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Facts
The assessee, a jewellery and goldsmith firm, was subjected to scrutiny for the Assessment Year 2017-18 due to abnormal cash deposits during demonetization. The Assessing Officer (AO) made an adhoc disallowance of 50% of cash purchases from unregistered dealers (URD), amounting to Rs. 22,05,077, on the grounds that verification of such purchases was not satisfactory. The assessee contended that URD purchases are a regular practice and the AO did not conduct a complete verification.
Held
The Tribunal condoned the delay of 172 days in filing the appeal, citing reasonable cause due to the medical condition of the assessee's representative and technical issues with e-filing. The Tribunal found that the adhoc disallowance by the AO was not sustainable as the assessee regularly made URD purchases, maintained quantitative records, and the AO only conducted a test-check verification. The addition made by the AO was deleted.
Key Issues
Whether the adhoc disallowance of cash purchases from unregistered dealers is sustainable when the assessee regularly makes such purchases and the AO conducts only a test-check verification.
Sections Cited
250, 143(3), 143(2), 142(1), 69C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “SMC”, PUNE
Before: DR.MANISH BORAD
आदेश / ORDER
This appeal at the instance of assessee pertaining to the Assessment Year 2017-18 is directed against the order dated 16.07.2024 of National Faceless Appeal Centre (NFAC) Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of the Assessment Order dated 30.12.2019 passed u/s. 143(3) of the Act.
2. Registry has informed that there is delay of 172 days in filing the appeal before this Tribunal. Application for condonation of delay has been filed by the assessee giving rise to delay in filing the appeal and the same reads as follows :
“1. The appellant submits that in the present case, the appeal order u/s 250 passed by the CIT(A), NFAC was issued on the email on 16.07.2024. Thus, the due date for filing the appeal before Hon'ble ITAT was 14.09.2024. The appeal is being filed on 05.03.2025. Thus, there is a delay of 172 days in filing the present appeal before Hon'ble ITAT. The assessee submits that the above delay in filing the appeal was on account of reasonable cause.
In this regard, it is submitted during the relevant time the Shri Prasad Kajale who was monitoring after the tax compliances of the appellant firm faced with the medical condition ie coronary artery disease due to which he was undergone a surgery between 13.08.2024 to 21.08.2024 at Sahyadri Hospital. It is to be noted that he was advised by doctors to take a complete rest post-surgery. It is to be noted that other partner/s of the firm was completely unaware of the income tax proceedings and formalities which were taken care by Shri Prasad Kajale. However, due to medical condition he was completely engrossed in the recovery process and therefore not able to carry out the usual work of the appellant firm. Therefore, the appeal was remained to be filed.
3. It is submitted that after partial recovery, the Shri Prasad Kajale contacted their regular consultant in the last week of November, 2024 to take appropriate action against the same. The challan towards appeal fees was paid immediately on 03.12.2024 as per the instructions of his regular tax consultant. However, the consultant advised him to approach a Senior Consultant practicing before appellate forums considering the quantum of demand. Thereafter, Prasad Kajale made enquiries regarding Counsels practicing at ITAT, Pune and engage a Senior Counsel in this matter. However, due to his lack of familiarity with ITAT proceedings, it proved to be practically challenging for him to independently contact and coordinate with a Senior Counsel at Pune. Subsequently, in the last week of January, 2025 the he approached Counsel, CA Sanket Milind Joshi for filing the present appeal. Thereafter, the compilation of the relevant documents, information and generating Digital Signature Certificate took some time. Further, it is to be noted that between 19 February, 2025 to 5th March, 2024 the assessee tried to e-file the appeal via online mechanism. However, there was a technical problem viz. OTP on email was not being issued even after trying multiple times and subsequently, the appeal was filed on 05.03.2025. In view of the above facts, the appellant submits that there was a delay of 172 days in filing the present appeal. In this respect, the appellant places reliance on the ratio laid down in the decision of Honourable Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji & Ors. [167 ITR 471 (SC)] wherein it has been held that "When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred".
In view of the above facts and judicial decisions cited, the appellant humbly prays that the delay in filing of present appeal before Honourable ITAT, Pune may kindly be condoned in the interest of justice and the appeal may please be adjudicated on merits.
I have heard the rival submissions and gone through the averments made in the condonation application. Hon’ble courts in plethora of judgments observed that when consideration of an appeal on merits is pitted against the G N Adgaonkar Jewels rejection of a meritorious claim on the technical ground of the bar of limitation, the Courts lean towards consideration on merits by adopting a liberal approach towards ‘sufficient cause’ to condone the delay. The Court considering an application under section 5 of the Limitation Act may also look into the prima facie merits of an appeal. A liberal approach may be adopted when some plausible cause for delay is shown. Hon’ble Supreme Court in the case of Inder Singh Vs. State of Madhya Pradesh judgment dated 21.03.2025 (2025 INSC 382) condoned delay of 1537 days sub-serving the cause of justice. It was held so while observing that the appeal filed by the appellant with a delay was unintentional, much less due to any deliberate laches, and was well-explained by the State before the High Court. Hon’ble Court further held that in cases where the merits are significant, a more liberal approach may be adopted to allow for the examination of the case on its merits. Having gone through the averments made in the condonation application and considering the ratio laid down by the Hon’ble Court in the case of Inder Singh (supra), I am of the view that there was ‘reasonable cause’ which prevented the assessee in filing the appeal within the stipulated time. I therefore condone the delay of 172 days and admit the appeal for adjudication.
