NIDHIKA REHANI,NEW DELHI vs. ACIT, CIRCLE 5(2)(2), NOIDA

Against the said order, assessee preferred appeal before Ld. CIT(A), who vide impugned order dated 27.06.2023, dismissed the appeal of the assessee.

Aggrieved by the order of Ld. CIT(A), assessee preferred appeal before this Tribunal by taking following grounds of appeal as given in Form 36 filed:- 1. “The Officer at National Faceless Appeal Centre (hereinafter referred to as the CIT(A)) erred in upholding the action of the Assistant Commissioner of Income tax, Circle 5(2)(2), G B Nagar. Noida (hereinafter referred to as the Assessing Officer) in making aggregate addition of Rs 28,00,000 under section 68 of the Act, being the aggregate cash deposited in the bank account during the demonetization period.

The CIT(A) erred in upholding the action of the Assessing Officer in making an addition of Rs 52,07,920 under section 69 of the Act, being the increase of capital amount in the proprietary concern of the appellant as unexplained investment.

The CIT(A)erred in upholding the action of the Assessing Office making disallowance of aggregate amount of Rs 35.32.65% of purchases debited to the profit and loss account treating the same as bogus purchases.

The Assessing Officer erred in disallowing the claim of deduction under chapter VIA of Rs 21,950 per return of income without giving any reasons.

On the facts and circumstances of the case NFAC has erred both on facts and in law in confirming the addition of Rs. 28,00,000/- made by the Assessing Officer under section 68 of the Act on account of cash deposited in the bank.

On the facts and circumstances of the case the NFAC has erred both on facts and in law in confirming the addition of Rs. 56,00,000/- made by the Assessing Officer on account oof payment made to Sh. Varun Rehani treating the same out of undisclosed sources of income.

On the facts and circumstances of the case NFAC has erred both on facts and in law in confirming the addition of Rs. 52,07,920/- made by Assessing Officer on account of increase in capital account under section 69 of the Act.

(i) On the facts and circumstances of the case NFAC has erred both on facts and in law in confirming the disallowance of Rs. 35,32,658/- on account of purchases treating the same to be bogus. (ii) That the purchases have been disallowed without rejecting the books of accounts.

On the facts and circumstances of the case NFAC has erred both on facts and in law in confirming the disallowance of Rs. 21,950/- claimed by assessee as deductions under chapter VIA of the Act.

Appellant craves leave to add, amend or alter any of the grounds of appeal.”

Ground of appeal No.1 is general in nature, needs no separate adjudication hence, dismissed.

Ground of appeal No.2 is against the confirmation of addition of INR 28.00 Lakhs made u/s 68 of the Act by treating the cash deposits during demonetization in SBN as unexplained. 8. Before us, Ld.AR submits that cash of INR 28.00 Lakhs was deposited out of cash sales made on day-to-day basis which was duly recorded in the books of accounts maintained in regular course. Ld.AR drew our attention to the copy of cash book for the period from 01.04.2015 to 31.03.2017 filed at page 97 to 153 of the Paper Book, and further referred details of month-wise sales made in cash according to which, cash sales were made to various parties and thus cash was available with the assessee to deposit during demonetization period. The assessee further submits that AO has not invoked the provision of section 145(3) of the Act nor any defect was pointed out in the cash book and other details submitted. It is further submitted that Ld. CIT(A) upheld the addition mainly for the reason that assessee had not made any sales in cash of this magnitude in preceding AY. Ld. AR submits that during the course of assessment proceedings, month-wise and person-wise details of cash sales made were submitted, according to which total sales of INR 34,88,666/- was made in cash to various parties. Besides a chart was also filed containing month-wise sales for which payments were received in bank, as available at Pages 154 to 156 of Paper Book and submits that AO has not made any inquiries though the assessee has not only filed ledger accounts but also submitted the copies of the bills issued to these parties. It is further submitted by Ld. AR that assessee filed her written submissions before GST/VAT authorities who had not doubted the turnover declared by the assessee. Therefore, the cash deposit during demonetization being fully supported by cash sales thus deserves to be accepted as genuine. Reliance is also placed on following judgement of Co-ordinate Bench of Tribunal : - Deepak Sharma vs ACIT in ITA No.2866/Del/2022 order dated 26.03.2025;

