GURDAS MAL ARORA,KANPUR V. THE A O CIRCLE-1(2)(1), KANPUR

ITA 412/LKW/2023

AI Insights

The case involves Gurdas Mal Arora, an individual engaged in the business of trading gold and diamond ornaments, who appealed against the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals). The primary issues in the appeal were the additions made to the assessee's income for unexplained cash deposits during the demonetization period and the disallowance of certain salary expenses. The Tribunal examined the evidence and arguments presented by both parties, including the assessee's maintained records and the nature of the business operations. The Tribunal concluded that the additions and disallowances were justified based on the lack of credible evidence to substantiate the assessee's claims.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 826875 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2026
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Appeal Filed On: 22-12-2023
• Other Referred Cases: Sumati Dayal vs CIT, Durga Prasad More vs CIT, ACIT vs Harshit Garg, Track Exim Pvt Ltd. vs ACIT, Pradeep Kumar vs ACIT, Smt. Charu Aggarwal vs CIT, ACIT vs Hirapanna Jewellers, Anantpur Kalpana vs ITO, Mahesh Kumar Gupta vs ACIT, DCIT vs Roop Fashion, ITO vs J.K. Woods India Pvt. Ltd., Shobha Devi Dilipkumar vs ITO, Bawa Jewellers Pvt. Ltd. vs DCIT, Lalchand Bhagat Ambica Ram vs CIT, Mehta Parikh Co. vs CIT, CIT vs Associated Transport Pvt. Ltd., CIT vs Chandra Surana, Balvinder Kumar vs ITO, JKG Exports vs ACIT, Prashant Pitti vs ACIT, Smt. Sarika Jain vs CIT, Sunny Kapoor vs ITO, Sita Ram Rastogi vs ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: REVENUE; AMIT KUMAR
• Assessee Lawyers: ASHISH JAISWAL
• Keywords: Opportunity of being heard; Business expenditure; Corroborative evidences; Fair market value; Salary income; Commercial expediency; Principle of natural justice; Bogus
• Section: 143(3); 68; 40A(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “A”, LUCKNOW BEFORE SHRI KUL BHARAT, VICE PRESIDENT AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER ITA No.412/LKW/2023 (Assessment Year: 2017-18) Gurdas Mal Arora 21/L/4, Daboli, Kanpur. v. The Assessing Officer, Circle-1(2)(1) 16/69, Aayakar Bhawan, Civil Lines, Kanpur- 208001. PAN:AFEPM4342J (Appellant) (Respondent) Appellant by: Shri Ashish Jaiswal, Advocate Respondent by: Shri Amit Kumar, CIT-DR O R D E R PER ANADEE NATH MISSHRA, A.M.: (A). The present appeal has been filed by the assessee against the order dated 31.10.2023 passed by the Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi for the assessment year 2017-18. The grounds of appeal of the assessee are as under: - “1. That the Id.AO has erred in making addition u/s 69A read with section 115BBE of the Income Tax Act, 1961 as well as Id.CIT(A) has also erred in confirming the addition u/s 68 of the Act when the books of accounts have already been rejected u/s 145(3) of the IT Act, 1961. 2. That the Id.AO has erred in rejecting the books of account without issuance of show-cause notice to the appellant before rejection of books of account u/s 145(3) of the Income Tax Act, 1961 making the order itself void-ab-initio by violating the principle of natural justice. 3. That the Id.CIT(A) has erred in confirming addition of Rs.1,93,48,000/- u/s 68 of the IT Act, 1961 rws 115BBE of the IT Act, 1961. 4. That the Id.AO as well as Id.CIT(A) has erred in confirming addition of Rs.1,93,48,000/- u/s 68 of the IT Act, 1961 rws 115BBE of the IT Act, 1961 leading to double taxation as the cash deposit has already been considered in the return of income. Printed from counselvise.com ITA No.412/LKW/2023 Page 2 of 35 5. That the Id. CIT(A) has erred in not appreciating the fact that the sale has been made out of the stock available with the appellant out of which the major stock is out of opening stock and during the year of purchase made from registered dealer and only minor part of purchase in stock amounting to Rs.15,88,468/- has been made in cash. 6. That the Id.AO has erred in making addition of Rs.23,06,000/- u/s 40A(2)(b) of the Income Tax Act, 1961. 7. The the Id.CIT(A) has erred in not providing the proper and adequate opportunity of hearing to the appellant in the form of virtual hearing as requested by the appellant. 