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Facts
The assessee, engaged in trading spices and dry fruits, filed an income tax return showing an income of Rs. 5,81,460/-. The Assessing Officer (AO) made additions of Rs. 3,45,14,317/- based on discrepancies found in sales/purchases recorded in bank statements and books, invoking sections 69A and 69C. The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal found that the AO's approach of taxing the same amount twice under different heads was not legally justified. The Tribunal directed that the credits in the bank account be considered as sales and applied a profit rate of 7.99% to the total credits to determine the profit. Other additions were directed to be deleted. The issue regarding undisclosed credits in an overseas bank account was remitted back to the AO for fresh adjudication.
Key Issues
Whether the additions made by the AO on account of alleged unexplained money and expenditure are justified when the same amounts were taxed twice and whether the assessment made under section 143(3) is valid when books of account are allegedly fabricated.
Sections Cited
147, 144(B), 69A, 115BBE, 69C, 143(3), 272A(1)(d), 234B, 234C, 144, 145(3), 142(1), 143(2)
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Income Tax Appellate Tribunal, DELHI ‘F’ BENCH,
Before: SHRI SATBEER SINGH GODARA, & SHRI NAVEEN CHANDRA
This appeal by the assessee is directed against the order of the ld.
CIT(A)-27, New Delhi dated 19.01.2024 for A.Y 2020-21.
The grounds raised by the assessee read as under:
1. That on the facts and circumstances of the case, the order passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre CIT (A)/NFAC, ( Ld. CIT(A)") dated 19.01.2024 (hereinafter referred to as 'impugned appellate order) is erroneous, arbitrary, without jurisdiction, illegal and bad in law.
2. That the Ld. CIT(A) has grossly erred in law and on facts of the case in confirming the addition made by Assistant Commissioner Of Income Tax, Central Circle-20, Delhi (hereinafter referred to as "Ld. AO" or "Jurisdictional AO") u/s 147 r.w.s 144(B) of the Income Tax Act in case of the Appellant amounting to Rs.3,45,14,317/- on account of cash deposit made during the impugned financial year being treated as unexplained money.
That on the facts and circumstances of the case the assessment order passed by the Ld. AO and confirmed by Ld. CIT (A) is in violation to the principles of natural Justice. The Appellant was deprived of adequate opportunity to present her submissions and thus impugned order is passed in violation of principles of natural justice.
That on the facts and circumstances of the case, the Ld. CIT(A) erred in confirming addition made by Ld. AO to the tune of Rs. 20,23,801/- u/s 69A r.w.s 115BBE on account of estimated profit from alleged out of books purchases made from M/s Dry Nut Enterprises by the Appellant.
5. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the action of Ld. A.O in determining the income of Appellant u/s 69A r.w.s 115BBE to the tune of Rs. 20,23,801/- by applying Gross profit rate to purchases 7.99% to amount of Rs. Page 2 of 15 2,53,43,410/- which is alleged as excess payments made to M/s Dry Nuts without any basis in an arbitrary manner and the Learned CIT(A) has erred on facts and in law in confirming the said arbitrary estimation of income.
6. That on the facts and circumstances of the case, the Ld. CIT(A) erred in confirming addition made by Ld. AO to the tune of Rs.11,81,174/- u/s 69 r.w.s 115BBE on account of alleged out of books purchases made from M/s Ganesh Kirana Company, M/s Santosh Ram and Company and M/s Siddharth Overseas.
7. That on the facts and circumstances of the case, the Ld. CIT(A) has erred both in law and on the facts of the case in confirming the addition made by Ld. AQ u/s 69A r.w.s 115BBE to the tune of Rs. 8,30,000/- on account of credit appearing in Indian overseas Bank account no. 028801000033261 which is not disclosed in ITR 8. That on the facts-and-circumstances of the case, the Ld. CIT(A) has erred both in law and on the facts of the case in confirming the addition made by Ld. AO u/s 69A r.ws 115BBE to the tune of Rs. 3,04,79,342/- by simply relying upon the bank statement of Central bank account no. 3584892367 and considering difference between reported sales and credits) reflecting in bank statement as unexplained money u/s 69A.
