MADHAVARAO ARAVIND KUMAR,CHENNAI vs. ITO, NCW-22 (1), CHENNAI

PER SS VISWANETHRA RAVI, J.M :

This appeal by the assessee is against the order dated 29.08.2025

passed by the Learned Commissioner of Income Tax [herein after

“CIT(A)”], Addl/JCIT(A)-1, Nashik, for the assessment year 2017-18.

and proprietor of M/s. MAV Agencies, a retail outlet engaged in selling

petroleum products, filed his return of income on 30.12.2017 declaring total income of Rs.8,90,970/-. The case was selected for scrutiny and notice u/s. 143(2) of the Income-tax Act, 1961 [herein after ‘the Act’] was issued. The assessee responded to all the notices issued and furnished relevant documents. After examining books of accounts and details

furnished, a pre-assessment notice dated 02.12.2019 was issued proposing addition to the total income of the assessee and completed the assessment determining total income at Rs.32,01,270/- by making

disallowance u/s. 40A(3) of the Act at Rs.17,54,372/- , interest expenses at Rs.4,42,643/-, business promotion expenses at Rs.1,00,000/-, audit fee payable at Rs.70,000/-, unexplained cash credits u/s. 68 of the Act at

Rs.16,41,672/- and addition of specified bank notes (SBN) u/s. 69A of the Act at Rs.12,500/-. On appeal, the ld.CIT(A) partly allowed the appeal, deleting additions u/s. 40A(3) and 69A of the Act and confirming

other four additions. Aggrieved by the order of the ld.CIT(A), the assessee preferred an appeal before us stating factual errors and misapplication of law by ld.CIT(A).

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held that the reply of the assessee is not acceptable in respect of three parties and computed interest @ 12% on the money paid to the said three persons at Rs.4,42,643/- (Rs.36,88,696 @12%) and added the

same to the total income of the assessee. The ld.CIT(A) held that the assessee failed to furnish conclusive evidence establishing the source of funds used to such advances and on principle of commercial expediency

cannot fulfil the requirement of substantiating the nexus between borrowed funds and business expenditure.

12% of advances to three parties without establishing any direct nexus between interest bearing borrowings and the said advances. He vehemently argued that the ld.CIT(A) accepted that the assessee had

sufficient capital and customer security deposits but arbitrarily presumed that borrowed funds were used. Further, he argued the said disallowance was made on pure assumption without fund-flow tracing or

Page - 3 - of 12 verification. He relied on the decision of Hon’ble Supreme Court in the case of S.A. Builders Ltd and prayed to allow ground no.1 raised by the assessee.

expenditure of the assessee in respect of first party namely Shri. Gopi. The AO did not accept the explanation in respect of other three parties by holding that the money paid to the said three persons were diverted

from loan account and thereby computed interest rate at 12% on the amount paid to said three parties. On perusal of the explanation with reference to party by name Shri Venugopal which is at page no. 10 of

the assessment order, it is noted that the assessee paid amount to Shri Venugopal, but however, it was stated that the amount paid to him returned to the assessee in next subsequent year. The AO ignored the said statement however proceeded to adopt interest rate @12% on the

said amount, in our opinion is not justified. Therefore, interest rate @ 12% to the amount standing to the account of Shri. Venugopal is not applicable.

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said idea of acquiring the adjacent land is taken back as the other alleged co-owners also started approaching for payment. As it appears from the said explanation, the assessee asked Shri. Pathiban to return

the said money and he agreed for the same and accordingly he returned all the money back to the assessee in installments by cheque payments. We find the AO completely ignored the said explanation, but however,

proceeded to adopt interest at 12%, in our opinion is not justified. Thus, adopting 12% interest on the amount standing to the account of Shri. Pathiban is liable to be deleted. We hold accordingly so.

stated that he will repay an amount of Rs.3,20,000/- from his share of sale proceeds of the disputed property. The AO failed to examine the said explanation of the assessee by summoning said party by name Shri. Chandrasekar. Therefore, in our opinion applying interest rate to

said amount to the year under consideration is not justified. Thus, interest at 12% is applied on amount standing to the account of Shri. Chandrasekar is not justified and deleted.

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by the ld.CIT(A) u/s. 69A of the Act is fundamentally wrong as the assessee had recorded a total of Rs.1,88,816/- under business promotion but due to a clerical slip admitted only Rs.88,816/- in the

submissions made before the AO. On perusal of the profit and loss account at page no. 4 of the paper book, it is noted that the assessee claimed expenditure with reference to business promotion of

Rs.1,88,816/- and we find the submission of assessee by mistake claiming a sum of Rs.88,816/-, which is evident from page no. 11 & 12 of the assessment order. Therefore, the addition made by the AO

difference being Rs.1,00,000/- (Rs.1,88,816/- -Rs.88,816/-) is deleted. Thus, ground no.2 raised by the assessee is allowed.

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assessee submitted confirmations from many of the customers, but not in some cases which are listed in page no. 12 & 13 of the paper book to an extent of Rs.16,41,872/-. The AO added said amount u/s. 68 of the

Act in the absence of confirmations from the concerned parties. Before the ld.CIT(A) it was explained that the subject receipts are not credit of funds from those parties but payment of their debts due to the assessee.

