KULVINDER SINGH,DELHI vs. ACIT CIRCLE-45 (1), DELHI

PER M. BALAGANESH, A. M.:

This appeal of the assessee arises out of the order passed by the Commissioner of Income Tax (Appeals) NFAC, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. 6526/Del/2025 for A.Y. 2017-18 dated 26.08.2025 which in turn arises out of the order passed by the Assessing Officer, ACIT, Circle 45(1), Delhi (hereinafter referred to as ‘ld. AO’) passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 27.12.2019.

ITA No. 6526/Del/2025 Kulvinder Singh 3. The Ground No. 3 raised by the assessee is challenging the sustainence of addition of Rs 2,66,33,280 on account of advances received from customers. 3.1. We have heard the rival submissions and perused the materials available on record. The return of income for the assessment year 2017- 18 was electronically filed by the assessee on 31-10-2017 declaring total income of Rs 37,80,440. The business the assessee has adopted business model of retail trading of electronic goods and components for customers on receipts of advance payment. The assessee is engaged in the business of importer, manufacturer, buyer and seller of electronic goods and components in the capacity as wholesaler and retailer of the same during the year under cosnideration. In nutshell, the assessee had carried on the business of manufacturer and the trader in electronics goods and components. The manufacturing activity was started during the year under consideration. Prior to that, the assessee used to import kits of audio-visual electronic items as well as complete unit from China and sell it as trader. During the year under consideration, the assessee has shown advance from customers of Rs 2,66,33,280. The assessee vide notice dated 20-12-2019 was asked to submit the details of the same along with specific identification of bank entries in the bank statement of the assessee together with ledger account of the parties. The assessee was also directed to submit the date of dispatch of goods against the advance reported there on for each party. The assessee vide its reply submitted confirmation related to the advance received from customers from all the parties which fact is also mentioned in page 2 of the assessment order. The learned AO noted that the assessee had reported sales of services only to the extent of Rs 4,07,761 in the return for assessment year 2018-19. The learned AO also noted that the assessee in the return

ITA No. 6526/Del/2025 Kulvinder Singh for assessment year 2017-18 had reported closing stock of Rs 8,66,44,602 as on 31-03-2017. The learned AO noted from the income tax return of assessment year 2018-19 wherein under the column gross receipts, the figure of nil was mentioned and sale of services of Rs 4,07,761 alone was mentioned, basis which the learned AO concluded that the advance received from customers in assessment year 2017-18 had not been fructified into sales in assessment year 2018-19. Accordingly, the assessee was showcaused as to why the said advance received from customers be not added to the total income of the assessee for the year under consideration. 3.2. The assessee enclosed the complete statement of ledger account of all the parties in respect of advance from customers together with the bank statement identifying the bank transaction ID of receipt of advance from the respective parties. The assessee also requested the Learned AO to make independent verification by issuing notice under section 133(6) of the Act to the concerned parties. The assessee submitted that these advances were received from the respective parties for import of electronic items. The assessee made imports as per their specification. However, by the time the imports were materialized, the goods order models became outdated and the market prices slashed. The parties failed to pick up the goods ordered by paying rest of the money accordingly. The assessee stock level has never got reduced since then. The present scenario is that the goods are always almost obsolete and neither of the parties is ready to book the so-called generated losses. As such, there is logjam in business and relationship. Further, it was informed by the assessee that assessee had transferred all his business operations lock, stock and barrel at book value to his nephew Shri Tarvinder Singh, (PAN AOEPJ4671E) under gift and the necessary changes were approved by DVAT authorities

ITA No. 6526/Del/2025 Kulvinder Singh and also enclosed the order of the DVAT authority in this regarding in Form No. 8 before the Learned AO. It was submitted that as assessee was not maintaining good health and have done minor business activities in succeeding years other than the present one, the comparison of the transactions of the assessee with the subsequent year transactions may give weird results. 3.3. The assessee also submitted that Mr. Tarvinder Singh, his nephew had shown the said stocks in his return and have paid DVAT / GST on such stock sale in his books of accounts. The evidence of making DVAT / GST payment of Rs 41,38,800 for immediately succeeding return period / quarter (April 2017 to June 2017 falling in financial year 2017-18) was also enclosed by the assessee. It was submitted that the advance received from customers are of purely business nature and since the identity of the corresponding party stands established and the monies have been received through regular banking channels, no addition could be made in the hands of the assessee. The assessee also submitted that he received advance till 31-03-2017 and he also accepted that due to failure of the parties, the goods were not picked up by the respective parties. The Learned AO concluded based on this that the goods were not physically delivered against the advances. The Learned AO noted that assessee was requested to submit the ledger amount of the respective parties and specific identification of bank entries which was not submitted by the assessee. This observation of the Learned AO is factually incorrect as assessee had indeed submitted the ledger account of all the parties together with the bank statements duly identifying the receipt of advances from customers. The Learned AO observed that the assessee has stated that from 1-4-2017 the entire business of his had been transferred at book value to his nephew Shri Tarvinder Singh under gift. Since the business

