The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has quashed the addition of specified bank notes (SBN) deposited during demonetization citing the nature of firework business.
The bench of Aby T. Varkey, (Judicial Member) and Amitabh Shukla (Accountant Member) has observed that in this line of business, the majority of the sales is in cash during festivals, marriages, etc., and therefore, from the business model of the assessee and the trade practice, there is no doubt whatsoever with regard to the explanation offered by the assessee that it has collected cash from debtors towards sales made in cash before demonetization period.
The appellant/assessee as name suggests is in the business of Fireworks viz., purchase and sale of crackers/fireworks.
The AO asked the assessee to explain the nature and source of the cash/SBN’s deposited. The assessee explained that out of the amount Rs.8,58,344 was cash balance available in cash-book as on 08.11.2016 and the balance of Rs.44,76,555/- was received from the debtors who had purchased the fireworks on credit-basis during Diwali festival that was celebrated Pan- India on 30.10.2016 in the relevant year.
The AO verified and accepted Rs.1,08,763/- (cash-in-hand) as on 08.11.2016, which he accepted. But In respect of balance amount of Rs.52,57,601/-, even though the assessee filed the name/details of the customers/debtors from whom assessee retrieved the sale-receipts and also filed the financials (P & L A/c, audited books, balance sheet and other details.
The AO acknowledged that the assessee had furnished the list of debtors from whom the collections have been received, but found fault for assessee receiving SBNs from them after 08.11.2016 by citing Government of India Notification dated 08.11.2016 and held that deposit/receiving the bank currency/SBN’s of Rs.52,57,601, he added it under section 68 of the Income Tax Act.
The main grievance of the assessee is against the action of the CIT(A) confirming the addition of Rs.52,57,601 under section 68 of the Income Tax Act, 1961 regarding the Specified Bank Notes (SBN) deposited during the demonetization period.
The tribunal held that when there is no significant change in cash deposits during demonetization period, then merely for the reason that the assessee has accepted specified bank notes in violation of circulation/notification issued by Government of India and RBI, the source explained for cash deposits cannot be countenanced.
The tribunal noted that assessee had enough stock of the fireworks to sale same to the customers on credit during the Diwali Festival l.e. 30.10.2016.
Thus, the tribunal found that the assessee had sufficient stock as on 30.10.2016 (Diwali period) for sale of the goods which generated amount of Rs.53,34,899/- (out of which, the AO accepted Rs.1,08,763/-) to be deposited during the demonetization period and there are no defects in the stock registers.
The ITAT held that every purchase and sale matches with inflow and outflow of the stock and as assessee has placed on record that the purchased goods have already inflicted with VAT/Sales Tax and the AO has not found any infirmity in the books of accounts of the assessee.
The ITAT set aside the order of theCIT(A) and directed the deletion of addition of Rs.52,57,601.
Case Details
Case Title: M/s.Ayyan Fire Works- Factory Pvt. Ltd. Versus DCIT
Case No.: ITA No.2363/Chny/2024
Date: 05.02.2025
Counsel For Appellant: H. Yeshwanth Kumar
Counsel For Respondent: Sheila Parthasarthy
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