SHRI ABHISHEK SARAF,GORAKHPUR V. DCIT, CC-1, KANPUR

CO 12/LKW/2021

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A) which had deleted an addition of Rs.1,14,57,649/- made to the assessee's income under section 69A of the Income Tax Act, 1961. The addition was initially made by the Assessing Officer on the grounds that the cash deposits made by the assessee during the demonetization period were unexplained. The CIT(A) found that the source of the cash deposits was adequately explained by the assessee, leading to the deletion of the addition. The Revenue challenged this decision, leading to the present appeal. The Tribunal, after considering the materials and arguments presented, decided to set aside the CIT(A)'s order and restore the matter to the Assessing Officer for a fresh assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 361107 (ITAT-LUCKNOW)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-05-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Assessment Year: 2017-2018
• Other Referred Cases: Pooja Ajmani v. Income-tax Officer, Ward 20(4), New Delhi, Dhakeswari Cotton Mills Ltd. vs. CIT, Kanpur Steel Co. Ltd. vs. CIT, Sreelekha Banerjee vs. CIT, Agson Global (P) Ltd. vs. ACIT, Pr. CIT vs. Agson Global (P) Ltd., Smt. Charu Aggarwal vs DCIT, ACIT vs. Ramlal Jewellers (P) Ltd., Dr. Sashikant Garg vs. CIT and others, CIT vs. Rajeev Sharma
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: REVENUE; SUNIL KUMAR RAJWANSHI
• Assessee Lawyers: SHUBHAM SINGH
• Keywords: Set aside; Business income; Principle of natural justice
• Section: 143(3); 142(1)

Judgement Text

"I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH ‘B’, LUCKNOW BEFORE SHRI KUL BHARAT, VICE PRESIDENT AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER I.T.A. No.93/Lkw/2021 Assessment Year: 2017-18 Dy.C.I.T., Central Circle-1, Lucknow. Vs. Shri Abhishek Saraf, Saraf Sadan, Gandhi Nagar, Golghar, Gorakhpur. PAN:AFUPS7328Q (Appellant) (Respondent) C.O.No.12/Lkw/2021 (I.T.A. No.93/Lkw/2021) Assessment Year: 2017-18 Shri Abhishek Saraf, Saraf Sadan, Gandhi Nagar, Golghar, Gorakhpur. PAN:AFUPS7328Q Vs. Dy.C.I.T., Central Circle-1, Lucknow. (Appellant) (Respondent) O R D E R PER ANADEE NATH MISSHRA:A.M. (A) This appeal has been filed by Revenue for assessment year 2017-18 against impugned appellate order dated 04/08/2021 passed by learned Revenue by Shri Sunil Kumar Rajwanshi, Addl. CIT (D.R.) Assessee by Shri Shubham Singh, C.A. I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 2 Commissioner of Income Tax (Appeals) [“CIT(A)” for short]. In this appeal Revenue has raised the following grounds: “1. On facts and circumstances of the case and in law, the learned CIT(A) erred in ignoring the fact that during the demonetization period assessee has shown unprecedented cash sale without any rational and failed to prove the reasons thereof. 2. On facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition which was determined after considering the peak sale of assessee itself during last three years where business activities were remained unchanged.” (A.1) The assessee has filed Cross Objection raising the following grounds: “1. BECAUSE the Hon'ble CIT(A) had recorded a categorical finding, to the effect that source of cash deposits in regular bank account of the assessee stood fully explained and, in view of such \"findings of fact\", the revenue was not justified to file the above mentioned appeal. 2. BECAUSE the assessee (the appellant before First Appellate Authority) had filed detailed written submission/pleadings so as to dispute the addition in question, and the appeal filed by the 'revenue' on the grounds mentioned below: \"1. On facts and circumstances of the case and in law, the Id. CIT(A) erred in ignoring the fact that during the demonetization period assessee has shown unprecedented cash sale without any rational and failed to prove the reasons thereof. 2. On facts & circumstances of the case and in law, the CIT(A) erred in deleting the addition which was determined after considering the peak sale of assessee itself during last three years where business activities were remained unchanged. I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 3 3. That the above grounds are without prejudice to each other and appellant craves leave to add or amend any other more ground of appeal as state above as and when needs for doing so may arise. are not maintainable, on the facts and circumstances of the case. 3. BECAUSE otherwise also, the addition in question had been based purely on suspicion, surmises and conjectures and the Hon'ble CIT(A), had rightly deleted the addition in question, by holding that same was not maintainable, either on facts or in law. 4. BECAUSE the addition in question had been made in violation of rule of natural justice and \"reasonableness\" and the same was not at all sustainable.” (B) In this case assessment order dated 27/12/2019 was passed u/s 143(3) of the Income Tax Act, 1961 (“the Act” for short) wherein the assessee’s total income was determined at Rs.1,82,96,219/- as against returned income of Rs.68,58,570/-. In the aforesaid assessment order, an addition of Rs.1,14,57,649/- was made u/s 69A of the Act. The assessee had deposited cash in bank account during