ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, PATIALA, PATIALA vs. PAWAN KUMAR BANSAL, SAMANA

1 Aforesaid cross-appeals for Assessment Year (AY) 2020-21 arises out of an order of learned Commissioner of Income Tax (Appeals)-5, Ludhiana [CIT(A)] dated 25-08-2025 in the matter of an assessment framed by Ld. AO u/s 153A r.w.s. 143(3) of the Act on 28-02-2022. 1.2 The ground as raised by the revenue read as under: - i) Whether upon facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in granting the benefit of opening balances and in restricting the addition to net advances of Rs.53,21,510/- as against the addition of Rs.3,78,31,600/- made by the Assessing Officer on the basis of Annexure -4 seized during the course of search, despite the assessee’s failure to furnish party-wise confirmations, cash-flow reconciliation, or linkage of debit and credit entries, contrary to settled judicial precedents holding that in search assessment incriminating material has to be considered in entirety? ii) Whether upon facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.1,13,579/- on account of interest on advances to JR Textiles and Faquir Chand without proper justification and overlooking evidence of similar interest practices elsewhere in the seized documents? As is evident from the grounds of appeals, the grievance of the revenue is two folds i.e., (i) Addition of Rs.378.31 Lacs restricted to the extent of Rs.53.21 Lacs; (ii) Deletion of interest on advances for Rs.1.13 Lacs.

3 The grounds of assessee’s appeal read as under: - i) That the Ld. CIT(A) has erred in confirming the addition of Rs.53,21,510/- against the addition of Rs. 3,78,31,600/- as made by the Assessing Officer. ii) That the Ld. CIT(A) has erred in not considering that only appropriate commission at 2.5% could have been applied on the transactions related to the year under consideration, since the assessee is a commission agent, being kacha Ahartia. iii) Notwithstanding the above said ground of appeal, the Ld. CIT(A) has erred in not considering the day-to-day cash glow prepared from the seized diary on the basis of which, though, the peak worked out to Rs. 11,17,950/-, but if the benefit of opening cash in hand of Rs.13,31,117/- is considered as per the seized diary, then no addition could be called for, even as per the method adopted by the CIT(A) and such working has been approved by the Assessing Officer during the remand proceedings. iv) That the Ld. CIT(A) has failed to appreciate that the peak figure of Rs.11,17,950/- has duly been verified by the Assessing Officer during the remand proceedings and also the availability of cash in hand as on 01.04.2019 and, thus, even otherwise no such addition is called for. v) That the Ld. CIT(A) has erred in confirmed the addition of Rs.48,24,025/- on account of alleged undisclosed interest as per page 39 of the order.

4 The Ld. AR advanced arguments supporting the case of the assessee and sought adjustment of opening cash balance and peak credit. The Ld. CIT-DR also advanced arguments supporting the assessment order of Ld. AO. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Assessment Proceedings

1 The assessee was subjected to search action by the department u/s 132 on 17-12-2020 which led to issuance of notice u/s 153A on 09-11-2021. The assessee filed return of income on 20-12-2021. During the course of search, a red-colored ledger diary was seized from the residential premises of the assessee which was marked as Annexure A-4 and the same form the very basis of impugned additions in the hands of the assessee. This diary allegedly contained details of advances given by the assessee to various persons during the year. The debit side of various pages represented payment made by the assessee to various persons whereas credit side represented payment received by the assessee from various persons. The excess of debit side over credit side would thus represent ‘advance

2 The assessee pointed out that there was excess credit for certain parties for Rs.64,08,383/- which was completely ignored by Ld. AO and therefore, the benefit thereof would be available to the assessee. The assessee also pleaded for application of commission rate on these transactions. The Ld. AO rejected the credit benefit claim for want of cash flow statement linking such credit balances with the debit balances. The plea that these were rough notings stood rejected by Ld. AO. The argument of application of commission rate was also rejected since these entries did not pertain to commission agency business of the assessee but the entries were relating to money lending business of the assessee as carried outside the regular books of accounts. Finally, Ld. AO added the excess of debit balance of Rs.3,78,31,600/- as unexplained investment u/s 69 in the hands of the assessee.

