SH. GURMAL SINGH H NO R-18 NEW GRAIN MARKET NEAR JAIN HOSPITAL, JALANDHAR BYEPASS ROAD, LUDHIANA,PUNJAB vs. THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-3 LUDHIANA, PUNJAB

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ITA 209/CHD/2024 A.Y. 2021-22 4 about nature of expenses and are then recorded in the regular books of accounts.

ITA 209/CHD/2024 A.Y. 2021-22 5 10. That in response to notice(s), the assessee has filed necessary information/replies/documents which were examined and placed on record.

i) Addition of Rs.21,44,420/- under Section 40A(3) on account of alleged cash payment of salary and wages. ii) Addition of Rs.36,85,400/- under Section 69C r.w.s. 115BBE on account of alleged unexplained expenditure of the assessee.

1. That the Ld. Commissioner of Income Tax (Appeals)-S, Ludhiana has erred in confirming the addition of Rs. 21,44,420/- on account of alleged cash ITA 209/CHD/2024 A.Y. 2021-22 6 payment of salary in violation of provisions of section 40A(3) as per para 5.3 of his order.

2. That the Ld. C!T(A) has erred in confirming the addition of Rs. 36,85,400/-on account of alleged unexplained expenditure of the assessee u/s 69C of the Act on the basis of undated document, having no narration at all.

3. That the sustaining of addition by the Ld.CIT(A) and invoking of provisions of section 69 read with section, are against the facts and circumstances of the case.

4. That the appellant craves leave to add or mend the grounds of appeal before the appeal is finally heard or disposed off.

13. With regard to addition of Rs.21,44,420/- on account of alleged cash payment of salary in violation of provisions of Section 40A(3) of the Act is concerned; the ld. AO in his “Impugned Assessment Order dated 24.12.2022 (supra)” has discussed the issue from pages 52 to 72. The Show Cause Notice has been reproduced by the ld. AO in the impugned assessment order dated 24.12.2022 (supra) from pages 53 to 59. The reply to the Show Cause Notice is at pages 59 to 70 of the order of ld.

AO where assessee has given the entries as made in Regular Cash Book furnished during the assessment proceedings. The finding of the ld. AO is at pages 70 to 72 in para 5.3 to para 5.4 of the impugned assessment

ITA 209/CHD/2024 A.Y. 2021-22 7 order and the ld. AO has simply relied upon entries in the seized annexures without considering the split up of expenses.

“In view of the record seized during the course of search since no details of the expenses incurred by the assessee besides the salary have been mentioned therein, the plea of the assessee cannot be accepted”.

“2. There were search and seizure operations on the assessee on 08.09.2021 and certain records were seized and on the basis of such records, the Assessing Officer has made the addition of the payment made in respect of alleged salary u/s 40A(3) amounting to Rs. 21,44,420/- and following are brief facts in this regard:- a). All the entries as found in the seized document have been recorded in the regular cash book of the assessee and in such books of accounts, there is no payment exceeding Rs. 10,000/-. Please refer to Page No 60-69 of the AO order. b). The difference is that in the loose, sheet, consolidated sum has been mentioned in respect of payment made to employees and against such payment, only the name of the employees have been mentioned but details of each payment with nature is there in the cash book which has been completely ignored.

ITA 209/CHD/2024 A.Y. 2021-22 8 c). The Assessing Officer admitted that all such persons as per seized record are employee of the assessee as per page 70 of the order of the Assessing Officer. d). The basis of making the addition by the Assessing Officer is on account of seized papers, in which, consolidated sum against the name of employee has been mentioned and, whereas, in the regular books of accounts, the split up of the amount has been mentioned, because the employees had incurred certain expenses, which were mentioned and which detail have been given in the regular books of accounts. e). The said detail was explained to the Assessing Officer as mentioned in the order of Assessing Officer at pages 60 to 69 and the same has also been mentioned by the Assessing Officer at page 70 of his order. f). Our books of accounts have not been rejected u/s 145(3) and same have been accepted by the Assessing Officer and, thus, when as per our books of accounts, there is no payment exceeding Rs. 10,000/- and, thus, no disallowance u/s 40A(3) can be made because section 40A (3) states that where the assessee incurs an expenditure more than Rs. 10,000/-, then the same shall be disallowed. g). Further, when our books of accounts have not been rejected, no such addition can be made on account of disallowance of expenses u/s 40A

(3) as per the following judgments:- a) CIT vs. Anil Kumar & Co. in & 200002 vide order dated 25.02.2016 (Karnataka HC) wherein it has been held as under: "The tribunal has rightly held that when the books of account of the assessee had not been rejected and assessment having not been framed under section 144, the Assessing Officer and the Commissioner (Appeals) were in error in resorting to an estimation of income and such exercise undertaken by them was not sustainable." b) ITO vs. Amit Verma in /2011 vide order dated 19.12.2012 (Del Bench): "Assessing Officer has not pointed out any specific defects in the books/records. Moreover the books of accounts have been duly audited, the details were submitted before the Assessing Officer. The Assessing Officer has not invoked section 145(3) and he has not rejected the books of account. Under the circumstances, adhoc disallowance is without any basis. Hence, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A) and therefore, we uphold the same."

