HAFIZ,VARANASI vs. INCOME TAX OFFICER, WARD - 2(1), VARANASI

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANASI (Through Virtual Hearing) BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.155/VNS/2024 A.Y. 2017-18 Hafiz, vs. The Income Tax Officer, Hasib Wire Industries, A-18/9, Ward-2(1), Varanasi Diwanganj, Varanasi-221001, U.P. PAN: ACMPH9473J (Appellant) (Respondent) Assessee by: Sh. Subhash Chand, Advocate Revenue by: Smt. Amandeep Kaur, Sr. DR Date of hearing: 18.02.2026 Date of pronouncement: 14.05.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. CIT(A), NFAC passed under section 250 of the Income Tax Act, 1961 on 11.07.2024, wherein the ld. CIT(A) has partly allowed the appeals of the assessee against the orders of the ld. Assessing Officer passed under section 143(3) for the A.Y. 2017-18 on 17.12.2019. The grounds of appeal are as under:- “1. Because it was fully explained that the assessee is an authorized dealer of M/s Bharati Airtel Limited for trading of top up recharges of Mobile SIM as a wholesale dealer and has received the sale proceeds in cash and deposited in bank account with State Bank of India. The Ld. Assessing Officer has erred and acted illegally in not placing reliance on the same. The Ld. National Faceless Appeal Centre (NFAC) Delhi has also erred and acted illegally in confirming the same. 2. Because it was fully explained that the sale of top up recharges against demonetized currency during the period of Nov & Dec-16 was out of purview of demonetization law. 1

ITA No.155/VNS/2024 Hafiz A.Y. 2017-18 The Ld. Assessing Officer has erred and acted illegally in taking into account the Circular of Govt of India. The Ld. National Faceless Appeal Centre (Delhi) has erred and acted illegally in confirming the same. 3. Because the Ld. Assessing Officer has erred and acted illegally legally in adding back Rs. 2,37,00,000/- deposited in bank account with State Bank of India during the period of November and December 2016 was out of sale proceeds of Recharge Vouchers/V Top recharges of mobile sim. The Ld. National Faceless Appeal Centre (NFAC) Delhi has erred and acted illegally in confirming the same. 4. Because it is fully explained that there was no evidence on record that the assessee has deposited the demonetized currency only during the demonetized period. The Ld. Assessing Officer has erred and acted illegally adding back 2,37,00,000/- and later on the Ld. National Faceless Appeal Centre (NFAC) Delhi in reducing the deposit only against notes of 2000 currency and erred and acted illegally in confirming the amount of Rs. 1,88,42,000/-. 5. Because the assessment is bad both on facts and in law and not maintainable.”

ITA No.155/VNS/2024 Hafiz A.Y. 2017-18 deposited Rs. 2,37,00,000/- during the period under demonetization and not explained the source thereof in response to various notices, the ld. AO added back a sum of Rs. 2,37,00,000/- to the income of the assessee under the provisions of section 69 of the Income Tax Act. 3. Aggrieved with the said assessment order, the assessee went in appeal before the ld. CIT(A). Before the ld. CIT(A), the grounds filed pointed out that the amount of Rs. 2,37,00,000/- deposited in the bank account during the period 10.11.2016 to 31.12.2016, was out of the sale proceeds of sim cards that had been supplied by M/s Bharti Airtel Limited. The ld. AO had acted illegally in treating the same as unaccounted when an audit report had been filed based upon books of accounts, which clearly indicated day to day position of purchase, sales, collection of cash, payment to the seller etc., and thus there was no question of any unexplained deposit of demonetized currency. The entire deposits arising from such sale had been treated as unexplained without substantiating that these had been made out of the demonetized currency. The ld. CIT(A) records, that he issued several notices to the assessee and the assessee only made compliance to the last of them, vide his submission dated 28.06.2024. It was pointed out that of the Rs. 2,37,00,000/-, only Rs. 37,00,000/- were deposited in demonetized currency and therefore, there was no basis from making addition of Rs. Rs. 2,37,00,000/-. That so far as Rs. 37,00,000/- was concerned, it was submitted that the same had been deposited during the period 8.10.2016 to 31.12.2016 and the assessee referred to the decision of the Bangalore ‘SMC’ Bench in the case of Anantpur Kalpana vs. ITO, Ward-1, Koppal (ITA No.541/BANG/2024) and the decision of the ITAT Vishkhapatnam Tribunal in ACIT vs. Hirapanna Jewellers (ITA No. 253/VIZ/2020), both of which had held that when cash receipts represented the sales which the assessee had offered for taxation and when the trading account shows sufficient stock to 3

