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Income Tax Appellate Tribunal, DEHRADUN BENCH: DEHRADUN
Before: SHRI VIKAS AWASTHY & SHRI AVDHESH KUMAR MISHRA
A.Y. 2010-11 Reena Verma Income Tax officer, C/o Pawan Singh Ward 1(3)(5), Khedi Kala, Mubaraqpur Vs. Income Tax Office, Laskar, Haridwar-247667 Civil Lines, Roorkee PAN: AGVPV0526B (Appellant) (Respondent) Appellant by None Respondent by Sh. A. S. Rana, Sr. DR Date of Hearing 10/02/2025 Date of Pronouncement 09/05/2025 ORDER
PER AVDHESH KUMAR MISHRA, AM
This appeal of the assessee for the Assessment Year (hereinafter, the ‘AY’) 2010-11 is directed against the order dated 24.01.2018 passed by the Commissioner of Income Tax (Appeals), Dehradun [hereinafter, the ‘CIT(A)’].
The assessee has raised following grounds of appeal:
“1. That the learned Commissioner of Income Tax (Appeals), Dehradun has erred both in law and on facts in sustaining the initiation of proceedings u/s 147 of the Act and, completion of assessment u/s 147/143 (3) of the Act which were without jurisdiction and deserved to be quashed as such. 1.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that there was no tangible and relevant material on record on the basis of which it could be held that, there was any "reason to believe"
Reena Verma with the learned Income Tax Officer the income of the appellant had escaped assessment and, in view thereof, the proceedings initiated were illegal, untenable and therefore, unsustainable. 1.2 That the Commissioner learned of Income Tax (Appeals) has further erred both in law and on facts in failure to appreciate that, issuance of notice u/s 148 merely amounted to change of opinion as original assessment was completed u/s 143(3) and, no tangible material surfaced after the completion of assessment and, therefore notice was illegal and, without jurisdiction. 2 That Commissioner learned the of (Appeals) has erred both in law and Income Tax on facts in confirming addition of Rs.1,20,000/- representing introduction of capital from the past saving from the income generated by agriculture activities. 2.1 That while sustaining the aforesaid addition the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the burden of the appellant stood discharged u/s 68 of the Act and therefore the conclusion that initial onus case upon the appellant has not been discharged is justified and is not in accordance with law. 2.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that aforesaid sum was credit did not represent any credit in the books of appellant and hence such sum could not justifiably be otherwise held to be unexplained credit u/s 68 of the Act as alleged that in absence of any documentary proof. 2.3 That the learned Commissioner of Income Tax (Appeals) has overlooked the fact that there is not an iota of evidence much less direct and circumstantial evidence to support the allegation that income declared from agriculture is income from undisclosed sources. 2.4 That the learned Commissioner (Appeals) of Income has overlooked an explanation by assessee, which is prima facie Tax on reasonable, cannot be rejected on capricious or arbitrary ground or on mere suspicion or on irrelevant grounds. 3 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the disallowance of Rs.40,09,123/- made by invoking the provisions contained in section 40A (3) of the Act.
Reena Verma 3.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that section 40A (3) of the Act is wholly in applicable to the facts of the appellant since payments were covered under Rule 6DD of the Income Tax Rules and as such disallowance sustained is contrary to law and facts and hence untenable. 3.2 That the learned Commissioner (Appeals) of Income Tax has upheld the disallowance by disregarding the conduct of M/s India Glycols Ltd with appellant and has erred in relying upon trivial ground based on the conduct of the appellant and M/s India Glycols Ltd with appreciating that both the assessee are organized entities and over looked the evidence on record. 3.3 That the (Appeals) learned Commissioner of in upholding the Income Disallowance Tax has overlooked that entries as recorded in the books of accounts of M/s India Glycols Ltd were as such findings of the learned Commissioner of Income Tax (Appeals) in disregard of the receipts is highly arbitrary, unjustified and not tenable. 3.4 That the learned Commissioner of Income Tax (Appeals) in any case could not have proceeded to deny the claim of deduction on the basis of books of accounts, confirmation regarding notice u/s 133(6) of the Act of when as a matter-of-fact M/s India Glycols Ltd have been accepted as such.
That the authorities below have framed the impugned order without granting sufficient proper opportunity to the appellant company and therefore the same are contrary to principle of natural justice and hence vitiated.
