BINDU KUMAR,LUCKNOW vs. ITO-1(1), LUCKNOW-NEW

It is to be mentioned that the assessee for the AY 2017-18 was liable to audit u/s 44AB of the act, and the financials of the assessee was duly audited and filled by the assessee. As per the audited financial statements, the assessee has reported the total business turnover as Rs. 2,79,58,681/-. The assessing officer has compared this turnover with credits in bank a/c as Rs. 3,94,01,990/ instead of Rs. 3,35,18,807/- and arrived at the differential figure of Rs. 1,14,43,309/- and added the same as unexplained income. The reconciliation between the receipts as per bank and turnover as per audited financials was also provided during the appeal proceedings before CIT(A) and it is to be mentioned that there are no unaccounted receipts. Bindu Kumar (IT PA No. AGTPK6157D) Reconciliation between bank receipts and Turnover Gross Turnover as per Balance Sheet 2,79,58,680.71 Add: Service Tax charged 31,09,773.30 Add: Opening debtors realized in CY 11,09,736.72 Less: Closing debtors balance (1,62,343,50) Less: TDS deducted (5,59,265.00) Received from customer 3,14,56,582.23 Add: TDS refund received 4,48,050.00 Add: Salary Cheque returned 7,818.00 Add: Credit against OD limit received 8,99,000.00 Add: Cash Deposited in bank 3,92,500.00 Add: UL received back 3,14,850.00 Total Credits in Bank 3,35,18,800.23 Bindu Kumar A.Y. 2017-18 Without considering the above facts and records the assessment was completed by the AO determining the total income at Rs. 1,29,56,775/-against the retuned income of Rs. 15,13,466/-.

Further, as against the order of the AO an appeal before CIT(A) was filled, which is also decided by the CIT(A) and an order is passed on 01.08.2023 u/s 250 of Income Tax Act.

The facts of the case are that the assessee’s case for the assessment year 2017-18 was selected for limited scrutiny, for the reasons, “cash deposited during the year”. Notices were issued by the ld. AO, but he records that the assessee only submitted part replies. The ld. AO noted, that as per SFT data available on the Bindu Kumar A.Y. 2017-18 Departmental portal, it was found that the assessee had made cash deposits amounting to Rs.3,35,18,807/- during the period of demonetization in its Canara Bank A/c No.2170201000579. In response, the assessee submitted that only a sum of Rs.3,92,500/- had been deposited in cash into the said bank accounts on 8.07.2016 and 10.11.2016 and that the assessee was engaged in business of Manpower Supply Services to Tata Motors Limited, who had made payment to her current account by RTGS and NEFT for services provided. Despite recording his satisfaction about the extent of cash deposited into the said bank account, the ld. AO thereafter, asked the assessee to produce copy of cash book for the period 1.10.2016 to 31.12.2016; to furnish daily cash summary; to furnish the details regarding nature and source of cash deposited during the year; to furnish month-wise details of gross receipts for the financial years 2015-16 and 2016-17 and 2017-18 and to furnish month-wise cash deposits from 1.04.2015 to 31.03.2017. However, the ld. AO records that the assessee did not make any compliance to the said notice. Therefore, the ld. AO records that he issued another notice under section 142(1) asking the assessee as to why the cash deposits during the year may not be treated as unexplained and added to his total income for the year. Apparently, no reply was received to this show cause notice. The ld. AO, thereafter observed that the assessee had total credits of Rs.3,94,01,990/- during the financial year 2016-17 whereas in her ITR filed for the relevant assessment year, she had declared total receipts of Rs.2,79,58,681/- only. Since, in his view the assessee had no cogent explanation in respect of the nature and sources of cash credits in its books of accounts against the credits which were excess to turnover made in the bank a/c no.2170201000579 with Canara Bank, he held that a sum of Rs.1,14,43,309/- was unexplained cash credits under section 68 of the Act and he added them back to the income of the assessee.

However, neither of the two authorities had taken any cognizance of the submissions of the assessee and had instead made additions to the income of the assessee on the basis of the non-existent facts and by expanding the scope of limited scrutiny, without following the proper procedure. Accordingly, it was prayed that the orders passed were bad in law and the additions made by them deserve to be vacated. The ld. AR also filed a petition requesting for permission to file additional evidence under Rule 29 of the ITAT Rules. It was submitted that during the course of assessment proceedings, the assessee had engaged one Sh. Mahendra Singh, Advocate for handling the matters related to assessment proceedings and was under the impression that the said counsel was making due compliances to the notices being issued by the ld. AO during assessment proceedings. It was later that he came to know Bindu Kumar A.Y. 2017-18 that the said compliances had not been made and for this reason, the documents could not be submitted during assessment proceedings. It was further submitted that for the proceedings before the first appellate authority, the assessee had obtained consultation from C.A. Mukesh Agarwal and since the said C.A. did not advise the filing of these evidences, accordingly they could not be filed. However, it was necessary for the assessee to file these evidences in order to prove the submissions made by him before the ld. CIT(A) and therefore, it was prayed that these additional evidences may kindly be admitted. The additional evidences that were submitted were as under:- “(i) Annexure-I, being copy of TDS refund ledger in the assessee's books of accounts showing the TDS refunds received during the previous year. (ii) Annexure-II, being copy of statement of OD A/c No. 2170257000255 for the period from 01.04.2016 to 31.03.2018 held by the assessee in Canara Bank in the name of M/s Gurudin Bindu Kumar Enterprises, the proprietorship concern of the assessee. (iii) Annexure-III, being copy of ledger a/c of Akhilesh Kumar (nephew of the assessee) for the period 01.04.2016 to 31.03.2017 showing entries of unsecured loan paid by the assessee during the previous year and part repayments received during the previous year. (iv) Annexure-IV, being copy of bank book of Canara Bank Current A/c No. 2170201000579 for the year ended 31.03.2017. (v) Annexure-V, being copy of cash book for the year ended 31.03.2017. (vi) Annexure-VI, being sworn affidavit of the assessee duly notarized.”

