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Facts
The assessee, a firm dealing in granite/tiles/marbles, filed its return. The Assessing Officer (AO) disallowed Rs. 1 crore from purchases/expenses due to lack of details, and added Rs. 5 lakhs related to an unsecured loan discrepancy, and Rs. 40 lakhs as unexplained cash deposits. The CIT(A) deleted all these additions.
Held
The Tribunal held that the CIT(A) correctly deleted the additions made by the AO. The assessee had provided sufficient documentary evidence and explanations for the purchases, expenses, unsecured loan, and cash deposits. The AO's disallowance and additions were based on surmises and conjecture, not on a proper appreciation of facts.
Key Issues
Whether the CIT(A) erred in deleting the AO's disallowance of Rs. 1 crore for purchases/expenses, the addition of Rs. 5 lakhs for unsecured loan discrepancy, and the addition of Rs. 40 lakhs for unexplained cash deposits.
Sections Cited
143(2), 142(1), 133(6), 68, 115BBE, 69A, 40A(2)(b), 43B, 36(1)(iii), 37(1), 270A, 271AAC
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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & SHRI VINAY BHAMORE
This appeal filed by the Revenue is directed against the order dated 25.03.2024 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2017-18.
Facts of the case, in brief, are that the assessee is a firm engaged in business of dealing with granite / tiles / marbles. It filed its return of income on 28.09.2017 declaring total income of Rs.1,55,00,900/-. The return was selected for scrutiny through CASS and accordingly e-notice u/s 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was issued and served on the assessee. Subsequently a notice u/s 142(1) of the Act along with a questionnaire was issued and served on the assessee calling for certain details in response to which the assessee filed the requisite details.
During the course of assessment proceedings the Assessing Officer noted that the assessee in the Profit & Loss Account has shown total sales at Rs.39.71 Crores, cost of sales at Rs.32.45 crores and other expenses at Rs.3.72 Crore thus, showing a book profit of Rs.4.13 crore before payment of salary and interest to the partners. He therefore asked the assessee to furnish the party-wise details of purchases and other expenses. The assessee produced the purchase register before the Assessing Officer reflecting the names of the suppliers along-with the amount. Since the purchase register does not reflect the details such as the addresses and PAN of the suppliers, therefore, the Assessing Officer held that the authenticity of the purchases could not be ascertained. According to the Assessing Officer, though the assessee, vide submission dated 04.12.2019, claims to have furnished details on 25.10.2019 in respect of parties for expenses exceeding Rs.1,00,000/-, however, the assessee had neither furnished such details on 25.10.2019 nor made any submission on said date. Furthermore, the assessee furnished only details of sundry creditors on 04.12.2019. Thus, the assessee according to the Assessing Officer has failed to discharge the onus caste upon him to establish the veracity of purchases. In view of the above, the Assessing Officer disallowed an amount of Rs.1 crore out of total claim of purchases / cost of sales of the assessee by recording as under: “3.10 As per the questionnaire dated 14-06-2019, the assessee was asked to furnish a large number of details but no details were forthcoming. Details on many points as asked vide notice u/s 142(1) dated 14-06-2019 and 07-11-2019 were not filed. The above facts, coupled with the facts that the assessee had not produced its books of accounts/bills/vouchers for verification clearly lead to the conclusion that the assessee could not substantiate the cost of sales shown by the assessee as well as the expenses shown since not even the names/addresses of the parties could be produced.
3.10 Vide letter dated 15-11-2019, uploaded on 20-11-2019, the assessee stated that it had submitted a list of parties for expenses exceeding Rs.1 lakh on 25-10- 2019. However, none of the said details were submitted. This can also be verified by the order sheet printed of e-proceedings which is on records. Therefore, the assessee has not provided any details whatsoever of the expenses. The assessee has not provided any details for his claim of purchases which are at Rs.22.38 crore which included an amount of Rs.6.48 as local purchases. For local purchases at least, notices u/s 133(6) may have been issued and for import purchases, the assessee was to provide copies of bills/ledger/details of foreign remittances and ledger extracts to discharge the onus cast on it to establish the veracity of its claim. Since the assessee has not done so, it is hereby held that the onus cast on the assessee to establish the veracity of its purchases and other expenses have not been discharged. 3.11 In view of this, the entire claim of purchases and other expenses made by the assessee cannot be accepted as genuine. In view of this, an amount of Rs.1,00,00,000/- out of total claim of purchase/cost of sales of the assessee is hereby disallowed and added to the total income of the assessee. Penalty proceedings u/s 270A are hereby initiated for underreporting of income.”
