M/S. NANAK CHAND ASSOCIATES,NEW DELHI vs. ITO, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DEHRADUN BENCH: DEHRADUN BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.1419/Del/2017 (ASSESSMENT YEAR 2012-13) Income Tax Officer, M/s Nanak Chand Kotdwar Associates Vs. C/o S.K. Ahuja & Associates, 100/114, Neshvilla Road, Dehradun PAN-AAIFN5259L (Appellant) (Respondent) Assessee by Dr. Rakesh Gupta, Adv. and Sh. Somil Aggarwal, Adv. Department by Sh. S.K. Chaterjee, CIT-DR Date of Hearing 14/02/2025 Date of Pronouncement 12/03/2025 O R D E R PER MANISH AGARWAL, AM: This appeal is filed by the assessee against the appellate order of the ld. Commissioner of Income Tax (A), Dehradun dated 29.12.2016, for the A.Y. 2012-13 in appeal No. 37/CIT(A)/DDN/2015-16 passed u/s 250(6) of the Income Tax Act, 1961 (the Act, in short). 2. Brief facts of the case are that the assessee is a partnership firm come into existence w.e.f. 01/04/2011 and was engaged in the

2 ITA No.1419 /Del/2017 M/s Nanak Chand Associates vs. ITO business of running of Wine shops in Garwhal Region. The return of income was filed on 01/10/2012 declaring total income at Rs.11,57,840/-. Case was selected for scrutiny and the assessment was finally completed vide order passed u/e 143(3) dt. 27.03.2015 at a total income of Rs. 1,29,80,127/- by making various additions/ disallowance. Aggrieved by the order, assessee preferred appeal before the CIT(A) who vide order dt. 29.12.2016 has partly allowed the appeal of the assessee. Thus the assessee is before the Tribunal in the present appeal on the additions / disallowances confirmed by ld. CIT(A). 3. The assessee has taken following grounds of appeal: “1. That having regard to the facts and circumstances of the case, ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned assessment order and that too without assuming jurisdiction as per law and without issuing/serving the notice u/s 143(2) from the valid jurisdictional officer. 2. That in any case and in any view of the matter, assumption of jurisdiction to pass the impugned assessment order, is bad in law and against the facts and circumstances of the case and in violation of principles of natural justice.

3 ITA No.1419 /Del/2017 M/s Nanak Chand Associates vs. ITO 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making adhoc disallowance of Rs.3,08,819/- on account of indirect expenses (as mentioned at page 9 of assessment order). 6. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234A, 234B and 234C of Income Tax Act, 1961. 7. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.” 4. During the course of hearing, ld. AR of the assessee has not pressed ground of appeal No. 1 & 2, therefore, the effective grounds remained are in respect of addition of Rs. 30,00,000/- made by AO u/s 68 of the Act challenged in Grounds of appeal Nos. 3& 4 and disallowance out of various expenses at Rs. 3,08,819/- which is taken in ground No. 5. Ground of appeal No. 6 is in relation to the charging of interest u/s 234A, 234B and 234C of the Act. Addition of Rs. 30,00,000/- u/s 68 of the Act Ground of appeal Nos. 3 & 4 5. Brief facts leading to this issue are that during the examination of the books of account, the AO found that assessee has made two entries of cash withdrawals of Rs. 20,00,000/- on 29/10/2011 and Rs.10,00,000/- on 17/11/2011 from its bank account with Uttarakhand Gramin Bank in its cash book, however, actually these were paid to Smt. Vimla Rani and Shri Madan Lal respectively through bank. Further prior to theses entries, two entries of the same amount of cash deposited into bank were appearing in the bank statement. Since the assessee has shown these amounts as cash

4 ITA No.1419 /Del/2017 M/s Nanak Chand Associates vs. ITO withdrawal in the cash book and no source of the cash deposits were explained, therefore, the AO asked the assessee as to why these amounts should not be treated as unexplained expenditure and added back u/s 69C of the Act in the hands of the assessee. As no explanation was tendered by the assessee thus the AO has made the addition of Rs. 30.00 lacs by treating the same as unexplained expenditure. Before ld. CIT(A) assessee claimed that these amounts were given by Shri Madan Lal who was financer of the partners of the assessee firm and help them in crucial time. The cash was given by him to the partners for transfer Rs. 20.00 lacs in his wife’s Smt. Vimla Devi bank account through RTGS and Rs. 10.00 in his own bank account in Rajasthan as he is not having in bank account in Pauri, where the assessee worked. The accountant had made wrong entries of cash receipt and funds transfer to their bank account as cash withdrawal in the books of account of the assessee firm. Ld. CIT(A) disbelieved the explanation of the assessee and confirmed the addition u/s 68 by observing that in para 25 of the order as under: “25. However, with regard to the addition made of Rs.30,00,000/- on account of NEFTs sent to Vimal Rani and sought to be disguised as cash withdrawals, it appears that the addition has been rightly made. It has been submitted that Shri Madan Lal gave Rs.30,00,000/- in cash to the partners and asked that the money be sent to his wife in Rajasthan, but there is no evidence of any such deposit by Madan Lal. No confirmation has been filed. The assessee has submitted that the amount of Rs.30,00,000/- has never been claimed as an expenditure and therefore, there was no occasion of disallowance in this regard but it is observed that the cash deposit (purportedly by Madan Lal) has also not been taken into receipts. Therefore, unless it is proved that the cash was deposited by Madan la, which the assessee could not prove, it has to be held that the same were taxable receipts, which needed to be brought to tax. There is another angle to this. In view of the fact that it has been observed that Madan Lal may infact be the shadow partner in the firm, the transfer could also represent his share