8. That the order passed by the Id.AO as well as Id.CIT(A) is arbitrary, prejudicial and unlawful without proper appreciation of facts and position of law. 9. That the appellant craves leave to introduce, modify or withdraw any ground of appeal with kind permission of your honour.” (B) In this case, assessment order dated 31.12.2019 was passed u/s 143(3) of the Income Tax Act, 1961 (“Act” for short) wherein the assessee’s total income was assessed at Rs.2,90,18,740/- as against the returned income of Rs.73,64,740/-. In the aforesaid assessment order, an addition of Rs.1,93,48,000/- was made on account of cash deposit made by the assessee in the bank. Further, an addition of Rs.23,06,000/- by way of disallowance u/s 40A(2)(b) of the Act was also made, disallowing part of the salary paid by the assessee to persons specified u/s 40A(2)(b) of the Act. The relevant portion of the assessment order is reproduced as under: - Printed from counselvise.com ITA No.412/LKW/2023 Page 3 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 4 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 5 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 6 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 7 of 35 (B.1) The assessee’s appeal against the aforesaid additions was dismissed by the Ld. CIT(A) vide impugned appellate order dated 31.10.2023. The relevant portion of the impugned order of the Ld. CIT(A) is reproduced as under: - Printed from counselvise.com ITA No.412/LKW/2023 Page 8 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 9 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 10 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 11 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 12 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 13 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 14 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 15 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 16 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 17 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 18 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 19 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 20 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 21 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 22 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 23 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 24 of 35 (C) The present appeal has been filed by the assessee against the aforesaid impugned appellate order dated 30/07/2024 passed by the learned CIT(A). In the course of appellate proceedings in Income Tax Appellate Tribunal (ITAT), the assessee filed paper book containing the following particulars: - Printed from counselvise.com ITA No.412/LKW/2023 Page 25 of 35 Printed from counselvise.com ITA No.412/LKW/2023 Page 26 of 35 (C.1) Moreover, written submissions were also filed from the assessee’s side which are reproduced below for the ease of reference: - “1. That it is undisputed facts that the appellant is an individual and engaged in the business of trading of gold and diamond ornaments under the name and style of M/s Pankaj Chain & Jewellers, 54/1, Naya Ganj, Kanpur. The appellant is regular income tax payer having PAN:- AFEOM4342J aged about 75 years deals in the business of trading of gold jewellery and has maintained all the regular records necessary for accounting purpose as well as for the purpose of other government agencies (VAT etc.). 2. The appellant has filed his return on 30-10-2017 alongwith audited financial statements disclosing return of income at Rs. 73,64,740/-. The assessment in this case has been framed u/s 143(3) on a total income of Rs. 2,90,18,740/- after making an addition of Rs. 1,93,48,000/- u/s 69A of the I.T. Act, 1961 as discussed in para 6 of the assessment order and addition of Rs. 23,06,000/- u/s 40A(2)(b) of the I.T. Act, 1961. Addition of Rs. 1,93,48,000/- on Cash Deposit from Sale u/s 68/69A of the Income Tax Act, 1961: 3. That the appellant humbly submits before your honour that the Id.AO as well Id.CIT(A) has erred in making addition of Rs.1,93,48,000/- on account of cash deposit from cash sale made during the demonetization period. The conclusive finding of the Id.AO is reproduced as under: \"the assessee has shown fictitious purchase and sale to cover up the unexplained cash deposits of Rs. 1,93,48,000/- during the demonetization period i.e. from 09.11.2016 to 31.12.2016 for the year under consideration, there were no opening stock as on 01.04.2016, but in the shape of fictitious trading of jewellery, the assessee has made an imaginary story of trading of jewellery business so that the unexplained money/cash deposits made during demonetization period may be whitened. As the assessee could not established the sale, purchase, opening stock etc. with supporting evidences, therefore, in absence of the required documents/explanation the book of account is hereby rejected u/s 145(3) of the Income Tax Act, 1961 to the extent of cash deposits Printed from counselvise.com ITA No.412/LKW/2023 Page 27 of 35 mode during the demonetization period i.e. from 09.11.2016 to 30.12.2016.