the revenue, therefore the impugned revision order passed under section 263 of the Income Tax Act, 1961 is liable to be quashed. 9. That the Ld. Pr. C.I.T.-1, Kanpur has erred in law and on facts in not considering the 2 replies running over 700 pages, uploaded by the appellant company on 24.03.2022 and 28.03.2022 on the I.T.B.A. portal and again submitting hard copies on 29.03.2022 during hearing and passing a non speaking and bald order in haste, in an arbitrary, therefore, the order under appeal is unsustainable in law and on facts and deserves to be quashed. 10. That re-assessment proceedings initiated by issue of notice u/s 142(1) of the Income Tax Act, 1961 on 31 st March, 2022 itself may kindly be stayed till disposal of appeal. 5 11. That any other relief or reliefs as your honour may deem fit in the facts and circumstances of the case be granted. 9. During the course of hearing, the Ld. AR submitted that the reasons for which the show cause under section 263 was issued by the ld PCIT are entirely different from the reasons on which the findings in the impugned order have been recorded by the ld PCIT while passing the order under section 263 of the Act. In this regard, our reference was drawn to the show cause notice wherein the Ld. PCIT has alleged that the AO has failed to examine the issue of unexplained inflated sales post demonetization. However, referring to the para 5.2 and para 10 of the impugned order, it was stated that the Ld. PCIT has set aside the assessment order for the reason that the assessment order was passed without examining the increase sales or obtaining corroborative evidence regarding the genuineness of the cash sales for the period 01/10/2016 to 08/11/2016 i.e during the pre demonetization period. In other words, it was submitted that the show-cause refers to sales during the post demonetization period and the findings refers to sales during the pre-demonetization period. 10. It was further submitted that the second reason as mentioned in the impugned order relates to failure of the AO to undertake necessary inquiry and verification in respect of five creditors and particulars are mentioned in para 8b of the impugned order. It was submitted that this issue of examination of the sundry creditors was not at all mentioned in the show cause issued under section 263 of the Act and further even during the course of the revisionary proceedings, no opportunity was provided to the assessee to put forward its explanation regarding these five creditors. 11. It was accordingly submitted that the reasons on which the show cause was issued are entirely different from the reasons on which the impugned order has been passed and therefore on this ground itself, the impugned order is unsustainable in law and liable to be quashed and in support, reliance was 6 placed on the Hon’ble Bombay High Court decision in case of Pr. CIT-16, Mumbai Vs. M/s Universal Music India Pvt. Ltd. (ITA No. 238/2018 dt. 19/04/2022), decision of Hon’ble Andhra Pradesh High Court in case of CIT Vs. G.K Kabra (1995) 211 ITR 336 and the decision of the Coordinate Mumbai Benches in the case of Synergy Entrepreneur Solutions Pvt. Ltd. Vs. DCIT (ITA No. 3076/Mumbai/2010). 12. It was further submitted that during the proceedings under section 131(1A) of the Act, the Ld. D.D.I.T.(INV.)-1, Kanpur enquired in detail about the sales, purchases, sundry creditors, inventory and cash deposit etc. In this regard the details of summons / notices issued by the DDIT(Inv)-1, Kanpur as well as relevant submissions filed by the assessee are as under: S.N Date P.B. No. of Notice P.B. No. of Reply 1. 6.2.2017 Summons to assessee/witness u/s 131(1A) of the Income Tax Act, 1961 dated 06.02.2017 in which the Ld. D.D.I.T.(INV.)-1, Kanpur enquired about : i)Cash Book for the period from 01.04.2016 to till date of Notice. ii)Monthwise Summary of Stock for the period from 01.04.2016 to till date of Notice. iii)Stock Register from 01.04.2016 to till date of notice iv)Sale Purchase Register for the period from 01.04.2016 to till date of Notice. v)Name and address of supplier of material vi)Details of all bank accounts along with details of Cash deposit of each account from 01.11.2016 to till date of Notice. 1 7 2. 28.2.2017 In response to above notice issued u/s 131(1A) of the Income Tax Act, 1961 dated 06.02.2017, the assessee filed reply dated 28.02.2017 attached at P.B. No. 4 along with said reply following documents were also attached: a)Complete Return of Income b)Cash Account c)Monthwise summary of stock for the period from 01.04.2016 to 06.02.2017. d)List of Supplier for period from 01.04.2016 to 06.02.2017 along with respective ledger account in the books of assessee. e)Details of Bank Account maintained by the assessee. f)Details of Cash Deposit during the period 01.11.2016 to 06.02.2017 5 – 43 44-298 299 – 350 351-455 456 457 13. It was further submitted that thereafter during the course of assessment proceedings, the matter was again enquired by the AO and the details of relevant queries raised in the notice issued under section 142(1) of the Income Tax Act, 1961, dated 11.03.2019 (appearing at P.B. No. 458-464) and reply filed by the assessee during the course of assessment proceedings are as under:- S.N. Nature of Query Reply filed by the appellant (assessee) P.B. No. of Reply of appellant (assessee). 1. Furnish copies of Balance Sheet, Statement of Profit & Loss Account and Tax Audit Report along with all its enclosures. Also furnish copy of ITR, ITR-V & Computation of Income Reply dated 18.03.2019 along with Annexure 465-466 7. Furnish copies of last three assessment order(s) passed under section 143(3), if any. 8. Furnish details of all bank accounts held during the year under consideration and furnish copy of statement(s). 17. Furnish the details of Sundry Creditors Reply dated 18.03.2019 along with details of Sundry Creditors 465-466 467 19. Furnish comparative details of turnover, gross profit & its % for three previous years along with reasons for fall/fluctuation in GP/ GP Rate, including justification for increase/ decrease in expenses debited in trading and P & L Account. 8 33. Provide the copy of Service Tax Return filed with VAT Deptt. If there is any difference in the turnover reported in the ITR and as shown in VAT Return, please explain discrepancy along with supporting evidences. VAT Return for Sales filed 491-591 14. It was further submitted that subsequently, another notice under section 142(1) of the Income Tax Act, 1961, dated 16.10.2019 (appearing at P.B. No. 469- 473) was issued by the AO and in response, the assessee filed its reply and submissions during the course of assessment proceedings and the details thereof are as under:- S.N. Nature of Query Reply filed by the appellant (assessee) P.B. No. of Reply of appellant (assessee). 1. It has been noticed that during demonetization period, a sum of Rs.24,75,80,000/- has been deposited in bank account(s). In this regard the assessee required to furnish Month-wise details of cash receipt for the F.Y. 2015-16 & 2016-17 Reply dated 01.11.2019 along with Annexure 474-476 2. Details of Cash deposited in bank from 8 th Nov.2016 to 31 st Dec. 2016, it has been noticed that an amount of Rs.18,50,00,000/- have deposited in cash in CC A/c. No. 32207138788 with SBI Phool Bagh Branch, Kanpur, but the perusal of Bank account statement it is noted that on 10.11.2016 in this account only Rs.6,00,00,000/- have been deposited. Reply dated 01.11.2019 showing monthly details of cash receipts and cash deposited along with copy of Pay-in-slip. 477-480 481-490 3. Furnish copies of monthly VAT Returns for the Period 01.04.2016 to 31.03.2017 Submitted along with Reply dated 01.11.2019 491-591 4. Furnish Month-wise details of purchases and sales effected during the F.Y. 2015-16 & 2016- 17. Filed on 01.11.2019 Purchases Sales 592-593 594-595 5. Furnish copies of Ledger Account in respect of purchases and sales made during 01.10.2016 to 30.12.2016 along with all bills of purchases. Filed on 01.11.2019 Purchases Sales 596-632 633-783 6. It is noticed that during the year under consideration the assessee purchased old gold at Rs.11,14,82,685/- as against preceding year’s figure of Rs.4,55,98,436/-, furnish copy of Ledger account in respect of old gold purchased during F.Y. 2016-17. Also furnish details of parties from whom old gold has been purchased. Filed on 01.11.2019 Sale/Purchases 474-476 783-827 9 7. Details of “Other Expenses,” it is noticed that though sales have been increased during the year under consideration, cost of packing material has decreased from Rs.29,92,605/- to Rs.18,91,609/-, please explain how this has become possible. Reply dated 01.11.2019 Point No.8 475 9. From the perusal of detail of “Other Expenses,” it is noticed that during the year under consideration “Fabrication Charges” have increased from Rs.62,18,325/- shown in the immediately preceding year to Rs.1,34,63,005/- though the sales almost remained the same in both the years. Please furnish copy of ledger account in respect of Fabrication charges for the period 01.04.2016 to 31.03.2017. Reply dated 01.11.2019 Ledger A/c of Fabrication Charges 474-476 828-833 11. Produce all the books of account and other relevant document for verification. During the Assessment Proceedings complete Books of Accounts, Stock Register, Bills and Vouchers, cash memo etc. produced for verification vide last Para of reply dated 01.11.2019. 476 15. It was submitted that the AO thereafter issued another notice issued under section 142(1) of the Income Tax Act, 1961, dated 16.11.2019 (appearing at P.B. No. 834-835) and in response, reply filed by the assessee during the course of assessment proceedings read as under:- S.N. Nature of Query Reply filed by the appellant (assessee) P.B. No. of Reply of appellant (assessee). 1. Furnish details of Purchases during the demonetization period along with Bank Account Statement. Reply dated 19.11.2019 along with Annexure 836 837-945 2. Furnish copies of Ledger Account of parties from whom purchases were made during the period from 1.10.2016 to 31.12.2016 Reply dated 19.11.2019 along with Annexure 836 946-989 16. It was further submitted that the AO thereafter issued a show cause notice under section 142(1) of the Income Tax Act, 1961, dated 09.12.2019 (appearing at P.B. No. 1170-1177) and in response, the assessee filed its submissions and the details thereof are as under:- 10 S.N. Nature of Query Reply filed by the appellant (assessee) P.B. No. of Reply of appellant (assessee). 