RAKESH KUMAR SHARMA,ETAH vs. INCOME TAX OFFICER, WARD 4(3)(1),, ETAH
Facts
The assessee, a contractor, deposited Rs. 1 crore cash during demonetization. The Assessing Officer made additions under Section 68 for unexplained cash, estimated 8% profit on alleged unaccounted turnover, and disallowed a percentage of purchase, labor, office, and travel expenses due to lack of vouchers. The CIT(A) upheld these additions and disallowances.
Held
The Tribunal allowed the appeal regarding the cash deposit, finding its source traceable to prior withdrawals. It also allowed the appeal regarding the estimated profit on turnover, as it included FDR maturities. For the expense disallowances, the Tribunal partly allowed the appeal, reducing the ad-hoc disallowance percentages.
Key Issues
The key issues were the source of cash deposits during demonetization, the applicability of Section 115BBE, the inclusion of FDR maturities in business receipts for profit estimation, and ad-hoc disallowances of business expenses due to lack of supporting vouchers.
Sections Cited
Section 68, Section 115BBE, Section 143(2), Section 142(1), Section 250, Section 271AAC, Section 270A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AGRA BENCH, AGRA
Before: SHRI S. RIFAUR RAHMAN & SHRI SUNIL KUMAR SINGH
IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI SUNIL KUMAR SINGH, JUDICIAL MEMBER ITA No. 239/Agr/2025 Assessment Year: 2017-18
Rakesh Kumar Sharma, 140, Vs. Income-tax Officer, Shivpuri, Etah (UP). Ward 4(3)(1), Etah. PAN : ADBPS6147C (Appellant) (Respondent)
Assessee by Sh. Anurag Sinha, Advocate Department by Sh. Shailendra Srivastava, Sr. DR
Date of hearing 18.12.2025 Date of pronouncement 15.01.2026
ORDER PER : S. RIFAUR RAHMAN, ACCOUNTANT MEMBER:
The assessee has preferred this appeal against the order of learned CIT(Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 26.03.2025 u/s. 250of the Income-tax Act, 1961 (“the Act” for
short) for the assessment year 2017-18. 2. Brief facts of the case are, the assessee filed his return of income on 16.09.2017, declaring income of Rs.7,64,570/-. Case was selected for
scrutiny under CASS. Accordingly, notices u/s. 143(2) and 142(1) of the Act alongwith questionnaire were issued and served on the assessee. Assessee is a contractor and engaged in the business of contract work
ITA No.239/Agr/2025
since last 15 years. As per the information available on ITBA, the
Assessing Officer observed that the assessee had deposited cash during
demonetization period in its bank account maintained with Central Bank
of India, Etah. The Assessing Officer collected the bank statement and
deposit slips of cash from the concerned bank. Since the above cash
was deposited during demonetization, the assessee was called upon to
explain the source of cash deposits. The Assessing Officer also
observed that as per Form 3CB of the tax audit report, assessee has
maintained books of account, including cash book, bank book and
ledger. However, the assessee failed to furnish any cash book. Since the
assessee failed to offer any explanation about the nature and source of
above mentioned cash credits, the Assessing Officer proceeded to make
addition u/s. 68 of the Act. He also invoked section 115BBE of the Act to
determine the rate of tax.
Further, the AO observed that there is a mismatch of credit in his
bank account and the gross receipts declared by the assessee. He
observed that there was difference of Rs.47,35,668. Accordingly, he
treated the above difference as business transactions and estimated the
income @8% to make addition of Rs.3,78,853/-.
Further, on verification of profit and loss account, he observed that
the assessee has debited expenses of Rs.2,55,52,672/- on account of 2 | P a g e
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purchase expenses. Since, the assessee failed to submit bills and
vouchers towards construction material from its suppliers and
genuineness of the transactions was not proved, he proceeded to make
the addition of Rs.12,77,636/-, which is 5% of the total expenditure.
