2024 (2) TMI 525 - AT - Income Tax

ITAT reverses deletion of addition for unexplained cash sales increase during demonetization due to insufficient stock evidence

ITAT Chennai set aside CIT(A)'s order deleting addition related to substantial increase in cash sales during demonetization period. CIT(A) had applied ... Deposits of demonetized currencies - substantial increase in cash sales - preponderance of probability in favour of the assessee or not? - HELD THAT:- CIT(A) came to a conclusion that there is adequate stock available with the assessee. Assessee has not filed the details of stock before the AO and it was only submission made before the CIT(A). As further submission that when the assessee was not able to establish that sufficient stocks available with them, how the assessee could have been made sales as shown by it. Under these facts, CIT(A) has applied the preponderance of probability in favour of the assessee and deleted the addition, which appears to be not correct. Before us, the assessee filed certain details, such as, stock item register of Gold Jewels – 22 kt, ledger account of purchase gold coins, etc. However, with those details, we are unable to find out sufficient stock is available with the assessee or not. It is the duty of the assessee to establish that there is sufficient stock available with the assessee and subsequently, sale was made. Thus, the preponderance of probability in favour of the assessee cannot be applied in this case - we set aside the order of the CIT(A) and remit the matter back to the file of the AO to examine the details filed by the assessee and decide the issue - Appeal filed by the Revenue is allowed for statistical purposes. Issues Involved:1. Condonation of delay in filing the appeal.2. Validity of the addition of Rs. 2,31,20,500 under Section 68 of the Income Tax Act.3. Adequacy of stock and legitimacy of cash sales during the demonetization period.Condonation of Delay:The appeal filed by the Revenue was delayed by 33 days. The Revenue filed an affidavit for condonation of the delay, to which the assessee's counsel did not raise any serious objection. Consequently, the delay was condoned and the appeal was admitted for adjudication.Addition under Section 68:The Assessing Officer (AO) noted that the assessee deposited demonetized currencies amounting to Rs. 2,31,20,500, claiming the source was the cash balance available as per books on 08.11.2016. However, the AO observed discrepancies in the cash balance and substantial increases in cash sales during October and November 2016. The AO concluded that the cash balance was arrived at through bogus cash sales intended to accommodate the SBN deposits and added the amount as income under Section 68 of the Income Tax Act, bringing it to tax under Section 115BBE.Adequacy of Stock and Legitimacy of Cash Sales:The AO highlighted negative closing stock figures in the stock register and discrepancies in the conversion of gold bullion to gold jewels. The AO also noted the lack of proper justification for substantial cash sales and the absence of customer details for sales effected during the period. The AO concluded that the cash sales were bogus and facilitated the SBN deposits.CIT(A) Observations:The CIT(A) reviewed the assessment order and the appellant's submissions, noting that there was a steady flow of bullion purchases and adequate stock available to manufacture jewellery. The CIT(A) found that the pattern of purchases and cash deposits remained consistent with regular business activity and that the cash sales could not be deemed unexplained. The CIT(A) deleted the addition of Rs. 2,31,20,500 under Section 68, favoring the appellant based on the preponderance of probability.Tribunal's Decision:The Tribunal noted that the assessee did not provide sufficient stock details before the AO and that the CIT(A) relied on submissions without verifying stock adequacy. The Tribunal found it necessary for the assessee to establish sufficient stock availability and remitted the matter back to the AO for re-examination, directing the assessee to furnish complete details. The appeal filed by the Revenue was allowed for statistical purposes.Conclusion:The Tribunal set aside the order of the CIT(A) and remitted the matter back to the AO to examine the details filed by the assessee and decide the issue in accordance with the law, providing an opportunity for the assessee to be heard. The appeal was allowed for statistical purposes.