1. The assessee required to explain such a huge alleged cash sales of Rs.33,95,55,850/- during the period 01.10.2016 to 08.11.2016 (Kanpur + Noida Unit) along with corroborative evidences Reply dated 17.12.2019 Refer Point No. 9 of aforesaid Reply. 1178-1182 17. It was further submitted that the AO issued another notice issued under section 142(1) of the Income Tax Act, 1961, dated 28.12.2019 (appearing at P.B. No. 1187-1188) and the details of reply filed by the assessee during the course of assessment proceedings are as under:- S.N. Nature of Query Reply filed by the appellant (assessee) P.B. No. of Reply of appellant (assessee). 1. As per 3CD Report the Turnover of the company has shown at Rs.1,17,21,03,124/- during the year under consideration as against turnover of the immediately preceding year at Rs.1,03,31,20,315/- and it was found that GP Rate for the year under consideration has been shown at Rs.16.20% as against the G.P. Rate of Rs.16.41% in the immediately preceding year, explain the reason of Low G.P. Reply dated 28.12.2019 Refer Point No. 1 of aforesaid Reply. 1189-1190 2. The assessee was required to prove genuineness of following Sundry Creditors and produce relevant documentary evidences: 1.Mool Chand Jain HUF Rs.12579380/- 2.N.P. Diamond Pvt. Ltd. Rs. 4243240/- *3.Ginger Realtors Pvt. Ltd. Rs. 4916868/- 4.Saffron Gems Pvt. Ltd. Rs.20476105/- 5.Antique Exim Pvt. Ltd. Rs.14846852/- Reply dated 28.12.2019 along with confirmation of Account of following Sundry Creditors: 1.Mool Chand Jain HUF Prop. of SankalpDiam Exports 2.N.P. Diamond Pvt. Ltd. 3.S.M. Diamonds Pvt. Ltd. 4.Saffron Gems Pvt. Ltd. 5.Antique Exim Pvt. Ltd. 1267-1268 1270 1269 1273 1272 1271 18. It was accordingly submitted that the A.O. has examined the issue of sales at length and has inter-alia enquired and examine the following information/documents submitted by the assessee during the assessment proceedings: “i) Monthly VAT Return filed by the assessee with the VAT Department for the year under consideration appearing at Paper Book No. 491 to 591. ii) Examine the G.P. Rate and explanation thereto which was filed by the assessee in para 1 of reply dated 28.12.2019 appearing at P.B. No. 1189-1190. 11 iii) Monthwise purchase and sales enquired vide Notice issued under section 142(1) of the Income Tax act, 1961 dated 16.10.2019 and reply filed by the assessee dated 01.11.2019 appearing at P.B. No. 594-595 and 633-783. iv) Examine the Cash Sales during the period 01.10.2016 to 08.11.2016 vide query raised in the Notice issued under section 142(1) of the Income Tax Act, 1961 dated 09.12.2019 (P.B. No. 1170-1177), and assessee filed reply vide Point No. 9 dated 17.12.2019 appearing at P.B. No. 1178-1182. v) The Ld. A.O. required to submission of complete books of account, bills and vouchers vide Notice issued under section 142(1) of the Income Tax Act, 1961 dated 16.10.2019 (P.B. No. 469-473). The assessee produced complete books of account such as Ledger, Cash Book, Stock Register, Bills & Vouchers, Cash Memo for verification of the A.O., which was checked by him. Refer second last Para of assessee’s reply dated 01.11.2019 appearing at P.B. No. 476. vi) Vide reply dated 01.11.2019 Ledger of Sales were submitted for the period 01.10.2016 to 30.12.2016 at P.B. No. 133-783. vii) The Ld. A.O. required month-wise details of cash receipts and cash sales for the Financial Year 2015-16 and 2016-17 as per Format given in Page No. 472 to 474, which was filed by the assessee vide reply dated 01.11.2019 at P.B. No. 477- 480.” 19. It was accordingly submitted that the above facts clearly demonstrate that the A.O. has examined in detail the sales made by the assessee during the year under consideration including cash sales and sales during the pre- demonetization period. The Ld. PCIT neither brought any material nor undertaken any enquiry by himself to prove as to how the assessment order passed under section 143(3) of the Income Tax Act, 1961 is erroneous as well as prejudicial to the interest of the Revenue. 20. It was further submitted that subsequently, the ld. JCIT, Range-6, Kanpur also issued direction under section 144A of the Act dt. 26/12/2019 in relation to sales and cash deposit and which have been duly taken into consideration by the AO while passing the assessment order and nothing has been stated by the Ld. PCIT as to infirmity in the said directions so passed by the JCIT, Range-6, Kanpur and which has been followed by the AO while passing the assessment order. 12 21. It was further submitted that the assessee had disclosed profit of Rs. 4.00 Crores under the PMGKY Scheme 2016 and the same has been duly taken into consideration by the ld JCIT, Range-6, Kanpur while issuing directions under section 144A of the Act. It was submitted that while the said declaration under the PMGKY, Scheme 2016 has been accepted by the Department, a fact which is not disputed by the Ld. PCIT, at the same time, the Ld. PCIT has gone ahead and invoked his jurisdiction under Section 263 of the Act. It was submitted that once the income has been declared under the PMGKY, Scheme no further addition can be made in the hands of the assessee and reference was drawn to the PMGKY Scheme 2016 as brought in by the Taxation Law Second Amendment Act, 2016. 22. It was further submitted that there was a Revenue audit objection and the A.O. in its status report in respect of the Revenue Audit objection for the impugned assessment year i.e, A.Y. 2017-18 submitted to Pr. C.I.T.-1, Kanpur through Letter No. ACIT-4/KNP/RAP/2021-22/216 dated 05.10.2021, has stated as under: “...5.On the other hand, keeping in view the reply of the assessee company vide letter dated 17.12.2019 (copy enclosed), the assessee company has presented a chart from F.Y. 2014-15 to F.Y. 2017-18 wherein it has been stated that the peak sale starts before 10 days of Deepawali to after 10 days of Deepawali i.e. 20 days. The total sales for last three years during Deepawali season is given as under: F.Y. No. of days Date Average per day sale 2014-15 20 14.10.2014 to 03.11.2014 Rs. 43,19,431/- 2015-16 20 02.11.2015 to 22.11.2015 Rs. 57,29,118/- 2016-17 20 21.10.2016 to 08.11.2016 Rs.1,12,75,477/- 6. On going through the above chart, the observation of the RAP, that the average per day sale during 01.10.2016 to 08.11.2016 at Rs.15,98,591/- is totally wrong and based purely on assumption and not based on correct appreciation of Deepawali Season Sales which is an important and significant feature in jewellery trade. The Presumption of RAP of increase of 15% in sales during Deepawali is absolutely without any basis and unfounded looking to the figures of F.Y. 2014-15 and F.Y. 2015-16 and specifically on the fact that the scrutiny assessment had already been made in both the years and no adverse inference in this regard was noticed. 13 7. The additional profit of Rs.4 crore which was disclosed under PMGKY Scheme 2016 by the assessee company has been worked out as under: Sl. No. Particulars Amount (Rs.) 1 Total cash (SBN deposit with banks) 21,91,86,000 2 Estimated profit on cash sales 7,54,87,658 3 G.P. Rate as per books of accounts 16.20% 4 Gross profit as per books of accounts as per (1) above (1 X 3) 3,55,08,132 5 Difference (2-4) Additional profit Rs.3,99,79,526 Or say Rs.4 crore. 8. The aforesaid Rs.4 crore was declared by the assessee under PMGKY Scheme 2016 hence no further addition was required on cash sales. During the assessment proceedings the AO in his office note dated 29.12.2019 (copy enclosed) has remarked that “the entire sale and purchases were fully verifiable and stock register is also maintained transaction wise and the trading results deserve to be accepted. During the course of assessment proceedings, on examination of books of accounts on test check basis, purchases, sales were found vouched. Hence no adverse inference has been drawn...” 23. It was accordingly submitted that the impugned revision order on the issue of cash sales / sales during the pre-demonetization period is unsustainable in law and liable to be quashed as the same is made purely based on audit objection even though the AO has given his report stating that no adverse inference can be drawn. 24. On the issue of sundry creditors, it was submitted that firstly this issue was not raised in the show cause notice by the ld PCIT hence the findings of the Ld. PCIT regarding the non verification of sundry creditors cannot be sustained. It was further submitted that even during the course of revisionary proceedings, no opportunity was provided to the assessee and the assessee came to know about the findings of the ld PCIT only on receipt of the impugned order. It was accordingly submitted that the assessee has been clearly denied an opportunity of being heard and the findings of the ld PCIT in this regard cannot be sustained in the eyes of law. 25. It was further submitted that without prejudice to the above, during the course of assessment proceedings, the Ld. A.O. asked for the confirmation of 14 aforesaid seven Sundry Creditors directly under section 133(6) of the Income Tax Act, 1961, from whom the assessee had purchased the goods for its business. It was submitted that two Sundry Creditors namely Laxmi Jewellery Export Pvt. Ltd. and Shreejee Jewellers Pvt. Ltd. have confirmed directly to the A.O. for outstanding balances as on 31.03.2017. The assessee filed the necessary confirmation in respect of four Sundry Creditors and also informed the Ld. A.O. about M/s. Ginger Realtors Pvt. Ltd. vide reply dated 28.12.2019 (P.B. No.1190) as under: “....Due to an inadvertent mistake, the PAN Number of M/s. S.M. Diamonds Pvt. Ltd. (PAN AAKCS8146C) was wrongly mentioned in the list of Sundry Creditors submitted earlier as AAKCS3146C which is the PAN of M/s. Ginger Realtors Pvt. Ltd. Copy of Account duly confirmed by M/s. S.M. Diamonds Pvt. Ltd. showing closing balance at Rs.49,16,868.38 is attached as per Annexure-2, for verification of correct PAN and confirmation of balance outstanding as at 31.03.2017....” 