RAVISH VOHRA,NEW DELHI vs. DCIT CIRCLE-20(2), NEW DELHI
Income Tax Appellate Tribunal, DELHI BENCHES: A : NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI ANUBHAV SHARMAAssessment Year: 2017-18
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the Assessee against the order dated
30.12.2022 of the Commissioner of Income-tax (Appeals)-27, New Delhi
(hereinafter referred to as the ld. First Appellate Authority or ‘the Ld. FAA’ for short) in Appeal No.CIT(A), Delhi-7/10516/2019-20 arising out of the appeal before it against the order dated 26.11.2019 passed u/s 143(3) of the Income
Tax Act, 1961 (hereinafter referred as ‘the Act’) by the DCIT, Circle 20(2),
New Delhi (hereinafter referred to as the Ld. AO).
2
On hearing both the sides, we find that the assessee had filed the return of income which was revised subsequently and the case of the assessee was selected for scrutiny assessment. The assessee’s deposits of Rs.43 lakhs during demonetization period was subject to inquiry and, after seeking response of the assessee, the AO made an addition u/s 69A of the Act as the assessee was not maintaining any books of account and filed returned u/s 44AD of the Act. In appeal before the CIT(A), the assessee has raised the following plea:- “7. The justification provided by the appellant behind depositing the cash of Rs.43 lakhs during demonetization is as under:
i.
The assessee established his proprietorship firm M/s 'RVI Global’in November 2014 (AY15-16). M/sRVI Global was appointed as an exclusive distributor in India by Emiliana Parati Enterprise Pvt Ltd (EPIndia) for wallpapers and accessoriesunder the 'RobertoCavalli' brand on 30th
November 20'14.This agreement was for a limited number of products i.e.
RC-3 and BluMarine wallpaper collections. Thereafter, a supplementary agreement was entered into on 18 February 2016 wherein the scope and potential of the business was significantly enhanced.
ii.
The cash sales and cash deposits during AY 2015-16 have been fully accepted by the department iii. The assessee receives consideration for sale of goods in cash and by cheque in the normal course of business.
iv. The assessee has declared income u/s 44AD in respect of the said business.
v. During AY 2017-18, the assessee has made sales as follows:
Period
Cash Sales
Sales by Cheque/RTGS
Total
1.4.2016-
8.11.2016
42,33,671
31,88,515
74,22,186
9.11.2016-
31.3.2017
11,76,930
9,16,284
20,93,214
Total
95,15,400
3
vi. The Ld.AO has added the entire cash deposited during the period
9/11/2016-31/12/2016 u/s 69A on the grounds that "the cash sales have increased significantly as compared to the preceding year' and ' the assessee has sought to enhance its sales by way of revising its VAT returns in the post-demonetisation period,'
vii It has been held that the cash deposited was undisclosed income sought to be disguised as cash sales.
viii. Without prejudice, it may kindly be noted that the sales figure was revised only once i.e. in the return for July-September 2016. The sales figure was increased from 11.35 lacs to 28.49 lacs.i.e. an increase of Rs.
17.14 lacs only. However, while stating that the addition Is being made because VAT returns have been revised, the Ld.AO has added the entire cash deposit of Rs.43 lacs without providing any justification or reasoning.
ix. In the assessment order and computation sheet, the Ld.AO has added the alleged undisclosed income to the income declared by the assessee in the return. It maybe kindly be noted that the declared business income u/s 44AD already includes the entire cash sales. Addition of alleged fictitious cash sales amounts to double taxation which is not envisaged under the law.
1 However, the CIT(A) was not satisfied and allowed part relief to the assessee with the following findings and decisions:- “8. Findings and Decision:
i. Since the appellant files his return of income u/e 44AD of the Act, he is not required to maintain books of accounts.
ii. In the absence of books of accounts, it is very difficult to determine at what point of time actual cash sales were made.
iii. Therefore, the only probable way to determine the time period of cash sales maybe VAT return and date of cash deposit in the bank account iv. From the assessment order it is observed that the appellant has shown cash sales in the month of July, August, September, and October but there is no cash deposit in the bank account. The first-time cash was deposited in the month of November. Therefore, from bank statement, it cannot be ascertained whether any cash sale actually took place till October, 2016. 4
v. The appellant had filed the VAT return for the quarter July to September, 2016 on 7.11.2016 declaring total sales at Rs. l1,35,442/-, The demonetization scheme was announced on 8.11.2016. Therefore, this sale figures can be accepted as genuine.
