Vikram Aggarwal

The author is CA Vikram Aggarwal, FCA

The Assessment framed by the Ld. A.O. for the assessment year 2017-18 regarding deposit of cash in bank account during the period of demonetization have been made with purported state of mind that all cash sales are bogus. Without prejudice as per my personal understanding of so many orders of assessment u/s 143(3) of the Income Tax Act 1961, under which addition of cash sales have been made by the Ld. A.O. under section 69A of the Income Tax Act 1961 which itself seems to be not in true spirit of law.

In most of the cases two important judgement of apex court have been mentioned while adding the cash sales as unexplained cash credit. We have reproduced section 69A as below for better understanding:

“69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.”

Now the Ld. A.O. quote the apex court judgement in the matter of Commissioner of Income-Tax vs. Durga Prasad More (82 ITR 540) 1971 & Sumati Dayal Vs Commissioner of Income Tax 214 ITR 801 (SC)/[1995] under which the honorable Supreme court laid down the principal of test of human probabilities and surrounding circumstance.  

Under this cases the apex court held that , Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding authority is made conclusive by law. In both cases the assessee had not shown the receipts as his business receipt/income shown as capital receipts and claiming exemption from taxation.

Lakhmichand Baijnath v. CIT [1959] 35 ITR 416, the Supreme Court has observed that when an amount is credited in the business books, it is not an unreasonable inference to draw that it is a receipt from business. It was also observed that as the credits were found in the business accounts of the assessee and the explanation as to how the amounts came to be received was rejected by the Income-tax authorities, the Income-tax authorities were entitled to treat the credits as business receipts chargeable to tax.

Hence in conclusion the most important cases and point which can be applicable on demonetization cases as follows:

  1. Delhi High Court in the Matter of CIT Vs Kailash Jewellers House, held that cash sales held as bogus by the Ld A.O. could be not be treated as undisclosed income and no addition could be made once again in the respect of the same.
  2. Bombay High Court- R.B.Jessaram Fatehchand (Sugar Deptt) Vs CIT– held that it is no necessity whatsoever for the assessee to have maintained the address of each customers.
  3. ITAT Delhi in Kishore Jeram Bhai Khaniya Vs Income Tax Officer held that there is not law which prohibits a traders or manufacturer in making cash sales so long the stock is available. The assessee is also not liable to maintain records of the buyer. Once the assessee himself offered cash sales as his income the same cannot be taxed again under section 68 of the Income Tax Act 1961.
  4. Delhi ITAT in the matter of M/s Singhal Exim Pvt Ltd Vs ITO held that if the Ld AO accepted the trading results then he cannot make addition under section 68 or 69C which is contradictory to his own stand.
  5. Delhi ITAT- ITO Vs Shri Pankaj Aggarwal held only margin to be added if cash deposits from cash sales.
  6. Delhi ITAT- Racmann Springs Pvt Ltd Vs DCIT held that cash credit always appears as liability in the balance sheet of the assessee. The cash realisation reduced the sundry debtors which are shown in assets side of the balance sheet. It was also held that even it is presumed the undisclosed sales then also only margin elements can be added into the income of the assessee.

Disclaimer: These are author person opinion. If anyone wants to use it kindly take consultancy from the appropriate consultants since every case depends on its facts.

You can reach the author at vikram@aggarwalvikram.com