Similarly, from the audit report filed by the assessee in form 3CB the Assessing Officer noted that the assessee has taken several unsecured loans during the year. He issued notices u/s 133(6) of the Act to the various parties from whom the assessee had shown to have taken unsecured loans. However, no replies were received from any of the parties. The Assessing Officer noted that in the audit report filed along with the return of income the assessee has shown unsecured loan received at Rs.25 lakhs from Shri Ashish Madan Mutha. However, in the confirmation of this party filed during the course of assessment proceedings in response to the show cause notice the assessee has shown to have received an amount of Rs.20 lakhs only from this party. In absence of any proper explanation to his satisfaction regarding the discrepancy, the Assessing Officer made addition of Rs.5 lakhs to the total income of the assessee u/s 68 r.w.s. 115BBE of the Act.
The Assessing Officer further noted that the assessee has deposited an amount of Rs.43 lakhs in its bank account during the demonetization period which was deposited in two installments i.e. Rs.40 lakhs on 02.12.2016 and Rs.3 lakhs on 08.12.2016. On being asked by the Assessing Officer the assessee explained the source of cash deposited as under: 1. Cash on hand as on 01.04.2016 Rs.50,000 2. Cash sales from verifies persons Rs.6,17,846 3. Cash sales from un-verifiable persons Rs.36,32,154
Rejecting the various explanations given by the assessee, the Assessing Officer made addition of Rs.40 lakhs u/s 69A as unexplained money out of total deposit of Rs.43 lakhs by observing as under: “5.4 It is true that the assessee must have had some cash sales. However, since it has not provided any copies of bills showing cash sales, the entire claim of receiving Rs.36,32,154/- from un-verifiable parties cannot be accepted. It is also pertinent to note that the e-response filed by the assessee does not show any cash withdrawal from its bank during the period of 01-04-2016 to 08-11-2016 which is also very unlikely. These facts, coupled with the fact that the opening cash figure in the e-response and in the balance sheet are different and the entire cash deposits made in the bank accounts are in Specified Bank notes, the claim of the assessee of having cash in hand at Rs.44.87 lakh as on 09-11-2016 is rejected not fully acceptable. In view of this, keeping in mind that the assessee must have had some legitimate cash sales and also received some SBN notes prior to the declaration of demonetization, a sum of Rs.40,00,000/- out of the total cash deposits in the firm of SBNs during the period of 08-11-2016 to 31-12-2016 is hereby treated as made from undisclosed sources and added to the total income of the assessee as unexplained money u/s 69A of the Income Tax Act, 1961 and taxed accordingly. Penalty proceedings u/s 271AAC are hereby initiated since the income of the assessee includes income chargeable to tax under the provisions of section 115BBE of the Income Tax Act, 1961.”
In appeal, the Ld. CIT(A) / NFAC deleted all the additions made by the Assessing Officer. So far as the addition of Rs.1 crore made by the Assessing Officer is concerned, he deleted the same by observing as under:
“6.1 On perusal of the submission made by the appellant and also on going through the Assessment Order of the AO, it is observed that the AO has made an disallowance of Rs.1 Cr out of the total purchases claimed by the appellant. While doing the said disallowance, the AO has relied upon the non submission of the details of names and other details of the local parties of the expenses claimed by the appellant. Further the appellant did not submit details / evidences of the expenses claimed by the appellant and in the absence of which notice u/s 133(6) of the Act also could not be issued to the appellant. However on perusal of the submission made by the appellant it is seen that the appellant has submitted datewise details of all the submissions made before the AO and the relevant documents submitted before the AO along with them. Further it is also seen that the appellant has shown turnover of Rs.39,71,30,604 against which it has claimed expenses of Rs.36,17,58,045/- After going through the submissions of the appellant and the AO 's order, it is seen that on one hand the appellant has made the following submissions: "1.1 The assessee is in the business of trading in marble, granite and other stones. It filed ROI on 28.09.2017 declaring total income Rs.1,55,00,900. 