Heard the contentions of both the parties and perused the material available on record. The assessee deposited cash in SBN in bank on three occasions i.e. INR 10.00 Lakhs on 15.11.2016, INR 10.00 Lakhs on 16.11.2016 and INR 8.00 Lakhs on 22.11.2016. From the perusal of the copy of the cash book filed by the assessee as available at Page 136 of the Paper Book, there was closing balance of INR 25,75,505/- on 08.11.2016. Thereafter, on 15.11.2016, a sum of INR 10 Lakhs was deposited and on 16.06.2016 INR 10 Lakhs was deposited and cash balance remained was of INR 6,31,402/-. It is observed that on 15.11.2016, there was a cash receipt of INR 21,700/-. Further, on 19.11.2016, cash was withdrawn of INR 52,500/- and on 21.11.2016, cash was withdrawn of IRN 47,000/-. On 20.11.2016, there was a cash receipt of INR 1,20,000/- from one Vismita. Accordingly, there was a cash balance of INR 8,43,836/- on 21.11.2016 and out of this balance a sum of INR 8 Lakhs were deposited on 22.11.2016 in SBN in bank account. On first two occasions deposits cash in SBN of INR 10 Lakhs each, we can accept the contention that these deposits were out of cash balance available with the assessee as on 08.11.2016 of INR 25,75,505/-. However, with respect to third deposit of INR 8 Lakhs on 22.11.2016 in SBN, it could not be accepted as made out of cash balance available on the same day. As observed above, as per cash book, withdrawal of INR 99,500/- [52,500 + 47,000] were made on 19.11.2016 and 21.11.2016 which cannot be in SBN from bank and thus, this amount was received either in new currency or in INR 100/- & INR 50/- currency. Further receipt of INR 50,500/- on 10.11.2016 from Mansha, INR 21,700/- on 15.11.2016 from Anshu and INR 1,20,000/- from Vismita on 20.11.2016 shown as receipts in cash book could not in SBN as it was not legal tender after 8.11.2016. Thus, as on 22.11.2016 total amount of INR 2,91,700/- (99,500 + 1,20,000 + 21,700+ 50,500) available with assessee was must be in new currency or in the currency other than SBN and therefore, out of total cash balance of INR 8,43,836/-, cash balance in SBN of INR 5,52,136/- (8,43,836 – 2,91,700) was only available with the assessee for deposit. As against this assessee deposited INR 8.00 Lakhs in SBN on 22.11.2016 thus the source of balance amount of INR 2,47,864/- (8,00,000 – 6,24,336) remained unexplained. Therefore, it could be safely presumed that INR 5,50,000/- was utilized for making deposit in bank out of the cash balance as per books of accounts and source of remaining INR 2,50,000/- remained unexplained.

The relevant extract of the cash book dated 08.11.2016 to 28.11.2016 is reproduced hereunder:-

In view of the above discussion, out of INR 28 Lakhs deposits during demonetization period, in our considered opinion, INR 25,50,000/- could be held as cash deposit out of cash balance available in cash book on the date of demonetization. Accordingly, we uphold the addition of INR 2,50,000/- out of INR 28 Lakhs made by the AO. The Hon’ble Madras High Court in the case of S.M.I.L.E Microfinance Ltd. vs ACIT [2024] (11) TMI 1444-Madras High Court has held that the provisions of section 115BBE of the Act are applicable from 01.04.2018 and therefore, the AO is directed not to invoke the provision of section 115BBE of the Act. Accordingly, ground of appeal No.2 raised by the assessee is partly allowed.

Ground of appeal No.3 raised by the assessee is against the addition of INR 56,00,000/- made by the AO on account of payment made to Shri Varun Rehani from undisclosed source of income.

