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Facts
During a search on Mehta Soni Group, it was found that the assessee had deposited Rs. 8,20,273/- in cash with Mehta Finance for demand drafts. The Assessing Officer treated this amount as unexplained cash under Section 69A, alleging it was undisclosed income, leading to a reassessment under Section 148. The assessee claimed the cash originated from sales proceeds and used Mehta Finance due to issues with suppliers accepting bank drafts.
Held
The Tribunal observed that the assessee failed to provide confirmations from Mehta Finance or the suppliers (Khemchand Sons) during the assessment and first appellate stages. Finding that a thorough verification of these transactions and the assessee's ledger accounts was necessary, the Tribunal remanded the matter back to the CIT(A) for proper adjudication after verifying all documents and providing the assessee an opportunity of hearing.
Key Issues
Whether the cash deposits with Mehta Finance for demand drafts constitute undisclosed income under Section 69A, and if the assessee adequately substantiated the source of cash and related transactions with necessary confirmations.
Sections Cited
250, 69A, 234, 148, 44AD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH, AHMEDABAD
Before: MS. SUCHITRA R. KAMBLE
Since common issues are involved in all these appeals, they were heard together, and it is considered appropriate to dispose of them by way of this consolidated order. to 1810/Ahd/2025 Mehmud Ahmed Mian Ahmed Pothigara Vs. ITO Assessment Year: 2013-14 to 2016-17 Page 2 of 6 “[1] The Ld. CIT (A), NFAC, Delhi, was grievously erred in confirming the addition under u/s. 69A of Rs. 8,20,273/- made by the Ld. A.O. National Faceless Assessment Unit, alleging that the money to take a Demand Draft given to M/s. Mehta Finance in cash is undisclosed income which is not correct. It is submitted that out of sales proceeds to give the payment to the purchaser, the appellant has taken the D.D. which is a genuine money. It is further submitted that the Ld. CIT(A) as well as Ld. A. O. could not find that the sources undisclosed income as stated in the Asst. Order. [2] The Ld. CIT (A), NFAC, Delhi was grievously erred in confirming the levy of interest under various sub-sections of Section 234 is not applicable to the appellant and likely to be deleted. [3] The appellant therefore requests your goodself to kindly delete the above mentioned additions/disallowance, looking to the merits of the case.”
During the course of search operation carried out at the premises of Mehta Soni Group on 30.07.2018, it was found that the assessee had transactions with M/s. Mehta Finance, wherein cash amounting to Rs.8,20,273/- was deposited with the company in exchange of drafts or cheques issued for the assessee. The Revenue also observed that such transaction could have been undertaken out of unaccounted cash held by the assessee, allegedly to bring the same into the books of account. Accordingly, the case of the assessee was re-opened with a reason to belief that there was escapement of income to the tune of Rs.8,20,273/-. Consequently, notice under section 148 of the Act was issued on 31.03.2021 after obtaining the requisite approval from the competent authority, and the same was duly served upon the assessee. The assessee had originally filed his return of income physically on 31.07.2013, which was not taken into account by the Assessing Officer. Subsequent to the notice u/s 148 of the Act, the assessee filed a return of income on 19.11.2021. The Assessing Officer observed that the assessee was running to 1810/Ahd/2025 Mehmud Ahmed Mian Ahmed Pothigara Vs. ITO Assessment Year: 2013-14 to 2016-17 Page 3 of 6 a Kirana Stores under the trade name of Hafij Traders and computed his income from business u/s 44AD of the Act at 8% of turnover at Rs.1,82,763/-. The assessee claimed that money given to M/s. Mehta Finance amounting to Rs.8,20,273/-, being the amount in the instant case, was out of the sale proceeds and that it was necessary as the suppliers were not willing to accept demand drafts or cheques issued by Sarvodaya Nagarik Sahakari Bank Ltd. - the bank where the assessee as claimed was having his account. The charges/commission charged by M/s. Mehta Finance was much less, which prompted the assessee to use their services. In other scrutiny cases involving AYs 2014-15 to 2017-18, the assessee took the same plea. The Assessing Officer made an addition of Rs.8,20,273/- u/s 69A of the Act, being undisclosed cash stating that the private institutions generally charge higher commissions/charges than M/s. Mehta Finance as claimed by the assessee.
