SIDHI JEWELLERS,HYDERABAD vs. ITO., WARD-6(1), HYDERABAD

1. The additional grounds raised by the assessee in ITA No.750/Hyd/2024 for A.Y. 2015-16 read as under : “1. The learned CIT(Appeals) erred in rejecting the plea of the appellant that the notice issued u/s 148 of the I.T. Act is not valid and it was not issued by the appropriate authority and as there is no escapement of income. 2. The learned CIT(Appeals) ought to have considered the fact that the notice u/s 148A(b) is not valid as the same was issued by the Juri ictional Assessing Officer, i.e. DCIT, Circle-6(1), Hyderabad who has no juri iction to issue such notice and, therefore, all the consequential proceedings are also not valid. 3. The learned CIT(Appeals) erred in holding that the amount of Rs.11,11,25,076/- representing the deposits made into Andhra Bank are not recorded in the books of account. The learned CIT (Appeals) ought to have considered the fact that the said amount is recorded in the books of account and the profit or loss arising out of the transaction is imbedded in the Profit & Loss account. 4. The learned CIT(Appeals) erred in estimating the income at 6.31% of Rs.11,11,25,076/- treating the same as additional turnover which is not correct. 5. The learned CIT(Appeals) is not correct in holding that the gross profit for the assessment year 2016-17 was 6.31% and in adopting the said percentage as the gross profit for the assessment year 2015-16.”

The learned counsel for the assessee Shri S. Rama Rao, Advocate, referring to the petition filed by the assessee for admission of additional grounds, submitted that the assessee has filed a petition requesting for admission of additional grounds of appeal and raised certain legal grounds challenging the validity of reassessment notice issued by the juri ictional Assessing Officer i.e., DCIT, Circle - 6(1), Hyderabad on the ground that the Assessing Officer does not have juri iction to issue such notice and therefore, all the consequential proceedings are invalid and Page 4 of 29 liable to be dismissed. Since legal grounds taken by the assessee challenging validity of reopening of the assessment is purely a legal issue, which can be taken at any time, including the proceedings before the Tribunal and therefore, in view of the decision of Hon'ble 5. The ld.CIT-DR Shri B. Bala Krishna, on the other hand, strongly opposed the petition filed by the assessee for admission of additional grounds and submitted that the assessee could not make out a case, as to why it could not challenge the legality of assessment proceedings before the LD.CIT(A). Further, the assessee has also failed to make out a case that the facts related to said grounds are already on record before the Assessing Officer and no further inquiry is required to ascertain the facts. Since the assessee has not made out a case for filing additional grounds, the petition filed by the assessee should be dismissed.

We have heard both the parties and considered the relevant petition filed by the assessee for admission of additional grounds. The assessee has filed a petition for taking certain legal grounds, challenging the validity of notice issued by the Assessing Officer u/s 148 of the Act in light of the order passed u/s 148A(b) by the juri ictional Assessing Officer i.e., DCIT, Circle-6(1), Hyderabad and supported his contentions in light of the decision of Hon'ble juri ictional High Court of Telangana in the case of Sri Since the additional grounds taken by the assessee are purely legal grounds, which can be taken at any time, including the proceedings before the appellate authority, in our considered view, the petition filed by the assessee needs to be admitted and this principle is supported by the decision of Hon'ble Supreme Court in the case of NTPC Vs. CIT (supra). Therefore, we admit the additional grounds filed by the assessee for adjudication.

The brief facts of the case are that the assessment has been reopened u/s 147 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), on the basis of the reasons recorded, as per which, as per information available with the department, the assessee has deposited huge cash in current account No.052611011010273 held with Andhra Bank. The total credit transactions for the F.Y. 2014- 15 has been reported to Rs.7,53,69,079/-, out of which, the total cash deposits are Rs.6.48 crores. On verification of the return of income filed by the assessee for A.Y. 2015-16, it is seen that the assessee had declared a net loss from a total turnover of Rs.20,30,27,556/-, however, the assessee has not disclosed the bank account held with Andhra Bank in its return of income. Further, as per the records, the assessee filed original return of income u/s 139(4) of the Act on 01.10.2015 disclosing loss of Rs.11,06,628/-. Therefore, the Assessing Officer issued notice u/s 148 of the Act, dated 05.04.2021 and in view of the Hon'ble Supreme Court’s decision in the case of Union of India Vs. Ashish Agarwal and others in Civil Appeal No.3005/2002 order dt.04.05.2022, treated 148 notice, as notice issued under Section 148A of the Act dt. 25.02.2022 and after due procedure, issued