26. It was submitted that the assessee filed the confirmation relating to other five Sundry Creditors, already taken at the time of Audit, before the Ld. A.O. during assessment proceedings. Copy of which is enclosed at P.B. No. 1269- 1273. It is further submitted that balances appearing as on 31.03.2017 in respect of above Sundry Creditors were paid by the assessee and the same is evident from the copy of List of Sundry Creditors filed along with Audited Balance Sheet for the Financial Year ended on 31.03.2018. This Balance Sheet as on 31.03.2018 was filed before the completion of assessment proceedings for the Assessment Year 2017-18 along with return of income for the Assessment Year 2018-19 on 10.09.2018. The details in respect of five Sundry Creditors is reproduced as under:- S.N. Name of the Sundry Creditors for purchase of Goods Balance as on 31.03.2018 Balance as on 31.03.2017 Copy of Confirmation at P.B. No. 1. M/s. S.M. Diamonds Pvt. Ltd. 3,22,330.38 49,16,868.38 1273 2. M/s. Sankalp Diam Exports Nil 1,25,79,380.00 1270 3. M/s. Saffron Gems Pvt. Ltd. Nil 2,04,76,105.00 1272 4. M/s. N.P. Diamonds Pvt. Ltd. Nil 42,43,240.00 1269 15 5. M/s. Antique Exim Pvt. Ltd. Nil 1,48,46,852.00 1271 27. It was further submitted that complete books of account, bills and vouchers were produced before the A.O. during the assessment proceedings. Copies of Bill of Purchases relating to aforesaid 5 Sundry Creditors are enclosed at P.B. No.1277-1293. It was submitted that purchases have been accepted by the A.O. and no adverse inference has been taken in the proceedings under section 263 of the Income Tax Act, 1961 by the Pr. C.I.T.-1, Kanpur. Under these circumstances no adverse inference relating to the aforesaid five Sundry Creditors can be taken. Reliance is placed on the judgment of Hon’ble Allahabad High Court in the case of Commissioner of Income Tax, Agra Vs. Pancham Dass Jain [2006] 156 Taxman 507 (All.). In view of aforesaid facts and order passed under section 263 of the Income Tax Act, 1961 is unsustainable in law and liable to be quashed. 28. It was submitted that in the present case, the Assessing Officer has made requisite enquiries relating to sale and sundry creditors/purchases and there is no lack of enquiry, the Pr. C.I.T. Kanpur-1, had not examined and verified the transactions/issue herself and not given finding on merits. Under these circumstances, the Pr. Commissioner of Income Tax-1, Kanpur has again directed the A.O. to conduct further enquiry to verify and finding out whether the order passed is erroneous or not. Under these circumstances, the impugned order passed under section 263 of the Income Tax Act, 1961 is unsustainable in law and liable to be quashed. 29. In support, reliance was placed on the Judgment of Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax [2000] 109 Taxman 66 (SC), wherein the Hon’ble Supreme Court held as under: “....9. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO 16 adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law....” 30. Reliance was also placed on the Judgment of Hon’ble Delhi High Court in the case of Income Tax Officer Vs. D.G. Housing Projects Ltd. [2012] 20 taxmann.com 587 (Delhi), wherein the Hon’ble Delhi High Court held as under: “...19. In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent‟s computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not......” 31. Reliance was also placed on the decision of I.T.A.T. Chandigarh Benches in the case of Damini Resorts & Builders (P) Ltd. Vs. Commissioner of Income Tax (Central), Ludhiana [2015] 64 taxmann.com 449, wherein it was held as under : “....22. Considering the facts of the case in the light of the above discussion and decisions, it is clear that the Assessing Officer has accepted the claim of assessee on raising a proper query and documents/details produced before him on which the proposed proceedings under section 263 have been initiated. The similar claims have been accepted in earlier years by the Assessing Officer. Therefore, when the Assessing Officer adopted one of the courses admissible in law, the view taken by the Assessing Officer was held not to be unsustainable in law. The 17 Ld. CIT should not substitute the opinion of the Assessing Officer on the same facts in proceedings under section 263 of the Act. It would, therefore not give revisional jurisdiction to the Ld. CIT to set aside the assessment order in question....” 32. Reliance was also placed on the decision of I.T.A.T. Chandigarh Benches in the case of Vardhaman Industries Ltd. Vs. Dy. Commissioner of Income Tax [2017] 82 taxmann.com 118, wherein it was held as under: “....We see in the present case, the learned Commissioner of Income Tax himself has not given any concrete finding as to the merits of the case and has directed the Assessing Officer to make further enquiry. In view of this, we hold that the assumption of jurisdiction under section 263 of the Act by the learned Commissioner of Income Tax is not as per law....” 33. Per contra, the Ld. CIT DR relied on the findings of the Ld. PCIT and our reference was drawn to the findings contained at para 7 to 10 of the impugned order which read as under: “7. The date fixed for compliance was 25.03.2022. The assessee filed part reply on 25.03.2022. On the request of the assessee, the case was adjourned to 29.03.2022 on which date more written submissions were filed. The gist of the assessee's submissions are as follows: a. The unilateral comparison of sales from 01.04.2016 to 30.09.2016 and from 01.10.2016 to 08.11.2016 done in the show cause notice by the AO dated 09.12.2019 was not correct and was explained in details by the assessee in its reply dated 17.12.2019. It is common knowledge that around Deepawali festival, sale of gold, silver and diamond jewellery is exponentially higher compared to any other period in the remaining year because it is a customary in India to buy Gold and Silver items and jewellery preceding fortnight around Deepawali particularly, on dhanteras, chhoti Deepawali and Deepawali as well as it continues for few more days after Deepawali. b. The assessee has also placed reliance in the cases of Sreelekha Banerjee Vs. CIT (1963) 49 ITR (SC), Lalchand Bhagat Ambica Ram Vs.CIT (1959) 37 ITR 288 (SC), Mehta Parikh and Company Vs. CIT (1956) 30 ITR 181 (SC), R.B. essaram Fatehchand (Super Deptt.) Vs. CIT (1970) 75 ITR 33, Kishore Jeram Bhai Khaniya Vs. ITO (ITAT Delhi) (ITA No.1220/Del./2011) etc. 8. The assessment records have been perused and the submission of the assessee has been considered from which the following facts emerge: a. In the course of assessment proceedings the assessee had submitted that in jewellery business sale volumes increase during the fortnight of Deepawali viz., 18 Danteras, Choti Diwali and Diwali and a few days afterwards. However, a comparison of the sale over 20 days (Diwali festival season) of FY 2014-15; 2015- 16; 2016-17 is reproduced below: F.Y. No. of days Date Average per day sale 2014-15 20 14.10.2014 to 03.11.2014 43,19,431/- 2015-16 20 02.11.2015 to 22.11.2015 57,29,118/- 2016-17 20 21.10.2016 to 08.11.2016 1,12,75,477/- b. From the foregoing it is clear that the per-day sale during the festive period of FY 2016-17 has increased by 197% as compared to FY 2015-16 which, in turn, had registered an increase of only 30% over 2014-15. Further, the assessment folder shows that the Assessing Officer had issued notices u/s 133(6) to the following seven creditors for obtaining details of transactions during the financial year:- 1. Laxmi Jewellery Export Pvt. Ltd. 2. Shreejee Jewellers Pvt. Ltd." 3. Mool Chand Chain, HUF . 4. N.P. Diamonds Pvt. Ltd. 5. Ginger Realtors Pvt. Ltd. 6. Saffron Gems Pvt. Ltd. 7. Antique Exim Pvt. Ltd. c. However, replies were received only from creditors listed at si. no. 1 and 2 above. By notice dated 28.12.2019 the assessee was informed about the non-compliance by the remaining five creditors. On the same date the assessee submitted copies of account by the concerned parties. The AO did not press for independent verification nor was further effort made to verify other creditors. The submission of details of assessee's account in the books of creditors cannot be accepted as meeting the yardstick of independent verification of creditors as envisaged in the I T Act, 1961. d. The failure of the Assessing Officer to verify the genuineness of cash sales and to seek independent proof of business transaction from creditors to whom notices were issued leads the undersigned to conclude that the assessment order for A.Y. 2017-18 is erroneous and prejudicial to the interest of revenue as it has resulted in loss of revenue which was legally due to the exchequer. 9. I have gone through the judgements placed by the assessee company. It is noticed that the facts and circumstances of the case of the assessee is different from the cases decided by the above judgements. 10. In the light of the discussion above I am of the considered view that the assessment order passed on 29.12.2019 is erroneous and prejudicial to the interest of the revenue. Accordingly, in exercise of powers conferred u/s 263 of income Tax Act, I set aside the aforesaid assessments order and restore the same to the file of the Assessing Officer with directions to frame the assessment afresh after undertaking necessary inquiries and verification in respect of the cash sales and transactions with creditors as per the books of accounts. The Assessing Officer 19 shall allow reasonable opportunity of being heard to the assessee before passing the order. 34. We have heard the rival contentions and purused the material available on record. The ld PCIT in the impugned order has raised two issues as to why she was of the opinion that the assessment order passed u/s 143(3) was erroneous in so far as prejudicial to the interest of the Revenue. The first issue relates to genuineness of cash sales undertaken by the assessee during the period 01/10/2016 to 8/11/2016 prior to demonetization and as per the ld PCIT, the AO has failed to verify the genuineness of cash sales undertaken by the assessee during the said period. The second issue relates to verification of certain specified creditors and as per the ld PCIT, the AO has failed to independently verify the business transactions with certain specified creditors. 