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A), in paragraph No.7.9 of the appellate order, categorically held that the assessee failed to substantiate his claim that the cash given to M/s. Mehta Finance was out of sales proceeds. In fact, no confirmation was received from M/s. Mehta Finance as mentioned in paragraph No. 7.9 of the order of the CIT(A). The CIT(A) dismissed the appeal of the assessee.
The Ld. AR submitted that the reason for reopening of the assessment was based solely on the alleged escapement of income to the tune of Rs.8,20,273/- arising from the search conducted at the premises of the Mehta Soni Group on 30.07.2018. The Ld. AR submitted that the reasons submitted thereto, per se, are not proper reasons as the assessee is to 1810/Ahd/2025 Mehmud Ahmed Mian Ahmed Pothigara Vs. ITO Assessment Year: 2013-14 to 2016-17 Page 4 of 6 a small trader and has filed his return of income physically u/s 44AD of the Act at 8% of turnover amounting to Rs.1,82,763/-. The Ld. AR further submitted that though the assessee has not produced the confirmation given by M/s. Mehta Finance at the time of assessment proceedings or at the time of appellate proceedings before the CIT(A), the same has been submitted at the time of hearing before the Tribunal. The AR further submitted that the observations made by the Assessing Officer that no return was filed was incorrect and, in fact, the assessee has filed the return of income physically in the year 2013 itself. The Ld. AR further submitted that the CIT(A) as well as the Assessing Officer has not taken cognizance that the assessee is running a Kirana Store and, since the Khemchand Sons to whom the assessee is purchasing the provisions is not accepting the DD/cheque issued from Sarvodaya Nagarik Sahakari Bank Ltd., the assessee has to approach M/s. Mehta Finance who was giving the cheque/DD by charging Rs.2/- only per cheque/DD which is convenient to the assessee. Since the assessee is filing return of income u/s 44AD of the Act, the assessee was only preparing the books in draft format and not per say was maintaining books of accounts. Therefore, the Ld. AR submitted that since the M/s Mehta Finance has confirmed the transactions and the commission paid, and in fact M/s. Khemchand Sons has already given the confirmation which was produced before the Assessing Officer as well as before the CIT(A), the same should be taken into account and the addition may be deleted.
The Ld. DR relied upon the order of the CIT(A) and the assessment order. to 1810/Ahd/2025 Mehmud Ahmed Mian Ahmed Pothigara Vs. ITO Assessment Year: 2013-14 to 2016-17 Page 5 of 6 7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee, at the time of assessment proceedings as well as at the time of appellate proceedings before the CIT(A), has only produced a chronology/list of the amount and the commission paid, but per se there was no confirmation given by M/s. Mehta Finance that this chronology/amount is rightly received by the said firm and that the commission paid was taken by M/s. Mehta Finance in the particular period mentioned in these four assessment years. In fact, the ledger account given by the assessee was not taken into account by the CIT(A) or by the Assessing Officer, and thus, all these details require a thorough verification and, therefore, the matter is remanded back to the file of the CIT(A) for proper adjudication of the issues after taking remand report and verifying the documents submitted by the assessee, including that of whether the assessee is in possession of filing the confirmation from both Khemchand Sons and M/s. Mehta Finance. After taking cognisance of the evidence, then only the CIT(A) will adjudicate the issues on merits as per Income-tax Act. Needless to say, the assessee shall be given an opportunity of hearing by following the principles of natural justice.
In the result, all the appeals filed by the assessee are partly allowed for statistical purposes.
Order pronounced in the open Court on 23.12.2025