Before us, Ld.AR for the assessee submits that assessee has paid a sum of INR 56,00,000/- to her husband, Shri Varun Rehani through banking channel and it was claimed that this amount was paid against the amount outstanding to him brought forward from earlier years. The assessee also filed copy of the ledger accounts of M/s Vani Designs, a proprietorship firm of Shri Varun, according to which there was an opening balance of INR 76,55,506/- payable to Vani Designs.

During the year under appeal, assessee paid INR 56,00,000/- in three trenches i.e. INR 20,00,000/- on 29.06.2016, again INR 20,00,000/- on 25.10.2016 and again INR 16,00,000/- on 17.10.2016. Ld.AR filed copy of bank accounts of Vani Design wherein these payments were duly appearing as credit entry. Ld. AR drew our attention to the copy of confirmations/ledger accounts of M/s Vani Design in the books of assessee as well as in the books of Vani Design for the period from 01.04.2015 to 31.03.2017 which are available at Page 255 to 262 of the Paper Book and further drew our attention to the balance sheet of M/s Vani design available at page 263 of Paper Book wherein a sum of INR 77,42,638/- is appearing under the head “loans and advances” and includes INR 76,55,506/- as given to assessee as per list provided in Annexure “G” available at page 266 of Paper Book. It is submitted that assessee has repaid the loan taken earlier from M/s Vani Designs which inadvertently was not reported in the Tax Audit Report. It is submitted by Ld.AR that merely because the said amount was not reported in Audit Report, same cannot be added back to income of assessee more particularly when entire transaction was carried out through banking channel and duly recorded in the books of accounts of assessee wherein source of payment is duly declared as regular business transaction.

On the other hand, Ld. Sr.DR for the Revenue vehemently supported the orders of the lower authorities and requested for the confirmation of the addition made.

Heard the contentions of both the parties and perused the material available on record. From the perusal of copy of ledger account as appearing in the books of assessee as well as assessee’s account in M/s Vani Designs, it is seen that a sum of INR 76,55,506/- was payable to M/s Vani Designs as on 01.04.2016 out of which INR 50,00,000/- were paid by the assessee during the year through bank. It is a running account with M/s Vani Designs, having opening balance of INR 70,15,000/- as on 01.04.2015 and during FY 2015-16, assessee has made certain payments which were debited and the closing balance as on 31.03.2016 at INR 76,55,506/- was deduced. Further, outstanding amount is duly appearing in the books of accounts and financial statement of both the entities and payments were made through banking channel which were debited in the regular bank account of the assessee.

Under these circumstances, in our considered opinion, once the transaction is duly recorded in the books of accounts and AO has failed to establish that this amount was paid from undisclosed source without routing the same through books of accounts, no addition could be made for this amount merely because this amount is not reported in Tax Audit Report as repayment of loan in excess of INR 20,000/-. Accordingly, we direct the AO to delete the addition of INR 56,00,000/- made. Ground of appeal No.3 raised by the assessee is therefore, allowed.

Ground of appeal No.4 raised by the assessee with respect to the addition made being addition in capital account claimed as paid for expenses related to the assessee out of her personal accounts.

Before us, Ld.AR for the assessee submits that assessee has filed details of payments made to various parties during the course of appellate proceedings before Ld. CIT(A) and as available in pages 62 to 70, 65 to 67 and 83 to 88 of the Paper Book. It is further submitted that addition was made u/s 69 of the Act whereas these amounts were duly recorded in the books of accounts therefore, provision of section 69 of the Act could not be invoked. It is thus, submitted that addition made deserves to be deleted.

On the other hand, Ld. Sr.DR for the Revenue vehemently supported the orders of the lower authorities and submits that assessee has failed to provide details of the recipients, mode of payment and other relevant details with respect to the payments made. The claim of assessee is that these payments were made through personal account however, no details were filed therefore, he requested for the confirmation of addition made by the AO.