Aggrieved by the order of LD.CIT(A), the assessee and Revenue are now in appeal before us. 12. The first issue that came up for our consideration from additional grounds of appeal filed by the assessee, is the validity of reopening of re-assessment notice issued u/s 147 of the Act, by the juri ictional Assessing Officer and consequent assessment proceedings.

The learned counsel for the assessee Shri. S. Rama Rao, Advocate, submitted that the notice issued u/s 148 by the juri ictional Assessing Officer, is invalid because after introduction of provisions of Section 144B of the Act, only the Faceless Assessing Officer can issue re-assessment notice. Since the juri ictional Assessing Officer issued notice u/s 148 of the Act, the consequent proceedings are null and void and are liable to be quashed. In this regard, he relied upon the decision of juri ictional High Court of Telangana in the case of Sri 14. The Ld.CIT-DR, Shri B. Bala Krishna, on the other hand, referring to the decision of Hon'ble High Court of Bombay in the case of JD Printers Vs. ITO in W.P. No.12187 of 2024 dated 10.09.2024 submitted that, in view of SLP admitted by the Hon'ble Supreme Court in the case of Hexaware Technologies Limited Vs. ACIT and others, the Hon'ble Bombay High Court has not entertained the Writ Petition filed by various assessees, including

We have heard both parties, perused the material on record and gone through the orders of the authorities below. Although, the assessee has challenged validity of notice issued by the juri ictional Assessing Officer under Section 148 of the Act, but because the issue has been assailed before the Hon'ble Supreme Court by the Revenue and the Hon'ble Apex Court has seized of the matter, in our considered view, it is not appropriate for us to adjudicate the issue of validity of notice issued by the juri ictional Assessing Officer under Section 148 of the Act, at this stage. Further, there is no dispute with regard to the fact that, this issue is covered by the decision of Hon'ble Juri ictional High Court of Telangana in the case of Sri Venkataramana Reddy Patloola Vs. DCIT, Circle 1(1), Hyderabad (supra), where the Hon'ble High Court held that any notice issued by juri ictional Assessing Officer under Section 148 of the Act, after 01-04-2021 is invalid, and consequent proceedings to the said notice is held to be null and void. Since the Revenue has challenged the orders of various Hon'ble High Courts, and the matter is now seized by the Hon'ble High Court, in our considered view, the additional grounds

The next issue that came up for our consideration from grounds of appeal filed by the assessee and grounds of appeal filed by the Revenue, is the addition made by the AO towards total credits in bank account held with Andhra Bank and consequent estimation of profit @ 6.31% on total credits by the LD.CIT(A).

We have heard both the parties, perused the material on record and have gone through the orders of authorities below. There is no dispute with regard to the fact that the bank account held with Andhra Bank bearing Account No.052611011010273, is not disclosed in the return of income filed by the assessee for the assessment year under consideration, which is evident from the ITR filed by the assessee on 01.10.2015. Although, the assessee admitted the fact that Andhra Bank account is not disclosed in the ITR filed for the relevant assessment year, but argued that the said bank account is current account, and the assessee has taken overdraft facility and the same has been reported under Secured Loans Account. The assessee further claimed that the credits

We have given our thoughtful consideration to the reasons given by the AO to make additions towards credits in the bank account held with Andra Bank and the reasons given by the LD.CIT(A) to estimate gross profit at 6.31% on said credits and after hearing both the sides, we are inclined to agree with the reasons given by the LD.CIT(A) to consider total credits in Andra Bank account, as unaccounted sales of the assessee for the year under consideration. We further noted that although, the assessee claims that the credits in Andhra Bank account are considered in the books of account prepared for the year under consideration, but on perusal of the details filed by the assessee, the assessee has filed original return of income on 01.10.2015 where the account held with Andhra Bank account was not disclosed in the ITR filed by the assessee. Further, the assessee has filed revised return on 08.08.2022 and claimed that the credits appearing in Andhra Bank account has been considered in the financial statements filed along with return of income, however, on perusal of various details filed by the assessee, we find that the arguments of the assessee with regard to explanation for credits appearing in bank account is an afterthought to circumvent the re-assessment proceedings initiated

In the result, the appeals filed by the assessee and the Revenue are dismissed.