The ld. AR also pointed out that even otherwise the order of the ld. AO which had been sustained by the ld. CIT(A) was not maintainable, because it had been passed in violation of CBDT’s Instruction No. F No.225/402/2018/ITA.II dated 28.11.2018, regarding the scope of enquiry in limited scrutiny cases selected under CASS cycles of 2017 and 2018. Ld. AR drew our attention to paragraph nos. 3 and 4 of the said instruction wherein it had been stated that unlike CASS 2015-16 cycles, where consideration of any additional issue could lead to the conversion of the case to, “complete scrutiny” by following the procedure as laid down in Instruction No.5/2016 dated 14.07.2016, “limited scrutiny” cases of CASS 2017 and 2018 cycles Bindu Kumar A.Y. 2017-18 could not be taken up for complete scrutiny, unless there was credible material or information provided by any Law Enforcement/Intelligence/Regulatory Authority or Agency regarding tax evasion by the assessee. The ld. AR pointed out that the case had been selected for limited scrutiny for the purposes of examining cash deposits during the year and in the absence of any information regarding tax evasion from any agency regarding tax evasion, that the ld. AO was not empowered to convert this case into one of complete scrutiny so as to examine the credits in the assessee’s bank account. The ld. AR submitted that even if the AO had such information, he was still duty bound to follow the procedure laid down in the said instruction and take the prior administrative approval of the concerned CIT / Pr. CIT, before expanding the scope of scrutiny to cover all the credits in her bank account. However, in the present case, despite it being clarified to the AO that the total amount of cash deposits during the year were only Rs.3,92,500/-, comprising of two deposits of Rs. 2,20,000/- on 8.07.2016 and Rs. 1,72,500/- on 10.11.2016, a fact which had been acknowledged by the AO in his order, the AO had expanded the scope of his enquiry to cover all the credits in the said bank account and here too come up with an imaginary figure that had no basis. It was, therefore submitted that since the AO lacked the mandate to assess the issues upon which he had based his addition, the same was even otherwise bad in law and the order deserved to be quashed on this ground alone. Without prejudice to the above, he submitted that since the credits in the said bank account stood explained as a result of the reconciliation statement submitted before the ld. CIT(A), there was never any occasion for the ld. CIT(A) to reject the assessee’s appeal without calling for further clarifications / documents in this regard. For the proposition, the order of the ld. AO was bad in law. The ld. AR placed reliance upon the following judicial decisions which he furnished in the form of a paper book. i. PCIT vs. Weilburger Coatings (India) (P.) Ltd. (2023) 155 taxman.com 580 (Calcutta). ii. Vudatha Vani Rao vs. ITO, (2024) 159 taxman.com 1694 (Vishakhapatna-Trib) 8 Bindu Kumar A.Y. 2017-18 iii. Srimanta Kumar Shit vs. ACIT (2024) 1911/Kol/2024. iv. Atul Gupta vs. Asstt. CIT (Delhi-Trib). v. Sanjay Kumar Bejwani vs. ITO in ITA No.2741/Del/2022. vi. Rahul Bajpai vs. DCIT (2025) 171 taxman.com 500 (Raipur-Trib). vii. Dahila Infrastructures (P) Ltd. vs. DCIT (2025) 173 taxman.com 268 (Delhi-Trib). The ld. AR reiterated that it had consistently been held that unless the proper procedure had been followed in converting cases of limited scrutiny to complete scrutiny, as the actions of the ld. AO were violative of CBDT instructions, the additions made in such assessments could not be held to be valid. Accordingly, it was prayed that the orders of the AO deserved to be quashed.

On the other hand, Sh. Sanjeev Krishna Sharma, Sr. DR appearing on behalf of the Revenue submitted that the information on the insight portal would constitute information as envisaged in para 2 and 3 of the CBDT instruction quoted by the ld. AR. It was submitted that the said information showed that a sum of Rs.3,35,18,807/- had been credited in cash to the bank of the assessee during the period of demonetization and therefore, the ld. AO was well within his rights to examine all the credits to determine whether they were explained or not. It was further submitted that the ld. AO had asked the assessee to furnish copies of cash book, daily cash summary, nature and source of cash deposited during the entire period, month-wise details of gross receipts for three years and month-wise cash deposits for two years but the assessee had neither furnished any response or any documents as called for by the ld. AO. Therefore, the ld. AO after noticing that there was a contradiction between the total turnover of the assessee and the total credits in the bank account had added back the difference. It was further submitted that the ld. CIT(A) was also justified in rejecting the re-conciliation statement filed by the assessee as no evidences have been filed in support thereof.

Even otherwise, it is observed that the assessee furnished an explanation by way of reconciliation of all the credits in his bank account before the ld. CIT(A) and the ld. CIT(A) has neither offered any comments on the same nor refuted as inaccurate any part of this reconciliation, before rejecting the appeal of the assessee on the grounds that cash deposits have been made through RTGS, proper evidences with books of accounts have not been filed to explain the source of cash deposit, no comparative figure of RTGS deposits have been given in the last three years and address and PAN numbers of customers have not been given therefore the cash deposits made during the time of demonetization remained unexplained. With these arguments he has confirmed an addition of Rs Rs.1,14,43,309/-, being the difference between amounts credited to the Bank account and the turnover of the assessee, whereas where the cash deposits during demonetization were only Rs.1,72,500/-. It therefore appears that the order of the ld. CIT(A) has not considered the facts of the particular case. Hence, his order is unsustainable on this account also.