2024 (4) TMI 1235 - AT - Income Tax

ITAT deletes section 69A addition for cash deposits during demonetization period with proper books maintenance

The Deputy Commissioner of Income Tax, Non-Corporate Circle 2, Coimbatore Versus M/s. D. Gem Mount

The ITAT Chennai ruled in favor of the assessee regarding unexplained money additions under section 69A for cash deposits during demonetization. The AO ... Addition of unexplained money u/s 69A - cash deposits made during the demonetization period - AO doubted the cash sales by comparing with the cash sale in the preceding as well as succeeding year for relevant month, the cash sale made during the month of October and the first week of November, 2016 being substantially high for the reason that the assessee has not furnished the details of the names and address, PAN or identity of the buyers in support of its claim. HELD THAT:- The assessee has furnished the trading account, P&L account and reduction of stock is matching with the corresponding sales. AO did not find any defects in the books of accounts and trading account, P&L account and the financial statements and failed to disprove the condition of the assessee. CIT (A) has observed that the AO has not been able to find any fictitious purchases that could have been the root cause of unaccounted money being deposited in the Banks under the garb of sales, Once the purchases are genuine, the sales could not have been doubted. An abnormal increase in cash sales cannot alone be the ground to out rightly reject them. Case of AO is that no details of the names and address, PAN or identity of the buyers were furnished by the assessee in support of its claim - CIT(A) has opined that the limit of transaction beyond which PAN is mandatory is ₹2 lakhs. Hence the seller is not required to obtain PAN from purchaser till this limit. The assessee has not made any sales above ₹2 Lakhs hence merely on suspicion it cannot be inferred that the sale is bogus. Hence rejecting the cash sales bills on this count cannot be done. It is a true fact that the books of the assessee have been audited and no fault has been found. Assessee has not submitted purchase ledger, sales ledger, cash book for the year under consideration and for the previous year, even though called for during scrutiny proceedings - The above submissions are not found to be correct for the reason that in response to the notice issued u/s 142(1) of the Act dated 30.10.2019, the assessee has submitted complete details, as was required by the AO through his notice un/s 142(1) of the Act, as could be evidently admitted by the AO in the assessment order at para 3.0. Assessee has also furnished copy of screenshot of reply filed by the assessee on 19.11.2019 and on 26.12.2019 in reply to the notice issued under section 142(1) of the Act dated 30.10.2019, wherein, the assessee has uploaded the details of TDS expenses, financial statement, purchases, sales, etc., which are sufficient to prove the genuineness of the purchases and also the cash sales. AO has erroneously made addition under section 69A - Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether cash deposits in demonetised currency (SBNs) totaling Rs.1,53,84,000/- could be treated as unexplained money under section 69A when the assessee's audited books, stock movement, purchases and sales were accepted by the Assessing Officer. 2. Whether an abnormal increase in cash sales during the demonetisation window can, by itself and without other defects in books or evidence of fictitious purchases, justify disallowance under section 69A and taxation under section 115BBE. 3. Whether failure to produce verifiable details of buyers (names, addresses, PAN/identity) for cash sales justifies treating cash deposits as unexplained, where sales are below the PAN-obligation threshold and audited financials, stock registers and audit report were furnished. 4. Whether the Assessing Officer's reliance on inter-period comparison of cash sales (preceding and succeeding months/years) is sufficient to displace the book results when purchases, stocks and audited accounts show consistency and no defects. 5. Whether the assessee failed to comply with notices under section 142(1) by not furnishing purchase/sales ledgers and cash book for the relevant and preceding years, and if such alleged non-production justifies additions. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of treating SBN deposits as unexplained money under section 69A when books are accepted Legal framework: Section 69A permits deeming of monies as unexplained where the assessee fails to satisfactorily account for sums found in deposit/possession. Assessment under section 115BBE applies to income from undisclosed sources as specially taxed. Precedent treatment: The Tribunal treats acceptance of audited books and accounts, and absence of found defects in stock and trading accounts, as material in assessing credibility of claimed receipts; established principle that book results accepted by AO should generally be respected unless adequately displaced. Interpretation and reasoning: The Tribunal noted AO accepted purchases, monthly stock positions and closing stock, and did not find defects in books or trading account. Purchases, stocks and sales are interlinked; accepted purchases and matching reduction in stock consistent with sales negate presumption of unexplained receipts. Where AO accepts books and audit report and finds no fictitious purchases, there is no justification to treat cash deposits as unexplained solely on suspicion. Ratio vs. Obiter: Ratio - Acceptance of audited books and unchallenged stock/purchase records precludes treating corresponding cash deposits as unexplained under section 69A absent independent, positive contradictions or proof of fictitious transactions. Conclusion: Addition under section 69A on the entire SBN deposit was