Unjustified addition to unexplained cash credit as evidences and books of account not rejected

Facts and issues of the case

This is an appeal filed by the assessee against the order of the National Faceless Appeal Centre (NFAC) Delhi vide order dated 06.12.2021 and pertains to Assessment Year (AY) 2017- 18. The brief facts of the case are that the assessee is engaged in the business of manufacturing steel. The Return of income for the year under consideration was filed declaring income of Rs. 27,80,120/-. The case was demonetization period as compared to pre-demonetization period.”

As per the Annual Information Report (AIR), the assessee had deposited cash in two bank accounts (both with Union Bank of India) to the tune of Rs. 82,50,000/- between the period 09.11.2016 and 30.12.2016 and the assessee was required by the Assessing Officer (AO) to explain the same. Thereafter, after considering the submissions of the assessee in this regard, the assessment was completed at an income of Rs. 1,05,50,120/- after making addition on account of cash credits u/s 68 and 69A read with section 115BBE of the Income Tax Act, 1961 (hereinafter called ‘the Act’) to the tune of Rs. 77,70,000/-

It was contended by the Ld. Authorised Representative (AR) that the assessee has been maintaining regular books of accounts and which are subject to audit and that the Return was filed based on such audited books of account only. At the very outset, it was brought to the notice of the Bench, that though the Assessing Officer had made certain additions to the returned income on account of the amount received from certain related parties, sales had been made subsequently against the amounts so received during the very same year and thus the sales had been adjusted against the advances received from them. It was submitted that no adverse view had been drawn by the authorities below in this regard and the books of accounts had also not been rejected u/s 145(3) of the Act.

The Ld. AR submitted that regarding the addition of Rs. 1,20,000/- on account of amount received from one Sh. Deepak Sharma and Sh. Suresh Kumar added u/s 68 of the Act, the Assessing Officer has discussed this issue in Para 7 of the order and referred to cash receipts of Rs. 20,000/- per day from Sh. Deepak Sharma and from Sh. Suresh Kumar. It was submitted that this amount had been returned during the same year by way of cash in installments but before the Assessing Officer, no confirmations, no copy of accounts, no PAN Nos./ITRs detail were furnished leading to addition of Rs. 1,20,000/-.

It was further submitted by the Ld. AR that the Ld. CIT (A) had upheld the addition because no confirmations had been filed from either of the parties. The Ld. AR further submitted that that since the assessee does not have any link/connection with these parties, who had advanced the amount for sales to be made to them, therefore, the particulars of such parties were not available and it was stressed that the entries were genuine amount and the same deserved to be accepted. It was further argued by the Ld. AR that this issue has been dealt by the Assessing Officer at pages 4 & 5 of the assessment order and the Assessing Officer has not doubted anything in this regard and, accordingly, it was vehemently argued that the identity, credit worthiness and genuineness of the transactions, stand proved and even in the books of accounts of the assessee, no defects have been pointed out and even the affidavits of the parties concerned, duly attested, had been furnished and the said amounts, as received, had been adjusted against the sales made to the related parties and such sales having been accepted in the hands of the assessee and purchases also having been accepted in the hands of the related parties, there was no reason to make such addition.

It was brought to the attention of the Bench that the assessee is a registered VAT dealer and such sales, as made to the related parties, and purchases in the hands of related parties have been accepted. The opening stock, closing stock, purchases and sales in the year under consideration, as reflected in the audited trading account have also been accepted. It was further stressed that all the related parties are being assessed to tax and their sources have been explained and confirmed copies of account have also been furnished and, as such, confirmation of the addition was not justified.

It was further argued that the finding of the Assessing Officer that the transactions are to generate “fictitious cash” is not justified and the Ld. CIT(A)/NFAC, Delhi had failed to appreciate that since the sales to such parties have already been reflected in the trading account any further addition of same amount would amount to “double addition”. It was also submitted that the Assessing Officer/CIT(A) had failed to consider duly attested affidavits which was contrary to the binding judgment in the case of Mehta Parikh, reported in 30 ITR 181 wherein it has been held that the contents of the affidavit cannot be rejected if there is no adverse material on record and that this judgment has been followed by the Hon’ble Gujarat High Court in the case of ‘Glasslines Equipments Co. Ltd. Vs CIT’ reported in 170 CTR 470 holding that sworn affidavit is a sufficient proof, if no other contrary evidence is available on record.

Observation by the court

It was also argued vehemently, that both the Assessing Officer as well as the NFAC have ignored the documentary evidences but have not doubted any of the evidences so furnished but have only proceeded on mere suspicion which is not in accordance with settled law. Reliance was placed on the order of Chandigarh Bench of the ITAT in the case of ‘Kalaneedhi Jewellers LLP’ as reported in (2022) 96 ITR 66 (Chd.) wherein, there was issue of cash deposits in the regular bank account of assessee out of sales as reflected in the trading account and it was held that if the opening stock, purchases, sales and closing stock have not been doubted and the cash is received against such sales, then the addition cannot be said to be justified. It was pleaded that the whole basis of confirming the addition was on conjectures and surmises.

with respect to ground Nos. 4(a) & 4(b), it was submitted that the same are related to addition of Rs. 48,50,000/- deposited against housing loan in the name of the assessee and which was squared up during the year under consideration by way of “cash deposits” into the said account by the respective HUFs of self and other two brothers who had in turn deposited the cash in the Housing Loan account of the assessee from their proven sources by withdrawing the amount from their respective concerns, which were being assessed to tax.