1.2 The assessee's sales during the year amounted to Rs.39,71,30,604/-. The expenses incurred and depreciation as per books during the year were Rs.36,17,58,045/- as detailed below: S.No. Particulars Amount (Rs.) 1 Cost of sales 32,45,46,670/- 2 Manpower Expenses 41,52,025/- 3 Administrative Expenses 68,44,745/- 4 Selling Expenses 40,40,527/- 5 Finance Cost 1,80,66,894/- 6 Depreciation 41,07,184/- Total Rs. 36,17,58,045/- 1.3 In the assessment proceedings the assessee furnished details along with supportings, explanations & clarifications as sought by the AO on 17.01.2018, 25.10.2019, 20.11.2019 & 04.12.2019. (copies enclosed as mentioned in Para (1) 2 above). 1.4 The AO in paras 3.1, 3.2 and 3.3 of the Asst order alleges that the assessee had not furnished complete details of purchases, other expenses and cost of sales. 1.5 We have enclosed in the Paper Book compliance furnished to the AO's notices on 25.10.2019. The assessee's authorized representatives along with the accountant attended the hearing in person and furnished details of purchases, cost of sales and other expenses in support of the amounts reflecting in the audited financial statements and tax audit report enclosed with the ROI. This included ledger extract of expenses, loan confirmations, purchase/sale invoices, vouchers copies as is evident from the Paper Book. 1.6 Thereafter the AO issued notice on 07.11.2019 seeking details of sundry creditors and expenses exceeding Rs 1 lakh. The particulars relating to creditors were promptly uploaded online on 20.11.2019. Sample invoices and ledger extracts relating to expenses were already furnished physically on 25.10.2019. As such the compliances as sought by the AO were duly made. 1.7 The AO in para 3.6 states that the veracity of expenses claimed and trading liabilities shown by the assessee as on 31.03.2017 could not be verified by issuing notices w/s 133(6) for want of details of the parties. 1.8 We submit that the observations made by the AO are not correct. This is evident from the details furnished to the AO on 25.10.2019 & 20.11.2019. The AO has overlooked the information/submissions furnished by the assessee well before issue of SCN dt 26.11.2019. We submit that the AO has not appreciated documents and facts on record and has reached an erroneous conclusion. 1.9 The accounts of the assessee are audited and the audit report does not reflect any adverse observations on the accounts. 1.10 We also wish to point out that the assessee is a registered dealer under the Maharashtra Value Added Tax Act, 2002. The assessee duly filed monthly and annual returns. The assessee's transactions were reviewed and assessed for the said financial year without any adverse observation/addition. Copy of the VAT order dt 05.12.2019 is enclosed in Annexure J 1.11 In para 3.9 of the Asst order the AO has alleged that copies of books of accounts were not furnished. We submit that the assessee had produced a tally back up of accounts for the year on 04.12.2019 which is duly acknowledged by the Dept (Ref "Annexure 1 Reply 04.12.2019") and taken the AO through this on laptop in the course of assessment proceedings on 25.10.2019. At the relevant time no discrepancies or adverse observations were made wrt the books of account. The assessee undertakes to make available the Tally back up of its books of accounts for verification of the AO. (In case there are not readily available in the Dept). 1.12 For ease of understanding we have summarized ledger transactions of the expenses as mentioned in para 1.2 above giving breakup in terms of materiality. It is to be noted that almost entire expenses are paid for by cheques. There are no expenses in excess of Rs 10,000 paid for in cash, as is also reported in Form 3CD by the auditors.
1.13 From the above-mentioned facts and circumstances, it is evident that the purchases & expenses and corresponding creditors outstanding on 31.03.2017 as reflected in the audited accounts of the assessee are fully supported and genuine. These relate wholly & exclusively to the assessee's business. We submit the ad-hoc disallowance of Rs 1 crore out of the total expenses is based on an erroneous conclusion reached without appreciating adequately facts on record and is arbitrary and not justified. 1.14 We plead for direction deleting the ad-hoc addition/disallowance.” And on the other hand, the AO has made a lump sum disallowance of Rs 1 Cr without doing any detailed analysis of the turnover or the expenses claimed by the appellant. The AO has not even mentioned the nature or the exact expenses which are needed to be disallowed out of the total expenses claimed by the appellant. Before disallowing the expenses the AO did not do any comparison with any similar trade/business where such expenses have not been claimed in this ratio as claimed by the appellant. Basically even if an lump sump disallowances to be made, there should be scientific logic presented before making such disallowance especially when all the expenses are cheque payments and books of account have been maintained by the appellant. In view of the above facts, the addition made by the AO is hereby deleted.”