unsustainable; deletion by appellate authority rightly upheld. Issue 2 - Sufficiency of abnormal increase in cash sales during demonetisation window to justify addition Legal framework: Comparative fluctuations in turnover may trigger enquiry, but additions require positive evidence showing receipts are unexplained or sales are bogus; mere comparison is presumptive and insufficient if books and audit corroborate the claimed sales. Precedent treatment: The Tribunal followed the approach that an 'abnormal increase' cannot alone be the basis to disbelieve sales where stock and purchases support the sales and there is no other infirmity in records. Interpretation and reasoning: The AO's comparison showed spike in cash sales but did not expose defects in stock registers, purchases or financial statements. The audit report and financials showed corresponding reduction in stock consistent with claimed sales, undermining the premise that increases were fabricated. Without evidence of fictitious purchases or fabricated stock movement, the spike alone lacks probative force to classify deposits as unexplained money. Ratio vs. Obiter: Ratio - Abnormal increase in cash sales, standing alone, insufficient to sustain addition under section 69A if corroborative documentary and audit evidence supports genuineness of sales. Conclusion: The CIT(A)'s deletion of the addition based on acceptance of books and interlinked stock/purchase/sales records was correct. Issue 3 - Non-production of buyer details (names/addresses/PAN) and relevance of PAN threshold Legal framework: Statutory obligations to quote PAN arise beyond specified transaction thresholds; non-availability of buyer particulars may be a factor but is not determinative of genuineness of sales where sales fall below thresholds and books/audit corroborate transactions. Precedent treatment: The Tribunal accepted that absence of buyer particulars for numerous small cash sales does not automatically render sales bogus, particularly where no single sale exceeds the PAN-mandatory limit and books/stocks are consistent. Interpretation and reasoning: The CIT(A) noted the PAN-obligation ceiling of Rs.2 lakhs per transaction and observed that the assessee's individual cash sales did not exceed that threshold; therefore, AO's criticism for not obtaining buyer PANs was misplaced. Given audited financials and matching stock depletion, mere absence of buyer details cannot justify disallowance. Ratio vs. Obiter: Ratio - Failure to produce buyer identifiers is not fatal where transactions fall below PAN-reporting threshold and where books/stock movement and audit substantiate the receipts. Conclusion: Rejection of cash sales solely for lack of buyer particulars (where PAN not mandatorily required) was incorrect. Issue 4 - Reliance on inter-period comparison to displace book results Legal framework: Comparative analysis is a tool for detection of anomalies but cannot displace documentary evidence and accepted books unless supported by independent verification or demonstration of falsity in records. Precedent treatment: The Tribunal treated comparative irregularities as indicative only, requiring corroboration by defects in books, fictitious purchases, or inability to account for stocks. Interpretation and reasoning: Although AO compared cash sales across periods and found disproportionate receipts, he did not identify deficiencies in purchases, stock registers, or audited accounts. Since AO accepted purchases and stock balances and did not demonstrate fictitiousness, comparison alone could not justify adding the entire deposits as unexplained money. Ratio vs. Obiter: Ratio - Inter-period comparison cannot override duly audited and consistent book results in the absence of other evidence showing falsity. Conclusion: Comparative disparity without corroborative findings does not sustain additions under section 69A. Issue 5 - Alleged non-compliance with section 142(1) notice for production of books (purchase/sales ledger, cash book) and effect on assessment Legal framework: Failure to comply with notices under section 142(1) may attract adverse inference; conversely, proof of compliance (including electronic uploads and screenshots) rebuts such inference. Precedent treatment: The Tribunal accepted documentary proof of response to notices (upload screenshots, submitted financials, bank statements, cash book) as satisfying the AO's requisition where AO's assessment record itself admitted receipt of such materials. Interpretation and reasoning: The assessee produced financial statements, bank statements, cash book and supporting materials in response to section 142(1) notice; AO's assessment acknowledged receipt of these details (see assessment order para reference). The Revenue's contention of non-production was inconsistent with assessment record. Therefore, adverse inference for non-compliance was unwarranted. Ratio vs. Obiter: Ratio - Where the assessee evidences compliance with statutory notices (including electronic submission) and AO's order records such receipt, treating the material as not produced is illegitimate; inability to show non-production negates the basis for additions premised on non-cooperation. Conclusion: The Tribunal correctly refused to draw adverse inference and upheld deletion of addition where statutory requisitions were complied with and accepted by AO. Overall Conclusion The Tribunal upheld the appellate authority's deletion of addition under section 69A and dismissal of Revenue's appeal: where audited books, purchases, stock movement and financial statements consistently corroborate claimed cash sales and the assessee complied with notices under section 142(1), additions based solely on comparative spikes in cash deposits or absence of buyer particulars (below PAN threshold) are unsustainable absent independent evidence of fictitious transactions.