demonetization period. Out of the total cash amounting to Rs.3,39,40,600/- deposited by the assessee in bank, the aforesaid amount of Rs.1,14,57,649/- was treated as unexplained money u/s 69A of the Act and was added to the assessee’s income. Relevant portion of the assessment order is reproduced below: “……….From the perusal of same, it was observed that he had made cash deposits amounting to Rs.3,39,40,600/- during the demonetisation period. Vide questionnaire dated 02.09.2019 assessee was required to explain the source of such cash deposits. In response to same, it was stated that source of cash deposited during the demonetisation period was cash in hand as on 08.11.2016 which represented cash sales made by assessee during the month of I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 4 October and November. Further vide questionnaire dated 25.10.2019 the assessee was required to furnish details of total sales, cash sale and cash deposit made by him during A.Y. 2015-16,2016-17 and 2017-18. In response to same, assessee submitted his reply on 17.12.2019. From the details furnished by assessee, it is observed that assessee was having Rs.2,37,88,488/- as opening balance of cash in hand on 01.04.2016 and thereafter cash sales amounting to Rs.2,92,84,728/- during the month of April, 2016 were made. By this way, total cash of Rs.5,30,73,216/- was generated in the month of April, out of which, he deposited cash amount of Rs.5,05,00,000/- and leaving Rs.25,73,216/- as opening cash in hand with assessee as on 01.05.2016. From the month May, 2016 to September,2016 ,he further made cash sales amounting to Rs.87,34,338/- but deposited only Rs.25,000/- in cash, consequently he accumulated cash amount of only Rs.1,12,82,554/- by 30.09.2016. But opposite to this, he further deposited cash of Rs.4,60,00,000/- and Rs.3,37,50,000/- in the month of October,2016 and November,2016 respectively and source of these cash deposits were stated to be sales realized in cash amounting to Rs.6,70,15,388/- and Rs.90,89,862/- in the respective months. However from the perusal of details of month wise sale for A.Y. 2015- 16, 2016-17 and 2017-18, it was seen that unprecedented cash sales in the month of October 2016 which amounted to 80% of total sale was shown by the assessee. In comparison to this, peak percentage of cash sale to total sale in remaining periods of the year was only 34%. Accordingly assessee was required to justify reasons of such higher percentage of cash sale in the month of October 2016. In addition to this, another important fact in this case is that assessee had shown sale of only Rs.90,89,862/- in the month of November,2016 but total cash deposit in this month was Rs.3,37,50,000/-, which appears quite abnormal and irrational while considering the sale pattern of assessee and preponderance of human behaviour. Vide reply uploaded on ITBA portal on 19.12.2019 the assessee replied that \"figure of cash sale shown by him are genuine and that he has produced his books of accounts, cash book . It was further stated that since purchases have been subjected to third party verification by department, no adverse view should be taken. It was I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 5 also stated that mathematical calculation does not hold good in assessment and there was no restriction cash sale.\" Reply furnished by assessee has been considered. It is a fact that businesses do not strictly run on mathematical calculations but the experience tell that every business has its own model and definitely has some trend. Even in the case of assessee himself pattern of sale shows that maximum sale is made during the festive season of Deepawali which holds good for all the three years which have been compared. Further, ratio of cash sale to total sale in three years have varied but variations are not as high as in the month of October 2016. It is also a fact theft assessee's purchases were subjected to third party verification but only that cannot be a parameter to decide genuineness of claim of cash sale of assessee. In fact before arriving at conclusion one has to see surrounding circumstances and preponderance of probabilities of human behaviour. Reliance is placed on decision of Hon'ble ITAT Delhi in the case of Pooja Ajmani v. Income-tax Officer, Ward 20(4), New Delhi [2019] 106 taxmann.com 65 (Delhi - Trib.)/[2019] 177 ITD 127 (Delhi - Trib.). where it was held that \"Every person is entitled to so arrange his affairs as to avoid taxation but the arrangement- must be real and genuine and not a sham or make believe... Keeping in view of the aforesaid discussions, it is opined that documents submitted as evidences to prove the genuineness of transaction are themselves found to serve as smokescreen to cover up the true nature of the transactions\". As discussed above, peak season of sale in jewellery sector is October, November and December. Therefore comparison is made between total sales for each of the month of third quarter of F.Y. 2016-17 and F.Y.2015-16. From such comparison it is evident that whereas percentage of peak sale in third quarter A.Y. 2016-17 was 27.40% it is 80.02% for A.Y. 2017-18 year. On the basis of above statistics, it is evident that to cover the cash deposits in bank