So far as the addition of Rs.5 lakhs made by the Assessing Officer u/s 68 is concerned, the Ld. CIT(A) / NFAC deleted the same by observing as under: “6.3 On perusal of the submission made by the appellant it is also seen that the AO has considered Rs 5 lacs as difference between amount shown as loan received from Ashish Mutha as per 3CD and the confirmed copy of account submitted by the appellant and made an addition of Rs 5 lacs to the total income of the appellant. The appellant during the appeal proceedings has contended that as per 3CD report, the amount received from Ashish Mutha was Rs 25 lacs and as per copy of account it was only 20 lacs hence the AO treated this difference of RS 5 lacs as unexplained money u/s 68 of the Act. However, the appellant has submitted that difference of RS 5 lacs is due to the fact that Rs 5 lacs were initially received in FY 15-16 from Ashish Mutha which was erroneously shown as Advance received from a Customer but this error was rectified in the next year i.e. FY 16-17 and a journal entry was passed to show the effect. In addition to this, Rs 20 lacs was also received during the year FY 16-17. So Form3CD had effect of showing journal entry of Rs 5 lacs as well as receipt of Rs 20 lacs received from Sh.Ashish Mutha received in the current year. In view of the above the clarification given by the appellant, the claim of the appellant appears to be valid and hence the addition of Rs 5 lacs made by the AO is hereby deleted.”
So far as the addition of Rs.40 lakhs added by the Assessing Officer u/s 69A as unexplained money is concerned, the Ld. CIT(A) / NFAC deleted the same by observing as under: “From the above table, it is observed that number of documentary evidences have been provided by the appellant during the assessment proceedings and the appellate proceedings. Further it is seen that the total cash sales is actually 1.67% of the total turnover shown by the appellant. The issue regarding discrepancy of opening balance as noted by the AO has also been explained wherein it is seen that Rs.50000 pertained to the imprest cash available with the employees on 1.12.16 and in fact the opening cash balance as on 01.04.16 is Rs.4,09,967/-. Further as far as cash deposits out of cash sales are concerned the appellant has produced cash book, sales ledger and monthly VAT returns which were also produced during the assessment proceedings. Cash withdrawals of Rs.7,60,000/- has been explained with the help of cash book and Bank Book also produced during the assessment proceedings. In view of the above facts, it appears that the cash deposits made during the demonetisation period is on account of cash sales, cash withdrawals and available opening cash balance. Hence the addition made by the AO of Rs. 40 lacs on account of cash deposits during demonetisation is hereby deleted.”
Aggrieved with such order of the Ld. CIT(A) / NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds: 1) Whether in the facts and circumstances of the case and in law the Ld CIT(A) has erred in admitting and relying upon certain 'additional evidences' submitted through paper book furnished by the assessee in contravention of the provisions laid under Income-tax Rules 46A(1), 46A(2) and 46A(3) r.w.s. 251 of the Income-tax Act, 1961? 2) Whether in the facts and circumstances of the case and in law the Ld CIT(A) has erred in deleting the disallowance of Rs.1,00,00,000/- made by the Assessing Officer out of purchases even though the assessee had failed to produce the basic details such as PAN & Address of the suppliers or the books of accounts during the assessment proceedings and specific finding to that effect has been recorded by the Assessing Officer in the assessment proceedings? 3) Whether in the facts and circumstances of the case and in law the Ld CIT(A) has erred in deleting the disallowance of Rs.5,00,000/- made under section 68 of the Income-tax Act, 1961 that being the discrepancy noted by the Assessing Officer between the unsecured loan of Rs 25,00,000/- received by the assessee from an individual as per the audit report and the confirmation of the same by the lender which was furnished during the assessment proceedings? 4) Whether in the facts and circumstances of the case and in law the Ld CIT(A) has erred in deleting the addition of Rs.40,00,000/- made by the Assessing Officer under section 69A of the Income-tax Act, 1961 ignoring the fact that the books of accounts, in general, and the complete cash book, in particular, were not produced by the assessee for verification during the assessment proceedings and specific finding to that effect has been recorded by the Assessing Officer in the assessment proceedings?
Grounds of appeal No.1 and 2 relate to the order of the Ld. CIT(A) / NFAC in deleting the addition of Rs.1 crore made by the Assessing Officer.
