INCOME-TAX OFFICER, VEJALPUR,AHMEDABAD. vs. KAMLESHBHAI PRAJAPATI, AHMEDABAD
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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.127/Ahd/2024 (Assessment Year: 2017-18) Income Tax Officer, Vs. Kamleshbhai Prajapati, Vejalpur, 187, Narmade Nivas, B/h. Ahmedabad Kamal Cinema, Ramnagar, Sabarmati, Ahmedabad-380005 [PAN No.ANWPP8831F] (Appellant) .. (Respondent) Appellant by : Shri Rajesh Shah, A.R. Respondent by: Shri B.P. Srivastava, Sr. DR 19.09.2024 Date of Hearing Date of Pronouncement 25.09.2024 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Department against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 29.11.2023 for Assessment Year 2017-18.
The Department has taken the following grounds of appeal:-
“1. Whether the CIT(A) has justified in law and on facts in deleting the addition of Rs.1,16,53,881/- made u/s 69A of the Act on account of unexplained cash deposits without appreciating the facts of the case? 2. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary. 3. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored.”
ITA No. 127/Ahd/2024 ITO vs. Kamleshbhai Prajapati Asst.Year –2017-18 - 2– 3. The brief facts of the case are that the Assessing Officer observed that during the period of demonetization from November 8, 2016, to December 30, 2016, the assessee Shri Kamleshbhai Prajapati deposited a sum of cash totalling Rs 12,50,000/- into his bank account, using old currency notes of Rs. 500/- and Rs. 1000/-. However, the assessee did not file his Income Tax Return (ITR) for Assessment Year (A.Y.) 2017-18, as a result of which several notices were issued by the Assessing Officer. On March 13, 2018, the Assessing Officer issued a notice under Section 142(1) of the Income Tax Act, requiring the assessee to submit a true and correct return of income by March 31, 2018. Despite multiple notices sent through registered email and speed post, the assessee failed to comply. It was only after these notices that the assessee filed a belated return on June 11, 2019, which was deemed invalid by the Assessing Officer, since it was submitted past the due date under Section 139 of the Act. During the course of assessment proceedings, the assessee provided details of his business activities, submitting that he operated a retail kirana store. The assessee submitted documents such as cash books, purchase registers and a profit and loss account. The Assessing Officer issued a show cause notice on September 23, 2019, to which the assessee responded on September 27, 2019, giving details of his background and business operations. The assessee submitted that the majority of his cash deposits were legal tender, and only Rs. 1,90,000/- came from demonetized notes. The Assessing Officer, however, found his explanations unconvincing, and noted that the education level cited by the assessee (12th pass) did not absolve him of the responsibility to file return of income. The volume of his transactions, with reported sales exceeded one crore, which mandated compliance with filing
ITA No. 127/Ahd/2024 ITO vs. Kamleshbhai Prajapati Asst.Year –2017-18 - 3– and audit requirements, which the assessee failed to meet. Consequently, all financial transactions, including his cash deposits, were treated by the Assessing Officer as unexplained under Section 69A of the Income Tax Act. As a result, the Assessing Officer made a best judgment assessment under Section 144 of the Act, holding that the total amount of Rs 1,16,53,881/- in his bank account was unexplained income of the assessee and added the same to his total income, subjecting it to tax at a rate of 60% under Section 115 BBE of the Act. Furthermore, penalty proceedings were initiated due to the non-filing of returns and non-compliance with the notices issued.
In appeal before Ld. CIT(Appeals), the assessee provided various related documents for consideration, and submitted that all necessary records were submitted in the appeal. The main argument presented by the assessee was that the assessee was in the business of purchasing grains from rice mills and wholesalers, and the assessee submitted that all payments were made via account payee cheques, and all sales were conducted in cash. He emphasized that all cash sales proceeds were deposited in the bank, and there was cash deposit of Rs.12,50,000/- during the demonetization period from November 9, 2016, to December 31, 2016. The assessee clarified that only Rs. 1,90,000/- of this amount was from cancelled legal tender, which was substantiated by a bank certificate filed during appeal. Despite these submissions, the AO held that the lack of timely filing of the income tax return led to the treatment of all financial transactions as unexplained under Section 69A of the Income Tax Act. The assessee argued that since the appellant filed his return on June 11, 2019, in response to a notice under
ITA No. 127/Ahd/2024 ITO vs. Kamleshbhai Prajapati Asst.Year –2017-18 - 4– Section 142(1), this return should be considered valid and taken into consideration while framing the assessment. The assessee’s business activities involved significant cash transactions, which were reflected in the balance sheet and profit and loss account, which was submitted before Ld. CIT(Appeals). Accordingly, Ld. CIT(Appeals) allowed the appeal of the assessee by observing that the financial documents demonstrated sales of Rs.98,69,996/- and a gross profit of Rs.4,36,497/- for the financial year under consideration. The AO did not properly consider the records of receipts, which were already accounted for in the business books. The AO needed to present evidence indicating that the assessee had received funds not reflected in his records, which was not done by the Assessing Officer. Further, Ld. CIT(Appeals) observed that all cash transactions were documented in the cash book, which gave the sources of cash receipts and payments. Given this thorough documentation, the cash deposits should not have been deemed unexplained, as they were generated from business operations. The legal framework of Section 69A requires that any undisclosed income must be proven not to be recorded in the books, and in this case, all transactions were duly noted. Based on the arguments presented by the assessee, Ld. CIT(Appeals) held that the cash sales were legitimate, reflected in the accounting records, and therefore should not have been taxed under Section 69A of the Act. The appeal of the assessee was allowed.