account during the demonization period, assessee has crafted and shown the unreliable figures of cash sales. As VAT return for quarter ending in September was already filed, only adjustment which was possible was backdating the sales to the month of October. By doing so, the assessee credited his unaccounted cash into bank account during demonetization period by way of showing I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 6 non-genuine cash sale in the month of October,2016. Considering the peak percentage of 27.40 associated with cash sale in October to December last year, the peak percentage of cash sale to the total sale for the year under consideration is being progressively estimated/taken as 29.40 (27.40%+2%) in place of 80.02 as shown by assessee. Accordingly, cash sale in the third quarter @ 29.40% of total sales of Rs.25,36,78,870/- comes to Rs.7,45,81,587/- in place of Rs.8,60,39,236/- as shown by assessee. Therefore, short fall in cash sales comes to Rs. 1,14,57,649/-( Rs.8,60,39,236 - Rs. 7,45,81,587) as compared to total cash deposited during the months of October, November and December. Accordingly the cash deposits amounting to Rs1,14,57,649/- is being treated as unexplained money under section 69A of the Act and added to the total income of assessee for A.Y. 2017-18. As the addition is made under section 69A of the Act, provisions of section 115BBE shall apply. Penalty proceedings under section 271AAC are being initiated separately.” The aforesaid addition of Rs.1,14,57,649/- was deleted by the learned CIT(A) vide impugned appellate order dated 04/08/2021. The relevant portion of the order of learned CIT(A) is reproduced below: I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 7 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 8 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 9 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 10 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 11 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 12 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 13 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 14 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 15 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 16 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 17 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 18 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 19 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 20 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 21 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 22 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 23 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 24 The present appeal has been filed by Revenue against the aforesaid impugned appellate order dated 04/08/2021 of learned CIT(A). The I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 25 assessee filed Cross Objection supporting the aforesaid impugned appellate order dated 04/08/2021 of learned CIT(A). In the course of appellate proceedings before the Income Tax Appellate Tribunal, the following materials were filed from the assessee’s side: S.No. Particulars 1. Copy of independent auditor’s report, balance sheet and profit & loss account with all their schedule (relevant schedule being Schedule No. 10 of ‘Stock of Goods Traded’) 2. Copy of notice issued under section 143(2) 3. Copy acknowledgement of return and computation of income 4. Copy of notice issued under section 142(1), dated 02/09/2019 5. Copy of submission made, on the notice issued under section 142(1) dated 02/09/2019 6. Copy of VAT returns (4 quarters) relevant to financial year 2016- 17 7. Annexure-V of the submission made against notice under section 142(1) dated 02/09/2019, with respect to details of: (i)Stock summary (including opening stocik, purchases and sales) of each month from April, 2016 to 31/03/2017 (i.e. 12 months) (ii)Summary of purchases made, during the year (iii)Purchase register (iv)Summary of sales made during the year (v) Tax invoice register (vi)Central Invoice register (vii)Excise invoice register (viii)Retail sales register Annexire-VI of the submission made against notice u/s 142(1), dated 02/09/2019, with respect to details of: Consolidated stock summary for the financial year 2016-17 (which included-opening balance, purchases, sales and closing balance) “Quantity & Value Wise”. 8. Copy of notice issued under section 142(1), dated 25/10/2019 9. Assessee’s reply to above notice along with copies of: (i) VAT return for the quarter ending 30/09/2016 (ii) Stock register as on 30/09/2016 (iii) Stock register as on 01/01/2016 (iv) Purchase register from 01/10/2016 to 31/12/2016 (v) Ledger of parties from whom purchases of stock and I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 26 consumables were made (vi) Sales register from 01/12/2016 to 31/12/2016 (vii) Ledger of parties to whom sales of stock & consumables were made 10. Show cause notice dated 17/12/2019 issued, requiring the appellant, to justify as to why the cash deposited should not be added to the income as unexplained, investments 11. Reply to above show cause notice, explaining point wise- as to why cash deposited during demonetization period should not be added to the total income 