ARIHANT ENTERPRISE,AHMEDABAD V. THE ITO, WARD-7(2)(1), AHMEDABAD

ITA 590/AHD/2025

AI Insights

Arihant Enterprise appealed against the order of the Commissioner of Income-Tax (Appeals), which upheld the rejection of its books of accounts and confirmed various disallowances and additions made by the Assessing Officer under different sections of the Income Tax Act, 1961. The main issues revolved around the rejection of books of accounts, disallowance of interest expenditure, and additions for suppressed sales and unexplained cash credits. The Tribunal examined the arguments and evidence presented by both parties, including the documentary evidence of sales and purchases, and the variations in reported sales and closing stock.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717130 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 20-03-2025
• Other Referred Cases: Jaytick Intermediates Pvt. Ltd. v. ACIT, CIT v. Symphony Comfort Systems Ltd., Ashoke Refractories v. CIT, CIT v. Poonam Rani, ACIT v. Hirapanna Jewellers, ACIT v. Radhika Jewellers, Amikrupa Education Trust v. ITO, ITO v. Rajeshkumar Chhanalal Patel, R.S. Diamonds India P. Ltd Vs. ACIT, CIT v. President Industries, CIT v. Balchand Ajit Kumar, CIT v. Gurubachhan Singh, Man Mohan Sadani v. CIT, S.A. Builders Ltd Vs. CIT(A)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT
• Assessee Lawyers: TUSHAR HEMANI
• Keywords: Business income; Unexplained cash credit; Rejection of books of accounts; Commercial expediency; Principle of natural justice; Bogus
• Section: 143(3); 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE DR. B.R.R. KUMAR, VICE-PRESIDENT Ms SUCHITRA KAMBLE, JUDICIAL MEMBER I.T.A. No.590/Ahd/2025 (Assessment Year: 2017-18) Arihant Enterprise, 261/2, Prajapati Sorathia Society, Opp. Bajarang Ashram, Thakkarnagar, Ahmedabad-382350. [PAN :AASFA5966 H] Vs. Income Tax Officer, Ward-7(2)(1), Ahmedabad. (Appellant) .. (Respondent) Appellant by : Shri Tushar Hemani, Sr. Advocate Respondent by: Shri Abhijit, Sr DR Date of Hearing 09.07.2025 Date of Pronouncement 19.08.2025 O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT:- This appeal has been filed by the assessee against the order dated 20.01.2025 passed by the Ld. Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “Ld. CIT(A)”, in relation to the assessment order framed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), for the Assessment Year 2017–18. 2. The assessee has raised the following grounds of appeals: 1. The Ld. CIT(A) has erred in law and on facts of the case in upholding rejection of books of accounts u/s. 145(3) of the Act. 2. The Ld. CIT(A) has erred in law and on facts of the case in confirming the disallowance of interest expenditure of Rs. 21,35,502/- u/s. 36(1)(iii) of the Act. 3. The Ld. CIT(A) has erred in law and on facts the case in partly confirming the addition of alleged suppressed sales to the extent of Rs. 1,90,470/-. Printed from counselvise.com ITA No. 590/Ahd/2025 Arihant Enterprise Vs. ITO Asst. Year : 2017-18 - 2– 4. Alternatively and without prejudice, the addition shall be restricted to the element of profit embedded in alleged suppressed sales. 5. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in treating business sales of Rs 43,88,500/-as unexplained cash credit u/s. 68 of the Act. 6. Both the lower authorities have failed to appreciate that additions u/s. 68 & 36(1)(iii) of the Act cannot be made based on rejected books of accounts. 7. The Ld. CIT(A) has erred in law and on facts of the case in confirming invocation of provisions of Section 115BBE of the Act. 8. Alternatively and without prejudice, the Ld. AO has erred in law and on facts of the case in computing tax at the rate of 60% by applying amendment to Section 115BBE of the Act retrospectively. 9. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 10. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld.AO in levying interest u/s.234A/B/C/D of the Act. 11. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld.AO in initiating penalty proceedings u/s.270A & 271AAC of the Act. 12. 13. The Appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 3. The assessee is partnership firm, which is engaged in the business of trading of Plastic Polyfilm in the trade name of Arihant Enterprise. It has filed its return of income for the year under consideration on 29.10.2017, declaring total income of Rs.7,45,230/-. After considering submissions, the Assessing Officer passed an assessment order dated 27.12.2019, making following disallowances/additions:- Printed from counselvise.com ITA No. 590/Ahd/2025 Arihant Enterprise Vs. ITO Asst. Year : 2017-18 - 3– a) Disallowance of interest u/s. 36(1)(iii) - Rs.21,35,502/- b) Suppressed sales - Rs.10,92,288/- c) Unexplained cash credits u/s. 68 r.w.s. 115BBE – Rs.43,88,500/- 4. On appeal, the Ld. CIT(A) upheld the rejection of books, sustained disallowance of interest, partly restricted the addition on suppressed sales to Rs.1,90,470/-, and confirmed the addition u/s. 68 with taxability u/s 115BBE. 5. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal. Ground No. 1 – Rejection of books of accounts Ground Nos. 5 & 6 – Addition of Rs.43,88,500/- u/s 68 of the Act., Ground No. 7 & 8 – Application of Section 115BBE of the Act. 6. Before us, the Ld. AR, with regard to rejection of books of accounts u/s 145(3) of the Act, contended that the Assessing Officer the Assessing Officer rejected the books of accounts of the assessee u/s. 145(3) of the Act without finding any material defects therein. The Ld. AR submitted that the major reasons for rejection of books of accounts were the reduction in cash sales & closing stock in comparison to the preceding year, high transactions near demonetization period and non-furnishing of stock register. The Ld. AR submitted that the Assessing Officer failed to appreciate that business transactions do not take place necessarily as per past trends and mere variation from the same does not constitute a defect in books of accounts. The Ld. AR further submitted that non-maintaining of day to day stock register is not a ground to reject books of accounts and reliance was placed on the decision of Hon’ble Gujarat High Court in the case of Jaytick Intermediates Pvt. Ltd. v. ACIT - [2016] 73 taxmann.com 195 (Gujarat). The Ld. AR also submitted that it is well settled that the books of accounts cannot be rejected Printed from counselvise.com ITA No. 590/Ahd/2025 Arihant Enterprise Vs. ITO Asst. Year : 2017-18 - 4– without finding material defects in the same, for which he placed reliance on the following judgements : a. CIT v. Symphony Comfort Systems Ltd. - [2013] 35 taxmann.com 533 (Guj.); b. Ashoke Refractories v. CIT - [2005] 199 CTR 115 (Cal.); c. CIT v. Poonam Rani - [2010] 326 ITR 223 (Delhi); a. ACIT v. Hirapanna Jewellers - [2021] 189 TTP 608 (Vishakhapatnam) 6.1 With regard to the addition of Rs.43,88,500/- as unexplained cash credit u/s 68 of the Act, the Ld. AR submitted that the Assessing Officer considered cash sales of Rs. 43,88,500/- being the source of cash deposits during demonetization period as unexplained cash credit u/s. 68 of the Act. The Ld. AR contended that cash sales has been duly established by the assessee with documentary evidences viz Cash book, Sales register, Stock summary, Item-wise monthly stock summary, Purchase register etc. The Ld. AR also submitted that the cash sales forms part of the total sales reflecting in the VAT return which are accepted by the VAT department. The Ld. AR submitted that the Revenue authorities have merely considered the variation from historical trends of cash sales and closing stock balance and disbelieved the cash sales. The Ld. AR contended that it is a settled law that when sales are recorded in books of accounts & supported by documentary evidences, same cannot be disregarded merely on the basis of assumptions and presumptions., for which reliance was placed on the following judgments:- a) ACIT v. Radhika Jewellers - ITA No. 201/Ahd/2023; b) Amikrupa Education Trust v. ITO - [2024] 159 taxmann.com 1658 (Ahmedabad); c) ITO v. Rajeshkumar Chhanalal Patel - ITA No. 2159/Ahd/2016; d) R.S. Diamonds India P. Ltd Vs. ACIT, [2022] 198 ITD 545 (Mum.) Printed from counselvise.com ITA No. 590/Ahd/2025 Arihant Enterprise Vs. ITO Asst. Year : 2017-18 - 5– 6.2 The Ld. AR also submitted that it is also a settled law that no addition can be made u/s. 68 of the Act in respect of sales already offered to tax, otherwise it will lead to double taxation. Reliance was placed on the following: a. ITO v. Ankit Gold Ltd. - ITA No. 429/Ahd/2024 b. ACIT v. Radhika Jewellers - ITA 201/Ahd/2023; c. DCIT v. Radhika Diamonds - ITA 1632/Ahd/2024; d. CIT v. Vishal Exports Overseas Ltd., ITA 2471 of 2009 (Guj); e. ACIT v. Hirapanna Jewellers - [2021]189 ITD 608 (Vishakhapatnam); f. Sanand Textiles Industries v. DCIT - ITA 995/Ahd/2014; g. ITO v. Rajeshkumar Chhanalal Shah - ITA 2159/Ahd/2016 The Ld. AR thus urged that the addition of Rs. 43,88,500/- made u/s. 68 of the Act may be deleted. 7. The Ld. DR, on the other hand, supported the order of the authorities below. The Ld. DR submitted that the average closing stock was found to be drastically down at the end of the previous year. It was also submitted by the Ld. DR that the stock registers were not furnished by the assessee, so that the movement of stock could be ascertained. The Ld. DR submitted that the month-wise and item-wise stock details, along with computerized sales and purchase registers, were submitted by the assessee vide reply to the show cause notice through a letter dated 23.12.2019, however, the stock register was not furnished. The Ld. DR submitted that the sales and purchases were made by the assessee for the first time in the months of October and November 2016, in respect of some items such as plastic films, plastic bags, metalized film, corona treated polyester film, etc. Out of these, one item, namely 'plastic bags', was included in the assessee's stock for the first time in November 2016, as per the chart showing the monthly summary of stock items filed. The Ld. DR contended that the assessee dealt mostly in these items in the months of October and November 2016, which generated cash and Printed from counselvise.com ITA No. 590/Ahd/2025 Arihant Enterprise Vs. ITO Asst. Year : 2017-18 - 6– these items were mostly purchased from M/s Jindal Poly Films Limited and M/s Delux Packaging, which became known only after the details of the purchase and sales ledgers were furnished by the assessee in the last reply dated 23.12.2019. The Ld. DR further submitted that the names of such purchase parties were furnished only through the submission, whereas the names and addresses of the sales parties are still awaited. The Ld. DR also contended that the transactions in these items were carried out during the months of October and November 2016 concerning sales and purchases; however, the transactions were not substantiated by the assessee with supporting copies of bills, delivery challans, invoices raised for sales, or the names and addresses of the sales parties. Therefore, the genuineness of sales and purchases could not be proved by the assessee. 7.1 The Ld. DR also submitted that, apart from the difference in sales reported in the ITR and VAT return, it is also pertinent to mention that, according to the auditor in Form 3CD, the quantitative details of principal items traded did not contain the name 'plastic bags', despite the fact that a transaction involving approximately 54,59,420 kg of stock was claimed to have been traded by the assessee as per the stock summary furnished. 7.2 The Ld. DR contended that an inquiry made with one of the purchase parties, i.e., M/s Yogeshwar Polymers, revealed that total sales as per the assessee’s books were shown at Rs. 39,58,258/-, whereas the reply received from the corresponding party indicated total purchases from the assessee during the relevant period at Rs. 40,08,904/-. Hence, suppressed sales amounting to Rs. 50,646/- were found in the assessee’s books. 7.3 The Ld. DR submitted that all these discrepancies indicate that the books of account were not properly maintained by the assessee and that bogus Printed from counselvise.com ITA No. 590/Ahd/2025 Arihant Enterprise Vs. ITO Asst. Year : 2017-18 - 7– purchases/sales were included along with normal business transactions. The effect of abnormal cash sales is also reflected in the increase of the GP ratio by 0.9% compared to the previous year; therefore, the provisions of Section 145(3) of the Act are invoked, in view of the overall discrepancies noted above, and the cash sales during the year are treated as bogus. 7.4 The Ld. DR also submitted that the details furnished earlier, vide submission dated 26.11.2019, consisted of the names and addresses of the top 10 sales and purchase parties; however, the details of the parties with whom cash transactions or cash sales were made were not furnished, which is the core issue. The Ld. DR, therefore, submitted that the complete sales and purchase details could not be provided. 7.5 The Ld. DR also submitted that only the sales and purchase registers, furnished after the show cause notice, disclosed the details of stock traded during the year and the identity of the purchase parties. However, this left insufficient time to ascertain the genuineness of the transactions. Hence, the non-filing of crucial details required to determine the genuineness of the transactions— especially those carried out beyond the regular business pattern of the assessee— led to the conclusion that the identity and genuineness of such transactions could not be proved by the assessee. The Ld. DR contended that such cash sales were not shown despite a higher volume of sales in the preceding year. The