Further, it was contended it is also not a credit given by those parties to assessee but payment they made towards credit, the assessee allowed to them and the said transactions are not the first to give credit to the

assessee but the assessee was the one to give credit to the parties in the first instance. Further, it was explained all the said parties did not give assessee any amount on their own volition for utilisation, but the

said parties discharged their obligation towards their liability towards the assessee. The ld.CIT(A) answered the said explanation by observing that the burden does not dissolve merely because the assessee argued that the credits are from trade sales and even trade credits requires

basic details like party wise ledger confirmations, invoices linkage, and a reconciliation of opening balances, billings, receipts and closing Page - 7 - of 12 balances. According to the ld.CIT(A), the assessee failed to furnish confirmations of ledger-wise reconciliations for the disputed amount in the assessment proceedings as well in the remand proceedings. Having observing so confirmed the addition made by the AO.

amount was part of the regular business turnover recorded in the books. He argued that the assessee has furnished confirmations for Rs.60.38 lakhs out of Rs.76.80 lakhs as found by the AO. It was explained the

balance amount was not confirmed due to practical difficulties in contacting old credit customers who are no longer active in business. He explained that in the petrol bunk business, it is a common and

accepted trade practice to collect cash from customers against earlier credit sales and thus, collections were fully recorded and part of audited turnover. He vehemently argued that the ld.CIT(A) treating of such

receipts as cash credits u/s. 68 of the Act resulted in double taxation and violates principles of commercial reality and argued that the disallowance as confirmed by the ld.CIT(A) is unsustainable both in fact and law. The ld.DR relied on the order of the ld.CIT(A).

cash receipts are provided in the financials at page no.6 of the paper Page - 8 - of 12 book. On an examination of the same that the assessee received cash payments to an extent of Rs.70,27,553/-, but however, according to the AO and ld.CIT(A), the assessee has produced confirmations from the parties to an extent of Rs.60,38,882/- and no confirmations were filed

against the remaining parties. We note that it was stated that it is a practice in petrol bunk business that the assessee can accept cash from the customers against earlier credit sales, but however, no confirmations

were furnished in respect of said parties as they are no longer in active business. It was also contended that the additions u/s. 68 of the Act is not maintainable as the cash receipts were part of turnover which are

subjected to audit. There is no dispute with regard to showing the cash receipts as part of turnover which is evident from balance sheet at page no. 5 of the paper book. We agree that the contention that cash

received by the assessee in the year under consideration are related to earlier sales, which are fully recorded and part of audited turnover. We find the ld.CIT(A) and AO ignored that the sales for which payments

were made by the said parties have already been accounted in assessee’s books as sales and taken as income in the profit and loss account in their respective period of sales. Further, we find all the said payments in cash were made due to credit sales as they received from

the assessee and thus, sales have already been brought into assessee’s account as income from sales. In this regard, we find no dispute from Page - 9 - of 12 the ld.DR as the said credit sales already brought into account offered for tax and offered as income in the profit and loss account. Therefore, we find force in the arguments of the ld.AR and treatment given by the ld.CIT(A) to such receipts as cash credits u/s. 68 of the Act results in

double taxation and not justified. Thus, order of the ld. CIT(A) is set aside and ground no.3 raised by the assessee is allowed.

debited a sum of Rs.70,000/- towards audit fee in the profit and loss account, but it is shown as payable for FY 2016-17 relevant to the year under consideration. The AO further observed that the said payments

was made on12.07.2019 and for not paying the said amount before the due date of filing of return of income, the AO disallowed the same. The ld.CIT(A) confirmed the order of the AO by holding the provisions u/s.

43B of the Act are attracted.

technical and contrary to accounting treatment. The ld.DR, relied on the order of the ld.CIT(A).

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payment of audit fee which is clear from balance sheet and admittedly

the said amount was paid on 12.07.2019. We find the AO disallowed the

same for not paying the same before the filing of return of income and

the ld.CIT(A) held the provisions u/s. 43B of the Act are applicable for

audit fees also. We find there is no bar for payment of audit fee before

filing of return of income and we agree with the contention that non-

applicability of the claim of audit fee under the provisions of section 43B

of the Act. Thus, the order of the ld.CIT(A) confirming the AO’s view is

misplaced as payment of audit fee is not covered under the provisions of

43B of the Ac as it is not related to tax or regulatory dues. Therefore,

the order of the ld.CIT(A) is not justified in observing the provisions u/s.

43B of the Act are applicable to audit fee and it is set aside. Thus,

ground no.4 raised by the assessee is allowed.

Sd/- Sd/- (एस. आर. रघुनाथा) (यस यस �व�वने� र�व) (S. R. RAGHUNATHA) (SS VISWANETHRA RAVI) लेखा सद�यकेसम� /Accountant Member �या�यक सद�य / Judicial Member Chennai, Dated: 12th June, 2026. JPV

Copy to:

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PRASANNA Digitally signed by PRASANNA VANI JETTY VANI JETTY Date: 2026.06.16 14:47:02 +05'30'

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