12. Copy of judgment dated 29/10/1954 of Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. vs. CIT reported in [1954] 26 ITR 775 13. Copy of judgment dated 18/02/1957 of Hon'ble Allahabad High Court in the case of Kanpur Steel Co. Ltd. vs. CIT reported in [1957] 32 ITR 56 13. Copy of judgment dated 27/03/1963 of Hon'ble Supreme Court in the case of Sreelekha Banerjee vs. CIT reported in [1963] 49 ITR 112 14. Copy of order dated 31/10/2019 passed by Hon'ble Delhi ITAT in the case of Agson Global (P) Ltd. vs. ACIT reported in [2020] 115 taxmann.com 342 15. Copy of judgment dated 19/01/2022 of Hon'ble Delhi High Court in the case of Pr. CIT vs. Agson Global (P) Ltd. reported in [2022] 134 taxmann.com 256 (wherein the order of Hon'ble ITAT as listed at serial No. 5 has been upheld/affirmed) 16. Copy of order dated 25/03/2022 passed by Hon'ble ITAT, Chandigarh Bench in the case of Smt. Charu Aggarwal vs DCIT reported in [2022] 140 taxmann.com 588 17. Copy of order dated 26/07/2023 passed by Hon'ble ITAT Mumbai Bench in the case of ACIT vs. Ramlal Jewellers (P) Ltd.reported in [2023] 154 taxmann.com 583 18. Copy of judgment passed by Hon'ble Allahabad High Court in the case of Dr. Sashikant Garg vs. CIT and others reported in [2006] 285 ITR 158 19. Copy of judgment passed by Hon'ble Allahabad High Court Lucknow Bench in the case of CIT vs. Rajeev Sharma reported in [2011] 336 ITR 678 20. Copy of partnership deed dated 04/03/2017, effective from 01/04/2017 21. Copy of the appellate order dated 04/09/2021 by learned CIT-IV I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 27 22. Copy of the audited accounts for financial year 2015-16 (B.1) The appeal was partly heard on 09/04/2025 and was finally heard on 14th May 2025. At the time of hearing on 09/04/2025, the Bench directed some pointed questions to the learned A.R. for the assessee in connection with accounting ratio reported vide Sr.No. 40 of the statutory audit report filed by the assessee in Form No.3CD. The ratios as reported in the audit report are reproduced below for the ease of reference: 40. Accounting ratios with calculations as follows: (1) Total turnover of the assessee Current years =741965023 Previous year =115585358 (2) Gross profit/Turnover Current year=>gross profit=33215825 Turnover=741965023 Ratio=4.48% Previous year=>gross profit=18333313 /Turnover=115585358 Ratio=15.86% (3) Net profit/turnover Current Year=>net profit=6057005/ Turnover=115585358 Ratio=9.67% (4) Stock-in-trade/turnover Current year=>Stock in trade= 155585358/turnover=741965023 Ratio=20.97% Previous year=>Stock in trade= 233280193/turnover=115585358 Ratio=201.83% (5) Material consumed/finished goods N.A. produced (B.1.1) The learned A.R. for the assessee was unable to provide satisfactory answers to the queries posed on 09/04/2025 and sought for time to explain the matter. Subsequently, an affidavit dated 5th May 2025 from the Chartered Accountant (CA Aditya Mohan) who had prepared the aforesaid statutory audit report in Form 3CD was filed from the assessee’s side in Tribunal on 06/05/2025. In the affidavit, the auditor (aforesaid CA Aditya Mohan) accepted that there were errors in the accounting ratios reported at Sr.No. 40 of the aforesaid audit report in Form 3CD. The contents of the I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 28 aforesaid affidavit dated 05/05/2025 are reproduced below for the ease of reference: I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 29 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 30 I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 31 (B.1.2) When the appeal was finally heard on 14th May 2025, the learned A.R. for the assessee regretted the mistakes in the aforesaid statutory audit report filed by the assessee in Form 3CD. The learned Sr. D.R. for Revenue submitted that the aforesaid affidavit dated 05/05/2025 of Chartered Accountant should be examined by the Assessing Officer and further submitted that for due verification of the affidavit, the issues in dispute din the present appeal regarding aforesaid addition should be restored back to I.T.A. No.93/Lkw/2021 C.O.No.12/Lkw/2021 32 the file of the Assessing Officer with the direction to pass de novo assessment order in accordance with law. The learned A.R. for the assessee expressed no objection to this. In view of the foregoing, the impugned appellate order of learned CIT(A) is set aside and the issues in dispute regarding the aforesaid addition are restored back to the file of the Assessing Officer with the direction to pass de novo assessment order in accordance with law after providing reasonable to the assessee. (C) In view of our aforesaid directions, the Cross Objection, which was filed in support of the impugned appellate order dated04/08/2021 of the learned CIT(A), has become infructuous. Therefore, the Cross Objection is dismissed being infructuous. (D) In the result, the appeal of Revenue is partly allowed and Cross Objection of assessee is dismissed. (Order pronounced in the open court on 22/05/2025) Sd/. Sd/. (KUL BHARAT) (ANADEE NATH MISSHRA) Vice President Accountant Member Dated:22/05/2025 *Singh Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. Concerned CIT 4. The CIT(A) 5. D.R. ITAT, Lucknow Asstt. Registrar "