Ld. DR, thus contended that the cash sales made during the year and the subsequent cash deposits were not explained by the assessee and, therefore, the cash deposit amounting to Rs. 43,88,500/- during the demonetization period remains unexplained. Printed from counselvise.com ITA No. 590/Ahd/2025 Arihant Enterprise Vs. ITO Asst. Year : 2017-18 - 8– 8. Heard the arguments of both the parties and perused the material available on record. The assessee has sold plastic bags which have been purchased from M/s Jindal Poly Films Limited and M/s Delux Packaging. The inquiry made by the Revenue with regard to the purchases from M/s. Yogeshwar Polymers revealed a total sales of Rs.39.58 crores which have been sold in cash by the assessee. It is well settled that only ‘profit element’ embedded in ‘sales value’ can be brought to tax and ‘not the entire transaction value'. Reliance is being placed on the following:- a. CIT v. President Industries - [2002] 258 ITR 654 (Guj.); b. CIT v. Balchand Ajit Kumar - [2003] 263 ITR 610 (MP) c. CIT v. Gurubachhan Singh - [2008] 302 ITR 63 (Guj.); d. Man Mohan Sadani v. CIT - [2008] 304 ITR 52 (MP); 9. It is an equally settled principle that the addition shall be made on the basis of estimation of “profit on turnover” when books of accounts are rejected. Thus, addition, if any, shall be restricted to the profit amount embedded in sales. Hence, keeping in view the profit percentage of the assessee, in the specific facts of this case, 2% profit is estimated on the sale of the plastic bags and the same is to be treated as business income. Ground Nos. 3 & 4 – Addition on account of suppressed sales of Rs.1,90,470/- 10. Not pressed, hence dismissed. Ground No. 2 – disallowance of interest expenditure of Rs.21,35,502/- 11. The assessee claimed interest expenditure of Rs.22,50,130/- on unsecured loan received from M/s. Tube Traders. The Assessing Officer found three parties namely (i) Dhruvil Enterprise, (ii) Jayantibhai K. Viradia & (iii) Mihir Enterprise being Printed from counselvise.com ITA No. 590/Ahd/2025 Arihant Enterprise Vs. ITO Asst. Year : 2017-18 - 9– relatives of the partners to whom advances were made by the assessee. The Assessing Officer, therefore, made disallowance of interest expenditure of Rs.21,35,502/- u/s 36(1)(iii) of the Act, after adjusting interest income of Rs.1,14,498/- received from Dhruvil Enterprise, holding that the interest bearing funds are utilized to make interest free advances to relatives. This disallowance was upheld by the Ld. CIT(A). 12. Before us, Ld. AR submitted that the disallowance of interest expenditure cannot be made when advances are made on account of commercial expediency. The Ld. AR submitted that the assessee had purchase and sale transactions with Dhruvil Enterpirese Depo and Mihir Enterprises; therefore, owing to business relations, the assessee and such entities also help each other with short term advances as and when required and it is well settled that when advances are made for commercial expediency, interest expenditure needs to be allowed. Reliance was placed on the judgment of S.A. Builders Ltd Vs. CIT(A) [2007] 288 ITR 1 (SC) and CIT Vs. Jugal Kishore Dangayach [2014] 49 taxmann.com 486 (Raj.). These facts are not disputed by the Revenue. Hence, we hold that no disallowance of interest is called for. 13. In the result, the appeal of the assessee is partly allowed. The order is pronounced in the open Court on 19.08.2025. Sd/- Sd/- (SUCHITRA KAMBLE) (DR. B.R.R. KUMAR) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad; Dated 19.08.2025 **btk Printed from counselvise.com ITA No. 590/Ahd/2025 Arihant Enterprise Vs. ITO Asst. Year : 2017-18 - 10– देश की \u0006ितिलिप अ ेिषत/Copy of the Order forwarded to : 1. अपीलाथ\u0007 / The Appellant 2. \b थ\u0007 / The Respondent. 3. संबंिधत आयकर आयु\u0015 / Concerned CIT 4. आयकर आयु\u0015(अपील) / The CIT(A)- 5. िवभागीय \bितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, True Copy सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, , , , अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 14.08.2025 2. Date on which the typed draft is placed before the Dictating Member 18.08.2025 3. Other Member 18.08.2025 4. Date on which the approved draft comes to the Sr.P.S./P.S 18.08.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement 19.08.25 6. Date on which the fair order comes back to the Sr.P.S./P.S ….19.08.25 7. Date on which the file goes to the Bench Clerk …19.08.25 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order 10. Date of Dispatch of the Order…………………………………… Printed from counselvise.com "