That the learned Commissioner of Income Tax (Appeals) has further erred in upholding the levy of interest, which are not leviable on the facts of the instant case. It is therefore, prayed that, it be held that assessment made by the learned Income Tax Officer and sustained by the learned Commissioner of Income Tax (Appeals) be quashed and, further addition so upheld by the learned Commissioner of Income Tax (Appeals) be deleted and appeal of the appellant be allowed.”
i. Reopening of the assessment, ii. Taxability of proprietor capital of Rs.1,20,000/- under section 68 of the Act, iii. Taxability of Rs.40,09,123/- under section 40A(3) of the Act iv. Chargeability of interest under the Act.
The brief facts giving rise to this appeal are that the assessee, engaged in the business of liquor trading, filed her Income Tax Return (hereinafter, the ‘ITR’) declaring income of Rs.2,86,150/-. Later on, the case was reopened. Consequentially, the assessment was completed at income of Rs.82,46,600/-. During the course of the reopened assessment proceedings, the Assessing officer (hereinafter, the ‘AO’) noticed that the assessee had introduced the capital of Rs.1,20,000/- in her business claimed to have been sourced from her agricultural income. However, the assessee had not disclosed any agricultural income in her ITR. Hence, the AO treated the same as unexplained and taxed it. Further, the AO noticed that the assessee had taken loans aggregating to Rs.5,50,000/- sourced from 30 persons (below Rs. 20,000/- per person). The AO was not satisfied with the explanation of the assessee (genuineness of such loans and creditworthiness of lenders); therefore, he taxed the same. Further, the AO also taxed the license fee of Rs.9,68,600/- paid to the State Excise department as unexplained. The AO also noticed that the assessee, licensee of country liquor appointed by the Reena Verma State Govt., had picked up her allotted quota of liquor from India Glycols Ltd. by making cash payment of Rs.40,09,123/- in contravention to section 40A(3) of the Act as detailed in Para 4.10 of the assessment. During the assessment proceedings, the AO gathered the copy of ledger account of the assessee in the books of accounts of India Glycol Ltd., which clearly demonstrated that the assessee had made the entire payments in contravention of section 40A(3) of the Act (Rs.20,000/- and more at a time) though she had accounted the same in her books of accounts by splitting payments into the sum of less than Rs.20,000/- at a time. Therefore, the AO disallowed these payments under section 40A(3) of the Act as there was no exceptional clause to make such payments in cash under Rule 6DD of the Income Tax Rules. Keeping in view the above facts, the AO rejected the books of accounts of the assessee under section 145(3) of the Act and applied net profit @ 8% of the annual sale of Rs.1,44,77,740/- as under:
“4.12 As per return of income filed by the assessee, a turnover of Rs.1,44,77,740/- has been shown. After claiming various expenses, a net profit of Rs.2,86,150/- has been shown against the turnover of Rs.1,44,77,740/-. After repeated request through notice u/s 142(1) of the I.T. Act as well as through order sheet entries, the AR of the assessee was asked to furnish copy of Audited Report in Form No. 3CB and 3CD along with P & L account, balance sheet with its annexure and also to produce books of accounts including ledger, cash book, purchase vouchers, stock register along with bills and vouchers. The authorized representative of the assessee neither furnished the Audit Report in Form No. 3CB and 3CD nor he produced books of accounts as mentioned above for verification. However, from the earlier records of A.Y. 2010-11 of the assessee itself, it is found that the Audit Report has been filed along with P & L account, Reena Verma Balance Sheet and Capital account. Ongoing through the Audit report along with its enclosure, the following discrepancies are found: - i. Ongoing through the balance sheet, it is found that no unsecured loan has been shows while the assessee has filed written submission stating the unsecured loan of Rs. 5,50,000/- has been raised from known persons and has also filed ledger of the same. ii. As per written submission, the assessee has claimed about introduction of capital of Rs. 1,20,000/- + Rs. 11,00,000/-. While on going through the capital account, it is found that the assessee has shown introduction of capital of Rs. 1,20,000/- only. iii. As per cash book, the assessee has shown cash payments below Rs. 20,000/- splitting it into 2 to 5 times in a day against one bill raised by M/s India Glycol Limited, while as per information received u/s 133(6), the cash payments as discussed in earlier paras has been made in excess of Rs. 20,000/-, iv. Date of Excise duty payments made in cash differs from the dates which has been furnished by the Excise department. 4.13 In view of above discrepancies, the undersigned is not satisfied about the correctness of the accounts of the assessee and also in view of the fact that the assessee did not produce books of accounts along with its bills and vouchers, the books of accounts is rejected u/s 145(3) of the I.T. Act. In view of above facts, I estimate the net profit @ 8% on the total sale/turnover of Rs. 1,44,77,740/- which works out to Rs. 11,58,221/-. Thus, net income from the sale of Country Liquor is taken at Rs. 11,58,221/- in lieu of the net profit of Rs. 2,86,145/- as declared by the assessee. (Addition: -11,58,221/-) 3.1 Aggrieved, the assessee filed appeal before the CIT(A), who gave part relief as under:
“11. The first issue is the addition of Rs.1,20,000/- shown as capital introduction by the assessee. The AO has held that this introduction of capital of Rs.1,20,000/- is not justified. The AO had held that no documentary evidence has been adduced by the assessee has merely stated before the undersigned that Rs.1,20,000/- is a small amount which is generally available with all the persons having agricultural income. This cannot be the argument taken during the scrutiny proceeding Reena Verma where tangible details and evidences are required to be furnished. Therefore, this addition made by the AO in confirmed.