35. Firstly, coming to the second issue of verification of sundry creditors, it has been submitted by the ld AR that the matter relating to examination of the sundry creditors was not raised in the show cause issued by the ld PCIT under section 263 of the Act and further even during the course of the revisionary proceedings, no opportunity was provided to the assessee by the ld PCIT to put forth its explanation regarding these creditors. It has accordingly been contended that the impugned order has been passed without providing an opportunity of being heard to the assessee and thus, the same deserve to be set-aside being in complete violation of basic cannon of justice that the assessee be allowed an opportunity of being heard before any adverse view is taken in its case. 36. There is no dispute on the legal proposition so canvassed by the ld AR that the assessee deserve an opportunity of being heard before the ld PCIT passes an order setting aside the assessment order holding the same to be erroneous in so far as prejudicial to the interest of Revenue. More so, where the principle of natural justice has been ingrained in the statue itself while providing such powers 20 to the ld PCIT where she intends to unsettle a settled position emerging out of tax filings of the assessee which have been examined by the Assessing officer. It is equally a settled position that the powers of the ld PCIT are not limited to the matters contained in the initial show-cause notice, and therefore, during the course of revisionary proceedings, where she come across other matters, she is equally empowered to enquire about the same and pass appropriate orders. All that is required is that before recording any findings where are adversial in nature and which result in unsettling the position which has been accepted in the past, the assessee be put to notice and be allowed a reasonable opportunity of being heard and to put forward its defence/submissions. 37. In the instant case, on perusal of the show-cause notice dated 21/03/2022, we find that the matter relating to sundry creditors has not been raised by the ld PCIT. Further, as regards allowing an opportunity during the course of the revisionary proceedings, there is nothing on record and further, the ld CIT/DR couldn’t rebut the submissions so made by the ld AR that no such opportunity was provided to the assessee. We therefore find that it is a matter of record that the assessee was not provided any opportunity either as part of the initial show-cause notice or even during the course of the revisionary proceedings in this regard and therefore, the findings which have been recorded by the ld PCIT, holding the assessment order as erroneous in so far as prejudicial to the interest of the Revenue on account of non-verification of the business transactions with the sundry creditors on an independent basis, thus deserve to be set-aside at the very threshold. In view of the same, it is not necessary to dwelve further in the matter relating to sundry creditors as to whether the same were examined by AO or not and the other contentions raised by the ld AR are thus left open. 38. Coming back to the first issue relating to genuineness of cash sales undertaken by the assessee during the period 01/10/2016 to 8/11/2016, we find 21 that the AO has issued a specific show cause notice u/s 142(1) dated 9/12/2019 during the course of assessment proceedings and the contents thereof read as under: “Notice under sub-section (1) of Section 142 of the Income Tax Act, 1961 Sir/ Madam/ M/g, In connection with the assessment for the assessment year 2017-18 you are required to: a) Furnish or cause to be furnished on or before 12/12/2019, at 06:29 PM the accounts and documents specified overleaf. b) Furnish and verified in the prescribed manner under Rule 14 of I.T Rules 1962 the information called for as per annexure and on the points or matters specified therein . on or before 12/12/2019 at 00:29 PM, c) The above mentioned evidence/information is to be furnished online electronically in 'E-Proceeding' facility through your account in e-filing' website of Income Tax Department. d) Para(s) {a) to (c) are applicable if you have an account in e-filing website of Income Tax Department. Till such an account is created by you, assessment proceedings shall-be carried out either through your e-mail account or manually (if e-mail is not-available) - e) In cases where order has to be passed under section 153A/153C of the Income Tax Act, 1961 read with section 143(3), assessment proceedings would be conducted manually. ANNEXURE Please refer to replies furnished earlier. From the perusal of month-wise cash-in-hand position for the period F.Y. 2015-16 and F.Y. 2016-17, a peculiar thing has been noticed that cash-in-hand in the month of October, 2016 is abnormally increased at Rs. 15,68,13,615/- whereas in almost all the months of F.Y. 2016-17, cash-in-hand was ranging between Rs.20 lakh to Rs.60 lakh except in March, 2017 in which cash in hand was shown at Rs.4,43,72,372/-. Similar was the position in F.Y. 2015-16 wherein in none of the months cash-in-hand was exceeded Rs.1 crore except in Feb. 2016 wherein cash in hand was shown at Rs. 1,64,27,213/-. For the sake of convenience, month-wise cash-in-hand position for F.Y. 2015-16 and F.Y. 2016-17 is reproduced hereunder:- 22 Further vide notice u/s 142(1) of the Act dated 16.10.2019, the assessee was required to furnish the details of cash sales, payment made in cash, cash deposited in bank, closing cash in hand, etc.. The assessee vide its reply dated 01.11.2019 submitted details as under:- 23 24 25 26 Keeping in view the abnormal increase in sales during the month October 2016 and upto 8 th November 2016, copy of ledger accounts of sales made during Oct. & upto 8 th Nov. 2016 was called from the assessee. The assessee vide its reply dated 01.11.2019 furnished details of sales made during Oct.2016 & upto 8 th Nov. 2016 in respect of various items. From the perusal of above details, it is seen that during the month October 2016, you have shown cash sales of various items worth Rs.25,58,81,602/- (Kanpur + Noida Unit) as against cash sales of Rs.3 to Rs.5 crore per month in rest of the months of F.Y. 2016-17. From the perusal of details of cash sales made during F.Y 2015-16, it is noticed that in none of the months, such an abnormal cash sales have been noticed. Further, it is very strange to note that in 08 days (from 01.11.2016 to 08.11.2016), you have shown cash sales of various items worth Rs. 8,36,74,257/-. However, in rest days of November, December. 2016 and January. February and March, 2017 of the month such mend of huge sales per day is missing. Here it is worthwhile to mention that Deewali festival was on 30 th October 2016 but sale shows heavy sale only after Deewali and before date of demonetization. 27 Further, from the perusal of ledger accounts furnished by you, particularly in respect of sales of Diamond (Solitaire & Pointer), Diamonds Jewellery and Gold (22 Karet), shows that during the period 01.10.2016 to 08.11.2016, frequent cash sales through Cash Memos of below Rs.2 lakhs ranging between Rs.1,70,000/- to Rs.1,97.000/- have been shown and on the other hand, sales other than cash is of normal in nature. Prior to October 2016 and after 08.11.2016 no such frequent sales ranging between Rs. 1,70,000/- to Rs. 1,97,000/- have been shown. (This fact is apparent from ledger account submitted by you). Further from the perusal of month-wise details of cash-in-hand, it is noticed that as on 31.10.2016, cash-in-hand was at Rs.15,68,13,6157- and in rest of the months of F.Y. 2016-17, cash at the end of the month was ranging between Rs.20 lakh to Rs.40 lakhs. Thus, it is hard to believe that as to why as on 31.10. 2016, you have kept such huge cash-in-hand. “ Here, I would like to bring on record that due date for filing of VAT return for the month October, 2016 was 20 lh November, 2016. Thus, it appears that to legalize unaccounted cash lying with you in Specified Bank Notes, prior to demonetization, you have issued Cash Memos during the period 01.10.2016 to 08,11.2016 only to generate cash-in-hand by fabricating Cash Book and shown the sale proceeds under the head 'Revenue from Operation' and filed VAT returns by including receipt from alleged cash sales so that' unaccounted cash can-be reflected as genuine.......” ".....In view of the discussion made above, you are required to explain such a huge alleged cash sales of Rs.33,95,55,850/- during the period 01.10.2016 to 08.11.2016 (Kanpur + Noida Unit) along with corroborative evidences. Since, as asked vide various notices u/s 142(1), you failed to substantiate such a huge inflated sale dunng:,01.10.2016 to 08.11.2016 by producing cogent documentary evidences as compared to sale shown in other months, you are hereby accorded one more opportunity to prove the genuineness of such an inflated cash sale of Rs.33,95,55,859/-during the period 01.10.2016 to 08.11.2016......” Here it is made clear that in case your explanation is not found satisfactory and supported by corroborative cogent documentary evidences, the sales to the extent, working of which is given below shall be considered as bogus cash sates introduced by generating bogus sale invoices to accommodate unaccounted cash and give it a legal shape:- “....... Total cash sale during 01.10.2016 to 08.11.2016 Rs. 33,95,55,859/- Less: Regular sales of 39 days (from 01.10.2016 to 08.11.2016) on the basis of average per day sale of preceding six months. Total sale in preceding six month – Rs,. 