ITA No.155/VNS/2024 Hafiz A.Y. 2017-18 effect the sales and when no defects were pointed out in the books of accounts, there was no case for making additions by holding such deposits to be unexplained. The ld. CIT(A) called for a remand report from the Assessing Officer who pointed out, in his remand report, that while cash deposits made in new notes of Rs. 2000/- may be treated as the business receipts of the assessee, since the assessee had not furnished details of cash deposits in specified bank notes during assessment proceedings, the deposits made in specified bank notes may be considered as unexplained. A copy of the said remand report was given to the assessee for his comments. The ld. CIT(A) does not point out in his order as to what these comments were, but held that the comments furnished were unacceptable because he had called for certain details on 11.06.2024 but the assessee had not furnished these details to him. Thus he concluded that the assessee did not have anything to say on the matter. He noted that of total cash deposits made by the assessee only Rs. 48,58,000/- were in new currency notes of INR 2000 denomination which could be treated as business receipts whereas the rest deserved to be added back as they had not been explained. Since the State Bank of India had confirmed that a sum of Rs. 1,88,42,000/- had been deposited in demonetized currency, he held that this amount was disallowable and only relief to the extent of Rs. 48,58,000/- was liable to be deleted. Thus, the appeal of the assessee came to be partly allowed. 4. The assessee is aggrieved with the orders passed by the lower authorities and has accordingly come in appeal before us. Sh. Subhash Chand, Advocate (hereinafter referred to as the ld. AR) pointed out that the assessee was only a sim card seller selling sim cards on behalf of M/s Bharti Airtel Limited. The ledger account of sales and purchases had been submitted to the ld. CIT(A). A perusal of the bank account of the assessee would reveal that the sim cards that were claimed to be sold, had in fact been 4

ITA No.155/VNS/2024 Hafiz A.Y. 2017-18 purchased from M/s Bharti Airtel Limited. Thus, there was evidence to suggest that the entire money that had been deposited was on account of sale of sim Cards and no part of the said money was unexplained. It was submitted that a fall in G.P. could not be a basis to reject the accounts under section 145(3) unless some defect was found in the books of accounts. Since no defect had been found and since the assessee had been disbelieved without any enquiries being made from M/s Bharti Airtel Limited, the order was bad in law and liable to be quashed. The ld. AR further invited our attention to the decision of the ITAT Amritsar Bench in Abdul Farook vs. ITO, Katra, wherein the ITAT Amritsar Bench had observed that, as per Gazette Notification No.2774SO3544(E) dated 24.11.2016, amounts paid towards prepaid mobile top up to a limit of Rs. 500/- for every top up, could be paid in specified bank notes up till 15.12.2016 and granted relief on this account. The ld. AR also drew our attention to the decision of the ITAT Ahmedabad Bench in the Keyur Rajeshbhai Agarwal vs. ITO, Ward-5(3)(1) Ahmedabad in ITA No. 978/AHD/2024, wherein the ITAT had held that adding back the cash deposit before considering the withdrawals or payments made by the assessee to M/s Bharti Airtel Limited and without considering the Press Release dated 24.11.2016, which allowed the sellers of sim cards and recharge coupons accept SBNs during demonetization period, was against the principles of natural justice and therefore, on this count had restored the matter back to the file of the Assessing Officer for considering these aspects. Accordingly, it was prayed that the assessee may be given an opportunity to demonstrate that the deposits made by him in the bank account was explained on account of cash sales of sim cards. 5. On the other hand, Smt. Amandeep Kaur, Sr. DR (hereinafter referred to as the ld. DR) pointed out that the assessee had been non-compliant throughout the assessment proceedings and it was as a result of this non- 5

ITA No.155/VNS/2024 Hafiz A.Y. 2017-18 compliance that the AO had been forced to do a best judgment assessment. She pointed out that in case, the Tribunal in its wisdom decided the to restore the matter back to the file of the Assessing Officer, then directions should be issued to the assessee to make due compliance and produce relevant details, otherwise the ld. AO should be at liberty to assume that the assessee had no explanation to offer. 6. We have duly considered the facts of the case and the arguments of the rival parties. It is apparent from a perusal of the assessee’s bank statements that the assessee had been making frequent transfers to M/s Airtel M Commerce Ser Limited and M/s Bharti Airtel Limited. It is also observed from the distribution agreement between the assessee and M/s Bharti Airtel Limited dated 22.10.2014 that the assessee was acting as a distributor of prepaid cellular services provided by M/s Airtel to the customers, through prepaid sim cards/recharge vouchers/v-top up or any other mode etc. We further note that the Government of India vide its Notification dated 24.11.2016 (SO3544(E)) had allowed the use of specified bank notes for making payments towards prepaid and mobile top ups to a limit of Rs. 500/- for every top up till 15th December, 2016. We also note the submissions of the assessee that it has maintained regular books of accounts, got the same audited and filed the same before the Assessing Officer and it does not appear that the Assessing Officer has taken all these facts into account before making the addition. Accordingly, in the interest of justice, we deem it fit to restore this matter back to the file of the ld. Assessing Officer with a direction to the assessee to provide all the materials to the Assessing Officer so as to enable the Assessing Officer to properly appreciate the issue and we direct the Assessing Officer to pass a fresh order in accordance with law after considering the aforesaid material relied upon by the assessee before us. Accordingly, since the matter stands restored to the file of the 6

ITA No.155/VNS/2024 Hafiz A.Y. 2017-18 Assessing Officer, the appeal of the assessee is held to be allowed for statistical purposes.