Cash deposits out of sale of opening stock not unexplained income. High Court upheld ITAT order which followed rule of consistency
ABCAUS Case Law Citation
ABCAUS 3424 (2020) (11) HC
In the instant case, the Revenue had challenged the order passed by the ITAT in deleting the addition on account of unexplained cash deposits in the bank.
The respondent assessee filed his return of income (ITR) declaring salary, income from business and profession and other sources. The returned income included an amount under the head income from business and trading of textiles out of sale of fabrics.
The case was selected for scrutiny and notices under Sections143(2) and 142(1) of the Income Tax Act, 1961 (the Act) were issued by the Assessing Officer (AO) from time to time.
The AO conducted on the spot physical verification, u/s 133B of the Act of the business premises of the assessee to ascertain if business claimed by the assessee was actually in existence or not.
As a result of the said survey, the AO concluded that the premises from where the assessee purportedly conducted his business had been abandoned for several years and there was no built-up area in its vicinity. The AO also gave a categorical finding that there was no weighing machine installed.
Thus, the AO held that it was a case of money laundering and a false impression had been created that the entire cash deposits in the bank account of the assessee were purported sale proceeds.
The AO added the entire cash deposits in the bank account of the assessee as unexplained income while completing the assessment u/s 143(3) of the Act.
The CIT(A) rejected the contention of the assessee on the rule of consistency by referring to the assessment of the earlier years.
The ITAT observed that the assessee in preceding years had made huge purchases. In the immediately preceding financial year relevant to the financial year concerned there was closing stock of fabric which was also the opening balance in the current financial year and out of the said opening stock, the assessee had claimed to have made sales.
The Tribunal noted the trading in the earlier years, viz., opening stock, purchases, sales, closing stock, gross profit and the assessments made by the department.
It was found that two times in the preceding years, the assessment were passed u/s143(3)/147, whereby the entire books of accounts had been scrutinised and assessee‘s on one occasion income from business had been accepted and in one occasion, the AO had rejected the trading result and has even enhanced the GP rate. Thus, in the entire trading activity of the assessee stood accepted and the sales made, trading/business carried out was duly accepted, including opening and closing stock.
Thus, the ITAT held that the AO was not justified in law to treat the sales as income from unexplained sources and consequently, addition made by the AO, sustained by the CIT(A) was deleted.
Cash deposits out of sale of opening stock not unexplained income
The Hon’ble High Court observed that the ITAT had applied the rule of consistency and rejected the enquiry made by the AO in the relevant assessment year.
The Hon’ble High Court said that though principles of res judicata are not applicable to the Income-Tax proceedings however, it is equally well settled law that rule of consistency is a well-established and recognised principle applicable to the Income Tax proceedings.
The Hon’ble High Court opined that all aspects enumerated by the ITAT were completely factual in nature and there was no perversity in the impugned order.
Accordingly, the appeal of the appeal was dismissed.
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