29,25,42,304/- / 183 days = Rs. 15,98,591 per day x 39 Rs. 6,23,45,081/- Add: Increased sale @ 15% as compared to sale shown in the month of September 2016, on account of Deewali Rs. 82,25,407/- 28 festival fall in October 2016 Rs. 7,05,70,488 Remaining sale is on account of issue of bogus/non-genuine sale invoices Rs. 26,89,85,371/- Less: Gross Profit ratio @ 16.20% shown during the year under consideration, as the sale has been included in total turnover (26,89,85,371 x 16.20%) Rs. 4,35,75,630 Rs. 22,54,09,741/- In case, you failed to explain such a huge abnormal and inflated cash sale during the period of 1 st October, 2016 to 8 th November, 2016 along with corroborative/cogent documentary evidences and also to the entire satisfaction of the undersigned* please show cause as to why it may not be inferred that the sales to the extent of Rs.22,54,09,741/-, as worked out above, is non- genuine/bogus sales and shall be added to the total income u/s 68 of the I.T. Act, 1961 and tax shall be charged in view of the provisions of section 115BBE of the I.T. Act, 1961. If the benefit of any Scheme availed by you as IDS, 2016 or PMGKY, kindly provide the relevant detail to support your claim. Produce all the books of accounts, bills, vouchers, etc. along with other relevant details for verification.” 39. A perusal of the aforesaid show-cause issued by the AO shows that the matter relating to genuineness of cash sales during the period of 1st October, 2016 to 8th November, 2016 has been enquired into by the AO from time to time, responses have been sought from the assessee and after taking into consideration the submission and documentation submitted by the assessee and detailed examination thereof, a specific show-cause has been issued as to why the sales to the extent of Rs.22,54,09,741/- be not treated as non- genuine/bogus sales and why the same should not be brought to tax u/s 68 r/w section 115BBE of the Act. Further, the assessee has been asked to provide information where the assessee seeks to avail benefit of any Scheme such as IDS, 2016 or PMGKY. 40. We further note that the assessee in response to the aforesaid show-cause notice filed its submissions dated 17/12/2019 before the AO and the contents thereof read as under: 29 “RE: Notice No. ITBA/AST/F/142(1)/2019-20/1021983754(1) dated 09.12.2019 of M/s. Kays Jewels Pvt Ltd. [PAN AABCK3178R1 for the Assessment Year 2017-18 - Explanation regarding. Kindly refer to your Notice issued under section 142(1) of the Income Tax Act, 1961, along with Annexure dated 09.12.2019 for the Assessment Year 2017-18, requiring the assessee to furnish the details and information. In this regard your humble assessee wishes to submit point-wise reply as under: l)It is significant to point out that Domestic sales are under 4 categories, which have different characteristics: i)Cash Sales (without name & address) ii)Sales, partly in cash and partly through cheque/credit card/on credit. iii)Cash Sales with identification of customers (with name & address) iv)Sales against return of old jewellery (Old Gold) (with name & address) 2)The average purchase price during the Financial Year 2015-16 and 2016-17 were as under: Financial Year Rate/Gm. 2015-16 2,693/- 2016-17 2,910/- The increase in Gold Prices approximately 8-10% hence 8-10% increase in sales compared in F.Y. 2015-16 is quite reasonable & regular feature. 3) The Breakup/Summary of total domestic sales for the period from 01.10.2016 to 08.11.2016 is summarized as under:- Cash Sales without identification of customers Cash Sales with identification of customers Received partly/ in cash/ Cheque, credit card, debit card Sales against bullion / old jewellery Domestic Total Sales (I) (2) (3) (4) H.O. 295,788,884.00 8,370,784.00 41,717,020.00 9,019,660.00 35,48,96,348.00 B.O. 27,322,468.00 360,712.00 2,204,888.00 440,097.00 30.328,165.00 323,111,352.00 8,731,496.00 43,921,908.00 9,459,757.00 385,224,513.00 a)So far as sales in column 2, 3 and 4 are concerned, the same are fully cross verifiable from the details of customers (respective names and addresses are available) and therefore, there cannot be any element of suspicion about the same and are amenable to full verification. b)As regards the aforesaid sales, it is to be further appreciated that; i)From Financial Year 2016-17, the assessee adopted a new practice of sale of petty gold jewellery items at Fixed Tag Price. The petty items with Fixed Tag Price are fast moving and are handled by staff spreading over seven counters inside the show room. ii)The number of Counters for sale of gold jewellery petty items were increased from 3, during the F.Y. 2015-16, to 7 during the F.Y. 2016-17, after converting 30 counters for silver items on the first floor of the Show Room to Gold Jewellery petty items sale counters. iii)The average sales during 10 days, before and after Deepawali is different from the average sale of remaining days in any year, therefore, Deepawali festival sales are not comparable to other days and normal sales. 4)After close of the period for deposit of SBN in Bank post demonetization on 08.11,2016, the Unit No.l, of D.I. Wing at Kanpur started making enquiry(ies) relating to sales, purchase, stock register etc. for the period from 01.04.2016 to 06.02.2017. In continuation to the said proceedings the assessee submitted detailed reply vide its letter dated 28.02.2017, in the office of the DDI (INV)-l at Kanpur, on 28.02.2017, hence there cannot be any presumption relating to any type of adjustment in sales as alleged on page No. 7 of Annexure to the subject notice: (Quote) "....Here, I would like to bring on record that due date for filing of VAT return for the month October, 2016 was 20"' November, 2016. Thus, it appears that to legalize unaccounted cash lying with you in Specified Bank Notes, prior to demonetization, you have issued Cash Memos during the period 01.10.2016 to 08.11.2016 only to generate cash-in-hand by fabricating Cash Book and shown the sale proceeds under the head "Revenue from Opedration " and filed VA T returns by including receipt from alleged cash sales so that unaccounted cash can be reflected as genuine (Unquote) 5)Your goodself will kindly appreciate that VAT assessment for the Financial Year 2016-17 was completed and ultimately the sales as per books of account of the assessee were accepted as true and correct. 6)The books of account of the assessee are maintained on computer by using customized software. The entries relating to sale, purchase, expenditure, advance received against orders given etc. are done on a day to day basis and simultaneously Cash Book, Ledger, Stock Ledger, Sale and Purchase Tax Invoices and vouchers etc. are generated from the system itself. It is also significant to note that for every sale whether of gold jewellery or gold diamond jewellery or Kundan jewellery, there is a corresponding entry in the Stock Register and it is not possible to make any adjustment in sales, as alleged. The items of jewellery bear identification number etc. and sale/purchase invoices are serially numbered therefore, the suspicion expressed in the subject notice is neither practically possible nor there is any evidence to support the same hence is merely presumptive and without any basis. 7)There was a survey conducted by the UP VAT Authorities on 07.02.2017 and during the survey proceedings also no incriminating information relating to any adjustment in sales, as alleged, was found/detected despite the fact that print outs of sales A/c, Stock Register etc. were taken on the spot directly from the Computer Hard Disc in use at the relevant time. 8)That sales accepted by the UP VAT are conclusive, beyond any doubt and cognizable under Income Tax Act, 1961 also. 9)That the breakup of sales of 10 days before and 10 days after the Deepawali Festival of 4 financial years are given in Annexure-1 attached. The compilation 31 will show that during Deepawali season (20 days) average sales are multiple times higher than normal day's sales:- F.Y. No. of Days Date Average per day sales 2014-15 20 14.10.2014 to 03.11.2014 43,19,431/- 2015-16 20 02.11.2015 to 22.11.2015 57,29,118/- 2016-17 20 21.10.2016 to 08.11.2016 1,12,75,477/- 2017-18 20 10.10.2017 to 30.10.2017 67,52,475/- 10) ln the last para on page 7 of Annexure to the subject notice your goodself has mentioned as follows: (Quote) “....... Total cash sale during 01.10.2016 to 08.11.2016 Rs. 33,95,55,859/- Less: Regular sales of 39 days (from 01.10.2016 to 08.11.2016) on the basis of average per day sale of preceding six months. Total sale in preceding six month – Rs,. 29,25,42,304/- / 183 days = Rs. 15,98,591 per day x 39 Rs. 6,23,45,081/- Add: Increased sale @ 15% as compared to sale shown in the month of September 2016, on account of Deewali Rs. 82,25,407/- festival fall in October 2016 Rs. 7,05,70,488 Remaining sale is on account of issue of bogus/non-genuine sale invoices Rs. 26,89,85,371/- Less: Gross Profit ratio @ 16.20% shown during the year under consideration, as the sale has been included in total turnover (26,89,85,371 x 16.20%) Rs. 4,35,75,630 Rs. 22,54,09,741/- (Unquote) Specific comments on the above presumption are as under: - i)The period choosen from 01.10.2016 to 08.11.2016 includes Deepawali Season Sales from 21.10.2016 to 08.11.2016 (or different dates in each year due to change in Deepawali date) which is tipically highest sale period in every year. The average daily sale of Deepwali season in Financial Year 2014-15 was (per day) Rs, 43,19,431/- which increased to Rs.57,18,566/- per day in Financial Year 2015-16 and further increased to Rs. l, 12,75,477/- per day in Financial Year 2016- 17 (under assessment ) thus taking out of average per day sales at Rs.l 5,98,591/- is neither factually correct nor based on correct appreciation of Deepawali Season sales, which is an important and significant feature in jewellery trade. 32 ii)The presumption of increase of 15% in sales during Deepawali season is absolutely without any basis and unfounded. The figures of earlier 2 years, given hereabove, are self explanatory and amenable to full verification at any time. iii)Post demonetization period i.e. after 30.12.2016, the Government of India announced Pradhan Mantri Garib Kalyan Yojana and in that scheme the assessee offered additional profit of Rs.4.00 crores on the following premises: (Quote - ) After the demonetization period Lei 30.12.2016, the Government announced Pradhan Mantri Garib Kalyan Yojna 2016. for disclosing income, if any. The assessee M/s. Kays Jewels Pvt. Ltd. Worked out additional profits as per details given below: The assessee company disclosed the super profits, rounded off to Rs. 4,00,00,000/- on the aforesaid cash sales vide its declaration filed on prescribed Form No, I on 31.03.2012 before the Pr. C.I.T.