KWALITY FOODS,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CC 1(1), MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWALAssessment Year: 2018-19 Kwality Foods 1106, 11th Floor, Range Heights, Behrambaug, Jogeswari West, Mumbai - 400102 (PAN : AAIFK0502D) Vs.
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of Ld. CIT(A)- 47, Mumbai vide order no. ITBA/APL/M/250/2023- 24/1051879562(1), dated 05.04.2023 passed against the assessment order by Deputy Commissioner of Income Tax, Central Circle 1(1), Mumbai, u/s. 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 15.07.2021 for Assessment Year 2018-19. 2. Grounds taken by the assessee are reproduced as under: "1. The order of the Assessing Officer is against the law and facts of the case. The Learned Assessing Authority has erred in law made addition of Rs. 27,49,286/- on account of cash found short by invoking the provision of section 69C and also holding that the same is to be taxed under section 115BBE of Income Tax Act, 1961. 2. The Learned assessing officer has not consider the facts of this case and made disallowance of cash expenditure u/s 40(A)(3) of Rs.4,72,293/-.
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We humbly request you to kindly keep the recovery of demand of Rs.32,90,028/-in abeyance till the disposal of the merit appeal."
At the outset, we note that there is a delay of 644 days noted by the registry in filing the present appeal before the Tribunal for which a petition for condonation of delay along with affidavit is placed on record. The reason given for the delay relates to mistake in the email addresses on which the orders were sent by the Department which could not be received by the assessee. It was only at lapse of time that the Chartered Accountant visited the Income-tax portal to take note of the orders having passed and thus, took all the necessary initiatives to file the appeal along with petition for condonation. We have perused the submissions made by the assessee and found it appropriate to condone the delay to take up the matter for adjudication.
Brief facts of the case are that assessee is a partnership firm engaged in the business of processing of dry fruits. It filed its return of income on 31.10.2018, reporting total income at Rs.2,73,63,720/-. Return was revised on 26.02.2019 with total income at Rs.2,73,99,640/-. A survey was carried out u/s.133A on the business premise of the assessee on 29.03.2018. In the course of survey, physical cash amount of Rs.1,252/- was found against cash balance of Rs.27,50,578/- as per the cash book as on 29.03.2018, i.e., the date of survey. Assessee was confronted with this discrepancy and was asked to explain the difference of cash found short by Rs.27,49,286/-.
1. It was submitted that the cash balance of Rs.27,50,578.32 as per current trial balance before the survey team was not updated. According to the assessee, opening cash balance as on 01.04.2017 was Rs.8,00,252/- which was correctly shown in final tally data but in the 3 Kwality Foods AY 2018-19
seized tally data, it was Rs.7,98,754.77 which was not correct. Further, assessee submitted that few expenses were made by the partner as well as some staff of the firm which were not updated by the accountant till the date of survey. Accordingly, tally data seized by the department was not up to date. Therefore, difference in cash balance in trial balance available at the time of survey and trial balance of final updated data was on account of majority factory cash expenses paid by the partner and some office staff which remained pending for posting in the books of account. Apart from this, it was explained that huge amount of cash cannot be kept at factory premises, so out of Rs. 10,10,242/-,
Rs.10,08,950/- was kept at partner's residence for security reasons. It was mutually agreed by the partners that cash balance in excess of Rs.
10,000/- shall be kept at the residence of partner. Assessee, therefore submitted that there was no variance in the cash balance. Assessee vide reply dated 11.06.2021 submitted monthly reconciliation statement of cash book as per seized tally data and final data. Details of month wise
Debit and Credit entries which were posted in final data but not found in seized data were furnished during the assessment proceedings. Major expense pending for posting into cash ledger of seized tally data relate to salary to staff, packing material, loading and unloading charges, repair and maintenance etc. Assessee also contended that cash short, at the most represents expenses/outgoings out of cash available with the assessee, not accounted for in the books of the assessee. Such unaccounted expenses are sourced from cash available with the assessee.
2. Reconciliation furnished before the ld. Assessing Officer in the course of assessment proceeding is placed in the paper book at page 29 along with its exhibits. The said reconciliation is extracted below for ready reference.
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3. In the paper book, assessee had certified that documents placed at Sr. No.7 to 20 were not submitted to the authorities below, however, according to the assessee, they are nothing but extracts of the data contained in books of accounts which were produced in the course of assessment proceedings.
4. In the course of assessment proceedings, ld. Assessing Officer also took note of certain cash expenditure which were made by the assessee towards payment of salary which are hit by the provisions of Section 40A(3), since these payments breached the embargo placed in the said
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section of the prescribed limit of Rs.10,000/- as the said limit was reduced from Rs.20,000/- by the Finance Act, 2017. The details of such cash expenditure which were considered for disallowance by the ld.
Assessing Officer are as under:
a. Salary paid to Parminder Malik – Rs.2,20,000/- (i.e. Rs.20,000
per month for 11 month.) b. Salary paid to Meenakshi Malik – Rs.2,20,000/- (i.e. Rs.20,000
per month for 11 month.) c. Salary paid to Mangesh Salunkhe - Rs.10,580. d. Salary paid to DT Pandey - Rs.10,713/- e. Salary paid to Saroj Indranmani - Rs. 11,000/-.
5. In this respect, claim of the assessee is that it was not aware of the reduction in the limit from Rs.20,000/- to Rs.10,000/- and sought relief from the ld. Assessing Officer by referring to Rule 6DD of the Income-tax Rules, 1960 (The Rules) to cover up the same under the exceptions provided there in .
On the above factual matrix, we have heard both the parties and perused the material on record, including the order of the authorities below. On the first issue, in respect of addition made u/s.69C towards cash found short in the course of survey, assessee has explained its case before the ld. Assessing Officer by furnishing a reconciliation along with corroborative documentary evidences which have not been disproved or controverted by bringing anything cogent on record. Ld. Assessing Officer has referred to the statement of Shri Amit Malik, the partner of the assessee firm, which was recorded u/s.131 of the Act, part of which is reproduced in the impugned assessment order. From the perusal of answer to question 25 as reproduced in the impugned
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assessment order, we note that the partner of the assessee firm has stated that certain vouchers have yet to be entered from Khopoli office of this premise. The partner has also categorically stated, in his reply to the show cause notice issued by the ld. Assessing Officer, that few expenses were made by partner as well as some other staff, which were not updated by the accountant till the date of survey and that the tally data seized by the Department is not up to date. It was explained in the statement that certain factory cash expenses were paid by the partner and the staff which were pending for posting in the books of accounts.
He also mentioned in his statement that it was mutually agreed between the partners that cash balance in excess of Rs.10,000/- shall be kept at the residence of the partner. Based on this understanding, cash of Rs.10,08,950/- was kept at partner’s residence for security reasons.
Thus, it is noted that assessee has, in the course of survey itself explained the reasons for the discrepancy found in the cash in hand which is the subject matter for addition u/s.69C. Also, assessee has explained each of the items of discrepancy, reconciling the same by evidencing it with proper documentary evidence, all of which are placed on record. Before us, nothing has been brought on record to controvert the same.
1. Considering the overall factual matrix and the materials placed on record, along with the explanations furnished, we delete the addition made u/s.69C alleging cash found short, amounting to Rs.27,49,286/. Accordingly, ground raised by the assessee in this respect is allowed.
On the second issue relating to disallowance made u/s.40A(3) of Rs.4,72,293/-, it is noted that they relate to payment of salaries to staff member and relief is claimed by resorting to Rule 6DD. Assessee claims that its factory is located in a remote location and workers are also from 7 Kwality Foods AY 2018-19
nearby villages which do not have 24/7 banking facilities. It thus, made an attempt to make out the case so as to put these payments into exceptions under rule 6DD of the rules where payments exceeding
Rs.10,000/- can be made by the assessee. From the perusal of Rule
6DD, we do not find an exception which covers the case of the assessee for which nothing corroborative has been placed on record, except for observation about its location being at remote place.
1. In the given set of facts, which remains uncontroverted, we do not find any reason to interfere with the findings arrived at by the authorities below who sustained the disallowance so made u/s.40A(3). Accordingly, ground raised by the assessee in this respect is dismissed.
In the result, appeal of the assessee is partly allowed.
Order is pronounced in the open court on 26 August, 2025 (Amit Shukla)
Accountant Member
Dated: 26 August, 2025
MP, Sr.P.S.
Copy to :
1
The Appellant
2
The Respondent
3
DR, ITAT, Mumbai
4
5
Guard File
CIT
BY ORDER,
(Dy./Asstt.