ITA 209/CHD/2024 A.Y. 2021-22 9 c) ITO vs. Pranab PrakaSh Dutta in vide order dated 25.06.2012. "10. We have considered the rival submissions. A perusal of the decision of the Hon'ble Supreme Court in the case of Sargam Talkies (refer to supra) clearly shows that in absence of rejection of books of account maintained by the assessee in respect of cost of construction, no addition on estimate basis can be made. In the present case, a perusal of the assessment order clearly shows that the books of account in respect of cost of construction of the lodge, Dhruva Tara has not been rejected. In the circumstances, we are of the view that in view of principle laid down by the Hon'ble Supreme Court in the case of Sargam Talkies (refer to supra), no addition is called for in the hands of the assessee. In the circumstances, the addition of Rs. 1 lakh as confirmed by the learned Commissioner of Income-tax (Appeals) stands deleted." d). CIT vs. Pashupati Nath Agro Food Products P Ltd. of 2010 (Allahabad HC) "On perusal of the impugned judgment and order of the Tribunal dated 27.10.2009 reveals that the assessee has maintained the books of accounts in accordance with the prescribed standard as per Section 145 of 'the Act'. The account books have not been rejected by the assessing officer. In view of the above, the Tribunal formed an opinion where once the account books are expected to be maintained in the prescribed, accounting standard, the assessing officer could not have made any additions towards the sale of rice treating it to be outside the books of accounts or towards investing in stock of rice and wheat outside the books of accounts. In view of the above, the controversy as raised above in this appeal stands duly covered by the Tribunal and it cannot be said that any investment was done beyond the books of accounts." e).Further reliance in this regard is placed on the following judgements of the Hon'ble Apex Court, wherein on exactly similar lines as that in case of the assessee, it has been held that where the cash deposited was out of the books of account & cash book and where such books had not been rejected u/s 145 of the Act, then part addition for cash deposits was not sustainable, namely: Lalchand Bhagat Ambica Ram vs. CIT [1959] 37 ITR 288 (SC) Section 143 of the Income-tax Act, 1961 - Assessment - Addition to income - Assessment year 1946-47 - Assessee carried on extensive business in grain as merchant and commission agent - Assessee maintained its books of account according to mercantile system and there were maintained in its cash books two accounts: one showing cash balances from day to day and other known as "Almirah account" wherein were kept large balances which were not required for day-today working of business - It filed its return showing loss in business -However, ITO noticed that assessee had encashed high denomination notes of value of Rs. 2.91 lakhs on 19- 1-1946 - Assessee's explanation that those notes formed part of its cash balances including cash balances in Almirah account was rejected by ITO who took into account several surrounding circumstances and included said sum in its total income - ITO also found that portions of entries in assessee's accounts to effect that money's had been received in high

ITA 209/CHD/2024 A.Y. 2021-22 10 denomination notes were subsequent interpolations - Before Tribunal assessee stated that said entries were made in nervousness after coming into force of High Denomination Bank Notes (Demonetization) Ordinance, 1946 on 12-1- 1946, as it did not know it had specific proof in its possession of having high denomination notes as part of its cash balances-Tribunal accepted assessee's explanation in respect of said interpolations and held that there was no other reason to suspect genuineness of account books - It was also found that as per book entries cash balance on 12-1-1946 aggregated to more than Rs. 3.1 lakh - However, examining cash book and taking into account all circumstances adverted to by ITO, Tribunal held that assessee might be expected to have possessed as part of its business cash balance of at least Rs. 1.5 lakhs in shape of high denomination notes on date when said ordinance was promulgated but nature of source from which it derived remaining high denomination notes remained unexplained - Accordingly, Tribunal reduced addition - Whether when entries in books of account in regard to cash balances were held to be genuine, there was no escape from conclusion that assessee had offered reasonable explanation as to source of all high denomination notes which it encashed on 19-1-1946 and it was not open to Tribunal to accept genuineness of those books and accept assessee's explanation in part and reject same in regard to balance sum -Held, yes - Whether, therefore, it was clear that Tribunal in arriving at its conclusion indulged in suspicions, conjectures and surmises and acted without any evidence or upon a view of facts which could not reasonably be entertained or finding was perverse which could not be sustained and Supreme Court was entitled to interfere with such finding - Held, yes - Whether, therefore, addition made was liable to be deleted - Held, yes.”