The Ld. DR strongly challenged the order of the Ld. CIT(A) / NFAC in deleting the additions made by the Assessing Officer. He submitted that many details were not filed by the assessee and no books of account were ever produced before the Assessing Officer. The assessee made purchases from unknown parties. He submitted that the Ld. CIT(A) / NFAC has deleted the addition by relying on the additional evidences submitted by the assesse which were admitted at the back of the Assessing Officer. Since the Ld. CIT(A) / NFAC has violated the provisions of Rule 46A of IT Rules, 1962 r.w.s. 251 of the Act and has not called for a remand report from the Assessing Officer, therefore, the order of the Ld. CIT(A) / NFAC be reversed and that of the Assessing Officer be restored.
The Ld. Counsel for the assessee on the other hand strongly supported the order of the Ld. CIT(A) / NFAC. Referring to para 3.10 of the assessment order, he submitted that the Assessing Officer has alleged that the assessee did not produce the books of account / bills / vouchers for verification and has also alleged that no details were forthcoming from the side of the assessee. Referring to pages 112 to 114 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the details of the parties from whom the purchases were made. Referring to pages 231 to 239 of the paper book, he drew the attention of the Bench to the details of purchases. Referring to pages 241 to 345 of the paper book, he drew the attention of the Bench to the invoices of purchases. The Ld. Counsel for the assessee drew the attention of the Bench to the following documents which were filed before the Assessing Officer from time to time as certified in the paper book:
Sr No Particulars 1 IT Acknowledgement and Computation of Income for AY 2017-18 2 Audited financials for y e 31.03.2017 3 Tax Audit Report for AY 2017-18 4 Audited financials for y e 31.03.2016 5 Relevant Extract of submission made before AO during assessment proceedings: a. Screenshot of submission uploaded online on dt 20.11.2019 b. Dt 12.08.2019 (submitted physically on dt 25.10.2019) along with relevant Annexure 7H c. Dt 15.11.2019 (Submitted on 04.12.2019) along with list of creditors exceeding Rs 1 lakhs in Annexure 1 d. Dt 15.11.2019 (Submitted physically on 04.12.2019) along with details of custom duty and Bill of Entry towards import purchase. e. Screenshot of Submission uploaded on dt 04.12.2019 regarding Purchase register and sample invoice copies. 6 Abstract of unsecured loan from financial statement for y e 31.03.2015 & 31.03.2016 7 Abstract of Point no 31 in Annexure VI of Form 3CD for AY 2017-18 8 Ledger extract of Ashish Madan Metha for FY 2015-16 & 2016-17 9 Copy of written submission dt 16.12.2024 made before CIT(A) along with Index to Paper book
Sr No Particulars 1 Summary of GP, NP ratios & assessment status from AY 2013-14 to 2017-18 in assessee's case 2 Asst order for AY 2013-14 passed u/s 143(3) dt 18.02.2016 3 Asst order for AY 2014-15 passed u/s 143(3) dt 30.12.2016 4 Asst order for AY 2015-16 passed u/s 143(3) dt 28.07.2017 Sr No Particulars Ground No.2 : Disallowance of Rs 1 crore out of purchases expenses 1 Supporting documents uploaded on portal on 04.12.2019 ie Purchase register alongwith ledger extracts & invoice copies Ground No 3: Cash Deposits of Rs 43 lakhs 2 Monthly VAT Return in Form 231 from April 2016 to Oct 2016 3 Sales Tax Assessment Orders: Central Sales Tax (CST): Dt 05.12.2019 Value Added Tax (VAT) Dt 30.11.2019 4 Ledger extract of cash sales [Annexure O before CIT(A)] 5 Copies of Invoices of cash sales for the year [Annexure N before CIT(A)] 6 Submission before AO dt 12.12.2019 [Annexure F before CIT(A)] 7 Monthwise summarized details of sales as per books and VAT Returns for y e 31.03.2017 (Annexure P before (CIT(A)] 8 Cash book summary for y e 31.03.2017 furnished before CIT(A) in Annexure Q
He submitted that no additional evidences were filed before the Ld. CIT(A) / NFAC. The Assessing Officer simply made the addition without pointing out any defects in the books of account. The Ld. Counsel for the assessee referring to page 218 of the paper book drew the attention of the Bench to the percentage of GP and NP for various assessment years which are as under: Sr Asst Year Turnover GP Ratio NP Ratio Assessment Remark No (Rs) (%) (%) U/s 143(3) 1 2013-14 262,175,920 13.18 1.65 Order dt No Addition 18.02.2016 2 2014-15 295,616925 15.61 0.24 Order dt No Addition 30.12.2016 3 2015-16 403,552,653 13.56 4.3 Order dt No Addition 28.07.2017
4 2016-17 482,191,192 16.73 9.45 Not selected - for assessment 5 2017-18 397,130,604 18.28 10.41 Order dt AO made following 16.12.2019 Additions: 1. Ad-hoc disallowance of Rs. 1 crore towards Purchase expenses 2. Difference in unsecured loan Rs.5,00,000 3. Unexplained Cash Deposit Rs.40,00,000 CITA deleted all above additions
He submitted that the order u/s 143(3) of the Act was passed for assessment year 2013-14 on 18.02.2016 and no such additions were made. Referring to the assessment order for assessment year 2014-15 passed u/s 143(3) of the Act on 30.12.2016, he submitted that no addition was made. Referring to the assessment order for assessment year 2015-16, he submitted that in the order passed u/s 143(3) on 28.07.2017, no addition was made. He accordingly submitted that the grounds raised by the Revenue on this issue be dismissed.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. From the various details furnished in the paper book by the assessee we find that the assessee has filed the requisite details before the Assessing Officer from time to time. The assessee has filed the details of purchases, details of sales along with invoices etc. We find the assessee vide letter dated 12.08.2019 addressed to the Assessing Officer has submitted the following details:
Similarly, the assessee vide letter dated 15.11.2019, copy of which is placed at page 106 of the paper book has filed the details of sundry creditors exceeding Rs.1 lakh and list of parties for expenses exceeding Rs.1 lakh during the year with names / full addresses / PAN etc. Similarly the assessee vide letter dated 04.12.2019 which was uploaded on 04.12.2019, copy of which is placed at pages 192 to 195 of the paper book in which the assessee has filed the details of sample purchase accounts along with invoice copy and purchase register for financial year 2016-17 and the hard copy of the same was produced before the Assessing Officer subsequently. The various other details furnished before the Assessing Officer are also given in the paper book. The Assessing Officer without pointing out any defect in the books of account, has made an adhoc addition of Rs.1 crore. Further, the assessment orders for assessment years 2013-14 to 2015-16 which were passed u/s 143(3) of the Act show that no additions were made out of purchases. The GP and NP rates declared by the assessee for the impugned assessment year are also higher than the past four years. Under these circumstances, without pointing out any defect in the various details furnished by the assessee, addition of lump sum amount of Rs.1 crore made by the Assessing Officer in our opinion, is not justified.
So far as the allegation of the Revenue that the Ld. CIT(A) / NFAC has accepted the additional evidence is concerned, the Ld. DR also could not point out which are the additional evidences that the Ld. CIT(A) / NFAC has accepted especially when all the details produced before the Ld. CIT(A) / NFAC were already on record before the Assessing Officer. In this view of the matter and in view of the detailed reasoning given by the Ld. CIT(A) / NFAC we do not find any infirmity in the order of the Ld. CIT(A) / NFAC on this issue. We accordingly uphold the same and dismiss the grounds of appeal No.1 and 2 raised by the Revenue.
So far as the ground of appeal No.3 raised by the Revenue is concerned, the same relates to the order of the Ld. CIT(A) / NFAC in deleting the addition of Rs.5 lakhs made by the Assessing Officer u/s 68 r.w.s. 115BBE of the Act.
The Ld. DR strongly supported the order of the Assessing Officer.
