MAHESHKUMAR VRUJLAL MANDAVIA,PORBANDAR vs. ITO WD 2(3), PORBANDAR, PORBANDAR

When the matter was called for hearing, the learned Counsel for the assessee at the outset submitted that the appeal has been filed by the assessee belatedly. The learned Counsel adverted our attention to the affidavit filed in this regard citing reasons for condonation of delay and urged for a benign view and sought condonation of delay of 41 days in filling the appeal before the Tribunal. On the other hand, Ld DR for the Revenue opposed the prayer of ld.Counsel for the assessee for condonation of delay. A perusal of the affidavit gives us an impression of existence of mitigating circumstances to enable us to exercise our discretion in favour of the assessee. Accordingly, the minor delay is condoned.

The grounds of appeal raised by the assessee are as follows:

Succinctly, the factual panorama of the case is that assessee before us is an Individual and filed his return of income under section 139(1) of the act dated 05.08.2020, declaring total income of Rs.3,11,190/-, for assessment year 2020–21. The assessing officer noted that assessee entered into the transaction of purchase and sale of fireworks, seasonal business and festival items, such as Rakhi, Gulal, Pichkari-for Holi and kites, etc. During the assessment proceedings, assessing officer issued show cause notice to the assessee to explain the transaction. In response to the show cause notice, the assessee submitted its reply before the assessing officer with documentary evidences and state that he had not paid any “on money”. However, the assessing officer rejected the reply of the assessee and observed that the information was disseminated that the assessee during the year has made cash payment of Rs.5,81,079/-. It was observed from the modus operandi that the payment of cash has been made on ongoing basis where the outstanding payment of one year has been made in another year. In this case, information was found during search proceeding that the assessee has made cash payment of Rs.5,81,079/- and accordingly, it will be appropriate to made addition of Rs.5,81,079/-against the proposal of Rs.7,00,621/-made vide show cause notice which was the value of special discount and discount involved in invoices provided by the assessee as out of such only Rs. 5,81,079/- has been paid during the year. The assessing officer noticed that the assessee has made cash payment of Rs.5,81,079/- and has grossly failed to explain the same with corroborative evidence. In absence of source of such payment, it was concluded that the assessee has made payment of Rs.5,81,709/-, in cash from unexplained sources and accordingly, required to be taxed as unexplained money within the meaning of section 69A of the Act.

Aggrieved by the order of the assessing officer, the assessee, carried the matter in appeal before the learned CIT(A), who has confirmed the action of the assessing officer. The assessee has mainly contested before ld.CIT(A) against the addition u/s 69A of the Act of Rs. 5,81,709/- on account of payment in cash from unexplained sources. The assessee has contended before ld.CIT(A) that the assessing officer erred in making the addition of Rs. 5,81,709/- without providing working of this amount as the assessee had filed its Return of Income u/s 44AD of the Act. Further, the assessee has contended that the assessing officer did not provide the opportunity of cross examination of the material disseminated from the Search action on third party. The assessee has also contented against applicability of provisions section 69A of the Act. However, Ld. CIT(A) held that assessee has failed to explain the source of the “on money”, and therefore confirmed the addition made by the assessing officer. 6. Aggrieved by the order of the Ld. CIT(A), the assessee is in further appeal before this Tribunal. 7. We have heard, the rival parties and have gone through the material placed on record. Learned Counsel for the assessee, argued that addition was made by the assessing officer under the wrong section. The addition of Rs. 5,81,700/- made under section 69A read with section 115BBE is not sustainable, where the Department's own narrative is one of alleged cash payment (i.e. expenditure within section 69C, not ownership of money within section 69A), where the Assessee is covered by section 44AD and is not required to maintain books, and where the Assessee is not "found to be the owner" of any money. The ld. Counsel also submitted that order is a nullity for denial of cross-examination. Even assuming the alleged transactions is bogus, then only the profit element embedded therein is taxable, for this ld.Counsel relied on the judgement of CIT v. President Industries, (2002) 258 ITR 654 (Guj).On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 8. We have considered submissions of both the parties. We note that assessee is an individual proprietor (M/s Gokul Traders) carrying on a small retail trade in seasonal items including fireworks at Porbandar. For AY 2020- 21, the assessee filed his return of income on 05.08.2020 declaring total income of Rs. 3,11,190/-on the presumptive basis under section 44AD of the Act. The return was processed and no scrutiny notice under section 143(2) was issued. The assessee has filed the relevant documents and evidences before the assessing officer to prove his claim and also demanded the opportunity of cross- examination. We note that assessee filed the return of income under section 44AD of the Act, therefore, do not supposed to maintain books of accounts. We also note that some of the documents filed by the assessee during the assessment proceedings were self servicing documents therefore cannot be relied fully. Therefore, we accept the alternative argument made by the learned Counsel for the assessee to restrict the addition to the profit element. Therefore, considering these facts and circumstances, and considering the smallness of the amount, we direct the assessing officer, to make addition in the hands of the assessee to the tune of Rs.46,536/- (8% of Rs.5,81,709), by following the normal rate of income tax ( not under section 115 BBE of the Act). We, also emphasise that this decision is rendered on the peculiar facts of this case and having regard to the smallness of the amounts involved, and, therefore, it cannot be construed as laying down propositions of law of general applications.

In the result, appeal filed by the assessee is partly allowed.