3 The Ld. AO also computed that the assessee was charging interest of 18% as per notings in the seized dairy. Applying the same notionally to two parties (M/s JR Textiles and Shri Fakir Chand) which were reflected in regular books of accounts, Ld. AO made addition of interest income for Rs.1,13,579/-.

4 The Page No.93 of Annexure A-4 had interest account wherein the assessee was shown to have earned interest income of Rs.63,47,427/-. However, only interest of Rs.15,23,407/- was disclosed in the Profit & Loss Account. The balance amount of Rs.48,24,020/- was accordingly added as undisclosed interest income of the assessee and the assessment was framed. The returned income of Rs.9.17 Lacs was finally assessed at Rs.442.53 Lacs. Appellate Proceedings

1 The assessee assailed the quantum addition on merits and also assailed the assessment proceedings on legal grounds. The same were subjected to remand proceedings wherein Ld. AO opposed admission of additional evidences / workings and supported the additions made in the assessment order. The assessee objected to the findings in remand report. After due consideration of relevant material on record as well as remand report and assessee’s rebuttal thereto, Ld. CIT(A) proceeded to adjudicate the appeal of the assessee.

2 In para 6.2.3 of the impugned order, it was noted by Ld. CIT(A) that, in the remand report, Ld. AO accepted that there was excess debit over credit for Rs.3,04,92,836/- as against Rs.3,78,31,600/- as taken in the assessment order. This figure includes opening debit balance of Rs.2,51,71,326/- carried forward from earlier years. Therefore, the opening balance could not be brought to tax in this year. After excluding the same, the fresh advances by the assessee during the year would work out to be Rs.53,21,510/-. The assessee sought to apply peak theory and relied on cash flow statement contending that maximum investment at any given point of time was only Rs.11,17,950/- and therefore, the addition, to that extent, at the most, could be sustained. However, in the absence of any supporting confirmations or independent verification from the farmers, the benefit of such working could not be granted to the assessee in its entirety. Finally, the addition was restricted to the extent of Rs.53,21,510/-. Aggrieved, the assessee as well as the revenue is in further appeal before us.

3 On the issue of addition of interest income for Rs.48,24,020/-, it was observed by Ld. CIT(A) that a separate interest account was being maintained by the assessee. This account was distinct from the debit / credit principal amount recorded in other pages of the diary. Therefore, this addition was upheld. Aggrieved, the assessee is in further appeal before us.

4 On the addition of notional interest for Rs.1,13,579/-, it was observed by Ld. CIT(A) that Ld. AO computed notional interest on advances to JR Textiles and Shri Fakir Chand by applying interest rate of 18% based on notings in the seized dairy. However, the assessee explained that these advances were made as business advances for commercial expediency which were duly recorded in the regular books and the advances were returned within the same year. The assessee’s own capital of Rs.91.73 Lacs was sufficient enough to cover the impugned advances of Rs.35 Lacs. Therefore, Ld. AO was not justified in applying notional interest. Finally, this addition was deleted against which the revenue is in further appeal before us.

5 The assessee also raised the issue of mechanical approval u/s 153D which stood rejected by Ld. CIT(A) on the ground that the approving authority had before him all the relevant facts and material and the approval was granted after due consideration thereof. Aggrieved, the assessee has raised one of the grounds in its appeal. However, no infirmity in the approval could be shown to us during the course of hearing before us. Therefore, this ground of assessee’s appeal stands dismissed. Our adjudication on merits would be as under.

