TaxTMI 
TaxTMI 
2025 (4) TMI 784
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....taxable income at Rs. 5,80,82,670/-. Subsequently, the case was selected for complete scrutiny. Specific issue to examine was large value of cash deposited during demonetisation. Mandatory notices including a summon was also issued u/s 131 of the Act. The ld. AO examined that during the year under consideration, the assessee firm is engaged in both trading and manufacturing packing and dispatch of chewing tobacco from its manufacturing unit in Delhi at D-33 SMA Industrial Area, GT Karnal Raod and trading of chewing tobacco and perfumery products at its 7/355, Naya Bans New Delhi unit. Ld. AO examined, during the year under consideration, between 09.11.2016 and 31.12.2016, the assessee deposited Rs 83,50,990/- in one bank account and Rs 7,69,86,751/- in another bank account. Ld. AO issued notice u/s 142(1) of Act, and the assessee was asked to explain the source of these cash deposits. In response to the same, the assessee submitted that the main source of cash deposits is cash sale. Further ld. AO called information with respect to cash deposit pattern and cash sale for FY 2016-17. Information was also called for with respect to FY 15-16 and FY 17- 18 to ascertain the business patt....
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....d the same in assessment order, as under: Head FY 2015-16 FY 2016-17 FY 2017-18 Manufacturing 4,49,90,993.49 2,04,61,113.14 5,30,24,089.15 Turnover Trading Turnover 17,70,98,823.46 39,67,24,743.51 40,61,27,922.63 Total Turnover 22,20,89,816.95 41,71,85,856.65 45,91,52,011.78 Manufacturing Gross Profit 56.66% 46.28% 40.76% Trading Gross Profit 18.61% 19.00% 13.86% Total Gross Profit 26.32% 20.51% 16.8% Manufacturing Net Profit 15.60% -42.13% -13.71% Trading Net Profit 16.57% 17.80% 12.94% Total Net Profit 16.35% 13.90% 9.50% 6. Accordingly ld. AO concluded that the turnover of the assessee is largely trading based. He further concluded that from FY 2015-16 to FY 2016-17, manufacturing as a percentage of turnover has gone down from 20.25% to around 5%. The trading turnover percentage has gone up from 79.75% in FY 2015-16 to 95.09% in FY 2016- 17. 7. The response of the assessee explaining this changing composition of business was that while the turnover was registering a robust growth, the sale of tobacco was falling day by day....
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....s of less than Rs 2,00,000- thus obviating the need to record the PAN of the buyer. This is the general trend in the assessee's cash sale business. • Such a trend in cash sale has only been observed in FY 16-17. Because, in FY 2015-16, the sale in the first 8 days of November was Rs 16,74,072. Even in FY 17-18, the entire cash sale in November 2017 is Rs 4,91,96,212. This implies that the proportionate sale for the first 8 days of November works out to Rs 1,31,18,989/-. • Therefore, the cash sale in the first 8 days of November in FY 2016-17 is disproportionate. It is out of trend in comparison to the previous year and the subsequent year. • It is also out of trend compared to the sales of FY 2016-17, if the average sale of first 8 days of each month is taken into account. To explain this unusual jump in cash sale in the first 8 days of November 2016, the assessee was issued the show cause on 25.12.2019 as to why the books of accounts should not rejected. The assessee's submissions were considered and were found not acceptable because the assessee's cash sales were not found to stand the test of human probability and the ld. AO alleged as f....
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....ied by normal market forces. • • The assessee claims that the turnover has largely increased on amount of the retail sales of perfumery products. This has to be noted that the retail sales of tobacco and perfumery products will not see a sudden spike because of a largely fixed customer base in a particular territory. On the contrary, a consistent increase in indirect taxes on these products will shrink the customer base/sale frequency. • On a similar line, the perfumery products will not see a huge spike owing to the aforementioned reasons. The very nature of retail transactions of a product of special nature will not see a significant change in sales unless there is no product or territorial diversification in terms of sales. • Therefore, the astronomical increase in sales in November 2016 cannot be justified by normal market forces. • As noted above, the sale booked in the first 8 days of November 2016 is disproportionately high when compared to the same time period last year. Even from the figures submitted by the assessee, it can be seen that an 1832% year on year growth is beyond human probability in the ca....