It was brought to the notice of the Bench that the assessee had submitted a detailed reply which has been reproduced at page no. 7 to 9 of the assessment order and the sources of the payment have been doubted only because of the fact that the said HUFs were not the co-borrowers. It has been submitted that the three HUFs who have provided the funds are as under:

Arun Garg & Sons HUF Rs. 14,00,000/- Varun Garg & Sons HUF (brother HUF) Rs. 14,50,000/- Pawan Kumar & Sons HUF (brother HUF) Rs.20,00,000/- Total Rs. 48,50,000/-

It was submitted by the Ld. AR that both during the course of assessment proceedings as well as in the proceedings before the NFAC, confirmed copies of all the three HUFs, affidavits of the Karta, their ITRs, copy of the cash summary had been filed and it was argued that the three ingredients i.e. the identity, creditworthiness and genuineness of the transactions having been established and only because of the fact that the said HUFs were not co-borrowers to the loan account, such evidences cannot be brushed-aside.

It was vehemently argued that the NFAC, after duly reproducing the submissions of the assessee, have only rejected this bona fide explanation and have confirmed the addition without giving any valid reasons. It was further brought to our attention that even the invoking of the provisions of Section 115BBE was without any justification since the nature and source of the amount as deposited in the “Housing Loan” has been duly explained with documentary evidences .Reliance was placed on the judgment of the Hon’ble Apex Court in the case of Daulat Ram Rawat Mal reported in 87 ITR 349 wherein it was held that where the documentary evidences are brought on record, no oral evidences shall be entertained. It was argued that the addition as sustained by the NFAC was not justified.

In response, the Ld. CIT DR argued that as far as addition of Rs. 1,20,000/- was concerned, no confirmation or PAN had been provided in respect of the amount of Rs. 60,000/- each received from the two persons namely Sh. Deepak Sharma and Sh. Suresh Sharma and, as such, the NFAC was fully justified in sustaining the addition u/s 68 of the Income Tax Act, 1961. Regarding the addition of Rs. 28 lacs in respect of four parties, as detailed in the order of the Assessing Officer at pages no. 4 to 6 of the order, it was argued that it is a fact on record that cash had been received from all the parties and only subsequently were sales been made and this itself casts a doubt in respect of these transactions with the related parties of the assessee for the reason that these parties have no capacity to advance such amounts to the assessee and further there is no history of such previous transactions with such related parties. It was argued that the NFAC has rightly confirmed the addition.

With regard to the sustaining of addition of Rs. 48,50,000/-, it was argued that it was “unexplained cash” in the demonetized currency and, therefore, the AO had rightly made the addition as the assessee had raised fictitio us cash in the books of accounts.In the rejoinder, the Ld. Authorized Representative submitted that the documentary evidences, as furnished, have been doubted only on suspicion and such documentary evidences as furnished were based on the basis of returns of income filed in all the cases and no defects have been pointed out by the Authorities below in respect of the withdrawals made by the respective related parties and that all such parties were regularly assessed to tax and, as such, the rejection of the bona fide explanation being only on surmises & conjectures cannot be sustained in view of the judgment of the Hon’ble Apex Court in the case of Omar Salay Mohammad Sait vs. CIT reported in 37 ITR 151.

Court had heard the rival contentions and have also perused records as well as paper books filed by the assessee in support of his argument that requisite documentary evidences have been furnished. As regards the first ground of appeal with regard to the addition of Rs. 1,20,000/-, on account of Rs. 60,000/- each received from Sh. Deepak Sharma and Sh. Suresh Kumar, we find that neither any confirmation nor any evidence of they being assessed to tax has been furnished and, as such, the identity, genuineness of the transactions and creditworthiness have not been proved and, therefore, court had no hesitation in confirming the said addition of Rs. 1,20,000. Thus, this ground of appeal is dismissed.

In respect of the additions of Rs. 28,00,000/- and Rs. 48,50,000/-, court found that all such parties who have advanced different amounts, as per the page nos. 6 & 7 of the assessment order, have filed confirmed copies of account mentioning their PAN, address, affidavits duly attested and evidence of filing their Tax Returns along with cash summary for the Financial Year 2016-17 which confirms the transactions of the assessee, both with regard to the advance amount paid by each of the related concerns which was subsequently adjusted against the sales made to these four parties and also, on account of the deposit of cash by each one of them on various dates towards the Housing Loan of the assessee to the tune of Rs. 48.50 lacs. Such evidences, as furnished, have not been doubted by the Assessing Officer and even the sales as made by the assessee to the four relates parties against the advance of Rs. 28 lacs received earlier, have not been doubted, nor purchases in the hands of such related parties have been doubted in their hands.

Thus, the opening stock, purchases, sales and closing stock in the hands of the assessee have been accepted by the Assessing Officer and the books of accounts of the assessee have also not been rejected u/s 145(3) of the Act and as such the entries relating to the related parties in effect stand accepted and, as such, the confirmation of the two additions i.e. both in regard to the amount of Rs. 28 lacs and Rs. 48.50 lacs are not justified.

Similarly, in respect of the amount of Rs. 48.50 lacs, the three HUFs who have independent identity and are being assessed and carrying the business, they have out of their independent sources made the cash deposits in the housing loan and in this regard they have furnished the necessary proof in respect of the amount deposited in the Housing Loan accounts of the assessee and, thus, the source of source also stands justified and just because such parties were not co-borrowers, the addition as made by the AO and confirmed by the NFAC is not justified and therefore, we have no hesitation in deleting the same.

Since court had already deleted the additions of Rs.28.00 lacs and 48.50 lacs the ground of appeal challenging the invoking of provision of Section 115BBE of the Act will not be applicable to the addition of Rs. 28.00 lacs and Rs. 48.50 lacs.