ITA No. 6526/Del/2025 Kulvinder Singh has been transferred from 1-4-2017 therefore, the advance from respective customers of Rs 2,66,33,280 remained unpaid liability. Hence, the same was added to the total income of the assessee by the Learned AO. 3.4. Before the Learned CITA, the assessee submitted that the Learned AO had not even mentioned under what provisions of the Act the advance received from customers were sought to be added to the total income of the assessee. The Learner CITA agreed in principle the addition that was made by the Learned AO and further observed that the addition has been made under section 41(1) of the Act. It is pertinent to note that no deduction has been claimed by the assessee with respect to these advance from customers either during the year or during the earlier year. Hence, the applicability of provisions of section 41(1) of the Act cannot be made at all. Be that as it may, the assessee had stated that his entire business operation has been taken over at book value by his nephew Mr. Tarvinder Singh. Whether his nephew Mr. Tarvinder Singh had refunded these advances back to the respective parties or had adjusted the same against the supply of goods is required to be verified by the Learned AO. The assessee is also directed to furnish the respective details before the Learned AO. Hence, in the interest of justice and fair play, we deem it fit and appropriate to restore this issue to the file of Learned AO with a direction for the limited purpose of verification of the fact as to whether the nephew Mr. Tarvinder Singh had refunded the advance either to the respective customers or adjusted the same against the dispatch of goods made to those parties. If it is found true on verification, then no addition should be made in the hands of the assessee qua these advance from customers. Since this is a factual matter, the various case laws relied upon by both the sides need not be gone into and the applicability of the same

ITA No. 6526/Del/2025 Kulvinder Singh to the facts of the instant case are left open. With the aforesaid limited directions, the Ground No. 3 raised by the assessee is allowed for statistical purposes.

ITA No. 6526/Del/2025 Kulvinder Singh AO proceeded to disallow the claim of wages in the assessment in the sum of Rs. 39,80,525.

4.2. Before the learned CITA, the assessee submitted that there was no specific instructions from the learned AO to produce evidence like bills, vouchers, register of labour with regard to expenditure in respect of wages. The proceeding was carried on through faceless online process and wage records are quite bulky and accordingly the assessee submitted monthly aggregate wage sheet and EPF / ESI challans in the submissions filed before the learned AO. It was submitted that the assessee also enclosed the Manufacturing, Trading and Profit and Loss Account before the learned AO. In addition to this, the tax auditor had also mentioned the manufacturing activities of the assessee in their report in Form 3CB and 3CD in Part A-04 and Part 8 10A. The assessee submitted that during the year, fresh excise registration as manufacturer was obtained and manufacturing activity was indeed carried out by the assessee. For the said assembling process, there was no requirement of any investment in fixed assets in the manufacturing activity and that only manpower requirement is warranted for doing the activities. It was explained that in the manufacturing process of assembling a kit into final electronic product, no fixed assets are required at all because of plug and play methodology. It was submitted that the Learned AO has drawn wrong inference from the ESI / EPF challan by stating that the confirmation receipt is in respect of only one person. It was submitted that ESI coverage is only for those employees, those who are drawing wages / salary less than Rs 15,000 per month and there was only one person at that time who was having wages or salary of less than Rs 15,000 per month. Hence, ESI coverage was made only for one person. The assessee is having roughly average monthly wage bill of Rs 3.30 lakhs.

ITA No. 6526/Del/2025 Kulvinder Singh Had there been only one employee against this volume of monthly wage bill, the TDS implication under section 192 of the Act would have been attracted which in the year under assessment stands at nil and accepted by the learned AO. The assessee also gave the status of wages and salaries expenditure incurred for various years as under:-

Asst Year Wages Salary Remarks 2016-17 - 40,39,310 No assessment framed 2017-18 39,80,525 43,38,730 Disallowed wages u/s 143(3) 2018-19 38,93,850 40,40,110 Allowed u/s 143(3)

The assessee further furnished the following documents :- a) Excise Registration as Trader in Financial Year 2015-16 b) Excise Registration as Manufacturer in Financial Year 2016-17 c) Month wise wages / salary details for the Financial Year 2016-17 with number of employees d) Wages / Salary details – employee wise for the months of August 2016, December 2016 and March 2017 with challans of ESI / EPF. Employee coverage under ESI / EPS is also tabulated against each employee. e) Registration document with ESI / EPF.

Despite all the aforesaid documents placed on record before the Learned CITA, the disallowance made by the learned AO was upheld by the Learned CITA.

ITA No. 6526/Del/2025 Kulvinder Singh 4.3. At the outset, we find that assessee had declared sales of Rs. 21,16,70,364 which is inclusive of excise duty of Rs. 75,83,334 and accordingly the said excise duty portion was reduced from the sales figure in the profit and loss account enclosed in page 60 of the paper book. The profit and loss account further contains details of opening stock, purchases, customs duty expenses, wages, freight and octroi, clearing and forwarding expenditure and closing stock reflected, among others, in the consolidated manufacturing, trading and profit and loss account. The fact of manufacturing activity gets established by the said account itself. Further the assessee had also duly furnished the Excise department registration certificate as a manufacturer from Financial Year 2016-17 which also establishes the fact of manufacturing activity carried out by the assessee during the year under consideration. The assessee had properly explained the assembling of goods activity does not require any investment in fixed assets and only requires manpower for the same. The assessee also further explained the reason behind ESI / EPF challans being paid only in respect of one person. The entire list of employees together with their gross salary and EPF / ESI coverage qua each employee is also furnished in a tabular form before the lower authorities for the months of August 2016, December 2016 and March 2017. Hence we have no hesitation to hold that the assessee would be entitled for deduction on account of wages paid in the sum of Rs 39,80,525 during the year . Accordingly, the Ground No. 4 raised by the assessee is allowed.

