Section 145(3) of the Income Tax Act, 1961 — Accounting — Method of accounting —  It was obligatory on the Assessees to satisfactorily account for the creditworthiness, identity and genuineness of the transactions of the so-called providers of cash to each of them in such huge sums which was not forthcoming and the AO rightly therefore disregarded the accounts of both Assessees under Section 145 (3). [2019] 51 ITCD 27 (DEL)
Facts: Assessee in ITA No. 828/2005 is the proprietor of M/s S.R. Jewellers whereas the Assessee in ITA No. 833/2005 is a proprietor of M/s. Kishan Lal and Sons. Both are dealing in the business of trading in gold and silver items.  The Assessee in ITA No. 828/2005 filed his return of income for the AY in question on 31st October, 1998 declaring a loss of Rs. 1,35,570/-. As far as the Assessee in ITA No. 833/2005 is concerned, he filed a return declaring an income of Rs. 1,87,750/-. Both the returns were picked up for scrutiny.  At this stage, it requires to be noticed that a search and seizure operation under Section 132  was carried out on the Bamalwa Group of Calcutta. The said group had declared huge amount of silver and silver utensils under the Voluntary Disclosure of Income Scheme, 1997(VDIS). The sale of silver as claimed by them through various jewellers in Delhi had been carried out only on paper to bring the sale proceeds in regular books of accounts.It was noticed by the Assessing Officer (AO) that both these Assessees had contributed in the said process by giving accommodation entries by issuing account payee cheques towards purchase of fictitious silver items. Simultaneous with the above search and seizure operation, a similar search and seizure operation was also carried out in the premises of the two Assessees on 16th February, 2000. The purchase of silver as claimed by the two Assessees was confirmed to be from the persons of the Bamalwa Group who had declared silver in their VDIS declarations. A perusal of the assessment orders dated 30th March, 2001 passed in each of these matters reveals that several opportunities were given by the AO to the two Assessees to furnish the complete names and addresses of the alleged 'buyers' of silver from whom cash had been received. No record was produced to explain how such a huge amount of silver was transported to Delhi. Since the Assessees were not able to substantiate the sales as declared in the books, the accounts were rejected and Section 145 (3) was invoked. The question which lies in this appeal is that "Whether the ITAT was correct in law in confirming the order passed by the CIT (Appeals) holding that the provisions of Section 145(3) were not applicable completely ignoring the fact that the Assessing Officer has rejected the account books of the assessee?"
Held, that the AO noted that in each of the cases there was no record to show how such huge amount of silver was transported to Delhi and how the buyers contacted the Assessee. It was in these circumstances that it was concluded that the two Assessees had failed to prove the identity of the so-called buyers of silver. It is in these circumstances that the AO came to the conclusion that each of the Assessees had failed to prove the identity of the persons to whom cash sales had been made, in the sum of nearly Rs. 30 crores and over Rs. 40 crores respectively. The conclusion drawn by the AO that "there was no silver at all and the story of purchase and sale of silver is entirely concocted" appears to be based on the evidence before him. It is a matter of concern that this exhaustive evidence has not even been discussed in the impugned orders of the CIT (A) and the ITAT which have set aside the AO's orders.
The Court finds that in the present case the sales of over Rs. 30 crores in one case and Rs. 40 crores in another being put forth entirely as 'cash sales' had no valid basis in the books of accounts. It was obligatory on the Assessees to satisfactorily account for the creditworthiness, identity and genuineness of the transactions of the so-called providers of such cash to each of them in such huge sums. Plainly this was not forthcoming and the AO rightly therefore disregarded the accounts of both Assessees under Section 145 (3). The satisfaction recorded by the AO in the present cases that the books of account maintained by each Assessee deserved to be rejected cannot, in the circumstances, be said to be perverse. The appeals are accordingly allowed.