\" 4. That the appellant being aggrieved from the order of Id.AO as well as the order of Id.CIT(A) is in appeal before your honour for appropriate relief in the interest of justice. The Id.CIT(A) has dismissed the appeal by giving verbatim finding of the Id.AO. 5. The appellant humbly submits before your honour that Id.AO has doubted the cash deposit on account of sale on the basis of erroneous presumption that the appellant does not have any jewellery business and that there is no opening stock as on 01.04.2016 and that the appellant has made an imaginary story of trading of jewellery business so that the unexplained cash deposit may be whitened. Whereas the appellant humbly submits that the Id.AO has erred in making such presumption as the appellant has been doing trading of jewellery business since long in support of which the appellant has filed ITR, Computation, Balance Sheet and Sale Tax Order for FY 2013-14, FY 2014-15 & FY 2015-16 as appearing on page 27 to 73 of the paper book. 6. The appellant further humbly submits that the allegation of the A.O. that there is a abnormal high sales in huge volume mainly in the month of October, 2016 whereas the Ld. A.O. has failed to appreciate that there is high sale in October because of Diwali festival and because of appellants determination to close the business because of old age, the appellant has cleared his entire inventory as per books upto October, 2016 and had closed the business on 29.11.2016 copy of intimation filed before Sale tax authorities, surrender of TIN and closure of business is appearing at page 245-246 of the paper book. 7. The appellant has filed VAT return as per requirement of government law and all the transactions, closing stocks has been disclosed in VAT return. In the instant case the appellant has opening inventory as on 01.04.2016 at Rs. 1,04,96,122/- reflecting in the VAT Return for FY 2015- 16 and VAT Order for FY 2015-16 on page 66-68 and 69-73 respectively which has also been shown in ITR filed for A.Y. 2016-17 reflecting on page 58 of the paperbook and the return has been processed u/s 143(1) of the I.T. Act, 1961 dated 25.03.2017 appearing on page 49 of the paperbook to which the Id.AO has erroneously alleged that the ITR filed for AY 2016-17 and AY 2015-16 are invalid. For the AY 2015-16, the ITR filed and its processing u/s 143(1) is appearing at page 41 and 35 to 40 of the paperbook respectively. The objection of the A.O. is based on presumption and assumption. 8. Further, the total purchase during the year is at Rs. 76,92,388/- out of which cash purchase is at Rs. 16,04,353/-only. The contention of the A.O. is misleading and contrary to the facts stating that the assessee has shown total purchase of Rs. 76,92,388/-including VAT/excise duty and these are mostly in cash in the range of 18000 to 19000 shown from 01.09.2016 to 07.10.2016. Whereas the fact is that the cash purchase 01.09.2016 to 07.10.2016 is at 747.406 gms. only. 9. The appellant humbly submits before your honour the supporting documentary evidence to establish the existence of business and stock on which the Id.AO has alleged on the presumption while making addition as to existence of trading of jewellery business and stock availability as on 01.04.2016 and the cash purchase made during the year as following: Existence of Business & Availability of Stock: Printed from counselvise.com ITA No.412/LKW/2023 Page 28 of 35 Assessment Year 2014-15 Copy of VAT order of the F.Y 2013-14 (Pg 31-34) Copy of ITR alongwith financial statement for A.Y 2014-15 (Pg 27-30) Assessment Year 2015-16 Copy of VAT order of the F.Y 2014-15 (Pg 46-48) Copy of ITR alongwith financial statement for A.Y 2015-16(Pg 41-45) Copy of intimation under section 143(1) for A.Y 2015-16 (Pg 35-40) Assessment Year 2016-17 Copy of VAT return & VAT order of the F.Y 2015-16 (Pg 66-68 & 69-71) Copy of ITR alongwith