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Facts
The assessee, engaged in land sale and other businesses, filed a return for AY 2017-18. The AO reopened the assessment based on cash deposits during demonetization and made additions of Rs. 8,00,000/- for unexplained cash and Rs. 13,07,642/- on account of suppressed purchases.
Held
The Tribunal held that the reassessment proceedings were valid. However, it found that the assessee had provided sufficient evidence for the cash deposits of Rs. 8,00,000/- and that the purchases were correctly accounted for. Therefore, the additions made by the AO were deleted.
Key Issues
Whether the reassessment proceedings were validly initiated, and whether the additions made on account of unexplained cash deposits and suppressed purchases were justified based on the evidence.
Sections Cited
147, 144, 250, 148, 143(2), 142(1), 69A, 44AB
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Income Tax Appellate Tribunal, SMC BENCH, PUNE
Before: Dr. MANISH BORAD
PER DR. MANISH BORAD, ACCOUNTANT MEMBER
This appeal at the instance of assessee is directed against the order of the Ld. CIT(A) NFAC, Delhi u/s 250 of the Income Tax Act, 1961 dated 24.09.2024 which is arising out of assessment order passed u/s 147 r.w.s 144 dated 30.03.2022.
Assessee has raised following grounds of appeal:-
“1. On the facts and the prevailing circumstances of the case and in Law, the learned CIT(A)-NFAC erred in confirming the addition made by the Ld. Assessing Officer without considering the fact that the notice under section 148 has been issued by the Ld. Assessing Officer without the valid reasons to belief thereby making the assessment null and void. Hence, the addition of Rs.21,07,642 may please be deleted.
2. Without prejudice to the above, On the facts and the prevailing circumstances of the case and in Law, the learned CIT(A)-NFAC erred in confirming the addition made by the Ld. Assessing Officer without appreciating the submission made by the assessee during the course of assessment as well as appellate proceedings. Hence, the addition of Rs.21,07,642 may please be deleted.
3. On the facts and the prevailing circumstances of the case and in Law, the learned CIT(A)-NFAC erred in confirming the addition made by the Ld. Assessing Officer of Rs. 8,00,000 made u/s 69A of the Income Tax Act, 1961 without considering the fact that the source of the same was fully substantiated with documentary evidences. Hence, the addition of Rs.8,00,000 may please be deleted.
4. On the facts and the prevailing circumstances of the case and in Law, the learned CIT(A)-NFAC erred in confirming the addition made by the Ld. Assessing Officer of Rs.13,07,642 on account of profit on suppressed purchases without any base and logic. Hence, the addition of Rs.13,07,642 may please be deleted.
Without prejudice to the above, On the facts and the prevailing circumstances of the case and in Law, the learned CIT(A)-NFAC erred in confirming the addition made by the Ld. Assessing Officer without considering the fact that the Ld. Assessing Officer had given only one-day time to submit the response to show cause notice thereby violating the principal of natural justice. Hence, the addition of Rs. 21,07,642 may please be deleted.
6. The Appellate craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of the appeal, if deemed necessary at the time of hearing of the appeal.”
Brief facts of the case are that the assessee is an individual engaged in business of sale of land by taking sand auction and income from JCB Rent, Tractor Rent, interest income and Agricultural Income. The assessee e-filed the return of income for A.Y. 2017-18 on 30.10.2017 declaring total income of Rs.38,97,610/-. Ld. Assessing Officer (AO) based on the information that the assessee had made cash deposits of Rs.47,00,000/- during de-monetization period issued notice u/s.148 of the income tax act (referred to as “the Act”) on 31.03.2021. The reasons recorded for reopening were given to the assessee to which objections were raised by the assessee and thereafter Ld. AO disposed all the objections followed by validly serving statutory notice u/s.143(2) and u/s.142(1) of the Act. The assessee filed detailed submissions. Ld. AO examined the same alongwith the cash book as well as proof of opening cash balance. Ld. AO observed that out of alleged cash deposit of Rs.47,00,000/-, assessee has been unable to explain the source of cash deposit of Rs.8,00,000/- which is claimed by the assessee to be out of cash sales during the de-monetization period. But since such claim was not supported by any cogent documentary evidence, Ld. AO made the addition of Rs.8,00,000/- u/s.69A of the Act as unexplained money. Ld. AO also examined the purchases and taking the base of Tax Collected at source (TCS) of Rs.8,22,423/-, Ld AO had noticed that assessee had made purchases of Rs.4,11,21,155/- but purchases debited to P&L account are only Rs.2,47,75,641/- and for the difference alleged to the suppressed purchase at Rs.1,63,45,514/-, Ld. AO made an addition estimating Net Profit @8% of the alleged suppressed purchases thereby making addition of Rs.13,07,642/- Total income assessed at Rs.46,97,610/-
Dissatisfied with the additions made by the Ld.AO, assessee preferred appeal before Ld. CIT(A) raising grounds on merits alongwith raising legal issue that the assessment proceedings are invalid and bad in law because Ld. AO has no proper reason to believe prior to initiating re-assessment proceedings. However Ld. CIT(A) dismissed the assessee’s appeal. Aggrieved assessee is now in appeal before this Tribunal.
5.(a) Ld. Counsel for the assessee with regard to the legal issue challenging the validity of the re-assessment proceedings stated that in the reasons recorded, Ld. AO has mentioned wrong figures of gross turnover. The assessee also gave the details to Ld. Assessing Officer (AO) in the reply to the reasons recorded for re-opening and mentioned the details of the alleged cash deposits which were duly accounted in the books of account audited u/s.44AB of the Act. He further submitted that based on the reply given by the assessee, there remained no scope to believe for escapement of income and therefore the AO ought to have dropped the re-assessment proceedings.