The grounds raised by the assessee in ITA No.751/Hyd/2024 read as under : “1) The order of the learned CIT (A) is erroneous to the extent it is prejudicial to the appellant herein; 2) The learned CIT (A) erred in confirming the action of the Assessing Officer in treating the cash deposits to the extent of Rs.3,78,35,000/- as the income u/s 69A rws 115BBE of the 1.T.Act. 3) The learned CIT (A) ought to have considered the fact that the said amount represents the sale of the goods and the opening balance available as on 9.11.2016; the cash available with the appellant was a part of the sale consideration and was admitted as the income for the relevant assessment year and that the said amount cannot further be treated as the income assessable u/s 69A of the I.T.Act. 4) The learned CIT (A) erred in confirming the action of treating the amount as income u/s 69A particularly when the amount already recorded in the Page 17 of 29 books of account cannot be considered as unexplained income of the appellant; 5) The learned CIT (A) erred in confirming the action of the Assessing Officer in rejecting the book results; 6) The learned CIT (A) erred in confirming the action of the Assessing Officer to the extent of estimation of income at 6.31% of the turn over without considering the profit as admitted in the books of account.”

The brief facts of the case are that the assessee is a partnership firm engaged in business of trading in silver, jewellery etc. The assessee field return of income for A.Y. 2017-18 on 31.10.2017 declaring total income of Rs.20,614/-. During the course of assessment proceedings, the Assessing Officer noticed that during the demonetization period, the assessee has made total cash deposits of Rs.5,30,35,000/- in bank account held with SBI, Ameerpet Branch, Hyderabad and ICICI Bank, Ameerpet Branch. A survey operation u/s 133A of the Act, was conducted in the business premises of the assessee on 15.03.2017. During the course of survey, it was noticed that the assessee firm along with the proprietary concern of Shri Suresh Kumar Champalal Jain was operating from the same premises and that these were inter- connected transactions between both the concerns. During the course of survey, the stock was valued by the authorized jewellery valuer for both the assessee firm and proprietary concern and as per the valuation, the physical stock was valued at Rs.3,18,81,083/-, whereas the closing stock of the firm was at Rs. 31,03,13,072/- in the hands of the firm and Rs.6,96,58,694/- in the case of the proprietary concern. During the course of survey, the assessee firm could not furnish purchase bills and sales bills as on the date of survey. The assessee has not furnished any Page 18 of 29 reconciliation for difference in deficit of stock of Rs. 31.03 crores in the name of the assessee firm and Rs. 3.00 crores in the name of the proprietor Shri Suresh Kumar Champalal Jain. Therefore, AO called upon the assessee to file relevant evidence to prove source for cash deposits in the bank account during the demonetization period and also explain the deficit in the stock found during the course of survey. 26. In response, the assessee has filed relevant details and explained that the cash deposited in the bank account, is out of cash sales for the year, which is recorded in the books of accounts maintained by the assessee and further, cash in hand available as on the date of demonetization is sufficient to explain the cash deposits in the bank account. The assessee has also explained the difference in physical stock found during the course of survey when compared to book stock, as on the date of survey. The AO, after considering the relevant submissions of the assessee and also taking note of various facts, observed that, there is an abnormal increase in cash sales for the month of October, 2016 and November, 2016 when compared to previous Financial years and for which, the assessee could not offer any explanation. Further, the assessee has not filed VAT returns from 01-04-2015 onwards. In the absence of any supporting evidence for sales claimed by the assessee, the explanation of the assessee with regard to source for cash deposits cannot be accepted. Therefore, taking into account relevant financial results, including total sales declared by the assessee, sundry debtors and sundry creditors, has worked out total cash available at Rs. 2.12 crores and after considering relevant explanation, made addition of Rs. 5,90,035,000/- under Page 19 of 29 Section 69A of the Act, and brought to tax under Section 115BBE of the Act. 27. The AO has also made addition towards deficit stock found during the course of search for Rs. 31.03 crores and estimated 30% profit on the deficit stock on the ground that, the assessee could not explain the physical stock held as on the date of survey with bills and vouchers, and further, no reconciliation has been filed to explain deficit stock and therefore, treated deficit stock, as unaccounted sales and estimated 30% profit and made addition of Rs. 9,30,93,920/- . Similarly, the AO has made addition of Rs.12,00,000/- towards difference in unsecured loans received from M/s.Metalika Industries on the ground that there is a difference of Rs. 12 lakhs in repayment of loan shown by the assessee in the books of accounts, when compared to bank statements. 28. Being aggrieved by the assessment order, the assessee preferred an appeal before the LD.CIT(A). Before the LD.CIT(A), the assessee has reiterated the submissions made before the AO, and argued that the AO is erred in making addition towards total cash deposits of Rs.5,90,35,000/- even though, the assessee has explained cash deposits out of cash in hand available as on the date of demonetization, as per the cash book maintained for the year. The assessee further contended that the AO is erred in working out the availability of cash in hand by considering only the amount of sundry creditors, even though, the sundry debtors is not out of sales, but on account of transfer between partnership firm and the proprietary firm and the assessee had also submitted that Page 20 of 29 the Assessing Officer is erred in estimating 30% profit on stock deficit.

The LD.CIT(A) after considering the submissions of the assessee and also taking note of relevant evidence filed by the assessee submitted that although, the Assessing Officer has arrived at Rs. 2.12 crores cash out of total sales declared by the assessee, and sundry debtors held as on the date, but failed to give credit for cash in hand available with the assessee, and therefore, allowed relief to the extent of Rs. 2.12 crores out of total addition made by the AO towards cash deposit of Rs.5,90,35,000/- and sustained balance cash deposits of Rs.3,78,35,000/- as unexplained money under Section 69A of the Act. The relevant findings of the LD.CIT(A) are as under : “Ground No. 2 & 3: The appellant in its ground of appeal no. 2 and 3, has raised the appeal against addition made in the assessment order in respect of cash deposits. In this respect, the appellant submitted its written submission along with documentary evidence, which has duly been considered and adjudicated accordingly as under: During the course of assessment proceedings, it was stated that a survey operation was conducted in the appellant’s own case on 15/03/2017, wherein it was noticed that the appellant firm along with the proprietary concern of Shri. Suresh Kumar Champalal Jain were operating its business activity from the same premises of the appellant and there were interconnected transactions without any bills as on the date of survey between both the concerns. In this respect, it was stated by the appellant that, the purchase bills and sales bills were yet to be generated in reply to the query made during the course of survey proceedings. During the year, the appellant had shown sales Rs.9,89,84,357/-and sundry debtors of Rs.7,31,51,222/- in its financials, which was verified by the AO during the course of assessment proceedings and accordingly, the AO arrived cash in hand of the appellant only at Rs.2.12 crores. In view of the above, the claim of the appellant of having cash receipts of Rs.5,37,65,624/- out of cash balance as per cash book is not genuine as the appellant had Page 21 of 29 interconnected transactions and not genuine transaction with proprietary concern of Shri. Suresh Kumar Champalal Jain, who was operating business activity from the same premise of the appellant without generating/receiving sales bill and purchase bills, which was found/established during the course of survey proceedings. Further, the appellant had abnormal cash sales during the year under concerned for the month of October and November, which were not supported by documentary evidence either during the course of assessment proceedings or during the course of appellate proceedings. Apart from the above the claim of the appellant that cash deposits of Rs.5,90,35,000/-during demonetization period, was out of cash sales available as per cash book is beyond human probability of any prudent business practice, as no businessman would hold such a huge cash in hand and keep aside unutilized. However, the cash available of Rs. 2.12 crores as per cash book as arrived by the AO during the course proceedings is allowed out total cash deposits made by the appellant during demonetization period in view of maximum limitation, which could only be deposited, being cash in hand as per cash book of the appellant and therefore the balance cash deposits of Rs.3,78,35,000/- is remained unexplained as inference drawn by the AO of disallowing cash deposits as unexplained money u/s 69A r.w.s 115BBE of the I T Act, holds good. Therefore, appeal of the appellant with regard to disallowances of cash deposits is hereby partly allowed.”