-I1, Kanpur. The amount of additional profits worked out as above, was mentioned in column No. 7(a) of Form No. 1 (prescribed Form for declaration). The details of payment of tax (Rs. 1,20,00,000/-) + Surcharge (Rs.39,60,000/-) + Penalty (Rs. 40,00,000) aggregating to Rs. 1,99.60,000/- was made on 24.03.2017. Further, a sum ofRs. 1,00,00,000/- was deposited in Pradhan Mantri Garib Kalyan Yojna, 2016 on 30.03.2017. The details of which are mentioned on page no. 2 of aforesaid Form No. 1. A complete set of declaration, as above, is attached for your ready reference and record The additional profits declared amounting to Rs.4,00,00,000/- had taken care of any possibility of extra profits. iv)the working of alleged high abnormal inflated cash sales (Rs.22,54,09,741/-, is therefore, wholly presumptive, based on unfounded suspicion and presumption, therefore, deserves to be modified significantly. 41. In its submissions, the assessee has given its explanation regarding the cash sales undertaken during the period 1/10/1016 to 8/11/2016 in terms of sales S.No. Particulars Amount (Rs.) 1. Total Cash (SBN deposit with Bank Account) 21,91,86,000.00 2. Estimated Profit on Cash Sales 7,54,87,658.00 3. G.P. Rate as per Books of Account 16.20% 4. Gross Profit as per Books of Account 3,55,08,132.00 5. Difference (2-4)(Additional profits) Declared 3,99,79,526.00 or say Rs.4,00,00,000/- 33 to identified customers, payment received in cheque/partly in cheque and other online mode of payment, sales against bullion/old jewellery and also sales where the customer identification is not there. It has also been submitted that there is proper documentation maintained in respect of these cash sales and even VAT authorities have carried out the verification and the sales have been accepted. It has also been submitted as to how the calculation of sales during the Deepawali season as has been done by the AO and the underlying assumption of increase of 15% is not correct. It has also been submitted that the assessee company has availed the benefit of PMGKY scheme announced by the Government of India and super profits of Rs 4 crores on the cash sales (in SBN deposits with Bank) has been declared and taxes thereon have since been deposited. 42. It is also relevant to note that the assessee separately also moved an application dated 20/12/2019 before the Additional CIT, a day after submitting the aforesaid submissions before the AO, seeking directions u/s 144A of the Act and the Additional CIT has disposed off the assessee’s application vide his order F.No.Addl.CIT/Rg-6/144A/19-20/771 dated 26/12/2019 and issued the necessary directions to the AO and the contents thereof read as under: “Directions u/s 144A in the case of M/s Kays Jewels Private Ltd. PAN: A.Y. 17-18- reg- .... Please refer to die application u/s 144A in the above mentioned case dated 23.12.2019 moved by the assessee before the undersigned. On perusal of the application of the assessee it was found dial the assessee is aggrieved on the show came notice issued dated 09.12.2019 by the AO wherein it was proposed to add the amount of Rs 22, 54, 09, 741/- as non-genuine/ bogus sale and the addition was proposed u/s 68 of the Act, 1961 and tax be charged as per the provision of section 115BBE of the lTAct,1961. The assessee has prayed that he is feeling harassed and will suffer irreparable loss if the addition which are proposed in the show cause notice will be made and it will create high pitch, illegal and illogical demand. The main issue which are under consideration are- a) Abnormal increase in cash in hand of Rs. 15,68,13,615/- in the month of October. 2016. 34 b)) Abnormal increase in cash sales of Rs. 25,58,81,602/- in the month of October,2016. c) Abnormal increase in cash sales of 8 days (01.11.2016 to 08.11.2016) to Rs. 8,36,74,257/- d) The cash sales have bills ranging between 1,70,000 to 1.90,000 and on the other hand the cheque sales are in normal range, e) Disclosure of Profits on the cash sales and corresponding cash deposit during demonetization period under PMGKY Scheme – 2016. Alongwith the application for directions the assessee submitted the reply of show cause notice filed before the assessing officer. On perusal of same, the main contention of the assessee are- a) The assessee is a jeweler and is engaged in manufacturing and trading of gold, silver, diamond and ornaments etc. b) Out of total sales of Rs. 38,52,24,513/-, sales of Rs. 6,21,13,161/- is fully verifiable. c) The A.O. has compared the normal sales of other months with the Deepawali season sales which are higher and if any comparison is to be made, it is with Deepawali season in the previous years. d) The assessee was enquired about the cash deposits from the Investigation Wing of the Department on the real time basis and no adverse finding of fabricated cash book or shortage of stock or any other irregularity was show cause to the assessee. e) The A.O. had alleged that the VAT returns are manipulated to adjust the unaccounted cash in the form of SDN (Specified denomination notes). However, a survey was conducted by the UPVAT authorities on 07.02.2017 wherein no adverse findings were reported. The sales are totally accepted by the UPVAT and the assessment order in this regard was also annexed for perusal of AO. There were no chance of manipulation of VAT return. f) After demonetization, the Government had announced Pradhan Mantri Garib Kalyan Yogna 2016 and assessee had already declared profit of Rs. 4 crs on the aforesaid cash sales as per the scheme. So again the same amount of cash sales has no relevance to be added as unexplained credits u/s 68 of the I.T. Act, 1961 in the case of assessee. g) There was reduction of stock with the corresponding increased sales. The stock is duly recorded in the books of account and no default as per the show cause notice or the UP VAT. The assessee was given opportunity of being heard on 24.12.2019 and 26.12.2019. The assessee had filed the reply in Taped wherein he had relied on the order of the Hon 'ble TTAT Delhi Bench in the case of Agson Global Pvt. Ltd. from AY. 2012- 13 to A.Y. 2017-18 in TTA No. 3741, 3742, 3743, 3744, 3745 & 3746/Del/2019. The assessee has submitted that the above case law may be referred to before making any additions. From perusal of above facts on record and as reported by AO and assessee, the following inference is drawn- 35 1. The assessee had offered the gross, profit on the cash deposits made during demonetization period in the PMGKY Scheme which are accepted by the department on the basis of disclosed GP rate during the year. 2. The cash sales and corresponding Increase of cash in hand and further deposit of the cash in bank accounts is the regular feature in the case of assessee as per the analysis chart of F.Y. 2015-16 and 2016-17. For past so many years assessee is facing a regular scrutiny and cash sales being part of turnover were already scrutinized by the department and no adverse view is found as per records available. 3. The assessee had submitted the VA T order for the year in which the total sales are reported along with the stock position and turnover of the assessee. It will not be possible to accept the part sales of the assessee during a period and reject the other part especially when they have the same nature and source. 4. The assessee's stock was not found short by the VAT authorities during the survey conducted on 07.02.2017 and so issuing fictitious bills to enhance cash in hand is ruled out. There is corresponding purchases and reduction of stocks which are not challenged by the AO as per the show cause notice nor any fault was found with the books results of the assessee. 5. As per the Hon'ble High Court Order in the case of Ms N. K, Industries Ltd. of 2016 and Agson Global Pvt. Ltd which is relied upon by the assessee it is held that the entire sales which are treated as bogus cannot be added u/s 68 of the I. T. Act and the addition can be made u/s 68 to the extent of gross profit on such bogus sales. There is prima facie no proof that sales to the tune of Rs. 22,54,09,741/- are bogus. The purchases are already verified by the AO and no adverse inference is drawn. 6. In the present case, the assessee had applied the gross-profit rate of 16.20% as per his disclosed G.P. on the total cash sales of Rs: 21,91,86,000 and did the disclosure under PMGKY scheme of Rs. 4 crs. The assessee had offered the profits on the alleged sales which are proposed to be added u/s 68 of the I. T. Act, 1961 on the higher rate of tax as proposed under the scheme of PMGKY, 2016. No further addition is required on cash Sales of Rs. 22,54,09,741/- as per the show cause notice dated 09.12.2019 u/s 68 of I.T. Act, 1961. The direction u/s 144A of the I.T. Act, 1961 is given on the limited issue before the undersigned. The AO is directed to follow the directions on the issue while completing the assessment proceedings. It does not preclude the AO from looking into the other aspects of the case. Ensure that the assessee had paid all the taxes as required on the above disclosures before following the credits. Sd/- Addl. CIT, Rg-6 Kanpur 43. The ld Additional CIT has issued directions to the AO holding that no addition is required to be made on cash sales of Rs 22,54,09,741/-. While doing so, the ld Additional CIT has taken into considerations the fact that the assessee has already offered profits on the total cash sales of Rs 21,91,86,000/- on a higher rate of tax under the PMGKY Scheme 2016, the fact that the cash sales 36 and corresponding cash-in-hand is a regular feature in assessee’s line of business and in the past, the same has been accepted, the fact that the VAT authorities have carried out the survey at the assessee’s premises and stock was not found short and thus, issuing fictious bills to enhance cash-in-hand is ruled out, that the VAT assessment has been completed wherein the sales have been accepted, and that no fault has been pointed out in the books of accounts. 