financial statement for A.Y 2016-17( Pg 54-61) Copy of intimation under section 143(1) for A.Y 2016-17 (Pg 62-65) Details of Stock Register & Purchase/Sale Register: Copy of Stock register of Gold Jewellery (Pg 114-120) Copy of Stock Register of Diamond (Pg 121-123) Copy of Purchase Register (Pg 124-125) Copy of Sale Register (Pg 126-132) Stock Summary of Opening Stock, Purchase & Sale alongwith Summary of Cash/Credit Purchase & Sale for the F.Y 2016-17 (Pg 154) Copy of Purchase Account for F.Y 2016-17 (Pg 155-165) Copy of Sale Account for FY 2016-17 (Pg 166-198) 10. The appellant humbly submits before your honour that from the above the facts are undisputed that the appellant is doing trading of jewellery business and that the stock as on 01.04.2016 was available at Rs. 1,04,96,122/- reflecting in the VAT Return for FY 2015-16 and VAT Order for FY 2015-16 on page 66-68 and 69-73 respectively and that the purchase out of Rs. 76,92,388/- cash purchase is at Rs. 16,04,353/-only and mostly the purchases has been made from the registered parties to whom payment has been made through cheque. Therefore, once the purchase has been made and the stock is available for sale then sale made by the appellant recorded in the book cannot be doubted without any cogent material on record to establish the same. Merely on presumption and surmises addition cannot be made. Reliance is placed upon the following decision where purchase ACIT vs. Harshit Garg, ITA 451/Lkw/2024 dated 04.07.2025 Track Exim Pvt Ltd. vs. ACIT, ITA 324/Lkw/2024 dated 29.11.2024 Pradeep Kumar vs. ACIT, ITA 198/Lkw/2024 dated 04.09.2024 Smt. Charu Aggarwal vs. CIT [2022] 140 taxmann.com 588. ACIT vs. Hirapanna Jewellers [2021] 128 taxmann.com 291. Anantpur Kalpana vs. ITO [2022] 138 taxmann.com 141. Mahesh Kumar Gupta vs. ACIT [2023] 151 taxmann.com 339. DCIT vs. Roop Fashion [2022] 145 taxmann.com 216. Printed from counselvise.com ITA No.412/LKW/2023 Page 29 of 35 ITO vs. J.K. Woods India Pvt. Ltd. [2024] 158 taxmann.com 208. Shobha Devi Dilipkumar vs. ITO (2024) 160 taxmann.com 1249. Bawa Jewellers Pvt. Ltd. Vs. DCIT, ITA No.352/DEL/2021 [ITAT, Delhi Bench). Lalchand Bhagat Ambica Ram vs. CIT, 371 ITR 288 (SC). Mehta Parikh Co. vs. CIT, 30 ITR 181 (SC). CIT vs. Associated Transport Pvt. Ltd. [ 1996] 84 taxmann 146. CIT vs. Chandra Surana, ITA No.166/JP/2022 [ITAT Jaipur Bench). Balvinder Kumar vs. ITO, ITA No.256/Amr/2022 [ITAT Amritsar Bench). JKG Exports vs. ACIT, 161 taxmann.com 481. Prashant Pitti vs. ACIT, ITA No.3032/DEL/2022 [ITAT Delhi Bench]. Smt. Sarika Jain vs. CIT, [2017] 84 taxmann.com 64. Sunny Kapoor vs. ITO [2022] 142 taxmann.com 577. Sita Ram Rastogi vs. ITO, ITA No.23/LKW/2022 [ITAT Lucknow Bench] 11. Moreover, the purchase and sale has been recorded in the books to which the appellant has offered the profit to tax and the Id.AO has accepted the same and has made partial rejection of books of account to the extent cash deposited. Such addition made would lead to double taxation as the sale has been offered to tax and accepted by the Id.AO while making addition to the return of income and computing the assessed income as apparent from the assessment order. 12. The Ld. Indore Bench in the case of DEWAS SOYA LTD, UJJAIN v/s Income Tax (Appeal No 336/Ind/2012 has held that \"The claim of the appellant that such addition resulted into double taxation of the same income in the same year is also acceptable because on one hand cost of the sales has been taxed (after deducting gross profit from same price ultimately credited to profit & loss account) and on the other hand amounts received from above parties has also been added u/s. 68 of the Act. This view has been held by the Hon 'ble Supreme Court in the case of CIT vs Devi Prasad Vishwnath Prasad (1969) 72ITR194 (SC) that \"It is for the assessee to prove that even if the cash credit represents income, it is income from a source, which has already been taxed\". The assessee has already offered the sales for taxation hence the onus has been discharged by it and the same income cannot be taxed again. (Disallowance of Salary of Rs. 23,06,000/- u/s 40A(2)(b) 13. The appellant would like to humbly submit that the issue has been discussed by the Ld. A.O. in the body of assessment order vide para 7 & 8. The Ld. A.O. has disallowed salary by estimate paid to Pankaj Arora, Versha Kumari Arora, Palak Arora, Beena Arora and Mohit Kumar Dua holding without investigation, examination of persons and without giving comparable cases of market wrongly held that salary of Rs. 3 lacs per person per year is being estimated as reasonable and therefore out of total claim of salary to the tune of salary 38,02,000/- on turnover of Rs. 3,05,04,137/-. He has not doubted the services rendered by them and bonafide payment of salary expenses. It is accepted practice that the jewellery business is run by family members themselves and salary is paid in the form of remuneration for their work in the business which are discussed below. 