The Ld. Counsel for the assessee on the other hand referring to page 196 of the paper book drew the attention of the Bench to the details of unsecured loans as on 31.03.2015 and 31.03.2016. Referring to page 197 of the paper book, he submitted that an amount of Rs.5 lakhs was appearing in the name of Ashish Madan Mutha on 31.03.2016 as “advance from customers”. Referring to page 198 of the paper book, he drew the attention of the Bench to the details given in form 3CD as per Annexure-VI according to which the opening balance in the name of Ashish Madan Mutha was Rs.86,40,953/-, amount of loan / deposit accepted was Rs.25 lakhs, interest credited was Rs.8,98,753/-, amount repaid is Rs.20 lakhs and the closing balance was Rs.94,49,831/-. He submitted that while the Assessing Officer has accepted an amount of Rs.20 lakhs, however, he has not accepted the journal entry of Rs.5 lakhs which was transferred from “advance from customers account” to “loan account”. Since the Ld. CIT(A) / NFAC after appreciation of the facts properly has deleted the addition, therefore, the same should be upheld and the grounds raised by the Revenue be dismissed.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that as on 31.03.2016 an amount of Rs.5 lakhs is shown in the name of Ashish Madan Mutha as “advances from customers”. This amount of Rs.5 lakhs has been transferred to loan account through journal entry and after receiving another amount of Rs.20 lakhs from Ashish Madan Mutha, the assessee has shown receipt of Rs.25 lakhs. Since the assessee has erroneously shown this loan of Rs.5 lakhs received in the preceding year as advance received from customers but rectified the same in the subsequent year through a journal entry, therefore, we do not find any infirmity in the order of the Ld. CIT(A) / NFAC deleting the addition by accepting the contention of the assessee on this issue. Ground No.3 raised by the Revenue is accordingly dismissed.
Ground of appeal No.4 raised by the Revenue relates to the order of the Ld. CIT(A) / NFAC in deleting the addition of Rs.40 lakhs made by the Assessing Officer u/s 69A of the Act.
The Ld. DR strongly relied on the order of the Assessing Officer.
The Ld. Counsel for the assessee on the other hand while supporting the order of the Ld. CIT(A) / NFAC submitted that the assessee has sufficient cash balance on the date when the deposits were made. The sales of the assessee were not disturbed by the Assessing Officer and the books of account were also not rejected. He submitted that the cash sales of the assessee for the year amounted to Rs.66,50,490 which is roughly 1.67% of the total sales. The details of cash sales were also produced before the Assessing Officer. Further, the assessee has given its point-wise response to the observations made by the Assessing Officer which have been reproduced by the Ld. CIT(A) / NFAC in his order from pages 25 to 30. Despite sufficient documentary evidence furnished by the assessee during the course of assessment proceedings, he made addition of Rs.40 lakhs on surmises and conjecture. Since the Ld. CIT(A) / NFAC after proper appreciation of the facts has deleted the addition, the same should be upheld and the grounds raised by the Revenue should be dismissed.
In his alternative contention, he submitted that if any addition is to be made u/s 69A of Rs.40 lakhs, then in that event the income returned by the assessee firm should be reduced accordingly, otherwise it results into double addition, which is not justified.
The Ld. Counsel for the assessee in his yet another plank of argument submitted that in case any unexplained cash deposit in the bank account is accepted, then the provisions of section 69A r.w.s. 115BBE of the Act cannot be applied since these provisions were introduced subsequently. For the above proposition, he relied on the following decisions:
i) S.M.I.L.E Microfinance Ltd. Vs. ACIT vide WP (MD) No.2078 of 2020 and W.M.P. (MD) No.1742 of 2020, order dated 19.11.2024 ii) Naranbhai Samatbhai Bharwad vs. ITO vide for assessment year 2017-18, order dated 03.01.2025
He accordingly submitted that the order of the Ld. CIT(A) / NFAC being in accordance with law should be upheld.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case made addition of Rs.40 lakhs out of total cash deposit of Rs.43 lakhs in the bank account on the ground that the assessee could not explain the source of such cash deposits in specified bank notes during the demonetization period. We find the Ld. CIT(A) / NFAC deleted the addition, the reasons of which have already been reproduced in the preceding paragraphs. We do not find any infirmity in the order of the Ld. CIT(A)/ NFAC on this issue. Admittedly the assessee has filed number of documentary evidences during the course of assessment proceedings explaining the source of such deposits which is out of the cash sales. Further, the total cash sales during the year roughly 1.67% of the total turnover shown by the assessee. Since the assessee has produced the cash book, sales registers and monthly VAT returns during the course of assessment proceedings and the cash withdrawals of Rs.7,60,000/- has been explained with the help of cash book and bank book which were produced during the course of assessment proceedings, therefore, we do not find any infirmity in the detailed order of the Ld. CIT(A) / NFAC accepting cash deposit of Rs.40 lakhs being out of opening balance, cash sales and cash withdrawals which were subsequently deposited. Accordingly ground of appeal No.4 raised by the Revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 29th July, 2025.