The next addition is one of Rs.5,50,000/ said to be unsecured loan received by the assessee from a large number of persons. The AO has mentioned that the record shows that acceptance letters from about 25 to 30 persons have been filed by the assessee without any genuineness & creditworthiness being shown. This matter had been examined by my predecessor when the assessment u/s 143(3) was being heard prior to the issue of notice u/s 148 leading to this assessment under consideration. My predecessor had deleted this addition on the ground that no tangible evidence was adduced by the AO. That situation is not changed and the AO has merely relied on the information from the past. No new fact or evidence has been brought on record. Therefore, this addition of Rs.5,50,000/- stands deleted.
The next addition made by the AO is amount of Rs.9,68,600/- being licence fees paid to the excise department. The issue before the AO was the availability of a source for this payment. The AO has mentioned that no capital was available with the assessee 10 make this payment. However, it must be mentioned that an addition of Rs.11 lacs was made by the AO in the AY 2009-10 which has been upheld by the undersigned by separate order. Therefore, this capital is now available with the assessee to make payment and therefore separate addition u/s 69 is not warranted. This addition is therefore deleted.
The next addition is one of Rs 14,60,656/- being excise duty paid by the assessee. The assessee has made a total payment of excise duty of Rs.87,61,877/-. The AO has held that the payment of security of Rs.14,60,656/- remains unexplained and therefore, this addition has been made. I have been examined this issue and I found that this payment have been routed through the cash book and the same have been entered in the books of account, audited u/s 44AB which were available with the AO. Therefore, this addition has no legs to stand on and is therefore deleted.
The next addition arises out of payment in cash made by the assessee for purchase of country liquor to M/s. India Glycols Ltd. The AO has held that the assessee has made payment amounting to Rs.
Reena Verma 40,09,123/- in excess of Rs. 20,000/- thereby being in contravention of Rule 6DD of I. T. Rules, 1962.
The assessee has stated that these payments are made to M/s India Glycols Ltd. because it does not accept cheques or drafts. The assessee has stated that the delivery to country liquor is made only when the deposited has been made to them. The assessee has no account in Kashipur and Country Liquor is excisable item on which Excise is paid. The appellant also stated that all purchases are duly verified and the department has verified all the purchases made during the year.
The assessee has also cited certain pronouncements of various courts wherein it has been held that except exceptional circumstances: seller refusing the accept payment by way of cross cheques etc. are factors that should mitigate the application of Rule o The appellant has also cited certain decision which states that where there is ambiguity in detecting statute, the view should be taken in favour of the assessee.
I have examined this issue. The issue here is not of the genuineness of the purchases made by the assessee it concerns the application of Rule 6DD which requires that the payment in excess of Rs 30.000/- should not be made in cash. In the case at hand, both the assessee and the seller M/s India Glycols Ltd are organized entities and there can be no reason why they need to trade in cash. The exceptional circumstances that have been discussed in the citations given by the assessee cover cases where trade is conducted with agriculturist, small traders and those working in unorganized sectors That is not the case here. This issue must also be looked at in the current scenario where cash transactions are being scrutinized with a greater focus. Therefore, there cannot be any of judicial benedictions provided to the practice of cash trade that the assessee has followed. It may be mentioned that provision like Rule 600 and Sec 40A(3) are not related to concealment of income but to maintenance of fiscal discipline which is as important to a taxation system. They cannot be ignored on trivial grounds Apart from that, the volume of trade is also very high and it is not desirable that the assessee conducts in business is in cash Therefore, the application of Rule 6DD and the addition made by the AO under section 40A(3) is very much in order and the addition of Rs. 40,09,123/- is upheld.
