Delhi ITAT deleted addition of cash deposits during demonetisation


Delhi ITAT deleted addition of cash deposits during demonetisation

Agson Global Pvt. Ltd [TS-660-ITAT-2019(DEL)]

An addition of Rs. 73 Crore to the income is recently deleted by Delhi ITAT. Addition was done on account of cash deposits done during demonetization period. Primary grounds for deletions were the parameters outlined by CBDT in its Instructions issued on ‘Operation Clean Money’. Tribunal observed that there were no substantial increase in sales post demonetisation compared to earlier years. It held that

“….it cannot be said that assessee has booked non-existing sales in its books post demonetization.”

Tribunal further analysed the cash sales to cash deposit ratio, and finds only minor difference between the two, also observed that there were no substantial downfall or increase in the gross profit and net profit compared to earlier years.

Apart from this, ITAT also deleted addition u/s 68 w.r.t. share capital / premium and alleged bogus purchases sans incriminating evidence found during search for AY’s 2012-13 to 2017-18.

The short compilation of the entire Landmark judgment delivered by ITAT, Delhi is under:

1.      The ruling is delivered by ITAT bench comprising of Shri Bhavnesh Saini and Shri Prashant Maharishi in the case of Agson Global Pvt. Ltd [TS-660-ITAT-2019(DEL)]

2.      Regarding addition of cash deposited during demonetization, ITAT observed that both the AO and Ld. CIT (A) erred in deeming the total cash deposits during the demonetization period (9th Nov 2016 to 30th Dec 2016) as Rs. 180.53 Cr instead of the actual deposits of Rs. 175.28 cr during the said period. While arriving at the said figure of Rs. 180.53 crores, the Revenue Authorities had erroneously considered the total cash deposits of Rs. 5.25 crores (made on 31st Dec 2016) instead of the actual cash deposited during the demonetization period of Rs. 175.28 Cr.

Further, even out of Rs. 175.28 Cr, deposits of Rs. 63.41 crores were in new currency notes and non demonetized old currency notes (Rs. 10/20/50/100).

Thus, ITAT held the said amount of Rs. 63.41 crores could not be construed as cash deposited into the banks as a result of demonetization also the amount disclosed by the assessee in PMGKY scheme needed to be deleted from the addition.

3.      ITAT Delhi further observed that CBDT had issued various standard operating procedures under ‘Operation Clean money’.

ITAT categorically expressed that

“…it is very important to note that whether the case of the assessee falls into statistical analysis, which suggests that there is a booking of sales, which is non-existent and thereby unaccounted money of the assessee in old currency notes (SBN) have been pumped into as unaccounted money.”

4.      ITAT undertook detailed analysis in the present case so as to arrive at the following conclusions:

– On analysis of sales, it is observed that in the year of demonetization, percentage increase in sales was less than earlier year. Growth in sales compared to earlier two years in case of the assessee showed similar trend.  Thus, it cannot be said that assessee had booked non-existing sales in its books post demonetization

– Analysing the comparative jump in sales during Nov. 2016 with earlier two years, there was no substantial increase(5.64%) in sales of November 2016 (Post demonetization) as also that there was no higher booking of sales by the assessee compared to earlier years which can justify the stand of the revenue that assessee had booked non existing sales in November 2016.

– Further analysing trend in sales by comparing sales of Dec.2016 with prior two years, ITAT noted that compared to earlier years there was substantial downfall (28.26%) in sales of Dec 2016 (Post demonetization). Thus, it cannot be said that trend of sales in the said year post demonetization, assessee had booked higher sales.

iv On analysis of cash sales to cash deposit ratio, ITAT noted that whatever cash sales was recorded by the assessee for the year the same was deposited in its bank account.

5.      ITAT further finds that AO himself stated that there is an element of suspicion that the assessee has made introduction of unaccounted cash in its books of accounts in the wake of Demonetization. However, he hastened to add that at the same time the Cash sales to the certain acceptable extent as per the business trend of the assessee company could not be ruled out.