44. The AO thereafter following the directions of the ld Additional CIT issued u/s 144A of the Act has completed the assessment proceedings and order u/s 143(3) dated 29/12/2019 was passed and the contents thereof read as under: “Return of Income declaring total Income of Rs.9,18,10,910/- was filed on 06,10.2017. The case was selected for ‘Complete Scrutiny' through CASS to examine the cash deposits during demonetization period. Accordingly, notice u/s. 143(2) of the I.T. Act, 1961 dated 24.09.2018 was Issued and duly served upon the assessee within time and manner prescribed under the Act Further notices u/s 142(1) of the Act dated 11.04.2019, 24 11.2019 and 04.12.2019 along with detailed I specific questionnaires were issued to the assessee. In response to this notice, the assessee furnished relevant details/explanations, etc. from time to time, which have been looked Into. The assesses Company is private limited company, was engaged in the business of manufacturing, trading, sales arid export sales in gold and diamond jewellery. From the perusal of Audit Report In Form No.3CD, it has been noticed that during the year under consideration, revenue from operation has been shown at Rs. 1,17,21,03,124/- as against the preceding years revenue from operation at Rs.1,03,31,20,315/-. In response to the notices issued u/s 142(1) from lime to lime, the assessee furnished reply/explanation along with relevant details/documents, etc, which have been looked into During the course of assessment proceedings, it was noticed that the assessee had deposited a sum of Rs.24,75,80,000/- in cash in its bank account(s) during demonetization period. Accordingly, the assessee vide show cause notice u/s 142(1) of the Act dated 09.12.2019 was specifically required to explain the source of such huge cash deposit in bank accounts. Accordingly, It was proposed to show cause as to why an addition of Rs.22,54,09,741/-, working of which was mentioned in the show cause notice, may not be made u/s 68 of the Act by applying provisions of section 115BBE of the Act. The assesses furnished its reply. Simultaneously, the assessee moved petition u/s 144A of the Act before Ld. Addl. Commissioner of Income Tax,-Range-6, Kanpur seeking directions in the matter. The Addl. CIT, Range-6, Kanpur vide her letter F.No.Addl.CIT/Rg-6/144A/19-20/771 dated 26.12.2019 issued directions to the undersigned, operative part of which Is reproduced as under:- “The assessee had offered the profits on the alleged sales which are proposed to be added u/s 68 of the I. T Act, 1961 on the higher rate of tax as proposed under the scheme of PMGKY.2016. No further addition is required on cash sales of 37 RS.225409741 as per the showcause notice dated 09/12/2019 u/s 68 of the I.T Acl.1961. The direction u/s 144A of the I.T Act, 1961 is given on the limited issue before the undersigned. The AO is directed to follow the directions on this issue while completing the assessment proceedings." After considering, the reply/explanation of the assesses and following the directions issued by Ld. Addl. Commissioner of Income Tax Range-6, Kanpur, assessment is completed at total income of Rs.9,16,10,910/-. Charge Interest u/s. 234A, 234B and 234C Of the I.T. Act, 1961 as per Rule. Allow credit for prepaid taxes, after verification issue notice of demand and challan. 45. The aforesaid directions issued by the Add. CIT u/s 144A are very much part of the assessment records and available at the time of examination by the ld PCIT and we find that there is no whisper by the ld PCIT as to how the said directions are erroneous in nature and in absence of the same, where the said directions were followed by the AO, being binding in nature, how the order so passed by the AO can be held as erroneous in so far as prejudicial in nature. 46. It is further noted that there was an audit scrutiny by the Revenue audit party of the assessment records and objections were raised by the Revenue audit party stating that the department failed to make addition of Rs 22,54,09,741/- as non-genuine/bogus sales and the AO was asked to submit his report and in his report to the ld PCIT Kanpur dated 5/10/21, the AO has reiterated the fact that the presumption of 15% increase in sales during the deepawali season as considered by the audit party is without any basis given that scrutiny assessment has been completed for the earlier two years and no adverse view has been taken, that there were specific directions issued by the Additional CIT u/s 144A which were followed, that the assessee had offered Rs 4 crores profit under the PMGKY Scheme 2016 and the fact that during the course of assessment proceedings, the books of accounts were examined, the entire sales and purchases were fully verifiable and stock register is duly maintained and trading results deserve to be accepted and the audit objections therefore need not be accepted. Apparently, the Ld. PCIT has not agreed with the AO 38 report and has gone ahead and invoked the jurisdiction u/s 263 by issuing the show cause dt. 21/03/2022. Given the nature and extent of enquiry conducted by the AO, the direction issued by Addl. CIT and the fact that the assessee has declared income under the PMGKY Scheme, and comparing the same with the contents of the show-cause notice, it is manifestly clear that Ld. PCIT action is solely driven by the audit objection. No doubt audit objection raised by the Revenue audit party is part of the record which is available at the time of examination by Ld. PCIT, at the same time, merely the fact that there is an audit objection, the same doesn’t provide the necessary jurisdiction to Ld. PCIT u/s 263 of the Act. The essential condition to invoke section 263 are that the order passed by the AO need to be erroneous as well as prejudicial to the interest of Revenue. It is only on the primafacie satisfaction of these twin condition that jurisdiction u/s 263 can be invoked. In the present case, we however find that the action of the Ld. PCIT is guided solely by the audit objection and therefore, lacks due application of mind and appreciation of other material available on the record on part of Ld. PCIT. 47. Further during the course of hearing, the assessee was asked to file a copy of the declaration under section 199C of the Finance Act 2016 in respect to the declaration made under the PMGKY Scheme 2016 and in response, the assessee has submitted as under; “ The Hon’ble Bench directed the appellant company to file documentary evidence for disclosure of additional income on cash sales during the post demonetization period. In this regard your humble appellant begs to submit following documents. i) Copy of Form No. 1 (Form of declaration under section 199C of the Finance Act, 2016, in respect of taxation and investment regime for PMGKY Rule, 2016, file before the Pr. Commissioner of Income Tax-II, Kanpur on 31.03.2017 (Annexure-1). ii) Copy of Acknowledgement of filing of Form No.1 under PMGKY Rules, 2016 (Annexure-2). ii) Copy of Challan for deposit of tax under PMGKY Rs. 1,99,60,000/- on 24.03.2015 along with computerized receipt for payment of tax (Annexure-3) 39 iii) Copy of Acknowledgement Receipt of Rs. 1,00,00,000/- from declarant for deposit of 25% amount declared under PMGK Scheme, 2016 for the period of 4 years (Annexure-4). iv) Copy of Subscription Receipt issued by R.B.I. on 01.04.2017 for Z.C.B Bonds PMGKDS on 31.03.2017 for Rs. 1,00,00,000/- (Annexure-5). v) Copy of Certificate of holding of PMGKDS, 2016 (Annexure-6) vi) Copy of Bank Statement showing repayment of ZCB Bonds (PMGKDS) on 31.03.2021 for Rs. 1,00,00,000/- (Annexure-7). Your humble appellant trusts that the above details will meet the direction given by the Hon’ble Bench.” 48. Further on perusal of the PMGKY Scheme 2016 as brought in by the Taxation Law Second Amendment Act, 2016, the relevant provision read as under: “199A. (1) This Scheme may be called the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016. (2) It shall come into force on such date as the Central Government may, by notification, in the Official Gazette, appoint. 199B. In this Scheme, unless the context otherwise requires,— { a ) "declarant" means a person making the declaration under sub-section ( I ) of section 199C; ( b ) "Income-tax Act" means the Income-tax Act, 1961; (c) "Pradhan Mantri Garib Kalyan Deposit Scheme, 2016" (hereinafter in this Chapter referred to as "the Deposit Scheme") means a scheme notified by the Central Government in consultation with the Reserve Bank of India in the Official Gazette; and ( d ) all other words and expressions used in this Scheme but not defined and defined in the Income-tax Act shall have the meanings respectively assigned to them in that Act. I99C. (1) Subject to the provisions of this Scheme, any person may make, on or after the date of commencement of this Scheme but on or before a date to be notified by the Central Government in the Official Gazette, a declaration in respect of any income, in the form of cash or deposit in an account maintained by the person with a specified entity, chargeable to tax under the Income-tax Act for any assessment year commencing on or before the 1st day of April, 2017. (2) No deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed against the income in respect of which a declaration under sub- section (1) is made. Explanation.— For the purposes of this section, "specified entity" shall mean— ( i ) the Reserve Bank of India: 40 (ii) any banking company or co-operative bank, to which the Banking Regulation Act, 1949 applies (including any bank or banking institution 10 of 1949. referred to in section 51 of that Act); (iii) any Head Post Office or Sub-Post Office; and (iv) any other entity as may be notified by the Central Government in the Official Gazette in this behalf 199D. (1) Notwithstanding anything contained in the Income-tax Act or in any Finance Act, the undisclosed income declared under sub-section (1) of section 199C within the time specified therein shall be chargeable to tax at the rate of thirty per cent, of the undisclosed income. (2) The amount of tax chargeable under sub-section ( 1 ) shall be increased by a surcharge, for the purposes of the Union, to be called the Pradhan Mantri Garib Kalyan Cess calculated at the rate of thirty-three per cent, of such tax so as to fulfil the commitment of the Government for the welfare of the economically weaker sections of the society. 