The Income Tax Appellate Tribunal (ITAT) Chennai bench while directing to treat addition as the income from business and Tax at the normal rates observed that Assesee showed higher sales during demonetization period to cover up cash deposits to bank account.
Assessee is engaged in the business of retail trading of readymade garments. During the scrutiny proceedings AO noted that assessee has made cash deposits of Rs. 38,40,000/- during demonetization period to his bank account maintained with Indian Bank and State Bank of India.
Thus the Assessing Officer called upon the assessee to explain the nature and source for cash deposits. In response, the assessee submitted that cash deposits found in bank accounts are out of business receipts for the year and the same has been reflected in books of accounts maintained for that year.
Thereafter, the AO had analyzed the current assets and current liabilities of the assessee for two financial years and finally concluded that there is a sudden increase in sales for the impugned assessment year when compared to earlier financial year and AO opinioned that the assessee has jacked up sales during demonetization period to cover up cash deposits to bank account.
Hence by rejecting the contentions of the assessee, AO made addition under Section 69A of the Income Tax Act and taxed at 60% as per provisions of Section 115BBE of the Income Tax Act.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A], who dismissed the appeal. Thereafter the assesee filed another appeal before the tribunal.
Counsel for assessee submitted that during the demonetisation period, November and December, 2016 are festival seasons where there was huge demand for sale of readymade garments. It increased the business and sales. Assessee also produced day books to prove available cash balance.
Counsel for the revenue submitted that there is a sudden increase in sales for the impugned assessment year when compared to earlier period, which is noticed by the AO, where the sales has also increased at 60% for the impugned assessment year. Thus the assessee could not explain reasons for huge increase in sales.
It was observed by the tribunal that sales for the earlier financial year was about roughly more than one crore. Further, assessee is claiming huge trade payables in its books of accounts. When the assessee is having sufficient cash balance of Rs. 38.41 lakhs, then why he would not paid trade payables is not properly explained.
Hence it was observed that the assessee has shown higher sales during the demonetization period to cover up the cash deposits to bank account. Also the explanation of the assessee that source for cash deposits is out of business receipts and cash in hand available before the date of demonetization is not correct, the tribunal bench remarked.
After considering the facts submitted by both parties, the single member bench of Manjunatha. G (Accountant Member) directed the AO to treat addition as income from business and tax at normal rates instead of 60% as per provisions of Section 115BBE of the Income Tax Act.
D. Hema Bhupal appeared for the revenue and N. Arjun Raj, appeared for assessee.
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