ITA No. 6526/Del/2025 Kulvinder Singh 5.1. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the assessee made cash deposits during the demonetization period amounting to Rs 54,75,000. The assessee claimed that the source of such cash deposits emanated out of cash sales which were duly accounted for in the books and included in the VAT returns as part of total sales. The assessee furnished the complete cash book for the whole year before the learned AO. The learned AO made a comparison of cash deposits made by the assessee ; cash deposits made by the customer and compared the same with total turnover on percentage basis as under:-

The Learned AO proceeded to treat the cash deposits made during the demonetization period amounting to Rs 54,75,000 as emanating out of undisclosed income of the assessee and added to the total income. This action of the learned AO was upheld by the learned CITA.

5.2. The assessee's business model is to procure orders from persons in different cities who visit Delhi Lajpat Rai market by citing the catalogues and supply the same after confirmed orders. Payments are deposited in his bank accounts either directly by the buyer from all over India as is evident from bank statement and which states the place of deposit and

ITA No. 6526/Del/2025 Kulvinder Singh cash received over the counter sale at its Lajpat Rai, Chandni Chowk, New Delhi outlet. Further, in respect of retail trade, the sale is effected against cash / bank deposit. The change of business model from trading only to manufacturing and trading during the year as well as the success of any product model (Chinese product) and customer behavior and sentiments, which cannot be standardized, had resulted in twofold increase in turnover in both Business Business (B2B) and Business to Consumer (B2C) segments. There is twofold increase in sale because of adding manufacturing unit during the year. Over the counter cash sales have also increased. Any cash deposited in assessee’s bank account whether directly by the customer or by the assessee from its counter sale collection are accounted for as cash sales.

5.3. It is not in dispute that the assessee had indeed shown cash sales and is part of the total turnover disclosed by it in the return of income and in the audited profit and loss account. The following points are undisputed and indisputable: – a. The assessee had shown cash sales for the whole period of financial year 2016-17 and the same is part of total sales disclosed by the assessee in the sum of Rs 21,16,70,364 in the profit and loss account. b The purchase made by the assessee has not been doubted by the revenue. c. The total sales made by the assessee (both cash as well as credit sales) has not been doubted by the revenue.

ITA No. 6526/Del/2025 Kulvinder Singh d. The assessee had sufficient stocks to effect the said cash sales and generate cash as an independent source to prove the cash deposits. e. To the extent of sales made by the assessee, corresponding reduction in stock had been duly made. f . Sales made by the assessee, both cash as well as credit had been duly subjected to DVAT and the DVAT authorities had accepted the turnover declared by the assessee. g. The assessee has furnished the monthly analysis of opening stock, purchases, sales and closing stock and the same are in agreement with DVAT returns submitted during the course of assessment proceedings. The same has been accepted by the learned AO. h. The assessee had also furnished the cash book for the whole period 1.4.2016 to 31.3.2017 before the learned AO. i. There is no negative cash balance on any day that has been alleged by the learned AO. 5.4. Further, we find that the learned AO had accepted the turnover declared by the assessee which included the cash sales also. Hence, separately, making an addition on account of cash deposits in the sum of Rs 54,75,000 would only result in double addition. Hence, the addition made on account of cash deposits deserves to be deleted on that count itself. Further, we hold that the assessee had indeed proved the source of cash deposits by clearly establishing that the source emanated from the books of account and the cashbook regularly maintained. None of the books of account have been rejected by the learned AO. In these facts and circumstances, there is no case made out by the revenue for making Page | 12

ITA No. 6526/Del/2025 Kulvinder Singh an addition on account of cash deposit separately. Accordingly, the addition made is hereby directed to be deleted. Further, we also find that Hon’ble Madras High Court in the case of of SMILE Microfinance Limited vs ACIT in WP (MD) No. 2078 of 2020 and WMP (MD) No. 1742 of 2020 dated 19-11-2024 had held that the provisions of section 115BBE of the Act which enhanced the rate of tax could be made applicable only from 01.04.2017, relevant to assessment year 2018-19 onwards and not earlier. 5.5. Since this is a factual matter, the various case laws relied upon by both the sides need not be gone into and the applicability of the same to the facts of the instant case are left open. The issue is decided here on first principle.

5.6. Accordingly, the Ground No. 5 raised by the assessee is allowed.

Order pronounced in the open court on 19/08/2026

Sd/- Sd/- (KAVITHA RAJAGOPAL) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 19/08/2026 *G.P. Sr. PS* Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi