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Facts
The assessee appealed against two additions made by the Assessing Officer and confirmed by the Ld. CIT(A) for AY 2017-18. The first was an addition of Rs.27,39,986/- due to a difference between sales reported in VAT returns and books of account, which the assessee argued was outside the scope of limited scrutiny. The second was an addition of Rs.30,23,000/- for cash deposited during demonetization, which the assessee claimed was from sales, bank withdrawals, and debtor recoveries, supported by adequate cash balance in books.
Held
The tribunal deleted the first addition, finding that the issue was not part of the limited scrutiny notice (under Section 143(2)) and no approval was obtained to widen the scope. For the second addition, the tribunal found that the assessee had adequate cash balance in their books, supported by evidence of sales, bank withdrawals, and recoveries from debtors, thus deleting this addition as well.
Key Issues
Whether an addition based on sales differences is valid in a limited scrutiny without scope expansion approval, and whether cash deposits during demonetization are taxable if supported by adequate cash balance from sales, withdrawals, and debtor recoveries.
Sections Cited
250, 143(2)
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: SHRI GEORGE MATHAN & SHRI SANJAY AWASTHI
Present for: Appellant by : Shri Dhiraj Lakhotia, AR Respondent by : Shri Chandan Das, Addl. CIT, Sr. DR Date of Hearing : 25.03.2025 Date of Pronouncement : 25.03.2025 O R D E R Per Bench : The captioned appeal by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi [hereinafter referred to as “the Ld. CIT(A)”] vide order no. ITBA/NFAC/S/250/2023- 24/1060848060(1) dated 13.02.2024 passed u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2017-18.
Shri Dhiraj Lakhotia, AR appeared on behalf of the assessee and Shri Chandan Das, Addl. CIT, Sr. DR appeared on behalf of the Respondent.
It was submitted by the Ld. AR that two issues are involved in the assessee’s appeal. The first issue was against the addition of Rs.27,39,986/- representing the difference between the sales as per the VAT return and the sales as per the books of account. The second issue Sachin Agarwal, AY: 2017-18 was against the addition of Rs.30,23,000/- representing cash deposited during the demonetization period. It was the submission of the Ld. AR that in regard to the addition represented by difference between the VAT return and the sales as per the books of account of the assessee, the assessment was a limited scrutiny assessment. The Ld. AR drew our attention to page 1 of the paper book which is a copy of the notice issued u/s. 143(2), which reads as follows:
3.1. It was the submission that the notice itself clearly specifies that the assessment also limited scrutiny assessment. The issues for which the limited scrutiny was initiated was cash deposited during the year and the second issue was bonus and commission paid to employees. It was the submission that this issue of the difference between the VAT return and the sales as per the books of account was not point of the limited scrutiny nor had the Assessing Officer taken the appropriate permissions. It is the submission that as the issue of difference between the sales included in the VAT return and the sales as reflected in the books of account was not an issue as mentioned in the limited scrutiny notice nor was an issue for which the necessary permissions had been obtained, the additions are liable to be deleted.
In reply, the ld. Sr. DR vehemently supported the orders of the Assessing Officer and the Ld. CIT(A). It was the submission that the addition has also been confirmed by the ld. CIT(A) and the same is liable to be upheld.
Sachin Agarwal, AY: 2017-18 5. We have heard the rival submissions and perused the material available on record. A perusal of the notice u/s. 143(2) of the Act clearly shows that the two issues for which the limited scrutiny has been initiated. The Ld. DR was unable to show any approval for widening the scope of the limited scrutiny assessment. This being so, as the addition made by the Assessing Officer of Rs.27,39,986/- representing the difference between the sales as mentioned in the VAT return and the sales as per the books of account, the same stands deleted. Therefore, this issue is allowed in favour of the assessee.
In regard to the second issue of the addition representing Rs.30,23,000/- deposited in the bank account of the assessee Rs. 10 lakh out of this Rs.30,23,000/- was the legal tender money and Rs.20,23,000/- was specified bank notes representing demonetized currency. It was the submission that the deposits of cash were out of the sales of the assessee. It was the submission that out of the said deposit Rs.12,00,000/- was withdrawal from the bank account of the assessee with the Union Bank of India on 02.11.2016 and 03.11.2016. The Ld. AR has also placed before us the copy of the bank pass book of the Union Bank of India to show the said withdrawals. It was further submitted that Rs.12,48,000/- were recovered from the debtors. The Ld. AR has placed before us the list of debtors which have been recovered by the assessee, the same are placed at page 619 of the paper book. It was the submission that these debtors have also been adjusted in the Balance Sheet of the assessee. The Ld. AR further placed before us the copy of the cash book made by the assessee to show that as of the date of the deposit of the currency in the bank account of the assessee, the assessee had adequate cash balance in the books of account. It was the submission that as the deposits are out of the cash books of the assessee, no disallowance is called for.
In reply, the ld. Sr. DR vehemently supported the orders of the Assessing Officer and the ld. CIT(A).
Sachin Agarwal, AY: 2017-18 8. We have heard the rival submissions. A perusal of the facts in the present case clearly shows that the assessee had adequate cash balance in his cash book as on the date of the deposit in the bank account of the assessee. The cash flow of the assessee, month wise sale details also show availability of the said cash in his accounts. The same reads as follows:
As it is noticed that the assessee had adequate cash availability in his books of account and the deposit in his bank account the addition of