ITA 209/CHD/2024 A.Y. 2021-22 11 that there is apparent violation of Section 40A(3) as all payments are less than Rs.10,000/- at one give time.

per day and in the impugned order (Para 5.2.3 pages 26- 27). No disallowance was sustained and therefore, addition of Rs.21,44,420/- is contrary to the finding given by the ld. CIT(A) in the impugned order in respect of issue of freight.

“11. Insofar as the estimation of gross profit made by the Assessing Officer modified by the CIT(Appeals), tribunal has rightly held that when the books of account of the assessee had not been rejected and assessment having not been framed under section 144 of the Income Tax Act the said authorities were in error in resorting to an estimation of income and such exercise undertaken by them was not sustainable. Section 145(3) of the Act lays down that the Assessing Officer can proceed to make assessment to the best of his judgement, under Section 144 of the Act only in the event of not being satisfied with the correctness of the accounts produced by the assessee. In the instant case the Assessing Officer has not rejected the books of account of the assessee. To put it differently the Assessing Officer has not made out a case that conditions laid down in Section 145(3) of the Act are satisfied for rejection of the books of account. Thus, when the books of account are maintained by the assessee in accordance with the system of accounting, in the regular course of his business, same would form the basis for computation of income. In the instant case it is noticed that neither the Assessing Officer nor CIT(Appeals) have rejected the books of account maintained by the assessee in the course of the business. As such tribunal has rightly rejected or set aside the partial addition made by Assessing Officer for arriving at gross profit and sustained by the CIT(Appeals) and rightly held that entire addition made by the Assessing Officer was liable to be deleted. The said finding is based on sound appreciation of facts and it does not give rise for framing substantial question of law.

Reliance was also placed on the judgement of ITAT, and CO No.70/Kol/2011 in case of ITO, Ward-4, Bankura Vs Pranab Prakash Dutta wherein in para 10, following is held :

ITA 209/CHD/2024 A.Y. 2021-22 16 shows that the books of account in respect of cost of construction of the lodge, Dhruva Tara has not been rejected. In the circumstances, we are of the view that in view of principle laid down by the Hon'ble Supreme Court in the case of Sargam Talkies (refer to supra), no addition is called for in the hands of the assessee. In the circumstances, the addition of Rs. 1 lakh as confirmed by the learned Commissioner of Income-tax (Appeals) stands deleted.

Reliance was also placed on unreported judgement of Allahabad High Court in case of CIT Vs Pashupati Nath Agro Feed Products Pvt. Ltd. in of 2010 (Allahabad High Court ) wherein following is held in their order dated 04.05.2017 :

“On perusal of the impugned judgment and order of the Tribunal dated 27.10.2009 reveals that the assessee has maintained the books of accounts in accordance with the prescribed standard as per Section 145 of 'the Act'. The account books have not been rejected by the assessing officer. In view of the above, the Tribunal formed an opinion where once the account books are expected to be maintained in the prescribed accounting standard, the assessing officer could not have made any additions towards the sale of rice treating it to be outside the books of accounts or towards investing in stock of rice and wheat outside the books of accounts. In view of the above, the controversy as raised above in this appeal stands duly covered by the Tribunal and it cannot be said that any investment was done beyond the books of accounts. We find no substance in this appeal and the questions raised above require no adjudication. Accordingly, the appeal is dismissed.”

20.3 In view of above judicial pronouncements, we are also of the considered view that if the explanation coupled with books of account once it was made known

ITA 209/CHD/2024 A.Y. 2021-22 17 to the Revenue, the Revenue has to accept the explanation alongwith books unless books of account are rejected as per Section 145 of the Act. In the instant case since books of account are not rejected under Section 145 where all entries are less than Rs.10,000/-

per person, the addition made is unjustified.

20.4 In so far as 2nd addition of Rs.36,85,400/- is concerned under Section 69C r.w.s. 115BBE on account of alleged unexplained expenditure of the assessee, we find that contention and submission of ld. AR are untenable. On the contrary, we conquer with the following finding of ld. CIT(A) in the impugned order which remain unrebutted by the assessee before us :

“5.4.3 I have considered the reasoning given by the AO in assessment order, submissions & documents submitted by the appellant, facts of the case and legal position. I is a fact that in the noting of the seized document, there is no mention of cash being sent to the residence. Therefore, the contention of the assessee cannot be accepted that the said cash as noted in the seized record was meant to be sent at the first floor of his residence. It is a settled law and presumption in 292C of the Act that any document/money/bullion etc. found during search belongs to the assessee and the content are true. As per law onus is on the assessee to explain the contention with the evidence. But in present case, the submissions of the appellant are not convincing and are devoid of valid reasoning. Therefore, the addition made by the AO is upheld as the AO has passed a well-reasoned order after giving property opportunity of being heard and therefore the addition of Rs. 36,85,400/- is confirmed. Accordingly, this ground of appeal is dismissed.”

ITA 209/CHD/2024 A.Y. 2021-22 18

The addition of Rs.21,44,420/- is deleted and addition of Rs.36,85,400/- is confirmed.