6.      ITAT mentions as under:
“ As per our analysis of the cash sales, which is as per the business trend of the assessee company only.” ITAT also opined that the AO neither made any attempt by making independent enquiry to strengthen his suspicion into sound fact, nor he accepted the explanation of the assessee but simply proceeded to make the addition.
Addition of Share Capital & Premium

7.      ITAT further observed that the addition was based on the statement made by the MD of the company u/s 132(4) wherein the MD had submitted

“…whatever share capital and save premium has been received by the appellant company is basically the money out of the companies sale proceeds which have been rooted back through banking channel through the shareholders which included the employees of the company as well as his other companies.”.

8.      On issue of share capital and share premium addition, ITAT noted that in fact the assessee had issued cheques in the form of advances etc to various concerns who in turn deposited the money with the assessee through cheque as a share capital and premium and remarked that “Therefore apparently on the issue of the share capital there is no confession in the statement recorded u/s 132 (4) of the managing director of the appellant company that there is any incriminating material or unaccounted income of the assessee.”

9.      On Revenue’s reliance on photocopies of documents such as blank share transfer forms, blank signed power of attorney etc, ITAT noted that as per Sec. 61 of the Evidence Act, the contention of a document may be proved either by primary evidence or by secondary evidence. ITAT opined that photocopy of original cannot be considered as primary evidence as stipulated in explanation to Sec.60 of the said act as also opined that in absence of any other material, even such photocopy cannot be treated to be secondary evidence also.

10. Ruling on the merits of such addition, ITAT noted that complete trail of funds with the copies of the relevant bank accounts evidencing the movement of the funds had been enclosed along with confirmations by the assessee as also noted that all the investors were assessed to tax.
10. ITAT held that since all the transactions were recorded in the books of account of assessee and other related parties, which were supported by confirmations, bank statements, therefore, there was no reason to believe that assessee had earned any unaccounted/undisclosed income in the issue of share capital. Thus, ITAT held that assessee had proved the identity, creditworthiness and genuineness of the transaction and deleted the addition.

11. ON Addition of alleged Bogus purchases ITAT noted that all the transactions were routed through banking channels, the purchase and sale details were supported with quantitative details and the books of accounts were duly audited as per companies act and income tax act. Further ITAT observed that no incriminating evidences were found with respect to such alleged bogus purchases during the search proceedings.
ITAT noted that AO himself in the appraisal report (of the investigation wing) held that only the purchases from alleged bogus parties were considered and sales made to these parties were altogether ignored, thus opined that “…it cannot be said that purchases made from these parties are bogus however; sales made to these parties are genuine. The revenue cannot blow hot and cold in the same breathe.”

12.  ITAT noted that In the deviation report the AO had categorically held that if, the purchases were to be removed from the books of accounts from those parties, then necessarily on the same allegation the sales was also required to be removed from the regular books of accounts, which would lead to assessing the assessee at less than the income returned by it.

13.  ITAT also noted that the assessee had derived net profit from trading with the alleged parties and opined that “It is highly unusual that if the purchases are allegedly bogus then how assessee will show higher profit from these purchases in its books of accounts.”. ITAT held that the action of AO of considering only the purchases from alleged parties as bogus was contradictory to his own stand, thus rules that it cannot be said that purchases made from these parties were bogus however; sales made to these parties were genuine.

14. As regards Assessee’s argument on rejection of books by the CIT(A) is impermissible and outside his jurisdiction, ITAT held as under:
“….if the learned CIT (A) finds that the assessing officer has failed to apply his mind to the provisions of section 145 (3) of the income tax Act then, he can do so, but he has to examine the books of accounts and reach at a conclusive finding that the books of accounts of the assessee are either not correct or are incomplete.”

15.  ITAT noted that the CIT(A) had not even called for the books of account and opined as under:

“Before rejecting the book results, the revenue authorities are duty-bound to find patent, latent and glaring defects in the books of accounts. In the present case, no such exercise or attempt has been made by the revenue authorities… Thus, held that rejected of books of account was not warranted.

Thus ITAT concluded that, “In view of above categorical facts coming out of the assessment proceedings, on perusal of the deviation report and appraisal report that for the concluded assessment is no incriminating evidences were found.”, thus deletes addition.