9. That the Ld. Assessing Officer and Id. CIT(A) failed to appreciate the legal position that where the books of accounts are found to be fabricated, then rejection of books is found to be justified and best judgement assessment under section 144 is needed. In such scenario, the assessment order passed under section 143(3) of the Act is illegal and void ab initio.
That the Ld. AO has grossly erred in law and on facts of the case in invoking provisions of 69A and 69C r.ws 115BBE and levying tax at highest rates despite the fact that the books of accounts were stated as fabricated but not rejected by the Ld. AO.
11. That the action of Ld. CIT(A) and Ld. AO is based on the gross negligence on his part by not considering responses filed before him, thereby creating a demand of Rs. 3,49,94,230/- against the appellant. Therefore, the demand as raised by Ld. AO and confirmed by Ld. CIT (A) u/s 69A and 69C is not tenable, illegal, unwarranted and uncalled for.
That the Ld. AO has grossly erred in law and on the facts of the case in initiating penalty proceeding u/s 271AAC for tax payable u/s 115BBE when detailed replies were submitted. 13. That the Ld. AO has grossly erred in law and on facts of the case in levying interest u/s 234B and 234C and such interest ought to be deleted. 14. That the computation of income and calculation of tax thereon made by the Ld. AO are incorrect and wrong in the eyes of law as this had resulted in creation of illegal demand of Rs. 3,49,94,230/- on a total assessed income of Rs.3,50,95,777/- after making an untenable addition of Rs.3,45,14,317/-. The above grounds of appeal
are independent and without prejudice to each other. The appellant craves leave to add/amend/withdraw any grounds of appeal at the time of hearing or at any time before hearing with due permission of the Hon'ble Tribunal.”
3. Facts, in brief are that Sh. Rohit Goel, the assessee in the present case, is an individual who filed his original return of Income for A.Y. Page 4 of 15 2020-21 on 15.02.2021, showing an income of Rs. 5,81,460/-. The assessee is running a proprietorship concern namely, M/s. Laxmi International at 80, Gandhi Gali, Fatehpuri, Delhi-110006, wherein he was engaged in the business of trading spices and dry fruits. He is also an equal co-partner in a firm namely M/s. Laxmi Exports, with his father being the other partner. M/s. Laxmi Exports is also in the business of trading spices and dry fruits.
4. The ROI was processed under 143(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') and was selected for scrutiny under CASS. Subsequently, the AO found discrepancies in the sales/purchases recorded in the Bank Statements/books and consequently he made a total addition of Rs 3,45,14,317/- in his order u/s 143(3) dated 30.09.2022 by invoking the provision of section 69A and 69C r.w.s.
115BBE.
Aggrieved, the assessee went in appeal before the ld. CIT(A) who dismissed the same. Now, the aggrieved assessee is in appeal before us.
The ld AR of the assessee vehemently argued that though the assessee’s books were rejected, the assessment was made u/s 143(3)
Page 5 of 15 instead of section 144. The AR stated that the AO has made G.P. additions without rejecting the books. It is the say of ld AR that all credits in the bank account is part of sales turnover. The ld. counsel for the assessee relied upon the decision of the Hon'ble Delhi High Court in the case of M/s Forum Sales Pvt Ltd dated 01.03.2024.
Per contra, the ld DR relied on the orders of the AO and the CIT(A).
We have heard the rival submissions and have carefully perused the materials on record. We find that initially a notice u/s 143(2) of the Act dated 13.10.2021 was issued and served upon the assessee.
Thereafter, notices u/s 142(1) of the Act on various dates such as 29.10.2021; 13.02.2022; 09.03.2022; 27.07.2022 along with a questionnaire was issued to the assessee, vide which he was requested to furnish, inter-alia, details of all his bank details, financials, sale and purchase details of immovable assets completed by him, if any, during the concerned AY. Subsequently, show cause notice was also issued thrice on 21.03.2022;15.09.2022 and 28.09.2022 to the assessee. The assessee was also levied penalty u/s 272A(1)(d) twice on 30.03.2022 and 30.08.2022 for non-compliance of notice u/s 142(1). A summons dated
Page 6 of 15 131 of the Act dated 27.09.2022 was also issued to the assessee who appeared on 28.09.2022 without any documents and his statement was recorded on oath wherein he stated that he does not remember various facts related to his business.