5 ITA No.1419 /Del/2017 M/s Nanak Chand Associates vs. ITO of profits sought to be disguised as cash withdrawals. Since Madan Lal is seen to be indulging in the trade illegally, any payment to him or his wife on account of profits from such trade would in any case be disallowable. In the circumstances, since the payment to the firm in cash by Shri Madan Lal is not proved, the receipts in cash purportedly from him are held to be taxable business receipts and the payments to Smt Vimla Devi are held to not have been made for business purposes, because the payments to her are not even recorded in the books of accounts. Hence, the expenditure is not deductible from the receipts, which in tune, are added back under section 68. The addition of Rs.30,00,000/- is confirmed accordingly.” 6. Before us, the ld. AR reiterated the same explanation as was made before the ld. CIT(A) and no evidence was submit to support the claim that the cash was actually received from Shri Madan Lal and there were wrong entries done by the accountant in the books. As per ld.AR the first entry should be cash received and then the second entry of bank transfer to them should be made as against which the accountant has made single entry of cash withdrawal. He further argued that this cash was re-deposited in the bank thus there was no shortage of cash. Since no expenses was incurred, provision of section 69C could not be applied. Therefore, it was prayed that the addition made deserves to be deleted. 7. On the other hand, ld. Sr. DR supported the orders of the lower authorities and requested for the confirmation of the same. 8. We have perused the facts and material available on record. On careful consideration of the facts of the case we find that it was the claim of the assessee that cash was given by Shri Madan Lal for making transfer to his account and his wife bank account. The said cash receipts were not recorded in the books of accounts and on the contrary an entry of cash withdrawal was made. It appears it was

6 ITA No.1419 /Del/2017 M/s Nanak Chand Associates vs. ITO done to camouflage the department from initiating the proceedings for violation of the provisions of section 269SS of the Act which prohibits any deposit or loan in cash exceeding Rs. 20,000/- from any person. Further except making claim that the amounts were received in cash, no evidence in the shape of confirmation etc. of Shri Madan Lal or Smt. Vimla Devi were produced before the lower authorities nor before us, to support the contention that the cash was provided by them. Nor any material was produced to controvert the finding of the AO or ld. CIT(A). It is a matter of fact that on both the occasions when funds were transferred to Smt. Vimla Devi of Rs. 20.00 lacs on 29/10/11 and to Shri Madan Lal Rs. 10.00 lacs on 17/11/11, there were cash deposit of same amount on the same day, source of which remained unexplained. Under these circumstances we do not find any reason to interfere in the order of ld. CIT(A) which is hereby upheld. Accordingly, the grounds of appeal of appeal No. 3 & 4 of the assessee are dismissed. Disallowance of Rs. 308819/- (Ground of appeal No. 5) 9. The AO observed that assessee has failed to produce the bill and vouchers of indirect expenses totaling to Rs. 30,88,190/- and therefore, he made the disallowance of Rs. 3,08,819/- being 10% of the total expenses doubted. Ld. CIT(A) confirmed the disallowance. Before us, ld.AR argued that the expenses were incurred wholly and exclusively for the purpose of business. He further stated that assessee could not achieved the desired turnover without incurring these expenses and since they were incurred in the normal course of

7 ITA No.1419 /Del/2017 M/s Nanak Chand Associates vs. ITO business and duly authenticated by the partners, the same deserves to be allowed. He thus prayed for deletion of the disallowance made by the AO. 10. On careful consideration of the facts we find before the lower authorities, assessee has failed to submit the bills etc. in respect to these expenses so the genuineness of the same could not be verified. Still the fact remained that these expenses were necessary for in day to day business activity. Thus looking to these facts and also considering that no bill were produced, in our considered view the disallowance @ 5% as against 10% made by AO will meet the end of justice. Accordingly, we direct the AO to restrict the disallowance to 5% of the total expenses of Rs. 30,88,190/-. Thus, this ground of appeal of assessee is partly allowed. 11. Ground of appeal no.6 is with regard to charging of interest u/s 234A & 234B & 234C which are consequential in nature. Thus, the AO is directed to charge the Revenue as per law after giving effect to this order. 12. In the result appeal of the assessee is partly allowed. Order is pronounced in the open court on 12/03/2025.

Sd/- Sd/- (ANUBHAV SHARMA) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 12/03/2025 PK/Ps

8 ITA No.1419 /Del/2017 M/s Nanak Chand Associates vs. ITO Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, DEHRADUN