The Department is in appeal before us against the order passed by Ld. CIT(Appeals), allowing the appeal of the assessee. The DR primarily placed reliance on the observations made by the assessing officer in the assessment
ITA No. 127/Ahd/2024 ITO vs. Kamleshbhai Prajapati Asst.Year –2017-18 - 5– order. The DR submitted that the assessee had been largely non-compliant during the course of assessment proceedings and drew our attention to Para 7.1 of the assessment order, wherein the assessing officer observed that the assessee had not filed return of income for the impugned year under consideration, which was filed belatedly only in response to notices issued by the Income Tax Authorities. Accordingly, the DR submitted that the matter may be restored back to the file of assessing officer for de novo consideration.
In response, the counsel for the assessee submitted that Ld. CIT(Appeals) has correctly observed that AO erred in facts and in law in holding that all the receipts/credits in the bank account of the assessee, was the undisclosed income of the assessee the impugned year under consideration. The counsel for the assessee submitted that all the details regarding balance sheet, profit and loss account, cash book, bank book etc. have been filed by the assessee before Ld. CIT(Appeals) during the course of appellate proceedings, which was duly considered by CIT while allowing the appeal of the assessee. The counsel for the assessee submitted that no return of income was filed since the income of the assessee was below the taxable limit. Further, the turnover of the assessee was Rs.69 lakhs, as evident from the financial statements of the assessee placed on record and duly considered by CIT, and accordingly there was no requirement of conducting any audit. Further, the counsel for the assessee submitted that Ld. CIT(Appeals) has correctly observed that it was incorrect on the part of the assessing officer to consider all the credits/deposits made by the assessee in his bank account as undisclosed income of the assessee,
ITA No. 127/Ahd/2024 ITO vs. Kamleshbhai Prajapati Asst.Year –2017-18 - 6– considering that the assessee was a trader running a Kirana store and primarily trading in rice items. Further, the counsel for the assessee submitted that only Rs.1.9 lakhs had been deposited by the assessee in SBN, during the demonetisation period. The other deposits were the regular receipts of the assessee from rice business of the assessee. Accordingly, it was taking into consideration these facts are Ld. CIT(Appeals) allowed the appeal of the assessee, since assessee had also filed all relevant details before CIT for his consideration during the course of appellate proceedings.
We have heard the rival contentions and perused the material on record. On going through the facts of the instant case, we find no infirmity in the order of Ld. CIT(Appeals) so as to call for any interference. In our view, Ld. CIT(Appeals) has correctly observed that the only reason/basis of the assessing officer making the addition in the hands of the assessee was that the assessee did not file his return of income for the impugned year under consideration and the assessee did not get his accounts audited. However, apart from this, the assessing officer gave no cogent reasons by the amounts deposited by the assessee’s bank account constituted his unexplained income. The Ld. CIT(Appeals), during the course of appellate proceedings took into consideration various details filed by the assessee and allowed the appeal of the assessee, in accordance with law. The Hon'ble Supreme Court in the case of Lakhmichand Baijnath 35 ITR 416 (SC) held that when an amount is credited in business books, it is not an unreasonable inference to draw that it is a receipt from business. In the case of Aurobindo Sanitary Stores 276 ITR 549 (Orissa), the High Court held that for applying section 69 of the Act, the Assessing Officer must first
ITA No. 127/Ahd/2024 ITO vs. Kamleshbhai Prajapati Asst.Year –2017-18 - 7– come to a finding that the assessee has made investments which are not recorded in the books of account and thereafter call for an explanation from the assessee about the nature and source of the investments and if he finds that no such explanation is furnished by the assessee or the explanation offered by him is not satisfactory, he can treat the value of the investments to be the income of the assessee of the financial year in which he has made the investments. Accordingly, looking into the instant facts and the judicial precedents on which reliance was placed by Ld. CIT(Appeals) in the appellate order while allowing the appeal of the assessee, we are of the considered view that CIT has not erred in facts and in law in allowing the appeal of the assessee.
In the result, the appeal of the Department is dismissed. This Order pronounced in Open Court on 25/09/2024
Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 25/09/2024 TANMAY, Sr. PS TRUE COPY आदेश क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad
