In its ongoing Operation Clean Money drive (OCM), Various cases were selected for scrutiny assessment
for AY
2017-18 where
large
amount of CASH
was
deposited during
demonetisation
period i.e. 9th November 2016 to 31st December 2016.
It is observed
that while passing
order for scrutiny
assessment for cash deposited during
demonetisation period, Various Assessing officer had made addition under
different section.
At a time when large chunk of Assessing officers
used section 68 whereas on other side various Assessing officers had used section 69A of
the Act. Both the section has been elaborately discussed with reference to
maintenance of Books of accounts and prima facie maintainability of addition
made under these two sections. Apart from these two sections. Addition made
under other scenario is also discussed briefly:
In this regard, Definition of Section 6 8, Section 6 9A and Section 2 (12A) of I-T. Act is reproduced below:
"Cash
Credits.
68. Where
any sum is found credited in the books of an assessee maintained for any
previous year, and the assessee offers no explanation about the nature and
source thereof or the explanation offered by him is not, in the opinion of the
Assessing Officer, satisfactory, the sum so credited may be charged to
income-tax as the income of the assessee of that previous year:"
"Unexplained money, etc.
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."
"Books of accounts"
(12A) 'Books or Books of account' includes ledgers, day-books, cash books, account-books and other books, whether kept in the written
form
or as print-outs of data stored
in a floppy, disc, tape
or any
other form of electro-magnetic data storage device;"
Analysis of
language of section 68 and 69A
As per plain reading following condition must
be fulfilled for applicability of section 68.
1.
Any sum found credited in the books of
accounts maintained by the assesse.
2.
Assessee offers no explanation about
such credit,
3.
Explanation of the assessee is not
found satisfactory by AO.
As per language
of section, Maintenance of books of accounts is MUST for invoking
of section 68. There
may be situation where the assessee was required to maintain books
of accounts as per section
44AA but NO books of accounts
was maintained then provision of section 68 can-not be invoked.
Like-wise, As per plain reading following
condition must be fulfilled for applicability of section 69A:
1.
Assessee is found to be owner of any
money, Bullion, Jewellery etc.
2.
Such Money is not
recorded in the books of accounts, If any maintained by him for any source of income, AND
3.
Assessee offers no explanation or
explanation is found not satisfactory by AO
As per language of section, Section 69A can be invoked only when the assessee has not recorded such
money in the books
of
accounts
and
offers no explanation or unsatisfactory explanation.
Both the
condition
given
in point no 2
and
3
are cumulative and satisfaction
of
either of condition
does
not automatically triggers rigours of section 69A.
In other words, We can say that when the assessee has
recorded such money in his books of accounts then no explanation is required to
be offered for the purpose of section 69A. Addition u/s 69A can be made only
when such money is not recoded in the books of accounts and not offered
satisfactory reply.
Provisions regarding maintenance of Book of accounts:
Section 44AA of the Income Tax Act cast responsibility on the assessee for
maintenance of books of accounts in following situation:
(a) In case of Specified Profession:-
In case of specified profession, Certain books of accounts are required to be
maintained as per Rule 6F of the Income Tax
Rule.
(b)
In
case of business and non-specified Profession:- In
following situations every persons shall require to maintained such books of
accounts as enable the Assessing officer to compute total income of an assesse:
1.
If total income exceeds Rs. 1,20,000/- or sales, Gross receipts exceeds
Rs. 10,00,000/- in any One of the THREE Years Immediately
preceding financial year. In case of new set up it is likely to exceed such
threshold limit.
2.
Where the
assessee claimed lower
profit than deemed income u/s 4 4AE, 4 4BB and 4 4BBB.
3. Where the provisions of section 4 4AD(4) applicable and his income exceeds maximum amount which is not chargeable to
income tax in any previous year. Looking to the language of clause 3 and
cumulative reading of section 44AD (4) and (5), It is applicable only when
income of the assessee never exceeds threshold limit hence practically
applicable to first time filers only. In my view a first timer businessman
shall not require to maintain books of accounts if he declare lower profit than deemed income u/s 44AD and income does
not exceeds Rs. 2.50 Lacs.
In above situations, Every assessee is required to
maintain books of accounts. It is not specifically given in the Act about name
of books of accounts but definition is inclusive one and systematic maintenance
of any records can be considered as books of accounts.
Now let us take different situation and analyse addition made under
different section.
1. Book of accounts maintained and
addition made u/s 69A for unsatisfactory explanation:
In various cases, It is observed that assessee had explained to the AO that
amount deposited during demonetisation period is from cash sales, receipts from
debtors etc and such transaction is duly recorded in the books of the assessee but AO has not considered explanation of the assessee satisfactory and made addition u/s 69A.
In such a situation addition
is not tenable in the eyes of law because
assessee had recordedsuch transaction in his books of
accounts and once it is recorded then no explanation is required to be made for
section 69A. It is fair chances that such addition may be quashed by the courts.
If AO would have made addition u/s 68 then situation
would have been different. If addition is made u/s 68 in such a situation then assessee has to prove genuineness and credential of the
transaction to the satisfaction of AO and case would be decided by appellate
authorities on merits and facts.
2. Book of accounts not maintained and
addition made u/s 68 for unsatisfactory explanation: In various
cases, It is observed that assessee had not maintained any books of accounts
but addition is made u/s 68 of the Act.
In such a situation, such type of addition is not tenable
in the eyes of Law because provisions of section 68 can be invoked only when
the assessee has maintained books of accounts.
In a recent
decision in the case of SMT. Teena Bethala v. ITO (ITA No 1383/Bang/2019) dated 28/08/2019 The Ld. Begalore branch had delivered that : On a reading of section 69A (supra),
it is clear that the onus is upon the AO to find the assessee to be the owner of any money, bullion, jewellery or valuable
article and such money, bullion, jewellery or valuable article was not recorded in the books of account,
if
any,
maintained by the
assessee for
any source
of
income. In these circumstances, the AO can resort to making an addition under section 69A of the Act only in respect of such monies / assets / articles or things which are not recorded
in the assessee's books of account. In the case on hand, the cash deposits are recorded in the books
of account
and
are
reportedly
made
on
the receipt
from a creditor Further,
the
PAN
and
address of the creditor as well as ledger account copies of the creditor in the assessee's books
of account have also been field before the AO. In these circumstances, it is evident that the AO
has not made out a case calling for an addition under section 69A of the Act. Probably, an
addition under section 68 of
the Act
could have been considered; but
then
that is not the case of the AO. The assessee, apart from raising several other grounds, has challenged the legality of the addition
being made under
section
69A
of
the Act.
In support of the assessee's
contentions, the learned AR placed reliance on the decision of the ITAT - Mumbai Bench in the case
of
Dy. CIT v.
Karthik Construction
Co. in ITA
No.2292/Mum/2016 dated 23.02.2018, wherein the Bench at para 6 thereof has held that addition under section 69A of the Act cannot
be made in respect of those assets / monies / entries which are recorded in the assessee's books
of account. In ITA Nos.1383 and 1384/Bang/2019 my considered view, the aforesaid decision of the ITAT - Mumbai Bench (supra) is squarely applicable to the facts of the case on hand,
where the entries are recorded in the assessee's books of account. In this view of the matter, I
am of the opinion that the addition of Rs.6,30,000/- made under section 69A of the Act is bad in law in the facts and circumstances of the case on hand and therefore delete the addition of Rs.6,30,000/- made
thereunder. The AO is
accordingly directed.
3. Whether Bank Pass Book is Books of accounts: Some-times it is argued
by the department that
definition of books of accounts is inclusive hence bank statement can be
considered as books of accounts. In such a situation various court has rendered
decisions in favour of the assessee that mere bank statement is not books of accounts.
Reliance can be placed to CIT v.
Bhaichand
N. Gandhi [ 1982] 11
Taxman 59/[1983] 141 ITR 67 (Bom.). After
this
decision
number
of
tribunals had retrieved this stand.
When the assessee is not require to maintain any books of
accounts and no such books is maintained then it can be argued that mere pass book or bank statement
can-not be construed as book of accounts and
addition made u/s 68 is not justified.
Though if the assessee had maintained bank book then situation will be different but in such a
situation addition made u/s 69A is technically correct and will be decided by
the court of law on the facts and merits of the case.
4.
Inordinate delay in deposit
of cash from withdrawals i.e. 5-6 months
from withdrawals from bank: In various
cases, It may have been argued by the assessee that cash deposited during demo period
sourced from withdrawals from the banks
i.e.1-6 months
prior to deposit.
In most of cases,
Department has not considered the said arguments
and made addition
on the ground that what was the use of money in intervening period and
where it was kept etc.
In a recent decision the Ld Delhi Tribunal in the case of Gordhan v. Dy. CIT dated 19/10/2019 held that " no addition can be made u/s 68 on the sole reason that there is a time gap of 5 months between the date of withdrawals
from bank account and redeposit the same in the bank account , Unless the AO demonstrate that the amount in question has been used by the
assessee for any other purpose. In my view addition is made on inferences and presumptions
which is bad in law."
Like wise I the case of Asstt. CIT v. Baldev Raj Charla [ 2009] 121 TTJ 366 (Delhi) also held that merely because there
was
a
time
gap
between withdrawal
of
cash and cash deposits explanation of the assessee could not be rejected and addition on account of cash deposit could not
be made particularly when there was no finding recorded by the assessing officer or the
Commissioner that apart from depositing this cash into bank as explained by the assessee, there was any other purposes it is used by the assessee of these amounts. In view of above facts,
the ground number 1 of the appeal of the assessee is allowed and orders of lower authorities are
reversed.
One can
also place
his reliance
on
the decision of Ld. Delhi
High Court in
the
case of
CIT v.
Kulwant Rai [ 2007] 163 Taxman 585/291 ITR 36 wherein the honourable Delhi High Court has
held as under:-
" This cash flow statement furnished by the assessee was rejected by the AO which is on the basis of suspicion that the assessee must have spent the
amount for some
other purposes. The
orders of AO as well
as
CIT(A) are completely silent
as
to for what
purpose the
earlier
withdrawals would have been spent. As per the cash book maintained by the assessee, a sum
of Rs.
10,000
was
being
spent
for household expenses
every month
and
the assessee
has withdrawn from bank a sum of Rs. 2 lacs on 4th Dec., 2000 and there was no material with the
Department
that
this
money
was
not available
with the assessee.
It
has
been
held
by
the
Tribunal that in the instant case the withdrawals shown by the assessee are far in excess of the
cash
found during the course of search proceedings. No material has been relied upon by the
AO or
CIT(A) to support their view that the entire cash withdrawals must have been spent by the assessee and accordingly, the Tribunal rightly held that the assessment of Rs. 2.5 lacs is
legally not sustainable
under
s.
158BC of the Act
and
the
same was rightly
ordered
to
be
deleted."
On the basis of these judgement the Ld Delhi tribunal recently deleted the addition made for
inordinate delay in cash deposit in the case of Neeta Breja v. ITO [IT Appeal No 524/D/17,
dated 25-11-2019]
5.
Regular
Cash sale converted as unexplained cash credit: In various
cases, It is observed that regular cash sale just before demonetisation period
is also not accepted and addition were made on the basis of deviation in ratio
as set out in various SOP issued by CBDT.
The Ld.
Delhi Tribunal
in the
case
of Agons Global (P.)
Ltd. v.
ACIT [Appeal No
3741 to
3746/Del/2019] has held that mere addition made on this ground that there is deviation in ratio
is not proper.
When the
assessee
had
regular cash
sale
and
deposit of cash
in
bank accounts and if nothing incrementing is found
contrary
then addition u/s 68 of such
cash
sale would tantamount to
double taxation.
The Ld. Indore Bench in the
case of Dewas Soya Ltd. v. Income Tax [Appeal No 336/Ind/2012]
has
held that
"
The claim
of
the appellant
that such
addition resulted
into double taxation of the same income in the same year is also acceptable because on one hand
cost
of
the sales
has
been
taxed (after deducting gross profit from
same price
ultimately
credited to profit & loss account) and on the other hand amounts received from above parties
has also been added u/s. 68 of the Act. This view has been held by the Hon 'ble Supreme Court
in the case of CIT v.
Devi
Prasad Vishwanath
Prasad [ 1969] 72
ITR 194 that "It
is for
the assessee to prove that even if the cash credit represents income, it is income from a source,
which has already been taxed". The assessee has already offered the sales for taxation hence
the onus has
been discharged by
it and the
same income cannot be taxed again.
Reliance
can also be
placed on the
decision
of
Hon'ble
Supreme
Court
in
the case of CIT v. Durga Prasad
More [ 1969] 72 ITR 807 in which it was held"If the amount represented the income of
the
assessee of
the
previous year, it was liable to be included in the
total income and an enquiry whether for the purpose of bringing the amount to tax it was from a business activity
or from some other source was not relevant".
Reliance can be placed on the decision of Hon 'ble Rajasthan High Court in the case of Smt. Harshila Chordia v. ITO [ 2008] 298 ITR 349 in which
it was held that"Addition u/s 68 could
not be made in respect of the amount which was
found to be cash receipts from the customers
against which
delivery of goods was made to them".
In the decision of
Hon'ble ITAT, Nagpur Bench in the case of Mis Heera Steel Ltd.
v. ITO [2005] 4 ITJ
437
is
also
worth to
be
mentioned here
that
wherein it was held that"Both the lower authorities failed to appreciate the case of the assessee that these were the trade advances and not cash credits and against such advance, the assessee has supplied the
material in due
time
as per details
available on record.
In
view
of
the
above,
there is
no
justification for the revenue authorities to treat
these cash advances as unexplained cash credit u/s 68".
Reliance can also be placed on the decision of Hon'ble M.P. High Court in the case of Addl.
CIT v. Ghai Lime Stone Co. [ 1983] 144 ITR 140. It is evident from these judicial rulings that
trade advances or cash received against which goods is
supplied subsequently is not a cash credit as contemplated by section 68.
Reliance can
further be
placed
on the
decision of the ITAT,
Mumbai Bench in the
case
of ITO v. Surana Traders [ 2005] 92 ITD 212, the relevant observation of the Mumbai Bench
were as under
:_
"So merely because for the
reasons
that
the
purchaser
parties were not
traceable, the assessee could not be penalized. In the sales documents, the assessee has made available all necessary details, i.e. the
total weight
sold
as
well as
the
rate per kilogram.
Undisputedly, the assessee has maintained
complete books of accounts along with day to day and kilogram to kilogram stock register. These were produced before the A 0 by the assessee.
The assessee also submitted stock tally sheet along with the audited accounts. The audit report
of the assessee also bears ample testimony in favour of the assessee. The factum of the assessee
having maintained stock register and quantitative details have been mentioned by the A 0 in the assessment
order. No mistake
were pointed out by the AO in these records maintained by
the
assessee----Since the
purchases have been held to be genuine,
the corresponding
sales cannot, by any stretch of imagination be termed as hawala transaction ------------ It is the burden
of the department to prove the correctness of such
additions. When, in such like cases, a quantitative tally is furnished, even if
purchases are not available no addition is called for."
6.
Cash
is directly deposited in the bank account of the assessee in another city by
debtors or cash sale by medical stores, Milk sellers, Petrol Pumps etc on wrong
interpretation of notification. : It is also happened in a few
cases that cash is directly deposited in the bank accounts of the assessee by
purchase parties in SBN but now purchase parties refused to provide
confirmation and such deposit is treated as unexplained cash credit.
In various cases,
It is also seen that small time medical shop keepers, Milk Sellers, Private
Petrol Pumps and grocery
stores had accepted cash after demonetisation also in SBN and deposited such
SBN in their bank accounts but
faced the heat of tax department and addition were made on various grounds out
of which main ground is that an assessee cannot deal in non-legal tender.
For this purpose, one may say that demonetisation of high value notes were not first time in India. The
government had exercised demonetisation in 1946 and 1978 before 2016 and following arguments can
be placed:
1.
Earlier demonetisations were through
ordinances and because of this reason it became a law of land at that point of
time. In Ordinance of 1978, It was
specifically mentioned in section 4 that any transactions after a specified
date in demonetised currency shall be illegal accordingly made punishable under IPC and
other applicable Law but this is not the position of current demonetisation.
Demonetisation in 2016 was made through notification and
certain power vested in section 26
under RBI Act was exercised.
2.
RBI Act nowhere states
that a person cannot deal in illegal tender. Section 26 and 39 of RBI Act is very important for this purpose.
3.
The government has introduced
demonetisation through notification in RBI Act and subsequently various
modification were made in the said notification but no such changes were made in Income Tax Act. IN various cases
it has been decided that income from illegal activities is also taxable under Income
Tax Act as regular Income of the assesse. On the same analogy one can argue
that acceptance of illegal tender is prohibited by the RBI but it can not be
taxed under section 68 if other parameter and genuineness of the transactions
are proved.
4. It can also be argued that sale purchases
of goods and services are governed by Indian Contract Act and when both the parties are
eager to execute those contract and they do not have to go court for execution
of contract then consideration paid in illegal tender should not be
questionable.
5.
One may also argue that retrospective
changes in section 1
15BBE through taxation law amendment bill 2016
cannot be made retrospective and high tax rate can be made applicable after the
date of taxation law bill promulgated in the gazette of India and cannot be
made applicable to the transaction made prior to amendment. It is worth
while to mention
here that section 115BBE was amended on 15/12/2016
with retrospective effect.
6.
In all such cases if transactions are genuine and it is firm belief
that court will deliver his favour
in the assessee and get them relief from rigours of section 115BBE.
Therefore in demonetisation cases though addition
is generally made by the Income Tax department but it is very hard for them to stick in
appellate proceeding.
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