SURAJ PAL,GURGAON vs. ACIT, CIRCLE-4(1), GURGAON

“4.1 It is submitted that the orders passed by both the authorities are erroneous and illegal. So far as the AO is concerned, he failed to appreciate that there was a quid pro quo for the receipt of sale consideration based entirely on the purchases made. All the purchases were VAT bound and have been through a single Government Controlled supplier. The supplier had been paid through cheques for all the purchases made during the year. The VAT history of the Assessee is blemishless. 4.2 The AO also failed to note that the sales as made by the Assessee during the year have all been accepted in assessment. The sale consideration even though received generally in cash have been regularly banked by the Assessee. This the AO acknowledges. The AO has objected to a higher deposit of cash comparatively in the month of November 2016 vis-a-vis the previous months of that FY. In so doing the AO fails to note that in the month of June 2016 the cash deposited into the bank was Rs.2,51,34,000/- which was just about Rs.68,00,000/- short as compared to the November 2016 deposit. Moreover in the earlier months the effect of demonetisation was absent.

4.3 As to this difference, the explanation of the Assessee that he did a contra entry from one bank account to another bank account to meet the OD limits has been completely ignored by both the Authorities. There is irrefutable proof with regard to that transfer and consequent holding of Rs.55,00,000/- + in cash due to it. There is nothing by way of any excess cash. The entirety of the cash has emanated out of the business and has not arisen or accrued out of any non- business transaction. So to say the entirety of the cash is the sale consideration received during the month and in the earlier months retained as such by the Assessee for circulation in business. 4.4 The AO only says that ‘it seems' cash lying with the Assessee was apart from cash sales. That evidently is a pure guess. Such a guess has no place in front of primary evidence in form of entries in the books of accounts, vouchers for sales and purchases and expenses and on top of all that supported by certified audited accounts. AO’s guess, in the facts and circumstances of the case is baseless and meaningless and being grossly arbitrary and entirely fallacious merits to be quashed. 4.5 The second objection of the AO is that the amount shown in the cash book in a sum of Rs.61,80,000/- + as opening balance does not accord with the ITRs of the preceding years. The AO does so without considering that the amounts for those years have all been cleared by his own Department and that there is no litigation pending for those years. With the acceptance of books of accounts of those years, the opening cash balance of Rs. 61,80,000/- + could not have been rejected or omitted to be recognized by the AO lawfully. Once again the AO indulges in speculation when he says that it is unlikely that the Assessee was left with that quantum of cash-in-hand. That again is against the primary evidence as reflected in the audited books of accounts and accepted by the Department also in the past. The charge of the AO that the Assessee did not furnish any reason for the same is preposterous on the ground that the entire issue was obvious and self-explanatory requiring neither any reason nor any explanation by the Assessee for confirmation. 4.6 The AO in his third objection fails to note that the entirety of the sales were made out of VAT bound purchases. Also the entirety of the purchases have been made from Government controlled Companies to whom payments have been made invariably through account payee cheques. With a stock tally ready in hand and with no defects being pointed out by the AO in them the transactions of purchases and sales were completely above board and no insinuation of any sort could be raised. 4.7 The fourth objection of the AO is that the Assessee did not furnish the cash book for the whole of the FY 2016-17 but only provided it for the month of November 2016 and so there was absence of complete documents available for verification. In the first place, in terms of the SOP for assessment, there is no requirement for the Assessee to place copies of his audited books of accounts in entirety on the records of assessment. Even otherwise, AO never asked for the providing of the cash book to him. Had that only been sought by the AO, the Assessee would have readily placed that before him even though such a requirement would be bad in practise and untenable in law. 4.8 The fifth objection of the AO is both tentative and deviant. He alleges that the arguments of the Assessee had various flaws. Not one of those flaws as imagined by the AO has been brought on record though he is quick to allege the same. The need of the business of average balance in the bank account etc. Is a factor which has been at the base of the AO’s examination. It is well-settled by now and done so many times by Courts that the manner of doing business is at the sole and exclusive discretion of the Assessee and that the AO cannot tinker or tamper with that discretion. 4.9 A sixth and the last objection is with regard to the contra entries. The objection as raised by the AO is baseless, in as much as, the cash deposits and cash withdrawals stand regularly recorded in the business accounts in the books of accounts maintained in the usual course of business. The AO found neither any discrepancy nor any fallacy in them. 4.10 The cardinal point in the entire assessment exercise is that the AO has accepted the books of accounts. After accepting the books of accounts it did not behave the AO to criticize and reflect the entries in those books of accounts which he himself had found flawless and so accepted by him. 4.11 Sec.68 of the Act as invoked by him is also preposterous. That is because the AO has placed undue emphasis on the words “credited in the books of accounts”, without understanding and appreciating the nature of that 5 SURAJ PAL credit in the books of accounts. All credits in the books of accounts can never constitute cash credits. It is only cash credits which can be added u/s. 68 of the Act subject to the fulfillment of the deeming conditions. The deeming condition is to construe a certain sum as income. The need to so deem arises exclusively in a situation where the Assessee does not return that figure as his income. The sales having been returned for assessment this application fails at the threshold itself. 4.12 In a case where the Assessee himself had suo moto included that sum as his income the need to deem such income does not arise at all. This has been explained to the Department in several decisions by various Courts yet the Departmental Officers onus to apply this Section meaningfully and objectively. The addition as made by Rs.53,87,989/- is, therefore, grossly erroneous and totally untenable and merits to be quashed. 4.13 Regretfully, in the subject case, the Higher Authority in the Department being the NFAC has also failed to appreciate the basic facts and the requirements of law while adjudicating the case. The averments as contained in paras 7.4 to 7.8 of the NFAC order are simply a repetition of the AO’s observations and findings, which as stated elaborately hereinabove, are all misconceived, erroneous and unwarranted and merit to be quashed. PRAYER In terms of the submissions made hereinabove it is pleaded that the addition of Rs.53,87,989/- made by the AO and confirmed by the NFAC u/s 68 of the Act be quashed. Consequential relief in terms of penal interest may also be kindly granted. Placed for the most favourable consideration.”

Order pronounced in the open court on 27.10.2025