Further, he observed that the assessee has claimed labour charges.
Since, the assessee failed to submit bills/vouchers, he proceeded to
make addition of Rs.5,89,113/-, i.e. 5% of the labour charges. Further, he
observed that the assessee has debited office expenses and travel
expenses of Rs.3,41,884/-. Since, the assessee failed to produce bills
and vouchers, he proceeded to disallow 15% of such expenses, to the
extent of Rs.51,282/-.
Aggrieved with the above order, the assessee preferred an appeal
before NFAC, Delhi and filed a detailed submission before him. After
considering the detailed submission of assessee, learned CIT(A)
dismissed the appeal preferred by the assessee.
Aggrieved, the assessee is in appeal before us, raising following
grounds of appeal :
“1. BECAUSE, the order passed by the Ld. CIT(A) under section 250 of the Act is bad in law and on facts and deserves to be quashed. 2. BECAUSE, the Ld. CIT(A) has grossly erred in confirming the addition of 1,00,00,000/- made by the AO under section 68 of the Act on account of cash deposit during the demonetization period without due consideration of the fact that cash deposited of Rs. 3 | P a g e
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1,00,00,000/- on 10.11.2016 got sourced from withdrawals of Rs. 1,22,50,000/- made from the same bank Account on 28.10.2016. 3. BECAUSE, the authorities below have erred in law and on facts in applying and confirming the levy of tax at the special rate under section 115BBE of the Act. 4. BECAUSE, the provisions of section 115BBE of the Act cannot be invoked in view of the judgment of Hon'ble Madras High Court in the case of S.M.I.L.E. Microfinance Ltd. Vs. ACIT, W.P. (MD) No.2078 of 2020 & 1742 of 2020, dated 19.11.2024 (Madras), as followed by the Hon'ble ITAT, Agra Bench in the case of Sh. Pankaj Kumar Vs. ITO in ITA No.219/Agr/2023 dated 04.02.2025. 5. BECAUSE, the Ld. CIT(A) erred in law and on facts in sustaining the addition of 3,78,853/- made by the AO by estimating 8% net profit on the alleged unaccounted turnover of ₹47,35,668/-, without appreciating that the alleged difference in turnover was due to non-business banking entries like FD maturity and fund transfers. 6. BECAUSE, the Ld. CIT(A) has erred in confirming the ad hoc disallowance of 12,77,633/- being 5% of purchase expenses claimed, without any cogent basis or evidence to suggest that the purchases were non-genuine. 7. BECAUSE, the Ld. CIT(A) erred in confirming the disallowance of ₹5,89,113/- on account of labour charges, merely on the ground that supporting bills/vouchers were not furnished, ignoring the fact that the same were incurred in the normal course of business. 8. BECAUSE, the Ld. CIT(A) has further erred in confirming the disallowance of 51,282/- being 15% of office and travelling expenses on ad hoc basis, without appreciating the business necessity and absence of any finding of personal use. 9. BECAUSE, the additions/disallowances made are arbitrary, excessive and without proper appreciation of facts and evidence placed on record. 10. BECAUSE, the penalty proceedings initiated under section 271AAC and 270A have been wrongly initiated and consequential to additions which are not sustainable.”
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At the time of hearing, learned AR of the assessee submitted that
during demonetization period, the assessee had deposited cash of
Rs.1.00 crore. In this regard, he brought to our notice page 6 of the
paper book, which is a bank statement for the period 21.10.2016 to
31.12.2016. He submitted that the assessee had withdrawn cash of
Rs.1.2 crores on 28.10.2016. Due to declaration of demonetization, the
assessee had re-deposited the cash on 10.11.2016. The source of cash
deposited during the demonetization period is cash withdrawals made by
the assessee on 28.10.2016. Since the source is traceable from the
bank statement itself and also these details were already submitted
before the lower authorities, but they failed to appreciate the same. With
regard to invocation of section 115BBE, he submitted that the same is
covered in favour of the assessee by the decision of Hon’ble Madras
High Court in S.M.I.L.E. Microfinance Ltd. Vs. ACIT, W.P. (MD) No.2078
of 2020 & 1742 of 2020, dated 19.11.2024. He relied upon the same.