vi. However, the appellant revised the July to September, 2016 quarter
VAT return on 30.01.2017 declaring total sales at 28,48,928/-. The increase in sales is Rs.l 7,13,486/-.
vii. While revising the VAT return, the appellant had increased the sales by 151% and this cannot be considered as normal deviation. Appellant has also not provided any genuine reason for not declaring such a large sale of Rs. 17,13,486/- in his original VAT return.
viii. Now another interesting point to observe is cash sales declared by the appellant in this quarter i.e. July-September, 2016. The cash sales as provided by the appellant and also appearing in the assessment order are as under:
SL NO. MONTH
CASH SALES IN Rs
1
July
663007
2
August
638115
3
September
565406
Total
1866528
ix. From the above table, it. can be observed that cash sales during this quarter is almost equal to the amount of sales by which VAT return for this quarter was revised.
x. In view of the above discussion, it is held that the VAT return for the quarter July-September, 2016 was revised by the appellant with the intention to accommodate his unexplained money and therefore addition of Rs.l7,13,484/- u/s 69A of the Act is confirmed.
xi. For the balance amount of addition of Rs.25,86,516/- (4300000-
1713484), the contention of the Id. AO that this cash deposit during demonetization period does not represent proceed of cash sales is not supported by any evidence as there is no doubt that assessee is carrying out the business and this business involves cash sales. Therefore, addition of Rs.25,86,516/- as unexplained money u/s 69A of the Act is deleted.”
2 Accordingly, the assessee is in appeal challenging the addition sustained to the extent of Rs.17,13,484/- raising the following grounds:- 5
“1. On the facts and circumstances of the case, the order passed by the CIT (A) in upholding addition of Rs. 17,13,484/- out o1 addition of Rs.43,00,000/- made on account of cash depositee in the bank of the assessee as unexplained money u/s 69A is totally wrong, bad in law and needs to be quashed and the assessee denies its liability to pay tax on the said amount.
On the facts and circumstances of the case, the order passed by the CIT (A) in upholding addition of Rs. 17,13,484/- out of addition of Rs.43,00,000/- made on account of cash deposited in the bank of the assessee as unexplained money u/s 69A is totally wrong, bad in law and needs to be quashed. The addition made should have been deleted in its entirety as no part of cash deposit could be treated as unexplained.
That the on the facts and circumstances of the case, the CIT (A) has failed to appreciate that the cash deposited in the bank was out of cash in hand generated through cash sales on which assessee has paid VAT also. The turnover on which assessee has paid tax under section 44AD also includes cash sales / cash deposited in the bank. The Assessing Officer as well as CIT (A) has accepted the turnover of the assessee on which assessee has shown profit u/s 44AD and paid tax. Making addition of cash deposited which is out of cash sales amounts to double taxation. Hence, the order passed by the CIT (A) confirming addition of Rs.17,13,484/- u/s 69A is totally wrong, bad in law and needs to be quashed.
That the under the facts and circumstances of the case, the Ld. CIT (A) has erred in law as much as in facts upholding the application of section 69A of the Act on cash deposited in the bank representing cash sales. Cash deposits representing cash sales cannot be treated as unexplained money. Application of Section 69A of the Act on the addition is contrary to law and liable to be deleted.
That the under the facts and circumstances of the case, the Ld. CIT (A) has erred in law as much as in fact upholding the levy of tax as per provisions of section 115BBE of the Act. The addition is not liable to be assessed as income from other sources as it represents sale of goods in the regular course of business having been made out of available stock in hand.
That the under the facts and circumstances of the case and in law, the Ld. CIT (A) has failed to appreciate that the addition made by the AO does not attract higher rate of tax u/s 115BBE of the Act as the rate is applicable w.e.f. 01.04.2017 relating to A.Y. 2018-19. The action of the AO in charging higher rate of tax u/s 115BBE and its confirmation by the CIT (A) is totally wrong, bad in law and needs to be quashed. 6
The assessment order has been passed without issuing any show cause notice for the proposed addition which the assessing officer wants to made and it is against the instruction no.20/2015 issued by CBDT. The addition has been made by the AO with the predetermined mind / without application of mind and without going through the submission / evidence / material produced on record. The order passed with the predetermined mind it totally wrong, bad in law and needs to be quashed. The CIT (A) also overlooked while passing the appeal order that before making addition, the Assessing Officer has to issue show cause notice mentioning proposed addition before passing assessment order.
That the above grounds of appeal are without prejudice to another.
That the assessee prays permission to add, delete or amend one or more grounds of appeal. “
The ld. counsel has primarily raised the plea as were canvassed before the FAA. The ld. DR has, however, submitted that thought the assessee had filed the return on presumptive income, but, had produced books during assessment including VAT return which was revised subsequently. Therefore, the additions were rightly made. The ld. DR extensively relied the reasons given by the AO.
Taking into consideration the facts and circumstances, it comes up that the additions were made by the AO primarily on the basis of revised VAT returns and for the reason that cash sales have been shown in the financial year 2016-17 in the months of July, 2018 onwards only. Thus, he concluded that these are not the actual sales rather it has been done to cover up the unaccounted money deposits in the bank accounts during demonetization period by revising VAT returns by making fictitious cash sales. Now, by revising the second VAT return, the assessee had actually paid extra taxes on the sales which has been 7
accepted by the VAT authorities. The sales is duly met out by the purchases as reported to the VAT authorities. The case of the assessee is that the assessee had entered into a fresh agreement with M/s Emiliana Parati Enterprises Pvt.
Ltd., on 14.01.2016 for new and different type of goods in which the assessee was trading and the same were supplied from July, 2016 onwards. The claim of the assessee is that every item of sale and purchase have been shown in the sales-tax return and the bills and vouchers of the sales were also produced before the AO during assessment proceedings.
We are of the considered view that when the assessee had filed some evidences to establish the genuineness of the sales and purchases, the AO should have made some inquiries on his own. The assessee has filed return u/s 44AD of the Act wherein minimum income @8% of sales is declared under presumptive taxation scheme to file the return. The assessee was not required to maintain books of account and, therefore, the VAT returns unless disturbed by the relevant statutory authorities can very well be presumed to be correct. Revision cannot be basis to question the income reported u/s 44AD of the Act. In any case, the figure of sales amounting to Rs.95,15,399/- declared by the assessee is more than the cash deposits. The ld.CIT(A) has appreciated facts in correct perspective. However, questioning the VAT return for the quarter July- September, 2016 as stood revised, has sustained the addition in part, which, to our mind, is not justified. The Hon’ble P&H High Court in CIT vs. Surinder 8
Pal Anand in ITA No.156 of 2010, decision dated 29.06.2010, has taken into consideration the provisions of section 44AD and held in para 8 as follows:-
“8. Once under the special provision, exemption from maintaining of books of account has been provided and presumptive tax @ 8% of the gross receipt itself is the basis for determining the taxable income, the assessee was not under obligation to explain individual entry of cash deposit in the bank unless such entry had no nexus with the gross receipts. The stand of the assessee before Commissioner of Income-tax (Appeal) and the ITAT that the said amount of Rs.14,95,300/- was on account of business receipts had been accepted. Learned counsel for the appellant with reference to any material on record, could not show that the cash deposits amounting to Rs.14,95,300/- were unexplained or undisclosed income of the assessee.”
It appears that the AO was aware of the proposition of law that the provisions of section 68 of the Act cannot be invoked as the assessee had declared income u/s 44AD of the Act without maintaining the books and for that reason, resorted to provisions of section 69A of the Act to treat the value of assets as unexplained income. However, section 69A is only an extended arm of section 68 as section 69A also raises a presumption with regard to income on the basis of ownership of certain assets not found recorded in the books of account. However, when the assessee has submitted himself under presumptive income scheme wherein he is not required to maintain books of account, then, to invoke the provisions of 69A of the Act on the basis that certain assets were not found recorded in the books of account is, in fact, nullifying the whole purpose of giving small time assessee the benefit of presumptive income returns. The ld.CIT(A) has, thus, erred in sustaining the addition partly while the same 9
deserved to be deleted completely. Thus, the grounds are sustained. The appeal is allowed.
Order pronounced in the open court on 24.09.2025. (S. RIFAUR RAHMAN)
JUDICIAL MEMBER
Dated: 24th September, 2025. dk