In so far as the addition towards estimation of 30% profit on stock deficit of Rs.31.03 crores, the Ld.CIT(A) although, in principal agreed with the reasons given by the Assessing Officer to treat deficit stock, as unexplained sales, because the assessee could not file relevant purchase and sales invoices, but by taking into account the gross profit declared by the assessee, which was at Rs.6.31%, estimated 6.31% gross profit on total stock deficit of Rs.31.03 crores and arrived at addition of Rs.1,95,80,755/- instead of addition made by the Assessing Officer at Rs.9,30,93,920/-. In other words, the Ld.CIT(A) allowed the relief to the assessee at Rs.7,35,13,165./- and sustained balance addition of Rs.1,95,80,755/-. The relevant findings of the Ld.CIT(A) are as under :

In so far as the addition made by the Assessing Officer towards unsecured loans taken from M/s.Metalika Industries, after considering the relevant reconciliations filed by the assessee, directed the Assessing Officer to delete the addition of Rs.12 lakhs towards unsecured loans taken from M/s.Metalika Industries.

Aggrieved by the order of Ld.CIT(A), the assessee and the Revenue are now in appeal before the Tribunal.

The first issue that came up for our consideration from ground nos.2 to 5 of assessee appeal and ground no.2 of Revenue appeal is the addition made towards cash deposits during the demonetization period of Rs.5,90,35,000/- and sustained by the Ld.CIT(A) for Rs.3,78,35,000/-. The learned counsel for the assessee submitted that the Ld.CIT(A) erred in sustaining addition of Rs.3,78,35,000/- without appreciating the fact that, the assessee has explained cash deposits in the bank account during demonetization period out of cash in hand available as on the date of demonetization, as per cash book maintained by the assessee, which is further supported by cash sales declared for the year under consideration. The learned counsel for the assessee further referring to various evidence, including, comparative sales for two years submitted that, although, there is slight increase in cash sales for the month of October and November, 2016, but fact remains that if we go by the cash sales of the assessee for the Page 24 of 29 earlier financial year even in December, 2015, there is huge cash sales and therefore, only on the basis of the abnormal increase in cash sales during the demonetization period, the genuine source explained by the assessee, cannot be disbelieved. Therefore, he submitted that the addition made by the Assessing Officer should be deleted.

The Ld. CIT-DR, on the other hand, submitted that the Assessing Officer has brought out clear facts that the sales declared by the assessee is not genuine, which is not supported by necessary bills and vouchers and the assessee could not prove the authenticity of the sales claimed with relevant VAT returns filed for the year under consideration. Although, the Assessing Officer has brought out various facts, but the Ld.CIT(A) has allowed relief of Rs. 2.12 crore, without giving any valid reasons. Therefore, he submitted that the order of the Ld.CIT(A) should be set aside on this issue and the addition made by the Assessing Officer should be sustained. 35. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The facts borne on record clearly indicate that although the assessee claims to have explained cash deposits during the demonetization period out of cash in hand as per books of account as on 08.11.2016, but facts remain that the cash sales declared by the assessee is not proved with credible evidences, which is evident from the survey conducted u/s 133A of the Act, where the assessee could not justify the sales and purchases with bills and Page 25 of 29 vouchers. Further, there is huge deficit in stock held by the assessee when compared to physical stock and from the above, it is undisputedly clear that the financial results declared by the assessee is not susceptible for verification. Further, the Assessing Officer and the Ld.CIT(A) has considered the availability of cash in hand, as per the financial results declared by the assessee and as per the working of the Assessing Officer in the assessment order, the maximum cash in hand available with the assessee to explain cash deposits in the bank account was at Rs.2.12 crores. Although, the Assessing Officer has not allowed relief even for available cash in hand, but the Ld.CIT(A) after considering the relevant cash in hand of Rs.2.12 crores worked out by the Assessing Officer, allowed partial relief of Rs. 2.12 crores, out of total addition made by the Assessing Officer towards cash deposit of Rs.5,90,35,000/- and sustained balance cash deposit of Rs.3,78,35,000/- as unexplained cash credits. In our considered view, the findings recorded by the Assessing Officer and the Ld.CIT(A) is not controverted by the assessee with any evidence and therefore, we are of the considered view that, there is no error in the reasons given by the Ld.CIT(A) to sustain additions towards cash deposits of Rs.3,78,35,000/- u/s 69A of the Act. Thus, we are inclined to uphold the findings of the LD.CIT(A) on this issue and reject the grounds taken by the assessee and Revenue.

