Fashion Zone vs The JCIT [ITA NO. 331/Chd/2023 (A.Y 2017-18)] (ITAT Chandigarh):
The assessee firm, a manufacturer and trader of hosiery goods and readymade garments, filed a return of income with a total income of Rs. 1,33,650/- which was selected for scrutiny and notices were issued. During the demonetization period, the firm made a cash deposit of Rs. 50,00,000/-, with Rs. 48,00,000 deposited on 13/11/2016. The firm claimed Rs. 17,13,078/- were cash receipts from identifiable persons with PAN, while Rs. 30,86,922/- was attributed to cash sales of knitted clothes to unidentifiable individuals.
The AO found abnormal features in the assessee’s cash book and retail invoices from 06/10/2016 onwards, including an abrupt increase in cash sales, a decrease in cash sales, no cash deposits in the bank before 13/11/2016, and a lower cash deposits during the demonetization period compared to October and November 2016. The AO deemed the maintainance of the bank account untrustworthy and verifiable.
The assessee explained a cash deposit of Rs. 30,68,350/-, while the remaining Rs. 19,13,078/- was considered undisclosed cash credit, brought to tax under section 68 r.w.s 115BBE of the Act.
The assessee appealed to the Ld. CIT(A), who confirmed the AO’s action. The assessee deposited Rs. 48 lacs during the demonetization period, with Rs. 17,13,078/- from PAN holders and Rs. 30,86,922/- from non-PAN holders. The appellant showed a nominal cash balance on 05/10/2016, but no cash sales were reported in earlier years. The AO was more liberal in accepting the opening cash balance and sales. Considering the above, the action of the AO and addition of Rs. 19,13,078/- was confirmed.
As a result, the assessee appealed before the Hon’ble Tribunal against the AO’s action and the addition of Rs. 19,13,078/-. The Ld. AR argued that there was a total cash deposit of Rs. 40,00,000/- during the demonetization period, and the books of accounts were audited.
The assessee maintained proper records of sale bills and VAT returns, and the Revenue cannot challenge cash sales made by the assessee. Courts have held that there is no necessity for the assessee to maintain customer addresses, and the reliance was placed on the decision of Hon’ble Bombay High Court in case of R.B. Jessaram Fatehchand (Sugar Dept.) Vs. CIT [1970] 75 ITR 33.
The assessee’s case was disputed, as the AO mistakenly treated cash deposits as undisclosed income. Courts and Tribunals have held from time and again that adding sales declared by the assessee u/s 68/69 would result in double taxation.
The assessee’s trading account showed no new unexplained credit or investment, and the sale proceeds had been recorded in the regular books of accounts. The Assessing Officer’s error in adding alleged unexplained cash credit amounted to double taxation. The audit report showed a 35% increase in sales during the year under consideration, which was not doubted by the department.
The assessee’s cash sales were covered under the increased sales, which was accepted by the department. The Assessing Officer’s doubt on the sales was based on suspicion, not evidence. The addition made by the AO u/s sec 68 of the Act, was against the law as the assessee had maintained audited books of accounts and the VAT department had not doubted the trading results.
The Hon’ble Tribunal held, that the Ld. DR relied on lower authorities’ orders and findings. The assessee deposited the amount in its bank account explaining the cash deposits were part of its cash sales and were subject to VAT.
The assessee provided a cash book with entries, bank statements, VAT returns, and audited accounts. No defects were found in the cash book or documentation. The assessee’s higher deposits during the demonization period cannot be used to justify treating the cash sales as bogus and bringing them to tax u/s 68 of the Act.
The Hon’ble Tribunal agreed with the AR’s contention that bringing cash sales to tax would result in double taxation, which was unsustainable and cannot be upheld. The assessee’s explanation was deemed genuine and reasonable, and the addition was directed to be deleted. To download official order, click here.