199E. Notwithstanding anything contained in the Income-tax Act or in any Finance Act, the person making a declaration under sub-section (1) of section 199C shall, in addition to tax and surcharge charged under section I99D, be liable to pay penalty at the rate of ten per cent, of the undisclosed income. I99F. (1) Notwithstanding anything contained in the Income-tax Act or in any other law for the time being in force, the person making a declaration under sub- section (1) of section I99C, shall deposit an amount which shall not be less than twenty-five per cent, of the undisclosed income in the Pradhan Mantri Garib Kalyan Deposit Scheme. 2016. ( 2 ) The deposit shall bear no interest and the amount deposited shall be allowed to be withdrawn after four years from the date of deposit and shall also fulfil such other conditions as may be specified in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016. 199G A declaration under sub-section (1) of section 199C shall be made by a person competent to verify the return of income under section 140 of the Income-tax Act, to the Principal Commissioner or the Commissioner notified in the Official Gazette for this purpose and shall be in such form and verified in such manner, as may be prescribed. 199H. (1)The tax and surcharge payable under section 199D and penalty payable under section 199E in respect of the undisclosed income, shall be paid before filing of declaration under sub-section (1) of section 199C. (2) The amount referred to in sub-section ( 1 ) of section 199F shall be deposited before the filing of declaration under sub-section ( 1 ) of section 199C. (3)The declaration under sub-section (1) of section 199C shall be accompanied by the proof of deposit referred to in sub-section (1) of section 199F, payment of tax, surcharge and penalty under section I99D and section 199E, respectively. 199-1. The amount of undisclosed income declared in accordance with sub- section ( 1 ) of section 199C shall not be included in the total income of the declarant for any assessment year under the Income-tax Act. 199J. A declarant under this Scheme shall not be entitled, in respect of undisclosed income referred to in section 199C or any amount of tax and surcharge paid thereon, to re-open any assessment or reassessment made under the Income-tax Act or the Wealth-tax Act, 1957, or to claim any set-off or relief in 41 any appeal, reference or other proceeding in relation to any such assessment or reassessment. 49. On perusal of Section 199M, it is stated therein that where the declaration has been made by misrepresentation or suppression of facts or without payment of tax and surcharge under section 199D or penalty under section 199E or without depositing the amount in the Deposit Scheme as per the provision of section 199F, such declaration shall be void and shall be deemed never to have been made under this Scheme. In the present case, it is a matter of record that the assessee has filed necessary declaration and there is no finding available on record by the Competent authority or for that matter by the Ld. PCIT that the declaration so made by the assessee has been made by any misrepresentation or suppression of facts. 50. Further referring to the provision of section 199-I wherein it has been stated that the amount of undisclosed income declared in accordance with sub section (1) of Section 199C shall not be included in total income of the declarant for any assessment year into Income Tax Act. It is clear that once the assessee has made a declaration and has offered its undisclosed income to tax, the same cannot be included again in the total income of the assessee for the impugned assessment year. However we find that the Ld. PCIT, though acknowledging the fact that the assessee disclosed the profit of Rs. 4.00 Crores on the cash sales under the PMGKY Scheme and paid tax thereon, has failed to consider the provision of Section 199-I of the Act wherein it has been specifically provided that the income so declared shall not be included in the total income of the assessee for the impugned assessment year. 51. Further, during the course of hearing, the ld AR was directed to file reconciliation between different figures as appearing in the show-cause notices issued by the AO and then by the ld PCIT and the declaration under the PMGKY Scheme and in response, it was submitted as under: 42 3. Explanation on following figures :- (a) Rs 24,75, 00, 000/- is mentioned in para 2 of the Notice for hearing under section 263dated 21/03/2022 (PB No. 1213-1214). The relevant para of said notice is reproduced as under :- (Quote) 2. In course of review of assessment record for AY 2017-18, it has been observed that during demonetization period the assessee company had deposited a sum of Rs 24, 75,00,000/- and declared source of the same as receipts from sale of goods in cash before demonetization... " (Unquote) There is typographical error, and the correct figure is 24,75,80000/-. The figure represents the Cash Deposited by the assessee in bank during the demonetization period. During the assessment proceedings vide notice issued under section 142(1) of the Income Tax Act, 1961, dated 24/11/2019 (PB-1080 tol081) the Ld AO enquired about the cash of Rs 24,75,80,000/- deposited during the demonetization at point number 1. The relevant portion of the said notice under section 142(1) dated 24/11/2019 reads as under :- (Quote) 1. From the perusal of Audit Report, it is noticed that during demonetization period you have deposited a sum of Rs. 24,75,80000/- which includes SBNs of Rs 21,91,86,000.00 and other denomination notes at Rs 2,83,94,000/-. In this regard please furnish following information " (Unquote) The Ld AO also inter-alia required the appellant to furnish Bank certificates from respective Banks. The assessee furnished the complete details (refer Paper Book page numbers PB-1080 to 1169) which inter-alia included Charts as required by AO, Certificates from respective banks, Copy of Cash deposit slips of banks, Bank statement etc. The relevant chart (PB-1083) along with reference to Bank certificate and Bank statement is again summarised as under:- S.No. Name of Bank in which cash was deposited Branch Account No. Cash Deposited during demonetization period Remarks SBNs Other denomination notes 1. State Bank Of India Birhana road, Kanpur 10647068142 90,00,000.00 Bank Certificate at PB- 1084, Deposit slips at PB 1085 -1086 and Bank statement at PB- 1087 2. Yes Bank Atta, Noida 8584100000084 2,29,66000.00 3,14,000.00 Bank Certificate at PB- 1091, Deposit slips at PB 1092 -1093 and Bank 43 statement at PB- 1094 to 1097 "i j . State Bank of India Phool Bagh, Kanpur 30502168686 15,00,000.00 5,00,000.00 Bank Certificate at PB- 1098, Deposit slips at PB 1099 -1100 and Bank statement at PB-1104, 1106 4. State Bank of India Phool Bagh, Kanpur 32207138788 18,57,20,000.00 2,75,80,000.00 Bank Certificate at PB- 1109, Deposit slips at PB 1110 – 1134 and Bank statement at PB-1135 to 1162 TOTAL 21,91,86,000.00 2,83,94,000.00 Total of Rs 21,91,86,000.00 + 2,83,94,000.00 = 24,75,80,000.00) (b) Figure of Rs 21,91,86000.00 represents amount of Cash Deposited in SBNs during demonetization period as explained in detail above in point 3(a) above. This amount was also referred/mentioned at Status Report on Audit Objection for AY 2017-18 submitted by Ld AO to Pr.CIT-I, Kanpur at Point no.7 .(refer PB 1389 to 1393). (c) Figure of 22,54,09,741.00 is calculated on estimated basis by Ld AO in notice issued under section 142(1) of the Income Tax Act, 1961 dated 09/12/2019 (refer paper book page no. 1170 to 1177) at page number 1176 (last para) to page 1177. The appellant/ assessee comprehensively replied to aforesaid notice under section 142(1) dated 09/12/2019 vide reply dated 17/12/2019 (refer Paper book page number 1178 to 1184) in said reply, the calculation of Ld AO was reproduced by assessee (refer PB No. 1180). The said estimated figure of 22,54,09,741.00 also finds mention in following documents :- (i) Direction u/s 144A dated 26/12/2019 issued by Addl.CIT, Range-6, Kanpur appearing at PB-1184 to 1186 . Refer last para at page 1185 and on page 1186. (ii) Status report of Revenue Audit Objections in case of appellant for AY 2017-18 dated 05/10/2021 prepared and sent by the Ld.AO to the Pr. CIT- 1, Kanpur vide F.No. ACIT-4/KNP/RAP/2021-22/216 (refer paper book page number 1389 to 1394. 52. In light of aforesaid discussions, we are of the considered view that the matter relating to cash sales has been duly enquired into by the AO, specific queries has been raised from time to time, and after taking into consideration the submissions of the assessee, specific show-cause has been issued by the AO which shows due verification and application of mind by the AO, and thereafter, taking into considerations the directions of the Additional CIT who has again applied his mind and issued specific directions u/s 144A which takes 44 into consideration the declaration of profits on cash sales and payment of taxes under the PMGKY Scheme besides other things, the assessment order has been passed by the AO. We therefore find that the matter has been thoroughly examined by the AO during the course of assessment proceedings and the ld PCIT has not stated as to how the findings so recorded by the AO accepting the cash sales and resultant declaration of profits under the PMGKY Scheme are erroneous in so far as prejudicial to the interest of the Revenue. The order of the ld PCIT is accordingly set-aside and that of the AO is sustained. 53. In the result, the appeal of the assessee is allowed. 54. Consequently, the stay petition filed by the assessee has become infructious and doesn’t require any specific adjudication. Order pronounced in the open Court on 25/05/2023. Sd/- Sd/- आकाश द प जैन !व"म $संह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा य / VICE PRESIDENT लेखा सद(य/ ACCOUNTANT MEMBER AG Date: 25/05/2023 ( + ! , - . - Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. $ / CIT 4. $ / 0 1 The CIT(A) 5. - 2 ग 4 5 & 4 5 6 DR, ITAT, LUCKNOW 6. ग 7 8 % Guard File ( + $ By order, 9 # Assistant Registrar