The assessee, filed part replies from time to time which included his Balance Sheet, P&L Statement, GST return and bank statement of one bank account with Central Bank of India bearing account number 3584892367. The assessee further stated that through his proprietorship M/s. Laxmi International, it made total sales and purchases of Rs. 1,43,39,893 and Rs. 1,46,92,507/- respectively during the FY 2019-20.
The assessee submitted ledgers of 4 parties namely M/s Dry Nut Enterprises, M/s Siddharth Overseas, M/s Ganesh Kirana Company, M/s Santosh Ram & Co. Further, apart from sale proceeds received from M/s Dry Nut Enterprises, the assessee has also received cash credit from M/s Dry Nut Enterprises. It also submitted that the assessee does not maintain stock register.
10. In the course of assessment proceedings, the AO found from the examination of the assessee’s bank statement of account in Central Bank of India bearing number 3584892367 maintained in the name of Sri Laxmi
Page 7 of 15 International, that total debits and credits amounted to Rs.
4,56,32,717/- and Rs. 4,48,19,235 respectively during the FY 2019-20 and out of the above total credits of Rs. 4,48,19,235, cash credits during the concerned AY amounted to Rs. 21,41,000/-.
The AO further found mismatch in the ledger account of various parties and the Central Bank statement such as in the case of M/s Dry Nut Enterprises, the total purchases as claimed by the assessee from M/s Dry Nut Enterprises amounted to Rs. 1,05,28,878 /-, whereas the total amount paid to the said entity during the year was Rs. 3,16,92,608/-.
The total amount of sundry credit outstanding as on 31.03.2020 against M/s Dry Nut Enterprise was only Rs. 41,79,680. Thus, the assessee paid an excess amount to the tune of Rs. 2,53,43,410/- to M/s Dry Nut Enterprises during AY 2020-21 which were not recorded in the books.
Similar discrepancies were also observed for 3 other entities as well viz.
M/s Santosh Ram Company, M/s Ganesh Kirana and Company, and M/s Siddharth Overseas. The summary of the total purchase reported by the assessee, outstanding sundry credits at the end of the year, and the total amount debited in assessee bank account in the names of these entities are tabulated hereunder:
Sl Party PAN Purchase Sundry Debit to the Difference Name during the Creditors party as per year as on bank 31.03.2020 statement A B C D E F G-D-E-F 1. Dry Nut AAMFD5127F 1,05,28,878 41,79,680 3,16,92,608 2,53,43,140 Enterprises 2. Ganesh Kirana AAFPB4508F 13,35,140 5,98,040 6,51,147 85,953 Co 3. Santosh Ram BCGPS1829E 9,00,000 NIL 3,00,000 6,00,000 And Company 4. Sidharth ADLFS5604G 5,90,901 95,680 NIL 4,95,221 Overseas
12. Accordingly, the Assessing Officer made separate additions as follows: i) Profits on account of undisclosed sales to M/ Dry Nut Enterprise @
7.99% of Rs. 20,23,801/- u/s 69A r.w.s 115BBE of the Act. ii) Out of books payment to M/s Santosh Ram Company, M/s Ganesh
Kirana and Company, and M/s Siddharth Overseas of Rs
11,81,174/- u/s 69C r.w.s 115BBE of the Act. iii) Difference between the credits in Central Bank of India and the reported sales of Rs 3,04,79,342/- u/s 69A r.w.s 115BBE of the Act iv) Cash deposit in Indian Overseas Bank account of Rs 8,30,000/- u/s 69A r.w.s 115BBE of the Act
The assessee has raised technical grounds so we decided to deal with them first. With respect to ground no 3 regarding violation of Page 9 of 15 natural justice, we find that assessee was accorded multiple opportunities to explain the mismatch/discrepancy in his books and the ones found in his bank statement. The assessee submitted part replies but did not submit cogent evidence or materials to explain the discrepancies found in the books of the assessee. Accordingly, ground no 3 regarding violation of natural justice is dismissed.
With respect to ground 9 regarding assessment made u/s 143(3) being bad in law in cases where the books of accounts are found to be fabricated, then rejection of books is found to be justified and best judgement assessment under section 144 is needed. We find that the AO has found various mismatch in the accounts but has not specifically rejected the books of accounts invoking the provisions of section 145(3).