Reena Verma 19. The final addition made by the AO is one of Rs.11,58,221/- on the ground that books of account were not produced. The AO has therefore estimated the assessee’s income at 8% of turnover of Rs.1,44,77,740/-. Before the undersigned, the appellant has stated that books of account were very much available with the AO from the time of original assessment proceedings under section 143(3). Infact, it is seen from the assessment order that the AO has actually relied on the audit report filed along with the profit and loss a/c, balance sheet from those original proceedings. Therefore, there does not appear to be any rationale for making this addition and it is therefore deleted.” 3.2 The assessee challenged issues wherein she did not succeed.
Before us, none appeared on behalf of the assessee; therefore, we heard Ld. Senior Departmental Representative (hereinafter, the ‘Sr. DR’). He requested for dismissal of the appeal and supported orders of lower authority.
First issue is in respect of reopening of the assessment. The Ld. CIT(A) has decided this issue as under:
“10. I have gone through the assessment order, the submission made by the appellant and other documents available on record. The appellant has raised an issue regarding the issue of notice u/s 148. The assessee has stated that no new information was available with the AO and re-opening proceedings cannot be based on suspicion. It has been mentioned earlier in this order that this is the second round of scrutiny proceeding after the original order u/s 143(3) was deleted on technical ground. The undersigned holds that the AO did have tangible material on record to initiate these proceedings to open the assessment and the action of the AO is therefore upheld. This is evident from the fact that the AO has investigated issues that were not examined earlier. The result of that efforts are discussed in the succeeding paragraphs.” 5.1 The original assessment in this case was completed at income of Rs.1,36,55,359/- under section 143(3) of the Act vide order dated 05.03.2013.
Reena Verma However, the same was quashed on technical reason by the Ld. CIT(A). Later, based on the tangible material available on the record, the AO reopened the case.
The original assessment order was held void ab-initio by the Ld. CIT(A) vide his order dated 20.03.2015. The said order dated 20.03.2015 of the Ld. CIT(A) attained finality as the same was not challenged further. Thus, there was no valid assessment order after the order dated 20.03.2015 of the Ld. CIT(A). The reasoning recorded clearly demonstrate that the assessee had not divulged all the material facts to the AO. For eg. payments made to India Glycol Ltd. in violations of section 40A(3) of the Act were not divulged to the AO. There is other material facts, which are also not divulged by the assessee. We are of the considered view that the original assessment order dated 05.03.2013 passed under section 143(3) of the Act has become non-est or invalid after the order of the Ld. CIT(A). In Balwant Singh v. R.D. Shah (Director of Inspection) [1969] 71 ITR 550 (Delhi), it was held that the information gathered as a result of illegal search and seizure can be used subject to the value to be attached to it or its admissibility in accordance with the law relating to the evidence. Thus, following the same logic, we are of the considered view that the information gathered prior to the issuance of notice under section 148 of the Act can be used even if the earlier proceedings have been held invalid. This inference also gets buttressed by the decision of the Hon’ble Supreme Court in the case of Abhisar Buildwell 459 ITR 212, wherein it has been held that the obvious powers of the AO to reopen/reassess such Reena Verma completed/unabated assessments under sections 147/148 is saved subject to fulfillment of the conditions as envisaged/mentioned under section 147/148 of the Act. In view of the foregoing discussion, we do not see any infirmity in the finding of the Ld. CIT(A) upholding the reopening of the case. Reopening of the case thus is held valid. Accordingly, this issue fails.
The next issue is in respect of the taxability of proprietor capital of Rs.1,20,000/- under section 68 of the Act. The claim of the assessee is that it has been sourced from her income and past savings. However, the AO has taxed it on the reasoning that the assessee has failed to substantiate her claim with the documentary evidence. We have given a thoughtful consideration on this issue. Past saving over the years can be judged by the tax profile of the assessee. Further, the sum is very meagre. Looking into facts in totality, social status, tax profile of the assessee, we delete this addition. The assessee gets consequential relief.
The last issue is in respect of the taxability of Rs.40,09,123/- under section 40A(3) of the Act. It is not a case that where exception to Rule 6DD of the I. T. Rules is attracted. The quota of country liquor would have been taken after making payments through the banking channel (DDs or Cheques) in advance if the seller was not allowing purchases on the credit. Before us, no material was brought on the record to controvert the finding of the Ld. CIT(A) in this regard (disallowance under section 40A(3) of the Act). Further, we do not find any infirmity in the finding of the Ld. CIT(A) in this regard Reena Verma (disallowance under section 40A(3) of the Act). We therefore, decline to interfere with the finding of the Ld. CIT(A). Thus, we uphold the taxability of Rs.40,09,123/- under section 40A(3) of the Act. This ground fails accordingly.
The ground relating to chargeability of interest under the Act, being consequential, is dismissed.
In the result, the appeal of the assessee stands partly allowed as above. Order pronounced in open Court on 09 May, 2025