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Company wins appeal as tax officer's rejection of books and cash deposit additions lacked concrete evidence, based only on suspicion ITAT Raipur allowed the assessee company's appeal against rejection of books of account under Section 145(3) and addition of cash deposits in demonetized ...
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Company wins appeal as tax officer's rejection of books and cash deposit additions lacked concrete evidence, based only on suspicion
ITAT Raipur allowed the assessee company's appeal against rejection of books of account under Section 145(3) and addition of cash deposits in demonetized currency. The AO's conclusion that sales transactions were conducted against SBNs during demonetization period was based on general presumptions and media clippings without evidence. The AO's estimation of 25% profit element on sales lacked material basis. Both assumptions regarding antedated sales and super profit earning were based on suspicion and conjecture rather than concrete proof. The addition was vacated.
Issues Involved: 1. Confirmation of addition of Rs. 36,57,000/- made by A.O. during demonetization. 2. Validity of invoking Section 145(3) by the A.O.
Summary:
Issue 1: Confirmation of Addition of Rs. 36,57,000/- The assessee company, engaged in trading gold, diamond, and silver ornaments, filed its return for A.Y. 2017-18 declaring an income of Rs. 2,61,38,530/-. During demonetization, the company deposited Rs. 3,06,32,000/- in cash, out of which Rs. 2,71,30,000/- was in Specified Bank Notes (SBN). The A.O. suspected that the sales were backdated to pre-demonetization, leading to an addition of Rs. 36,57,000/-. The CIT(Appeals) upheld the A.O.'s decision, citing the assessee's non-compliance during appellate proceedings and lack of evidence to substantiate its claims. The Tribunal found the A.O.'s assumptions, based on media clippings and general presumptions about jewellers' practices during demonetization, insufficient to justify the addition. The Tribunal noted that the cash deposits during the demonetization period were consistent with deposits in the previous year and that a survey conducted during demonetization found no discrepancies in stock or cash. Consequently, the Tribunal vacated the addition of Rs. 36,57,000/-.
Issue 2: Validity of Invoking Section 145(3) by the A.O. The A.O. invoked Section 145(3) to reject the assessee's books of account, doubting the authenticity of sales transactions during the demonetization period. The Tribunal held that the rejection of books u/s 145(3) requires either dissatisfaction with the correctness and completeness of accounts or failure to compute income as per the regular accounting system, neither of which was proven. The Tribunal found that the A.O.'s conclusions were based on suspicion and lacked concrete evidence. Thus, the rejection of the books of account was deemed unsustainable.
Conclusion: The Tribunal set aside the CIT(Appeals)'s order and allowed the appeal, vacating the addition of Rs. 36,57,000/- made by the A.O. The Tribunal emphasized that assumptions and general presumptions without substantive evidence could not justify such additions. The order was pronounced on 18th March 2024.
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