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....he correctness of the accounts of the assessee and hence, by the power conferred upon me by the section 145(3) of the Income Tax Act, 1961, I hereby reject the books of accounts of the assessee. 12. Thus the ld. AO has concluded as follows:- "6. Decision 6.1 The arguments, facts and figures quoted above show that the assessee firm never made the alleged quantum of cash sales as claimed by them. The assessee has earned income from unexplained sources which he tried to inject in his books of account to justify his cash deposit during demonetization period. If demonetization would not have happened, this income would not have come in the eyes of the department. By showing such inflated cash sales in a short span, the assessee firm tried to bring his income from unexplained sources into his books of account. 6.2 The quantum of cash sales of entire FY 2016-17 is suspect. Even the segregated stock and purchase details of traded and manufactured items have not been provided by the assessee firm. 6.3 Yet, even if the submitted sale figures are taken as genuine, then on an average, Rs 78,92,257/- is coming as the average 8 day sale of the month. This f....
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....e books were rejected. The ld. AR has relied a catena of judgements for submitting that the books can be rejected only on the basis of deficiencies found in the books and not on the basis of mere presumptions. It was submitted that no infirmity in the audit report or the books as maintained was found and ignoring the evidences which were filed and recording incorrect fact of not filing necessary books of account, the same have been rejected. The ld. AR has submitted that the ld. AO has gone on the subjective standards and his individual opinion to reject the books of account. The ld. AR submitted that the ld. AO has failed to take notice of the fact that increase in turnover was genuine due to the introduction of products manufactured and sold by the assessee during the year. The ld. AR submitted that the ld. AO has failed to appreciate that the increased sales between November 1 to November 8 were genuine as the sales were deposited in the following day after the sales. The ld. AR pointed out that the AO has noted in the assessment order that a sum of Rs.2,26,50,000/- stood deposited in the bank by 08.11.2016 and that the further deposits between 09.11.2016 and 30.11.2016 were muc....
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....ervice Tax Rules, 1994 and at page 237, the copy of VAT return is filed. Then, at page No.242 to 247 the assessee had provided to the ld. AO the details of 20 parties to whom sales including cash sales were made during the previous financial year 2015-16 and the present financial year 2016-17. The list of sundry debtors were also provided. 18. Then we find that in furtherance to summons u/s 131 dated 04.12.2019 and notice u/s 142(1) of the Act dated 17.12.2019 available at pages 267 to 271 of the paper book the assessee had forwarded a reply to the ld. AO, the copy of which is available at page 272 to 276, wherein it was mentioned that the assessee had purchased raw tobacco from M/s Krishiv Tobacco Co. and Siraj Ahmad Sartaj Ahmad during the relevant previous year. 19. Further at pages 279 to 281 is the copy of reply to the show cause notice dated 25.12.2019 and therein the assessee specifically pleaded that all the stock details have been produced for verification earlier. It was submitted that the GP rate was as high as 46.2% in tobacco manufacturing and in trading of perfumes it was only 19%. The assessee had submitted that the purchase and sale of the assessee are fully v....
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....had furnished the audited books of account which included trading and profit & loss Accounts. Pertinent to mention is that assessee had manufacturing and trading units a various places and their separate accounting was part of the audited financial. The opening stock, sales and closing stocks have been duly disclosed, which has been accepted in audit. No deficiency or inaccuracy in the inventories is cited by the ld. AO. 24. Thus, without even going through the audited financial and raising queries on the basis of any inaccuracy and infirmity found in the audit report, the rejection of books of account is not sustainable. There seems to have been no inquiry on the part of the ld. AO with regard to the transactions which were reported in the audited books of account. So much so that the assessee's justification for the overall fall in GP rate by providing segment wise trading result for manufacturing and trading activity was accepted. The ld. AO has failed to appreciate that in demonetization period there was every possibility of increase in sales as the assessee was a manufacturer and dealer of products which have high consumption, through may be the most exhaustive retailers. T....