From the facts, it clearly emerges that the impugned additions are based on notings as made by the assessee in a red colored diary which has been marked as Annexure A-4. The undisputed fact that could be seen is that there is an excess of debit over credit balance which is to be considered as unexplained investment by the assessee. The Ld. AO computed the excess at Rs.3,78,31,600/- and accordingly, added the same as unexplained investment. However, during remand proceeding, the assessee pointed out computational errors and also contended that no benefit of excess credit balances for Rs.73,38,764/- was granted to the same. If the same is considered, the excess would work out to be Rs.3,04,92,836/- only. It could also be seen that the assessee has opening debit balance as per seized diary for Rs.2,51,71,326/- which could not be considered as unexplained investment for this year. Therefore, the addition, if any, could be made to the extent of Rs.53,21,510/- only. We concur with the adjudication

Proceeding further, it is the argument of Ld. AR that the amount of Rs.53,21,510/- is without giving the benefit of rotation of funds and therefore, only peak credit balance is to be considered by drawing day wise cash flow statement which was already been furnished by the assessee to Ld. AO during the course of assessment proceedings. The same has also been placed on Page Nos.24 to 43 of the paper book. Upon perusal of the same, it could be seen that the assessee has peak cash deficit of Rs.11,17,950/- as on 14-04-2019. The Ld. CIT(A) has rejected the claim merely in the absence of any supporting confirmations or independent verification from the farmers. However, in our considered opinion, the seized diary has to be read as a whole and an additional onus could not be put on the assessee to prove the same. The cash flow statement has been prepared on the basis of seized diary only which has not been disputed. The whole case of Ld. AO is based on contents of seized dairy only. Therefore, in the absence of rebuttal to assessee’s cash flow statement, the cash deficit is to be accepted for Rs.11,17,950/-. Further, this cash deficit is without considering the assessee’s opening cash balance as on 01- 04-2019 for Rs.13,31,117/-. If this opening balance is also considered, there would be no actual cash deficit during this year. The Ld. AR has placed on record Balance Sheet as on 31-03-2019 on Page No.7 of the paper book which would show that the assessee has closing cash- in-hand for Rs.13,31,117/-. In fact, an assessment has been framed on the assessee for AY 2019-20 on 28-02-2022 u/s 153A r.w.s. 143(3) wherein no dispute has been raised on closing cash-in-hand as reflected by the assessee in the Balance Sheet. Therefore, finding substantial force in the argument of Ld. AR, we would hold that there was cash deficit for Rs.11,17,950/- during this year which stood fully covered by opening cash balance of Rs.13,31,117/- and therefore, no addition of unexplained investment could be sustained in the hands of the assessee for this year. We order so. The corresponding ground of revenue’s appeal stand dismissed whereas the corresponding grounds of assessee’s appeal stand allowed.

The next issue in assessee’s appeal is addition of interest income for Rs.48,24,020/-. The only argument of Ld. AR is that the same has duly been considered while working out peak credit and therefore, no addition thereof could be made in the hands of the assessee. However, the said argument does not have any substantial force since interest component is in the nature of pure income for the assessee and the same could not be worked out on the basis of peak credit. The fact remains that the assessee has offered less interest to tax. The interest income as found noted in the seized diary was Rs.63,47,427/- whereas the assessee offered only Rs.15,23,407/- to tax. The addition is based on interest income as found noted in the seized dairy. Therefore, this addition has rightly been sustained by Ld.

The last issue is notional interest income of Rs.1,13,579/-. The Ld. AO has computed notional interest of 18% with respect to advances as granted to the two parties which form part of assessee’s regular books of accounts. The advances have been squared-off during this year only. There is no material to indicate that the assessee has charged that kind of interest on these advances. The addition is on mere presumption. It is the finding of Ld. CIT(A) that the assessee’s own capital was sufficient enough to cover these advances. On these facts, the adjudication of Ld. CIT(A) could not be faulted with. By endorsing the same, we dismiss the corresponding grounds of revenue’s appeal.

The revenue’s appeal stand dismissed. The assessee’s appeal ITA No.1123/Chandi/2025 stand partly allowed. Order pronounced on 02nd June, 2026. - - (LALIET KUMAR) (MANOJ KUMAR AGGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AS Dated: 02-06-2026

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