14. That Shri Pankaj Arora is a regular income tax payer and he is well verse with testing of gold and repairing thereof. He has also introduced interest free capital of Rs. 8 lacs. Sale for the assessment year under question has increased substantially. He is a graduate, he has vast experience in this line of business and on the basis of his experience he has started his own partnership business. He has disclosed his salary in his ITR as salary income from this concern as well as his professional income arises from testing of Gold and repairing work. This can be seen from computation of income for A. Y 2016-17 & 2017-18. Whatever the Printed from counselvise.com ITA No.412/LKW/2023 Page 30 of 35 salary he has offered the same in his ITR and has paid taxes @ 30%. Therefore the disallowance in the hands of employer is amount to double taxation. It is not permissible in the I.T law. Taking into consideration his day to day activities in the participation of his old father's business, the payment of salary is quite reasonable and had the Id. A.O examine him he might has been satisfy the salary paid to him. But the Id. A.O sitting in the own chair, at his own whims has estimated the salary saying that there is a market trend therefore Rs. 3 lac salary is reasonable. His basis of judgment is not reflecting in the assessment order. Therefore the action of A.O is wrong. No interest is being taken by them on deposit with concern. 15. That Smt. Versha Kumari Aroa, she is a regular employee of assessee drawing salary from A.Y 2015-16 except in A.Y 2016-17 (in this year she has done in her own business making chain) she is also introduced interest free capital of Rs. 14,20,000/- in assessee's firm. She participate in his day to day business activity as your honour is aware that in this line of trading of gold ornament the major role of female member cannot be denied.. Therefore salary paid to her in consolence of services the Id. A.O has not denied her services but he has estimated the same on presumptive basis. 16. That Smt. Palak Arora, she is a regular employee of assessee. She has also introduced interest free capital of Rs. 1240000/-, she is well verse in repairing in motimala of gold. She also disclosed income thereform in her hand. She is skill lady having knowledge in sales of jewellery ornaments and looking entire counter sales. Therefore salary paid to her in consolence of services the Id. A.O has not denied her services but he has estimated the same on presumptive basis. 17. That the salary of Mohit Kumar has not increased in this year as in A.Y 2014-15, 2015-16, 2017-18. His salary was Rs. 192000, 198000, 160000/- respectively. The id. A.O has himself stated that a salary of Rs. 3 lac per year is reasonable therefore salary is below 3 lacs and similar is the position of Smt. Beena Arora. 18. Your honour may appreciate that the remuneration during the year has link with the turnover / profit of the entity. The Id. A.O has not issued any show cause notice. He himself raised the query and draws the question without any investigation or opportunity of being heard. That the A.O has not disputed the rendering of services of the employees. It has been held in the case of Ramlal Kashi 106 ITR 189 Madras HC matter of commercial expediency should be left to the business concern. In the instant case recipients are identified and payment of salary is also taxed in their hands they assessed in higher bracket of tax slab. The disallowance is purely based on surmises and conjuncture. The A.O has not brought any material on record, any cognizance basis as to why the business expenditure is disallowed. It is not the case that the expenditure was considered as bogus. It is an estimation without any basis. No disallowance in preceding year is made. The details of salary paid was filed before the A.O. the observation for estimation of remuneration paid to the employee, allowed in previous year is very general in nature. The assessee was doing business in his all segments and this is undisputed fact, which is not possible without services of employee. Once the services are undisputed remuneration cannot be disallowed. In the light of decision of Hon'ble Supreme Court in the case of Upper India Publishing House P. Ltd. Vs. CIT reported in 117 ITR 569 it is held that onus is on the revenue to prove that the expenditure incurred by the business man is unreasonable then the provision of section 40A(2)(b) can be applied. The action of the A.O should be based on well founded reason the assessee Printed from counselvise.com ITA No.412/LKW/2023 Page 31 of 35 also relied upon CIT vs. NEPC India Ltd. reported in 303 ITR 271, CIT vs. Forbes Tea Brokers reported in 315 ITR 404 and CIT vs. Denso Haryana (P.) Ltd. Reported in 328 ITR 14. In the case of Coronation Flour Mills vs. ACIT reported in 314 ITR 1 it is held that A.O. has to record it is finding as to whether the expenditure is excessive or unreasonable on the basis of three basic requirement/section (like a fair market price of the goods, services for which the payment is made, legitimate need of business and benefit derived to the assessee on receipt of services,) In the instant case this exercise is missing the disallowances made purely on the basis of assumption and presumption which is unjustified.” (C.2) At the time of hearing, the Ld. Counsel for the assessee relied on the aforesaid written submissions and on the aforesaid paper book referred to in foregoing paragraph no. (C) and (C.1) of this order. The Ld. Departmental Representative for Revenue supported the impugned order of the Ld. CIT(A) as well as on the assessment order referred to foregoing paragraph no. (B) and (B.1) of this order. (C.1) We have heard both sides. We have perused the materials available on records. As far as the aforesaid addition of Rs.1,93,48,000/- is concerned; perusal of the assessment order shows that the AO has taken view of the fact that the assessee showed heavy cash purchases in the range of Rs.18,000 to 19,900/-. This range is significant, because purchase transactions above Rs.20,000/- (slightly above this range) are hit by section 40A(3) of the Act. The AO has also observed that the assessee made heavy sales in cash, in the range of Rs.1,46,000/- to Rs.1,48,500/-. This range is also significant, because in this range, an assessee is able to avoid being hit by provisions of section 271DA r.w.s. 269ST of Income Tax Act. Further, the AO has also noted that the assessee failed to produce cash books and bills/vouchers for examination. The AO has also noted that on perusal of cash deposits and squared up accounts it was established that the unexplained cash had been introduced in the business, as cash sales. The AO has also noted that the assessee did not maintain books of accounts for AY. 2016-17; Printed from counselvise.com ITA No.412/LKW/2023 Page 32 of 35 and despite that, the assessee has shown opening balances in respective bank accounts; and the assessee could not explain this issue during assessment proceedings. The AO also treated the claim of the assessee that although the assessee had more than Rs.2 crores of cash in hand; the assessed deposited only Rs.1,50,000 between 01.11.2016 to 08.11.2016; as devoid of credibility. The AO rejected the assessee’s books of accounts u/s 145(3) of the Act; observing that the assessee could not establish sale, purchase, opening stock, etc with supporting evidences; and holding that the assessee made an imaginary story of trading of jewellery business. In these facts and circumstances, the AO held that the amount of Rs.1,93,48,000/- deposited in cash in the bank during demonetization period was assessee’s unexplained money. In the impugned appellate order of Ld. CIT(A), the aforesaid addition was sustained. The Ld. CIT(A) also held that bogus cash sales claimed to have been done just before the demonetization period was only a device to legitimate the assessee’s unaccounted cash accumulated in the form of SBN (specified bnak notes in the denominations of Rs.1000/- and Rs.500 that were in circulation before announcement of demonetization). We are of the view, having regard to the aforesaid facts and circumstances, that Revenue has made a strong case for the aforesaid addition of Rs.1,93,48,000/-. Although the assessee has placed reliance on numerus precedents, those