Heard the rival contentions and perused the material available on record. It is the claim of assessee that she had made payments through bank and cash for various expenses which are pertaining to her proprietorship firm and since these payments were made out of her personal accounts, therefore, the same were treated as capital contribution. However, facts remained that assessee failed to file precise payments as well as recipients and other particulars. Therefore, the genuineness of these payments remained unverified. At the same time, since these payments were recorded in the books of accounts, same could not be treated as unexplained investment u/s 69 of the Act. Looking to these facts, we are unable to concur with the arguments of the assessee that no addition could be made as the assessee has failed to substantiate the claim. Accordingly, the addition made is hereby confirmed. As we have already hold that the provision of section 115BBE of the Act are not applicable to AY 2017-18, thus AO is directed not to invoke the provisions of section 115BBE on this addition. Accordingly, Ground of appeal No.4 raised by the assessee is partly allowed. 23. Ground of appeal No.5 raised by the assessee is with respect to the addition of INR 35,32,658/- by holding the purchase made from two parties as bogus.

Before us, Ld.AR for the assessee submits that assessee made purchases from various suppliers however, AO has made addition of INR 18,02,666/- towards purchase from M/s Sunlight Enterprises and of INR 17,29,792/- for the purchases from M/s Chirag Enterprises. The assessee submits that due to bad relations with Shri Sushil Kumar [Proprietor of M/s Sunlight Enterprises], he denied the transaction with the assessee. The assessee filed details of the proprietor and also confirmation of the said party which are available at page 281 & 282 of the Paper Book and submits that said transaction is genuine transaction.

With respect to the purchases from M/s Chirag Enterprises, it is submitted that business of that party was shifted therefore, Inspector could not find the business premises during his visit. In this regard, an affidavit is filed available at pages 301 to 303 of the Paper Book of the proprietor of Chirag Enterprises. It is thus, submitted that transactions being carried out in normal course of business and is genuine transaction, therefore, the same deserves to be allowed as genuine purchases. The assessee also filed copy of the stock register wherein purchases from these parties were duly recorded and further submits that payments were made to these parties through banking channel which were not doubted by the Department therefore, it is requested to delete of additions made. 26. On the other hand, Ld. Sr. DR for the Revenue supported the orders of the lower authorities and submits that during the course of assessment proceedings, AO has made verification of these parties, wherein case of Sunlight Enterprise, it was stated by the proprietor that he did know Nidhika Rehani i.e. assessee and had no transaction with her. With respect to Chirag Enterprises, the Inspector visited the address given and reported that no firm was existed at the given address. Accordingly, the AO was of the opinion that both the parties are non-existent and bogus. Ld. Sr. DR further submits that assessee has failed to furnish requisite details of the buyers thus, action of the lower authorities in making the additions deserves to be upheld.

Heard the contentions of both the parties and perused the material available on record. From the perusal of details filed by assessee which are available at page 281 to 349 of the Paper Book containing following documents:- 28. The assessee has filed confirmation of the parties, item purchased, copies of invoices, bank statements wherein payments made to these parties by banking channel etc. It is further seen that assessee has been able to substantiate the claim that purchases made from these parties were duly recorded in the books of accounts and necessary sales have been made of the goods so purchased which sales were not doubted by AO. It is seen that assessee purchased cloth material from these parties and readymade garments were sold. Manufacturing of garment is not possible without the purchases of fabric. It is a matter of fact that the payments were made in subsequent years through Account Payee Cheque and both the parties had confirmed the transactions with assessee. It is further seen that proprietor of M/s Sunlight Enterprises confirmed the transactions though he himself denied the transactions with the assessee. All these facts needs to be examined by the AO accordingly, in the interest of justice, we set aside this issue to the file of AO for necessary verification of details filed by the assessee and decide the same in accordance with law. Needless to say assessee be provided with a reasonable opportunity of being heard before concluding the issue. Ground of appeal No. 5 raised by the assessee is allowed for statistical purposes.

Ground of appeal No.6 raised by the assessee with respect to the disallowance of INR 21,950/- claimed u/s 80G of the Act.

Heard the contentions of both the parties and perused the material available on record. From the perusal of order, it is seen that AO has taken the income of assessee after allowing deduction under Chapter VIA which includes deduction claimed by the assessee on account of donation u/s 80G of the Act, therefore, ground of appeal No.6 raised by assessee is dismissed.

In the result, appeal of the assessee is partly allowed.