The next issue that came up for our consideration from ground no.6 of assessee’s appeal is estimation of 30% profit on deficit stock found during the course of survey on 15.03.2017 and addition of Rs.9,30,93,920/- by the Assessing Officer and scaled

The ld.CIT-DR, on the other hand, supporting the order of Ld.CIT(A) submitted that although the Assessing Officer has estimated 30% profit on unaccounted sales being deficit stock of Rs.31,03,13,072/- and made addition of Rs.9,30,93,920/- but the Ld.CIT(A) by taking a pragmatic view, has scaled down the additions to the tune of Rs.1,95,80,755/- by estimating 6.31% profit on total unaccounted sales, being stock deficit and therefore, the order of Ld.CIT(A) should be upheld.

We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that during the course of survey, stock deficit of Rs.31,03,13,072/- was found and the Page 27 of 29 assessee could not reconcile stock deficit with relevant evidence. Further, the assessee could not furnish relevant purchase invoices and sales invoices to support financial results declared for the year under consideration. In the absence of any explanation with regard to purchase and sales and further, non-reconciliation of difference in the stock when compared to physical stock found during the course of survey and the book stock maintained by the assessee, in our considered view, the reasons given by the Assessing Officer and Ld.CIT(A) to treat deficit stock, as unexplained sales of the assessee for the year under consideration, cannot be overturned. In fact, even before us, the assessee except stating that the Assessing Officer is erred in estimating 30% profit on unaccounted sales being deficit stock of Rs.31,03,13,072/-, but could not file any evidence and also not filed any reconciliation to explain the deficit stock found during the course of survey. Therefore, we are of the considered view that there is no error in the reasons given by the Assessing Officer and Ld.CIT(A) to treat stock deficit, as unaccounted sales of the assessee and thus, we are inclined to uphold the findings of Ld.CIT(A), in this regard. 39. In so far as the estimation of profit on unaccounted sales, although the Assessing Officer has estimated 30% profit on unaccounted sales, but no comparable cases of similar nature were brought on record and no valid reason has been given, as to why 30% profit is reasonable going by the nature of the business of the assessee. On the other hand, the Ld.CIT(A) has adopted 6.31% gross profit on unaccounted sales which is based on financial results declared by the assessee, where the assessee has declared 6.31% gross profit. Iin our considered view, even in a case of Page 28 of 29 estimation, there should be some basis and there cannot be any arbitrary estimation of profit. In the present case, although the Assessing Officer has estimated 30% profit on unaccounted sales, which is not supported by any case of similar nature. However, the Ld.CIT(A) has estimated 6.31% gross profit by considering the assessee’s own financial results declared for the year under consideration and therefore, in our considered view, the reasons given by the Ld.CIT(A) to estimate 6.31% profit is based on sound footing. Although, the assessee has disputed profit estimated by the Ld.CIT(A), but failed to bring on record any contrary evidence to support its stand. Therefore, we are of the considered view that there are no errors in the reasons given by the Ld.CIT(A) to sustain the additions made by the Assessing Officer towards estimation of profit on unaccounted sales, being deficit stock found during the course of survey. Tthus, we are inclined to uphold the findings of Ld.CIT(A) and reject the grounds taken by the assessee.

In the result, the appeal filed by the assessee and the appeal filed by the Revenue are dismissed.

To sum up, both the appeals of assessee as well as Revenue are dismissed.