5.(b) So far as merits of the case are concerned, Ld. Counsel for the assessee submitted that the source of alleged cash deposits of Rs.8,00,000/- is from the cash sales effected during the de-monetization period and the same are duly accounted in the regular books of accounts. Regarding the addition for estimated profit on alleged suppressed purchases of Rs. 13,07,642/-, he referred to the re-conciliation statement about the opening and closing balance and amount of auction of sand received and cancelled during the year and the amount apportioned as purchases during the year. He submitted that the purchases shown in Profit and Loss Account are not the auction purchased during the year but is the amount apportioned based upon the sales and that this practice is consistently followed by the assessee in past and future. Therefore, the Tax collected at source cannot be taken as a basis for calculating the purchase to be recorded in the books of account.
On the other hand Ld. DR vehemently argued supporting the orders of the lower authorities.
I have heard rival contentions and perused the record placed before me. First I take up the legal issue raised by the assessee challenging the validity of the notice issued u/s 148 and the validity of the re-assessment proceedings. I note that in the reasons recorded for re-opening of the assessment proceedings, Ld. AO has referred to the gross receipts and then has referred to the cash deposits during 09.11.2016 to 31.12.2016 at Rs.47,00,000/- in Baramati Sahakari Bank and Rs.8,50,000/- in Khuleshwar Gramin bigarsheti sahakari Bank. Now the re-opening proceedings have been initiated within the period of four years from the end of the A.Y.2017- 18. Ld. Counsel for the assessee has submitted that the figure of the gross turnover mentioned in the reasons recorded is incorrect and therefore the notice issued u/s.148 of the Act is invalid. I however fail to find any merits in this contention because the basic purpose of the reopening is to examine the source of cash deposited during demonetization period and the figure of such cash deposits mentioned in the reasons recorded is correct. Further since the reassessment proceedings have been carried out within 4 years from the end of the assessment year, under the given facts and the reasons recorded, I find that Ld. AO was well within his jurisdiction for issuing notice u/s 148 and also to carry out reassessment proceedings. In view of the above, ground No. 1 raised by the assessee challenging the validity of notice issued u/s.148 of the Act is hereby dismissed.
Now I take up the issues raised on merits of the case. The first issue is regarding addition of Rs.8,00,000/- made u/s.69A of the Act. Ld. AO has made this addition because the source is stated to be the cash sales made during the demonetization period. Before me the assessee has furnished the details showing that on 08.11.2016 the cash balance with the assessee at Rs.63,49,021.35 and the total collection of cash sales from 09.11.2016 to 31.12.2016 amounts to Rs.19,78,600/- which includes cash received from sale of sand at Rs.18,99,000/-. It is also demonstrated that the sale figures for the 3rd quarter for the F.Y. 2016-17 are reflected in the VAT returns. I note that Ld. AO on one hand is satisfied with the opening cash balance at Rs.63,49,021/- but has only disputed the genuineness of cash deposit of Rs.8,00,000/- during the demonetization period. I note that the assessee is consistently carrying out sale of sand for past many years and details of cash sales are duly maintained. I am satisfied with the source of alleged cash deposits of Rs.8,00,000/- and the same stands explained with the details placed before me. I therefore set aside the finding of Ld. CIT(A) and delete the addition of Rs.8,00,000/- made by AO u/s.69A of the Act. Ground No. 3 raised by the assessee is allowed.
Next in the list is the addition of estimated profit of Rs.13,07,642/- on suppressed purchase. Ld. AO taking the basis of TCS (Tax calculated at source) at Rs. 8,22,423/- has calculated the purchase figure at Rs.4,11,21,155/- but this amount is higher than purchases of Rs.2,47,75,641/- shown by the assessee. Ld. AO came to a conclusion that assessee has suppressed the purchases to the extent of Rs.1,63,45,514/- and made the addition @8% of alleged suppressed purchases at Rs.13,07,642/-. The assessee has filed the reconciliation statement of sand (LILAV a/c.). Going through the same, I notice that the opening balance of sand auction at 6 sites as on 01.04.2016 is Rs.6,92,53,480/- Auction purchases during the year amounts to Rs.4,16,21,155/- and the same corresponds to the TCS of Rs.8,22,423/- referred by Ld. AO. Now during the year certain auctions have been cancelled and amount has been refunded back which totals to Rs.4,98,341/-. Against the sale of sand effected during the year at Rs.3,28,51,100/- assessee has apportioned the purchase of sand during the year at Rs.2,47,75,641/-. The closing balance as on 31.03.2017 is Rs.6,52,78,713/- and is duly mentioned in the Balance sheet as on 31.03.2017. Now this process of accounting and apportionment of purchases has been followed in the past, present and future. In support, assessment orders for A.Y. 2016-17 and 2018-19 dated 31.03.2022 and 22.02.2024 have been filed where the returned income has been accepted after due examination of similar type of transaction. All these facts remain undisputed by Ld. DR. I am therefore of the considered view that since correct amount of purchase has been apportioned during the year at Rs.2,47,75,641/-, therefore Ld. AO grossly erred in calculating suppressed purchases at Rs.1,63,45,514/- and further erred in making the addition for estimated profits at Rs.13,07,642/-. I therefore set aside the finding of Ld. CIT(A) and delete the impugned addition of Rs.13,07,642/- made on alleged suppressed purchases and allow ground No. 4 raised by the assessee. Remaining ground No. 2,5 and 6 are general and consequential in nature which needs no adjudication as the addition totaling to Rs.21,07,642/- (Rs.8,00,000/- + Rs.13,07,642/-) already stands deleted.
In the result appeal of the assessee is partly allowed as per terms indicated herein above.
Order pronounced on this 30th day of July, 2025.