AO's corrigendum assessment order upheld while Revenue's appeal on unexplained cash deposits under section 68 dismissed

The ITAT Delhi upheld the corrigendum assessment order passed by the AO, ruling it proper since only the incomplete three-page assessment order was rectified within the limitation period on 24/12/2019, while demand notices and penalty computations remained unchanged. Regarding unexplained cash deposits under section 68, the ITAT dismissed the Revenue's appeal, holding that the assessee adequately explained the source of cash deposits from sales and demonstrated availability of cash and stock to support bank deposits during demonetization. The AO failed to substantiate findings beyond mere data interpretation without proper inquiry.

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Issues Involved:

1. Legality of deleting the addition made under Section 68 of the Income Tax Act, 1961.
2. Evaluation of the evidence presented by the Assessing Officer (AO) regarding cash sales and deposits.
3. Acceptance of the assessee's book of accounts by the AO.
4. Appropriateness of referring to the ITAT Vishakhapatnam judgment in a different factual scenario.
5. Validity of two assessment orders for the same assessment year.

Issue-wise Detailed Analysis:

1. Legality of Deleting the Addition under Section 68:

The Revenue challenged the decision of the Ld. CIT(A) to delete the addition made under Section 68, which was based on unexplained cash deposits during the demonetization period. The Ld. CIT(A) concluded that the AO did not provide sufficient material evidence against the assessee regarding cash sales deposited in the bank. The AO accepted the records and books of account and did not find any defects in the stock registers or purchases, which are interlinked with sales. The assessee explained that the cash was received from its business activities, and the AO did not challenge the sales or purchases. The Ld. CIT(A) relied on the judgment of ITAT, Vishakhapatnam, which supported the assessee's claim that the cash deposits were from sales and thus should not be treated as unexplained income under Section 68.

2. Evaluation of Evidence Presented by the AO:

The AO alleged that the assessee manipulated cash in hand figures to justify unaccounted cash. However, the Ld. CIT(A) found that the AO did not examine the complete materials and records available, including sales, purchases, and stock movements. The AO's suspicion was based on increased cash sales during the demonetization period, but no tangible evidence was provided to disprove the sales. The Ld. CIT(A) noted that the sales were recorded, invoices were generated, and reported to VAT authorities, supporting the genuineness of the transactions.

3. Acceptance of the Assessee's Book of Accounts:

The AO initially proposed to reject the books of accounts but did not do so in the final assessment order. The Ld. CIT(A) observed that the AO accepted the books after considering the documents submitted by the assessee, including tax audit reports, VAT returns, and financial statements. The AO did not find any discrepancies in the stock or purchases, which are directly linked to sales. The Ld. CIT(A) emphasized that once purchases and stock are considered genuine, disbelieving sales is contrary and factually incorrect.

4. Appropriateness of Referring to ITAT Vishakhapatnam Judgment:

The Revenue contended that the Ld. CIT(A) erred in referring to the ITAT Vishakhapatnam judgment in a different factual scenario. However, the Ld. CIT(A) found the judgment applicable as it dealt with similar issues of cash deposits during demonetization being explained as sales. The judgment supported the view that once sales are recorded and stock movements match, there is no reason to disbelieve the sales. The ITAT Vishakhapatnam case provided a precedent for treating cash deposits as sales rather than unexplained income.

5. Validity of Two Assessment Orders:

The assessee raised concerns about the validity of having two assessment orders for the same year. The original assessment order dated 20/12/2019 was incomplete, and a corrigendum was issued on 24/12/2019. The Ld. CIT(A) treated the corrigendum as the final assessment order, noting that the initial order was erroneously printed. The Tribunal found that the corrigendum order was proper as it was issued within the limitation period, and the demand notice and computation remained unchanged. The Tribunal held that the corrigendum order was valid and dismissed the assessee's objections on this ground.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decision to delete the addition under Section 68. The Tribunal found that the assessee adequately explained the source of cash deposits as sales, supported by records and stock movements. The AO failed to provide substantial evidence to counter the assessee's claims. The Tribunal also validated the corrigendum assessment order, confirming its legality. The appeal by the Revenue was dismissed, and the order was pronounced on 3rd May, 2024.

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