With regard to ground No.5, he brought to our notice page 8 of the
paper book, wherein the details of FDR maturity were given, as per
which, assessee has earned income of Rs.45,95,806/-. He submitted
that the bank has credited FDR maturity on respective dates as per the
statement placed on record at page 8 of the paper book. He submitted
that the above said maturity of FDR is also included by the Assessing 5 | P a g e
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Officer as business income since the Assessing Officer has taken total
credit from the bank account and he proceeded to estimate the income
at 8% of the above deposits. He prayed that FDR maturity cannot be
considered as business receipts of the assessee and the same may be
deleted.
With regard to ground No. 6 & 7, he submitted that the Assessing
Officer has disallowed 5% of the purchase and labour expenditure on the
basis of adhoc disallowance for the simple reason that the assessee has
not filed any details. With regard to ground No. 8, he submitted that the
Assessing Officer has disallowed 15% of the administrative expenses.
He submitted that the assessee is a labour contractor and has
completed the project and declared income after getting the accounts
duly audited. Since the Assessing Officer has not verified the relevant
information, he proceeded to adopt the above said method and
disallowed the expenditure on adhoc basis.
On the other hand, learned DR relied on the findings of the lower
authorities.
Considered the rival submissions and the material placed on
record.
We observe that with regard to the cash deposits by the assessee
during demonetization period on 10.11.2016 of Rs.1.00 crore, the 6 | P a g e
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Assessing Officer has made the addition for the reason that the
assessee has not submitted any bank book and cash book to
substantiate the above claim. However, learned AR has brought to our
notice bank statement for the period 21.10.2016 to 31.12.2016. From the
statement, we observe that the assessee has deposited Rs.1.00 crore
on 10.11.2016 and on 28.10.2016, there is huge cash withdrawals by the
assessee of Rs.1.2 crore. Since the demonetization was declared and
the assessee was left with huge cash, the same was deposited in the
bank account. The cash deposit is traceable with the cash withdrawals.
Therefore, the source is already declared by the assessee and it is
traceable. Therefore, we are inclined to allow the grounds raised by the
assessee on this count.
With regard to application of section 115BBE, since we have
already deleted the addition made by Assessing Officer u/s. 68, the
relevant ground raised by the assessee becomes infructuous.
With regard to ground No. 5, we observe that the Assessing Officer
has proceeded to treat all the credits in the bank account as business
receipts of the assessee, which includes certain FDR maturity, which are
placed on record by the assessee and subsequently, learned AR of the
assessee highlighted the FDR maturity in the bank statement date-wise,
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which is placed on record. Considering the above, we are inclined to
allow ground No. 5 raised by the assessee.
With regard to ground No. 6, 7 & 8, we observe that the Assessing
Officer has disallowed certain expenditure for the reason that the
assessee has failed to submit bills/vouchers relating to above
expenditure, which is incurred for the purpose of business. It is the fact
on record that the assessee failed to submit relevant information during
the assessment proceedings and we observe that first of all the
Assessing Officer cannot make adhoc disallowances and he has to
direct the assessee to file the relevant information or in case he is not
satisfied, he should have disallowed whole expenditure, which is
impractical. Considering the facts on record, since the assessee failed to
submit relevant information as asked by the tax authorities, for the sake
of justice, we are inclined to sustain 2% of the purchase and labour
expenses and 5% of the administrative expenses. In the result, grounds
raised by the assessee are partly allowed.
In the result, appeal is partly allowed.
Order pronounced in the open court on 15.01.2026.
Sd/- Sd/- (SUNIL KUMAR SINGH) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 15.01.2026 *aks/- 8 | P a g e
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