We find however, that the AO has proceeded to make the assessment in the manner provided under section 144 of the Act. As narrated above, the AO, after taking into account all relevant material which he had gathered, gave the assessee several opportunities of being heard by serving several notices u/s 142(1) and show causes to make the assessment of the total income to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment. In view of the same, ground no 9 is dismissed.
On merits, we find from the records that the assessee is engaged in the business of trading in Dry fruits and spices. The sale/purchase are all recorded in the assessee’s Central Bank of India number 3584892367.
There are four parties namely M/s Dry Nut Enterprises, M/s Santosh Ram Company, M/s Ganesh Kirana and Company, and M/s Siddharth Overseas from whom purchases are made which the AO has established has not been declared fully by the assessee in its regular books of account. The AO has thereafter invoked section 69A and 69C for taxing the excess purchases from these parties represented by the debits made in their accounts in the bank statement of Central Bank of India, as unexplained money and unexplained expenditure. Apart from the above, the AO has treated the difference in reported sales and credits in the bank account as unexplained money u/s 69A.
In such factual matrix, we are of the considered view that such an approach is not legally justified as this approach has taxed the same amount twice under different heads. The AO has accepted the debit entries in the Central Bank of India account as purchases but is treating the sales recorded in bank account as unexplained money. In the above factual matrix, we are of the considered view that when the debit entries in the Central Bank of India account is treated as purchases, it
Page 11 of 15 would be a necessary corollary that the credits in the Central Bank of India account be considered as sales. Accordingly in our view, a percentage of the total credits in the Central Bank of India of Rs 4,48,19,235/- be taken as profits of the assessee from the business of trading in dry fruits. We find that the AO, while determining the profit from undisclosed sales from purchases made from M/s Dry Nut Enterprises, has worked out the rate of profit at 7.99 % on the basis of profit rate declared by the assessee himself. It would therefore, meet the end of justice if the profit rate be taken at 7.99% of the entire credit in the Central Bank Account of Rs 4,48,19,235/- and determine the income of the assessee after reducing the income already declared. In accordance with this direction to determine the additional income of the assessee, the other additions on account of unexplained money u/s 69A and unexplained expenditure u/s 69C is directed to be deleted. The ground no. 2 is partly allowed. Since the entire credits in the bank account is considered as sales, there is no occasion to invoke the provision of section 115BBE. Ground no 4 to 6, 8, 10 and 11 is therefore, allowed.
The facts of ground no. 7 is with respect to undisclosed credits in the undisclosed bank account in Indian overseas Bank. The AO found that Page 12 of 15 the account in Indian overseas Bank bearing number 028801000033261 was not declared in the income tax return but had a cash deposit of ₹ 8, 30,000/-. On enquiring, the assessee replied that there was a sale of property located at 78, Gandhi Gali, Delhi 110006 and the deposit of ₹ 8,30,000 represents the sale consideration. The assessee submitted a purchase deed but failed to furnish the details of sale or any capital gains arising out of the sale of the said property. The AO ultimately added the amount of Rs 8,30,000/- as unexplained money under section 69A. The CIT(A) also confirmed the addition made by the AO.
Aggrieved the assessee is before us. We find that the assessee has filed a sale deed dated 3rd March 2017 wherein the said property was sold to the assessee for ₹ 6,20,000/-. The assessee has explained that the aforesaid property was again sold by him for ₹ 8,30,000/- in FY 2019-
However, there is no evidence of sale deed of the said property or any capital gains declared in the sale of the said property. We are of the considered view that the issue of sale of the said property and its ensuing capital gains arising out of the said sale, be remitted back to the AO for a fresh adjudication. The assessee is also directed to furnish relevant documents/evidence to substantiate its claim that the deposit of ₹ 8,30,000 in its bank account of Indian Overseas Bank, is arising out of Page 13 of 15 sale of the aforesaid property. Ground No. 7 is accordingly allowed for statistical purposes.
Ground no. 12 is premature. Ground no. 13 and 14 are consequential in nature. allowed.
Order pronounced in open court on 20.06.2025.