4. The sole grievance of the assessee is against the finding of ld.CIT(A) confirming the adhoc addition of Rs.22,05,077/- made by Assessing Officer disallowing 50% of the total cash purchases of Rs.44,10,154/- made from unregistered dealers.
Brief facts of the case are that the assessee is a partnership firm engaged in the business of Jewellery and Goldsmith. Income assessed in the assessment u/s.143(3) of the Act at Rs.23,52,967/- as against the returned income of G N Adgaonkar Jewels Rs.1,48,890/- declared in the return for A.Y. 2017-18 furnished on 30.10.2017. Case selected for complete scrutiny for the reason “Abnormal increase in cash deposit during the demonetization period”. Valid notices u/s.143(2) and 142(1) of the Act duly served upon the assessee. Various details called for in the questionnaire annexed to notice u/s.142(1) of the Act furnished. Ld. Assessing Officer observed that assessee has made cash purchases by purchasing raw Gold from the customers, i.e. unregistered dealers (URD). Assessee makes such purchases on year to year basis but ld. AO noticed that there is cash purchases of Rs.44,10,154/-. So in order to verify the genuineness of the purchases, details of the persons who has sold the raw gold to the assessee were called. There are around 762 persons from whom cash purchases of Rs.44,10,154/- was made and the individual amount varied from Rs.66/- to Rs.19,940/-. Ld. AO on test check basis examined some details of URD purchases but on being not satisfied on account of ‘No reply/No positive reply’ concluded the assessment making adhoc disallowance of 50% of the cash purchases from URD and made addition u/s.69C of the Act at Rs.22,05,077/-.
Aggrieved assessee filed appeal before ld.CIT(A) but failed to succeed. Now the assessee is in appeal before this Tribunal.
Ld. Counsel for the assessee referring to the paper book running into 53 pages submitted that the assessee is consistently making purchases from URD and the percentage of total purchases from URD is 58.24% in A.Y. 2015-16, 46.10% in A.Y. 2016-17 and 44.28% in A.Y. 2017-18. He submitted that assessee has provided all necessary details but then ld. AO has only carried out on test-check basis and made adhoc addition whereas the URD purchases have been made from 762 persons. Ld. AO was required to make addition only to the extent of purchases which could not be verified. Ld. AO rather than making specific exercise has done the verification on test check basis and hence the disallowance is uncalled for.
On the other hand, ld. Departmental Representative stated that the issue needs to be restored to the file of Ld. Jurisdictional Assessing Officer for carrying out detailed verification of the URD purchases.
I have heard the rival contentions and perused the record placed before me. I observe that assessee runs the business of jewellery and goldsmith for past many years. Books of account are regularly maintained and audited and Tax Audit Reports are furnished. Quantitative records are maintained on year to year basis and there is no adverse comment of the AO about the quantitative record. I also observe that the assessee is regularly making the purchases from URD and the details for the preceding two years including the year under consideration are given below :
Assessment Total Purchase URD purchase % of Total Year (Registered & out of total purchase Unregistered) purchases 2015-16 6,21,22,947 3,61,84,335 58.24% 2016-17 10,99,23,348 5,06,84,778 46.10% 2017-18 5,70,99,268 2,52,86,961 44.28%
Now from the above details, it emerges that making URD purchases is not new for the assessee and even for the year under consideration out of the total URD purchases at Rs.2,52,86,961/- only Rs.44,10,154/- are made in cash and that too from 762 persons and the amount ranges from Rs.66/- G N Adgaonkar Jewels to Rs.19,940/- and if we take the average purchases from each person, it comes to Rs.5,787.60. So it is an admitted fact that URD purchases are consistently being made and only small portion of such URD purchases is in cash and that too from large number of persons. Firstly, ld. AO has only verified few URD and merely on the basis of ‘No reply/No positive reply/details not available’ he made adhoc disallowance. Ld. AO ought to have considered the practical aspect that person who deal for small amounts of sale of goods and are like walk- in vendors, may not have given correct contact details. Further, ld. AO has not found any defect in the quantitative records and audited books of accounts regularly maintained by the assessee. Under these given facts and circumstances, when quantitative details are not in dispute and also the AO has not carried out complete exercise and only resorted to make adhoc disallowance, I am of the view that such adhoc disallowance is not sustainable. Impugned addition is deleted. Finding of ld.CIT(A) is set-aside and grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee is allowed.
Order pronounced on this 27th day of June, 2025.