precedents have their own respective factual matrices; which are clearly distinguishable from factual matrix in the present case before us. Whether sales and purchases claimed by an assessee are genuine or not, is a question of fact. It is well settled that doctrine of precedence has no application for a question of fact. Every case has its own set of facts, and even a slight change is factual matrix can alter the finding on a question Printed from counselvise.com ITA No.412/LKW/2023 Page 33 of 35 of fact. In the facts and circumstances of the present case, as presented by the Assessing Officer and Ld. CIT(A) in their respective orders; and as discussed in detail earlier in this order, we are satisfied that the addition of the aforesaid amount of Rs.1,93,48,000/- is warranted in the present case. The assessee did not produce books of accounts, and also did not establish genuineness of purchase, sales, stock etc with credible evidence. Reliance of Revenue on decision of Hon’ble Supreme Court in the precedent restored at Sumati Dayal vs CIT 214 ITR 801 (SC) is quite apt in the facts of the case. The doctrine of Human Probability famously laid down by Hon’ble Supreme Court in Durga Prasad More 82 ITR 540 (SC) and in Sumati Dayal 214 ITR 801 (SC) is firmly against the assessee in the facts and circumstances of the case. The claims made by the assessee are; cumulatively, beyond the realm of human probabilities in the present case. Further, purchases and sales are not proved, and when the books of accounts have been rejected u/s 145(3) of the Act; the book results claiming cash sales as explanation for cash deposits of SBNs in bank; deserves to be rejected and cannot be relied upon. In view of the foregoing discussion, we confirm the finding of the AO and the Ld. CIT(A) that the amount of Rs.1,93,48,000/- represented the assessee’s unexplained income; and we sustain this addition. (D) As far as the disallowance of Rs.23,06,000/- made u/s 40A(2) of the Act is concerned; the partial disallowance of salary paid to relatives specified u/s 40A(2)(b) of the Act has been made by the Assessing Officer, whereas partly the claim has been allowed. When a disallowance u/s 40A(2) of the Act is under consideration, the genuineness of the expenditure is not a relevant issue. The genuineness is accepted by Revenue in such Printed from counselvise.com ITA No.412/LKW/2023 Page 34 of 35 cases, only the quantum of expenditure is disputed. Therefore, the contention of the assessee that the genuineness of the expenditure was not in dispute, does not advance the assessee’s case. Further, whether one or more of the recipients is paying tax at a high rate, or even at the highest rate, is also not decisive. Under section 40A(2) of the Act, typically the whole amount of claim is not disallowed. The claim is partly disallowed, because the claim of payments made to relatives specified u/s 40A(2)(b) of the Act is found to be excessive or unreasonable having regard to fair market value or the legitimate needs. The Assessing Officer disallowed of Rs.23,06,000/- out of total salary paid to persons specified u/s 40A(2)(b) of I. T. Act, amounting to Rs.42,86,000/- and allowed the remaining amount. After examination of the facts and circumstances, the Ld. CIT(A) confirmed the action of the Assessing Officer. No material has been brought for our consideration to persuade us that the amount of Rs.19,80,000/- allowed by the Assessing Officer (being Rs.42,86,000/- minus Rs.19,80,000/-) out of total claim of Rs.42,86,000/- was insufficient or inadequate, having regard to fair market, value, or legitimate needs of assessee’s business; having regard to facts and circumstances of the case. That being the case, we find no reason for interference with impugned order of Ld. CIT(A) or the assessment order. In view of the foregoing, the aforesaid disallowance of Rs.23,06,000/- made u/s 40A(2) of the Act is confirmed. (E) All the grounds of appeal are treated as disposed of in accordance with the aforesaid. Printed from counselvise.com ITA No.412/LKW/2023 Page 35 of 35 (F). In the result, the appeal of the assessee is dismissed for statistical purposes. Order pronounced in open Court on 08/01/2026. Sd/- Sd/- [KUL BHARAT] [ANADEE NATH MISSHRA] VICE PRESIDENT ACCOUNTANT MEMBER DATED: 08/01/2026 Vijay Pal Singh, (Sr. PS) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. DR 5. Guard file // True Copy// Printed from counselvise.com "